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Shri. M.S. Amarnath, Bangalore vs Assistant Commissioner Of Income - (Income Tax Appellate Tribunal) (11 Oct 2021)

Without serving enhancement notice, it is settled position of law that, no enhancement can be made by the CIT(A)


Direct Taxation

In facts of present case, the assessee is an individual. For the assessment year 2012-2013, the return of income was filed declaring total income of Rs.26,63,180. The assessment was taken up for scrutiny by issuance of notice under Section 143(2) of the Income Tax Act, 1961 (IT Act). During the course of assessment proceedings, the A.O. noticed that, the assessee has got unsecured loans to the extent of Rs.33,25,000. The A.O. asked for confirmation for the same. The assessee had furnished the details. The A.O. noticed that, the assessee could not produce PAN on confirmation to the extent of Rs.14,00,000. Hence, the same was added back under Section 41(1) of the IT Act on account of cessation of liability.

Aggrieved by the order of assessment in making an addition under Section 41(1) of the IT Act amounting to Rs.14 lakh, the assessee preferred an appeal to the first appellate authority. The CIT(A) re-examined the entire issue. The CIT(A) held that, out of the total amount of unsecured loans of Rs.33,25,000, the details of the creditors to the extent of Rs.18,50,000 is available on record. According to the CIT(A), the balance credits of Rs.14,75,000 is unexplained and he added the same under Section 68 of the I.T. Act. The CIT(A) held that, the assessee has failed to satisfy the three conditions as per the provisions of Section 68 of the I.T. Act, namely, the identity of the creditors, capacity of the creditors and the genuineness of the transaction. Therefore, it was concluded by the CIT(A) that the addition of Rs.14,75,000 is to be made under Section 68 of the IT Act. In doing so, the CIT(A) enhanced the addition to Rs.14,75,000 in place of the A.O.'s addition of Rs.14,00,000. Aggrieved by the order of the CIT(A), the assessee has filed present appeal before the Tribunal.

It is the claim of the assessee that, the amount of loan has been received in June 2010 that is prior to the concerned assessment year, hence, the addition cannot be made under Section 68 of the IT Act. From the material on record, it is not clear, when this loan amount was received by the assessee. The assessee has to necessarily prove that, this amount has been received by him in June 2010. If the claim of the assessee that the amount has been received not in the relevant assessment year is true, the same cannot be added under Section 68 of the IT Act in view of the order the ITAT in the case of ACIT vs. Alvares & Thomas.

The order of the Tribunal was also confirmed by the Hon'ble Karnataka High Court in the case of CIT v. Alvares & Thomas. Moreover, in this case, the assessee has contended that the amount of loan taken from both Sri.Manu K.P. and Smt.Roopa Manu has been paid in the subsequent year. The matter needs to be examined afresh by the A.O. The A.O. is directed to delete the addition under Section 68 of the I.T. Act in respect of loans received from Manu K.P. and Roopa Manu, if the assessee is able to prove that loan amount has been repaid (claim of the assessee it has been repaid in the year 2014).

The CIT(A) has enhanced the addition to Rs.14,75,000 instead of Rs.14,00,000 made by the A.O. It is not clear whether the CIT(A) has served enhancement notice to the assessee. Without serving enhancement notice, it is settled position of law that, no enhancement can be made by the CIT(A). Therefore, the A.O. is directed after examining the issues that are restored to him, the total addition cannot exceed more than Rs.14,00,000. The appeal filed by the assessee is partly allowed.


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