ITAT Restores Appeal After Improper 249(4) Dismissal: CIT(A) Must Re-Examine Bogus Loan Addition Based on Third Party Statements [Read Order]

The ITAT ruled the CIT(A) wrongly dismissed the appeal and ordered fresh review of the Section 68 addition based only on third-party statements.

The Jaipur Bench of the Income Tax Appellate Tribunal (ITAT) restored the appeal, holding that the Commissioner of Income Tax (Appeals) (CIT(A)) had wrongly dismissed the appeal as non-maintainable under Section 249(4) of the Income Tax Act, 1961, despite the assessee having filed its return, and directed the CIT(A) to re-examine the addition made based on third-party statements alleging bogus loans.

The assessee, Creative Realmart Private Limited, had filed its return of income declaring a loss of ₹4,51,023 for Assessment Year(AY) 2012–13.

During assessment proceedings, the Assessing Officer (AO) received information from the Investigation Wing, regarding accommodation entry providers of the Banka Group, who had allegedly provided unsecured loans and share capital entries to various beneficiaries.

Based solely on this information, the AO held that the assessee had received unsecured loans treated as accommodation entries and made an addition under Section 68.

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The assessee filed an appeal before the CIT(A), but the CIT(A) dismissed the appeal in limine, holding that the assessee had not paid an amount equal to the advance tax allegedly payable, as required under Section 249(4)(b).

The assessee contended that since its return declared NIL income, no tax was payable, and therefore Section 249(4) did not prevent the appeal.

The assessee argued before the Tribunal that this finding was incorrect, because the return itself reflected a loss, and therefore no advance tax liability arose and CIT(A) should not have dismissed the appeal mechanically under Section 249(4), particularly when the AO’s addition was made solely on the basis of third-party statements without furnishing copies to the assessee or offering opportunity of cross-examination.

The Bench comprising Dr. S. Seethalakshmi (Judicial Member) and Rathod Kamlesh Jayantbhai (Accountant Member) observed that the CIT(A)’s dismissal under Section249(4)(b) was unsustainable, as the assessee’s return showed a loss and no advance tax was payable, and that the issue should have been decided on merits.

The Tribunal also observed that the addition under Section 68 was made purely on third-party information from the Investigation Wing, and that no independent inquiry had been conducted by the AO.

Accordingly, the Tribunal set aside the CIT(A)’s dismissal and restored the matter to the CIT(A), after giving the assessee adequate opportunity and confronting any adverse material relied upon.

The Assessee was represented by Prateek Kedawat, while Anita Rinesh appeared for the Revenue.

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