Non - Invocation of Section 115 BBE of Income Tax Act on the addition made on account of unexplained sundry creditors is an error in assessment order: ITAT upholds Revision order [Read Order]

The Rajkot bench of Income Tax Appellate Tribunal (ITAT) upheld the revision order of the Principal Commissioner of Income Tax (PCIT), holding the non-invocation of Section 115BBE of the Income Tax Act, 1961 on the addition made on account of unexplained sundry creditors under Section 68 of the Income Tax Act as an error in the order of the Assessing Officer (AO) causing prejudice to the interests of the Revenue.

The assessee Vijubha Jitubha had been granted registration as a firm under Section 26A of the Income Tax Act, 1961 by the AO and thereafter assessment was framed making additions to its income. The assessee challenged the additions before the first appellate authority and in the meanwhile the Commissioner exercised his revisionary power over the order granting registration to the firm finding it erroneous causing prejudice to the Revenue.

The PCIT in the assessment order leading to the exercise of revisionary jurisdiction under Section 263 of the Income Tax Act was that the addition made by the AO in the assessment order of unexplained sundry creditors and bogus salary and wages expenses ought to have been made under Section 68 and Section 69C of the Income Tax Act respectively and subjected to tax at the rate prescribed under Section 115BBE of the Income Tax Act i.e. @ 77.25% ( Income Tax @ 60% plus surcharge @ 25% plus cess @ 3%) ,as opposed to the AO having subjected the same to tax on the normal rate (Income Tax @ 30% plus surcharge @15% plus cess @ 3%).

The Authorised Representative of the assessee Vimal Desai, contended that the disallowance of sundry creditors and of bogus expenditure made by the Assessing Officer could not have been made under Section 68 or Section 69C of the Income Tax Act respectively as contended before the PCIT and therefore the provisions of Section 115BBE of the Income Tax Act were not attracted.

The Departmental Representative Shramdeep Sinha supported the order of the PCIT.

The Two Member Bench comprising of Annapurna Gupta, Accountant Member And T.R. Senthil Kumar, Judicial Member observed that the AO, having not taxed the addition made on account of unexplained creditors under Section 68 of the Income Tax Act, as per the rate prescribed under Section 115BBE of the Income Tax Act, had acted erroneously, causing prejudice to the Revenue.

The bench thus confirmed the order of the  PCIT holding the non-invocation of Section 115BBE of the Income Tax Act on the addition made on account of unexplained sundry creditors under Section 68 of the Income Tax Act as an error in the order of the Assessing Officer causing prejudice to the Revenue.

The Tribunal upheld the order of the PCIT finding the assessment order erroneous causing prejudice to the Revenue only with respect to the aspect of non-invocation of Section 115BBE on the addition made on account of unexplained sundry creditors under Section 68 of the Income Tax Act. With respect to the other aspect of bogus expenses disallowed, it was held that there was no error in the order of the AO.

To Read the full text of the Order CLICK HERE

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