Kiran Raj

The Delhi High Court has set aside an Income Tax Appellate Tribunal (ITAT) order affirming a ₹4.3 crore addition to an assessee's income as unexplained cash credits under Section 68 of the Income Tax Act, 1961. The Court restored the unadjudicated grounds to the Commissioner of Income Tax (Appeals) [CIT(A)], directing it to examine the issue on merits.

The petitioner, a real estate and hotel development company, challenged the ITAT’s order dated February 7, 2024, which affirmed the addition of ₹4.3 crore by the Assessing Officer (AO) to its income for the assessment year (AY) 2009–10.

The dispute stemmed from a search and seizure operation conducted under Sections 132 and 133A of the Income Tax Act on premises linked to the Jagat Group. The petitioner's business premises were searched, and the AO subsequently issued a notice under Section 153A of the Act, requiring the petitioner to furnish returns for AY 2009–10.

The petitioner responded that its earlier return filed under Section 139(1) should be considered valid and challenged the notice on the ground that no incriminating material was found during the search, rendering Section 153A inapplicable. Despite these objections, the AO determined that the petitioner had received unsecured loans totaling ₹4.3 crore from three entities linked to accommodation entries and added the amount as unexplained cash credits under Section 68 of the Act.

The CIT(A), in its order dated February 24, 2014, agreed with the petitioner, holding that Section 153A was inapplicable in the absence of incriminating material. The Revenue appealed to the ITAT, which allowed the appeal, reversing the CIT(A) order and affirming the addition under Section 68.

The High Court considered whether the ITAT erred in affirming the addition under Section 68 when the CIT(A) had not adjudicated this issue on merits.

The Court noted that the CIT(A) confined its ruling to the applicability of Section 153A. It stated: “The CIT(A) decided the appeal on the singular finding that Section 153A of the Act was inapplicable as no incriminating material was found during the search.”

The ITAT, however, proceeded to address the merits of the addition under Section 68 despite no corresponding adjudication by the CIT(A). The Court observed: “The ITAT erred in addressing the issue of addition under Section 68 without any findings on this issue in the CIT(A)’s order.”

The Court also recorded that arguments on the addition had not been advanced before the ITAT by either side.

The High Court set aside the ITAT’s findings on the addition of ₹4.3 crore under Section 68 and restored the unadjudicated grounds to the CIT(A) for examination. The Court stated: “The CIT(A) shall adjudicate the remaining grounds as urged by the Assessee in its appeal, including the challenge to the addition under Section 68.”

However, the Court held that the AO’s authority to issue a notice under Section 153A stood affirmed in favor of the Revenue. The scope of remand to the CIT(A) was limited to addressing the grounds not decided earlier.

The Court disposed of the appeal in these terms.

The petitioner was represented by Senior Advocate Mr. Salil Aggarwal and Mr. Madhur Aggarwal. The Revenue was represented by Senior Standing Counsel Mr. Vipul Agrawal, along with advocates Mr. Gibran Naushad and Ms. Sakshi Shairwal.

Case Title: Divine Infracon Pvt Ltd v. Pr Commissioner of Income Tax 3
Case Number: ITA 426/2024
Bench: Acting Chief Justice Vibhu Bakhru, Justice Tushar Rao Gedela

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