Income Tax Act | Assessee Can Challenge Cash Credit Addition U/S 68 In Remand Proceedings; Tribunal's Direction Not Binding: Kerala High Court

As per Section 68 of the Income Tax Act, 1961, any sum found credited in the books of a taxpayer, for which he offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, may be charged to income-tax as the income of the taxpayer of that year.

Justices A. Muhamed Mustaque and Harisankar V. Menon stated that the observation made by the Tribunal is not to be taken as a positive-binding direction on the assessing authority after the remand. An assessment with reference to the provisions of Section 68 is required to be made only when the assessee has no explanation as regards the cash credits in his books of accounts. In the case at hand, the appellant-assessee seems to have offered explanations, with reference to its dealings with the Company, which are more or less business transactions between parties.

In this case, the assessing authority noticed that the appellant-assessee had received the following amounts from M/s. Moidu Medicare Pvt. Ltd.

The aforesaid amounts have been treated as “deemed dividend” under Section 2(22)(e) of the Income Tax Act and added to the income returned by the appellant-assessee.

The appeals before the first appellate authority being unsuccessful, the matter was carried on further appeals before the Income Tax Appellate Tribunal.

The Tribunal, by the impugned common order, held that it could not trace the assessee's corresponding loan account in the books of accounts of the Company and hence, the addition should be made under Section 68 of the Income Tax Act and not under Section 2(22)(e) of the Income Tax Act.

The assessee submitted that the Tribunal went wrong in directing an assessment under Section 68 of the Act, since the Department never had such a case. According to the assessee, the direction of the Tribunal effectively results in an assessment under a new source of income, without any challenge by the revenue to the findings in the first appellate order.

The department pointed out that reassessments have already been finalised pursuant to the directions by the assessing authority, and the appellant has already filed further appeals against the revised assessment orders.

The bench opined that even if the Tribunal has not made any such observations after remand, the assessing authority could have resorted to the provisions of Section 68.

The bench stated that the appellant has relied on the balance sheet and financials of the Company, as per which the unsecured loans from the Directors have been specifically recorded therein. If that be the case, the transaction between the Company and the appellant would not fall within the four corners of Section 2(22)(e), and the matter requires a fresh consideration at the hands of the assessing authority. The Tribunal has remitted the matter for a revisit at the hands of the assessing authority, quite rightly.

The remit ordered by the Tribunal is to be made an open remit. The appellant/assessee, therefore, will be entitled to point out that the provisions of Section 68 are not attracted if such a course of action is being taken by the assessing authority after the remit, added the bench.

In view of the above, the bench disposed of the appeal, holding that the remand by the Tribunal would be an open remand and the Department has to consider the contentions raised with reference to the non-applicability of the provisions of Section 2(22)(e) of the Act and finalise the assessment accordingly.

Case Title: Dr. K.M. Ashik v. The Commissioner of Income Tax

Case Number: ITA NO.200 OF 2019

Citation: 2025 LiveLaw (Ker) 632

Counsel for Appellant/Assessee: M. Gopikrishnan Nambiar

Counsel for Respondent/Department: Christopher Abraham