2025 (7) TMI 111 - AT - Income Tax

Addition u/s 68 v/s 69A - CIT(A) changing basis of additions made by AO - assessing the tuition fees earned by the assessee as unexplained credit - CIT(A) although upheld the additions but changed the basis of the additions and confirmed the same u/s 69A as 68 done by AO - HELD THAT - As gone through the decision of Prakash L. Shah under the similar set of facts wherein Ld. CIT(A) changed the basis of additions made by AO without issuing any show cause notice to the assessee then in that case it was held that the department cannot improve upon on the case of the AO. CIT(A) could not have improved upon the case of the AO without issuing any show cause notice or without providing any opportunity of hearing to the assessee thus additions u/s 69A of the Act deserved to be deleted and it is ordered accordingly. Addition u/s 69A - As in the instant case no physical money was found either with the assessee or with any other person therefore the question of the assessee being owner of the same does not arise at all. Hence in my view the provisions of section 69A of the Act are not attracted. Therefore direct the deletion of the additions made u/s 69A of the Act on the above basis as well. Addition u/s 69A - taxing the commission earned by the assessee - HELD THAT - Mere assessee s erroneous confession at the time of search cannot be the sole basis of impugned additions as the said confession in the absence of any corroboratory evidence do not carry evidentiary value as held by the CBDT s own instructions. Therefore the additions made u/s 69A is hereby ordered to be deleted. Disallowance of expenses claimed against commission income - HELD THAT - After having gone through the facts of the case and also keeping in view the decision of the Coordinate Bench in the case of Ameya Builders Property Developers 2023 (4) TMI 1427 - ITAT MUMBAI - And also keeping in view that assessee had in fact earned commission income from Krish Intratrade Pvt Ltd for assistance in hiring aadhar operators and had might have incurred expenses for earning the said income. Therefore the asssessee is entitled to be allowed expenses against earning of such commission thus direct the deletion of disallowance of expenses made by the AO. Addition u/s 69A being excess cash deposit - HELD THAT - AO had not considered the starting point of computation of excess cash deposit is from FY 2019-20 thus the AO ought to have considered the tuition fees of Rs. 2, 75, 600/- earned by the assessee during FY 2019-20 in the same manner as the AO had considered tuition fees of Rs. 4, 00, 000/- for FY 2020-21. Apart from the above the assessee had also maintained an account even with IDBI Bank wherein the net withdrawal were of Rs. 2, 50, 000/-. Therefore considering the above items the source of excess deposit of Rs. 2, 66, 000/- stands explained. Accordingly considering the said facts while allowing the said ground direct the deletion of additions.

Summary

The core legal questions considered in these appeals pertain to the validity and applicability of additions and disallowances made under various provisions of the Income Tax Act, 1961, specifically sections 68, 69A, 57(iii), 143(3), 147, 153, 270A, 271AAC, and related procedural aspects. The principal issues include:

1. Whether the additions made by the Assessing Officer (AO) under section 68 and subsequently confirmed or altered under section 69A of the Act, relating to tuition fees and commission income, are justified and lawful, particularly when the basis of addition was changed by the Commissioner of Income-tax (Appeals) [CIT(A)] without issuing a show cause notice or providing an opportunity of hearing.

2. Whether the provisions of section 69A of the Act are applicable in the absence of physical possession of unexplained money, bullion, jewellery, or valuable articles.

3. Whether the disallowance of expenses claimed under section 57(iii) of the Act against commission income is justified.

4. Whether the assessment order dated beyond the prescribed time limit under section 153 of the Act is time-barred and hence bad in law.

5. Whether additions made on the basis of mere confessions or statements recorded during search operations, without corroborative evidence, can be sustained.

6. Whether the assessee, being a housewife engaged in part-time tuition and commission activities, was required to maintain books of accounts under section 44AA of the Act, and the implications thereof on the applicability of sections 68 and 69A.

7. Whether penalty proceedings initiated under sections 274 read with 270A and 271AAC of the Act are justified.

Issue-wise Detailed Analysis

1. Legality of Additions under Sections 68 and 69A of the Act (Tuition Fees and Commission Income)

The AO reopened the assessments under section 147 and made additions treating tuition fees and commission income as unexplained credits under section 68. The CIT(A) upheld the additions but changed the basis to section 69A without issuing any show cause notice to the assessee. The Tribunal observed that the CIT(A) could not improve upon or alter the basis of additions made by the AO without affording the assessee an opportunity of hearing, relying on precedents such as ACIT Vs. Prakash L. Shah and JCIT Vs. Flipkart India Pvt. Ltd. These decisions emphasize that the revenue cannot take a stand different from the AO's basis of addition without due process, as it violates principles of natural justice and judicial discipline.

Further, the Tribunal noted that the assessee had already offered the tuition fees and commission income to tax as income from other sources and had provided details such as tuition fee receipts, details of students, agreements, and correspondence with the payers (e.g., Krish Intratrade Private Limited). Notices under section 133(6) were issued to the third parties who confirmed the transactions, thereby substantiating the genuineness of the income.

The Tribunal also highlighted that the assessee being a housewife engaged in part-time tuition and commission activities was not required to maintain books of accounts under section 44AA, and the absence of such books could not be a ground for invoking sections 68 or 69A.

Regarding the invocation of section 69A, the Tribunal referred to the decision in M/s Rucha Consultancy LLP Vs. DCIT, which held that section 69A applies only when the assessee is found to be owner of physical money, bullion, jewellery, or valuable articles not recorded in books of account. Since no physical cash or valuables were found during the search in the present case, section 69A was held inapplicable.

On the basis of these findings and legal precedents, the Tribunal concluded that additions under section 69A were not sustainable and ordered their deletion.

2. Applicability of Section 69A in Absence of Physical Possession of Money or Valuables

The Tribunal analyzed the scope of section 69A, which deems unexplained money, bullion, jewellery, or valuables not recorded in books of account as income of the assessee if the explanation is unsatisfactory. The Tribunal emphasized that physical possession or ownership of such items is a necessary precondition for invoking section 69A. Since no physical cash or valuables were found during the search in the present matter, the provisions of section 69A could not be invoked.

This interpretation was supported by the decision in M/s Rucha Consultancy LLP Vs. DCIT, which the Tribunal followed.

3. Disallowance of Expenses under Section 57(iii) of the Act

The assessee claimed expenses amounting to Rs. 2,97,600 against commission income. The AO disallowed these expenses, but the Tribunal, after considering the facts and precedents (including Ameya Builders & Property Developers Vs. ACIT), held that the expenses were incurred wholly and exclusively for earning commission income and that the assessee was entitled to claim them. The disallowance was therefore deleted.

4. Time-Barred Assessment under Section 153 of the Act

The assessee challenged the assessment order dated 04.05.2023 for being beyond the prescribed time limit under section 153. The Tribunal noted this ground but did not elaborate extensively, implying that it was considered in the context of the other grounds and that the decision on other merits rendered the issue academic.

5. Additions Based on Confession or Statements Recorded During Search

The AO relied partly on the assessee's confession that she was a housewife with no source of income. The Tribunal observed that the assessee had retracted this statement through submissions and had explained the nature and source of income. It emphasized the settled legal position that additions cannot be made solely on the basis of confessions or statements recorded during search without corroborative evidence. This principle was supported by decisions in DCIT Vs. Premsons and ACIT Vs. Legend Developers & Construction, and CBDT instructions (F No. 286/2/2003-IT (INV.11)).

6. Requirement to Maintain Books of Accounts under Section 44AA

The Tribunal held that the assessee, being a housewife engaged in part-time tuition and commission activities, was not required to maintain books of accounts under section 44AA. Consequently, the absence of books could not be a basis for invoking sections 68 or 69A.

7. Additions Relating to Excess Cash Deposits

The AO made additions on account of alleged excess cash deposits of Rs. 2,66,000. The Tribunal found that the AO had not properly considered the starting point for computation of excess deposits and had failed to account for tuition fees earned in the previous year and withdrawals from another bank account. After adjusting these amounts, the excess deposits stood explained. Hence, the additions were deleted.

8. Penalty Proceedings under Sections 274 read with 270A and 271AAC

The assessee challenged the initiation of penalty proceedings. The Tribunal did not find it necessary to adjudicate this ground separately as the substantive additions were deleted, rendering penalty proceedings unsustainable.

Significant Holdings

"The CIT(A) could not have improved upon the case of the AO without issuing any show cause notice or without providing any opportunity of hearing to the assessee thus additions u/s 69A of the Act deserved to be deleted."

"The provisions of section 69A of the Act are applicable only where the assessee is found to be owner of money which has not been explained. However, in the present case, no physical cash was found in the course of search, therefore the provisions of section 69A of the Act cannot be invoked."

"Additions cannot be made on the basis of mere statements / concessions recorded at the time of search. Such confessions in the absence of any corroboratory evidence do not carry evidentiary value."

"The assessee being a housewife undertaking tuitions on a part time basis was not required to maintain books of accounts u/s 44AA of the Act, and the absence of books cannot be a ground for invoking sections 68 or 69A."

"Where a trader transfers goods at a price less than market price and the transaction is bona fide, the taxing authority cannot ignore the real price fetched to ascertain profit."

"The action of the Revenue in disregarding the books results cannot be sustained and the further conclusion that the action of the Revenue in presuming that the Assessee had incurred expenditure for creating intangible assets/brand or goodwill is without any basis."

"The source of excess cash deposits stood explained after considering tuition fees earned in previous years and withdrawals from other bank accounts."

The Tribunal concluded by allowing all the appeals of the assessee, deleting the additions and disallowances made under sections 68, 69A, and 57(iii), and directing that the penalty proceedings be quashed accordingly. The decisions in related appeals for different assessment years were applied mutatis mutandis due to identical facts and issues.