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Income Tax Appellate Tribunal, AHMEDABAD “B” BENCH
Before: Shri P.M. Jagtap & Shri Siddhartha Nautiyal
आदेश/ORDER PER : SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER:-
This is an appeal filed by the assessee against the order of the ld. Principal Commissioner of Income Tax-1, Ahmedabad vide order dated 30/01/2018 passed for the assessment year 2013-14.
The assessee has taken the following grounds of appeal:-
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“1. The Ld. Pr CIT erred on facts and in law in assuming jurisdiction u/s 263 without appreciating that the conditions specified in section 263 to assessment were not satisfied at all. 2. The Ld. Pr CIT erred on facts and in law in cancelling the entire assessment order without appreciating that he had no jurisdiction to revise the assessment order as assessment order is subject matter of appeal and appeal was pending before the Commissioner of Income-tax (Appeals) for adjudication. 3. The Ld. Pr CIT erred on facts and in law in holding that the Assessing Officer erred in granting deduction of interest of Rs. 11,70,726/- without appreciating that the appellant had not claimed deduction of the same while preparing return of income. The appellant craves permission to add, alter, amend or withdraw any ground or grounds of appeal either before or during the course of Rearing of the appeal.”
The brief facts of the case are that the return of income was filed by the assessee for the captioned assessment year declaring a total income of � 2,35,60,943/-. The scrutiny assessment was finalised by the AO on 31.03.2016 determining total income at � 10,45,01,940/-. The Principal CIT on verification of records found, that while finalising the assessment order, the AO made an addition of � 4,73,10,000/-on account of unexplained cash credit of unsecured loan u/s 68 of the Act. However, the interest paid on the said unsecured loan was not disallowed while finalising the scrutiny assessment which resulted into under assessment of income of � 11,70,726/- with short levy of tax of � 5,31,778/-including interest. As per section 37 of the Act, “any expenditure not being expenditure of the nature described in section 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee, laid out or expended wholly and
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exclusively for the purpose of the business or profession shall be allowed in computing the income chargeable under the head “profits and gains of business or profession”. Accordingly, the Principal Ld. CIT(Appeals) held that the assessment order is not only erroneous but also prejudicial to the interests of the Revenue in terms of section 263 of the Income Tax Act, 1961. The Principal CIT held that the impugned assessment order has been passed by the AO without making proper verification of the interest claimed on unsecured loan treated as unexplained cash credit u/s 68 of the Act. The AO did not disallow the interest paid on the unsecured loan treated as unexplained cash credit u/s 68 of the Act, during the scrutiny assessment. The assessment order was therefore cancelled and the AO was directed to examine the matter and make fresh assessment in accordance with law after giving proper opportunity to the assessee.
The assessee is in appeal before us against the order passed by Principal CIT. Before us, none prepared on behalf of the assessee. The Ld. DR argued that since the unsecured loan on which interest has been claimed by the assessee has itself been held to be unexplained income of the assessee under section 68 of the Act, during the course of assessment proceedings, consequentially, the interest thereon should have been disallowed, which the AO failed to do during the course of assessment proceedings. Hence, the Principal CIT has not erred in fact and law in holding that the assessment order is erroneous and prejudicial to the interests of the Revenue.
We have heard the arguments of the Ld. DR and perused the material on record. It is a settled law that no deduction /allowance is allowed and no
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loss can be set-off against such unexplained cash credit which is considered as income of the assessee.
5.1 The Gujarat High Court in the case of Fakir Mohmed Haji Hasan v. CIT [2001] 247 ITR 290 held that when (unexplained) income cannot be classified under any one of the heads of income under Section 14, it follows that the question of giving any deductions under the provisions which correspond to such heads of income will not arise. The Hon'ble Gujarat High Court made the following observations regarding claim of deduction against unexplained income:
6.1 The scheme of sections 69, 69A, 69B and 69C of the Act would show that in cases where the nature and source of investments made by the assessee or the nature and source of acquisition of money, bullion etc., owned by the assessee or the source of expenditure incurred by the assessee are not explained at all, or not satisfactorily explained, then the value of such investments and money, or value of articles not recorded in the books of account or the unexplained expenditure may be deemed to be the income of such assessee. It follows that the moment a satisfactory explanation is given about such nature and source by the assessee, then the source would stand disclosed and will, therefore, be known and the income would be treated under the appropriate head of income for assessment as per the provisions of the Act. However, when these provisions apply because no source is disclosed at all on the basis of which the income can be classified under one of the heads of income under
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section 14 of the Act, it would not be possible to classify such deemed income under any of these heads including 'income from other sources' which have to be sources known or explained. When the income cannot be so classified under any one of the heads of income under section 14, it follows that the question of giving any deductions under the provisions which correspond to such heads of income will not arise. If it is possible to peg the income under any one of those heads by virtue of a satisfactory explanation being given, then these provisions of sections 69, 69A, 69B and 69C will not apply, in which event the provisions regarding deductions, etc. applicable to the relevant head of income under which such income falls will automatically be attracted.
6.2 The opening words of section 14 'Save as otherwise provided by this Act' clearly leave scope for 'deemed income1 of the nature covered under the scheme of sections 69, 69A and 69C being treated separately, because such deemed income is not income from salary, house property, profits and gains of business or profession, or capital gains, nor is it income from 'other sources' because the provisions of sections 69, 69A, 69B and 69C treat unexplained investments, unexplained money, bullion, etc., and unexplained expenditure as deemed income where the nature and source of investment, acquisition or expenditure, as the case may be, have not been explained or satisfactorily explained. Therefore, in these cases, the source not being known, such deemed income will not fall even under the head 'Income from other sources'. Therefore, the corresponding
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deductions, which are applicable to the incomes under any of these various heads, will not be attracted in case of deemed incomes which are covered under the provisions of sections 69, 69A, 69B & 69C in view of the scheme of those provisions.
5.2 In view of the above, it is seen that it is a settled proposition of law that no deduction /allowance is allowable against such unexplained cash credit which is considered as income of the assessee. In the present facts, during the course of assessment, the AO made an addition of � 4,73,10,000/- on account of unexplained cash credit of unsecured loan u/s 68 of the Act. However, the AO omitted to disallow the interest paid on the said unsecured loan while finalising the scrutiny assessment, which has resulted in under assessment of income. In our view, in the instant facts, the Principal CIT has not erred in facts and in law in setting aside the assessment order u/s. 263 of the Act by holding that the order is erroneous and prejudicial to the interests of the Revenue.
In the result, appeal of the assessee is dismissed.
Order pronounced in the open court on 30-05-2022
Sd/- Sd/- (P.M. JAGTAP) (SIDDHARTHA NAUTIYAL) VICE PRESIDENT JUDICIAL MEMBER Ahmedabad : Dated 30/05/2022 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:-
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Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से,
उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद