The Bangalore Bench of Income Tax Appellate Tribunal ( ITAT ) ruled in favor of the assessee, and struck down the taxation of a loan in the incorrect assessment year (AY) 2018-2019.
Dhanaraja Babu Ganesh,appellant-assessee,filed his income tax return on March 31, 2019, declaring Rs.7,48,360 as income. The case was reopened under Section 148 of the Act with the Assessing Officer (AO) alleging that he had advanced a cash loan of ₹4,75,00,000 to Sri Madhukar during the financial year 2017–2018.
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The Verification Unit, in its inquiry, reported that the transaction occurred in financial years 2015–2016 and 2016–2017. Despite this, the AO added the loan amount as unexplained cash credit under Section 68.A Civil Court order dated January 31, 2020, ruled in favor of the assessee, confirming the loan transaction and noting it occurred during the assessment year 2016–2017.
The assessee appealed to the Commissioner of Income Tax(Appeals)[CIT(A)], claiming the AO wrongly taxed the amount in the impugned year, as the Verification Unit’s report and the Magistrate’s decree showed the transaction occurred in AYs. 2016–2017 and 2017–2018. The assessee also disputed the reassessment proceedings under Section 148. However, the CIT(A) dismissed the appeal and upheld the AO’s decision.
Dissatisfied with the order of the CIT(A) the assessee appealed before the tribunal.
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The Tribunal observed that the assessee had advanced a cash loan of ₹4.75 crore, secured by a cheque dated August 21, 2017, with repayment due in the impugned year. However, the Verification Unit and Civil Court confirmed that the loan was made in A.Ys. 2016–2017 and 2017–2018.
The two-member bench, comprising Prakash Chand Yadav (Judicial Member) and Padmavathy S (Accountant Member), concluded that the AO erred in taxing the amount in the impugned year, as Section 68 applies only to current-year credits. It emphasized that income must be taxed in the correct year, rendering the AO’s action unjustified, especially on a protective basis.
Regarding the assessee’s argument against protective assessment, the tribunal noted it was not raised before the CIT(A) or through an application, so it refrained from addressing the issue.
In short,the appeal was allowed.
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