Pert Consultants Ltd. vs. ITO Ward-19(4), New Delhi: Case Filed for 2011-12 Assessment Year – Dispute Over Section 68 Addition

Pert Consultants Ltd. vs. ITO Ward-19(4), New Delhi: Case Filed for 2011-12 Assessment Year – Dispute Over Section 68 Addition

Case Number: ITA 6003/DEL/2019

Appellant: Pert Consultants Ltd., New Delhi

Respondent: Income Tax Officer, Ward-19(4), New Delhi

Assessment Year: 2011-12

Case Filed On: 12th July 2019

Order Type: Final Tribunal Order

Date of Order: 5th February 2021

Pronounced On: 5th February 2021

Background of the Case

Pert Consultants Ltd., a company based in New Delhi, filed an appeal against the order passed by the Commissioner of Income Tax (Appeals)-7, New Delhi, on 22nd May 2019. The case pertains to the assessment year 2011-12. The dispute arose from an addition of Rs. 4,00,000 made by the Income Tax Officer (ITO), Ward-19(4), New Delhi, under Section 68 of the Income Tax Act.

The appellant initially filed its return of income for the assessment year 2011-12 on 22nd September 2011, declaring a NIL income. The assessment was later reopened under Section 147 of the Income Tax Act, leading to the issuance of a notice under Section 148 on 31st March 2018. The case was subsequently taken up for scrutiny, and the assessment was framed under Section 147 of the Act through an order dated 30th October 2018, determining the total income at Rs. 4,00,000. Aggrieved by this assessment, the appellant took the matter to the Commissioner of Income Tax (Appeals), who upheld the assessment order, prompting the appellant to escalate the issue to the Income Tax Appellate Tribunal (ITAT).

Proceedings in the Tribunal

The appeal was heard by the Delhi Bench ‘SMC-2’ of the Income Tax Appellate Tribunal via video conferencing, reflecting the adjustments in judicial processes during the pandemic. The bench was presided over by Shri Anil Chaturvedi, Accountant Member. The hearing occurred on 28th December 2020, with the final order pronounced on 5th February 2021.

During the hearing, the appellant was represented by Ms. Riviya Shah, Chartered Accountant, while the Revenue was represented by Shri Vinod Sharma, Senior Departmental Representative (DR). The central issue in this appeal revolved around the addition of Rs. 4,00,000 under Section 68 of the Income Tax Act, which the appellant contended was unjustified.

The Dispute Over Section 68 Addition

The dispute arose from information received by the Assessing Officer (AO) from the Directorate of Income Tax (Investigation), which indicated that M/s. Delhi Spot Bullions Trading Company Pvt. Ltd. had received unsecured loans totaling Rs. 3,27,59,499 from various entities, including Pert Consultants Ltd. The appellant had advanced Rs. 4,00,000 to Delhi Spot Bullions Trading Company Pvt. Ltd. during the financial year 2010-11. The AO noted that the appellant failed to satisfactorily explain the business purpose of the loan and, consequently, made an addition of Rs. 4,00,000 under Section 68 of the Income Tax Act, treating it as unexplained cash credit.

The appellant argued that Section 68 was not applicable in this case because it was not a situation where the appellant had received any loan or cash credit; rather, the appellant had advanced a loan through proper banking channels. The appellant contended that the impugned amount could not be considered as unexplained cash credit under Section 68.

Tribunal’s Analysis and Decision

The Tribunal carefully considered the arguments presented by both parties. The bench noted that Section 68 applies when there is a credit entry in the books of accounts, and the assessee either fails to offer an explanation or provides an unsatisfactory explanation to the AO. In this case, however, it was undisputed that the appellant had not received any loan or cash credit. Instead, the appellant had advanced a loan to another company, which was a clear transaction through banking channels.

Given this context, the Tribunal concluded that the addition under Section 68 was not justified, as the provision could not be invoked for a scenario where the appellant was the lender, not the borrower. The Tribunal held that the AO had incorrectly applied Section 68 and directed the deletion of the Rs. 4,00,000 addition.

Thus, the appeal filed by Pert Consultants Ltd. was allowed, and the Tribunal ordered the removal of the disputed addition from the appellant’s income assessment.

Conclusion

The case of Pert Consultants Ltd. vs. ITO Ward-19(4), New Delhi, underscores the importance of accurately applying the provisions of the Income Tax Act, particularly Section 68. This case highlights the Tribunal’s role in rectifying incorrect applications of tax laws by the lower authorities, ensuring that taxpayers are not unfairly burdened by misinterpretations of legal provisions.

The Tribunal’s decision to delete the Rs. 4,00,000 addition is a significant win for Pert Consultants Ltd., as it clears the company’s name from allegations of unexplained cash credits. This ruling also serves as a precedent for similar cases where the applicability of Section 68 is in question, particularly when the assessee is the lender rather than the borrower.

For other taxpayers and tax professionals, this case reinforces the importance of providing clear and detailed explanations for financial transactions, especially when dealing with significant sums of money. Proper documentation and transparent financial dealings are crucial in avoiding unnecessary litigation and ensuring compliance with tax laws.

The final order, pronounced on 5th February 2021 by Shri Anil Chaturvedi, Accountant Member, reflects the Tribunal’s commitment to upholding fairness and justice in the application of tax laws.

Order Pronounced By: Shri Anil Chaturvedi, Accountant Member

Final Order: Appeal Allowed, Addition Deleted

Pert Consultants Ltd. vs. ITO Ward-19(4), New Delhi: Case Filed for 2011-12 Assessment Year – Dispute Over Section 68 Addition