Improper application of law sections by revenue authorities leads to arbitrary and unjustified additions in income assessment.

ORDER

PER PARTHA SARATHI CHAUDHURY, JM

The present appeal preferred by the assessee emanates from the order of the Ld.CIT(Appeals)/NFAC, dated 07.07.2025 for the assessment year 2014-15 as per the following grounds of appeal:

“1. The order of the Ld. AO is arbitrary, illegal, excessive, perverse and bad in law.

2. For that the order passed u/s.143(3) by the Ld. A.O. is bad in law and on facts and all the disallowances/additions made are liable to be deleted in full.

3. For that the Ld. AO erred in adding a sum of Rs.10,50,000/- u/s.68 on account of cash credits in the accounts of the subscribers' accounts i.e. Shri Ramesh Gandhi & Shri Mayank Agrawal.

4. The appellant may be allowed the relief prayed for.

5. For that your appellant craves leave to add, alter, amend, rectify, delete, withdraw and/or otherwise modify all or any of the grounds and/or to adduce evidence on or before the final hearing.”

2. At the time of hearing, none appeared for the assessee. However, an adjournment petition has been filed by the assessee which is rejected. The matter is heard after recording the submissions of the Ld. Sr. DR and on a careful perusal of the documents available on record.

3. In this case, the assessee company is engaged in the business of running nursing school and college and filed return of income for A.Y.2014-15 on 06.01.2015 declaring total income of Rs.12,83,980/-.

Subsequently, the case of the assessee was selected for scrutiny assessment and the A.O completed the assessment u/s. 143(3) of the Income Tax Act, 1961 (for short ‘the Act’) dated 25.12.2016 determining total income at Rs.23,33,980/-. The relevant facts are that the assessee company had received share application money from Directors of the company. The Directors of the company had paid share application money to the company and in this regard, one of the Director, Shri Ramesh Gandhi had deposited an amount of Rs.3,50,000/- in his bank account and similarly, another Director, Shri Mayank Agrawal had deposited Rs.7,00,000/- in his bank account before transferring the same to the assessee company. The A.O was not satisfied with regard to the nature and source of such cash deposits and made addition of Rs.10,50,000/- u/s.68 of the Act as unexplained cash credits in the hands of the assessee.

4. The fact further reveals that the assessee as per its submission had submitted PAN, Aadhar number and address proof explaining the identity. Similarly, regarding creditworthiness, the assessee had submitted balance sheet, ITR a/w. computation details. That with regard to the genuineness, it was submitted that the payments were made by the both the directors through banking channel and share allotment made to the shareholders. That further, shareholders had filed notarized affidavit explaining genuineness of the transaction. The A.O had disbelieved all these contentions of the assessee solely on the ground that the Directors were having income from salary only during the relevant assessment year and if the house hold expenses were to be deducted, in such scenario, they does not seem to have any balance left for such investment and purchase of shares.

5. The findings of the A.O had been upheld by the Ld. CIT(Appeals)/NFAC. The Revenue authorities have just relied on the fact that during relevant assessment year, Directors of the company were earning salary income only without even going into their savings aspect. The Department has also not brought on record to the fact that when they were filing return of income that during the previous year just preceding the relevant financial year what was the capital accumulation in the hands of the assessee. Nothing has been discussed by the department and they had relied on the income earned during the relevant assessment year, house hold expenses and chi