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

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

Case Number: ITA 6004/DEL/2019

Appellant: Petunia Infotech Pvt. 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: 12th October 2022

Pronounced On: 12th October 2022

Background of the Case

Petunia Infotech Pvt. 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 and revolves around the addition of Rs. 3,00,000 made by the Income Tax Officer (ITO), Ward-19(4), New Delhi, under Section 68 of the Income Tax Act.

The appellant originally filed its return of income for the assessment year 2011-12 on 31st August 2011, declaring a total income of Rs. 26,430. Later, the Assessing Officer received information from the Investigation Wing that another company, M/s. Delhi Spot Bullion Trading Co. (P) Ltd., had received unsecured loans from various entities during the financial year 2010-11. The appellant, Petunia Infotech Pvt. Ltd., was one of the entities that had advanced a loan of Rs. 3,26,334 to Delhi Spot Bullion Trading Co. (P) Ltd. The Assessing Officer, suspecting that the loan transactions were bogus and that unaccounted money was being routed through various entities, reopened the assessment under Section 147 of the Income Tax Act.

Proceedings in the Tribunal

The appeal was heard by the Delhi Bench ‘SMC’ of the Income Tax Appellate Tribunal via video conferencing. The bench was presided over by Shri Saktijit Dey, Judicial Member. The hearing took place on 14th July 2022, with the final order pronounced on 12th October 2022.

During the hearing, the appellant was represented by Shri Anuj Jain, Chartered Accountant, while the Revenue was represented by Shri Om Parkash, Senior Departmental Representative (DR). The core issue in this appeal centered around the addition of Rs. 3,00,000 under Section 68 of the Income Tax Act, which the appellant argued was unwarranted.

The Dispute Over Section 68 Addition

The dispute began when the Assessing Officer received information indicating that M/s. Delhi Spot Bullion Trading Co. (P) Ltd. had engaged in bogus loan transactions. The Assessing Officer alleged that the loan advanced by Petunia Infotech Pvt. Ltd. was part of these bogus transactions and therefore added Rs. 3,00,000 to the appellant’s income under Section 68, treating it as unexplained cash credit.

The appellant contested this addition, arguing that Section 68 was not applicable in this scenario. The appellant maintained that it had not received any loan or cash credit; instead, it had advanced a loan to another entity through proper banking channels. The appellant asserted that the impugned amount could not be treated as unexplained cash credit under Section 68, as the transaction was clearly a loan given, not a loan received.

Tribunal’s Analysis and Decision

The Tribunal carefully reviewed the facts and arguments presented by both parties. The bench noted that Section 68 of the Income Tax Act 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 regarding the source of the credit. However, in this case, it was evident that the appellant had not received any loan or cash credit. Instead, the appellant had advanced a loan to another company, which was a transaction conducted through banking channels.

Given these facts, the Tribunal concluded that the addition of Rs. 3,00,000 under Section 68 was unjustified. The Tribunal held that the provision could not be invoked in this case, as the appellant was not the recipient of the loan but the lender. The Tribunal directed the deletion of the Rs. 3,00,000 addition from the appellant’s income assessment.

Thus, the appeal filed by Petunia Infotech Pvt. Ltd. was allowed, and the Tribunal ordered the removal of the disputed addition.

Conclusion

The case of Petunia Infotech Pvt. Ltd. vs. ITO Ward-19(4), New Delhi, highlights the importance of correctly applying the provisions of the Income Tax Act, particularly Section 68. This case underscores the Tribunal’s role in ensuring that tax laws are applied fairly and accurately, protecting taxpayers from unjustified additions to their income assessments.

The Tribunal’s decision to delete the Rs. 3,00,000 addition is a significant victory for Petunia Infotech Pvt. 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 emphasizes the importance of providing clear and transparent documentation for financial transactions. Proper documentation and thorough explanations are crucial in avoiding unnecessary litigation and ensuring compliance with tax laws.

The final order, pronounced on 12th October 2022 by Shri Saktijit Dey, Judicial Member, reflects the Tribunal’s commitment to upholding fairness and justice in the application of tax laws.

Order Pronounced By: Shri Saktijit Dey, Judicial Member

Final Order: Appeal Allowed, Addition Deleted

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