Non application of correct section to addition held as non-application of mind

Non application of correct section is a classic example of non-application of mind by Quasi-judicial authority – ITAT deleted addition u/s 69

In a recent judgment ITAT Raipur deleted addition made under section 69 instead of correct section 68 of the Income Tax Act, 1961 (the Act) holding that non application of appropriate provision of law to the facts of the case is a classic example of non-application of mind by Quasi-judicial authority.

ABCAUS Case Law Citation:
4684 (2025) (08) abcaus.in ITAT

In this case, the assessment was completed u/s 147 of the Act by the Assessing Officer as cash deposit was not explained during the time of assessment. Hence, addition was done u/s 69 of the Act was made.

Before the CIT(A) the assesee claimed that one person sold his rural land and transferred the cash to the appellant as gift. The appellant filed the sale deed and other details, which were sent to the Assessing Officer in the Remand Proceedings. 

The Assessing Officer submitted the Remand Report mentioning that no gift deed was produced before him. It had been further mentioned that sale deed has been registered after the date of cash deposit. Hence, the Assessing Officer even in the Remand Proceeding was not satisfied with the source of the cash deposits. 

As a result, the CIT(A) agreed with the contention of the Assessing Officer that the source of deposit had not been explained. Hence, the order of the Assessing Officer was confirmed.

The Tribunal observed that it was crystal clear that though the trail of investigation by the AO was with regard to cash deposits in question, the AO had proceeded howsoever to make an addition u/s 69 of the Act which is with regard to unexplained investment and the correct provision of the Act for making addition is Section 69A of the Act i.e. unexplained money etc. in the hands of the assessee.

The Tribunal further noted that the CIT(Appeals)/NFAC had only summarily confirmed the said addition without pointing out any flaw regarding application of wrong provision of the Act by the A.O.

The Tribunal held that even non application of appropriate provision of law to the facts of the case is a classic example of non-application of mind by Quasi-judicial authority. To arrive at this, the Tribunal referred to several judicial pronouncements where for non-application of mind, the addition had been deleted from the hands of the assessee.

The Co-ordinate Bench of Delhi ITAT had held that the addition made by the AO by mentioning incorrect and irrelevant charging section is not sustainable and valid being bad in law. Similarly, Hon’ble High Court of Allahabad held that Tribunal travelled beyond the scope of the appeal in making the addition under Section 69-A of the Act despite a categorical finding that addition made by the Assessing Officer and sustained by the CIT (Appeals) cannot be sustained under the provisions of Section 68. Further, Co-ordinate Bench of ITAT Raipur on the similar facts and circumstances had held that wrong application of provision of law to the facts and circumstances of the case regarding a particular assessee tantamount to non-application of mind by the assessing officer. This itself vitiates and makes the addition void ab initio.

The Tribunal held that following the judicial pronouncements and on examination of the facts on record, the addition made in the case of the assessee u/s 69 of the Act was misplaced and uncalled for, arbitrary and bad in law.

Accordingly, the AO was directed to delete the same from the hands of the assessee.

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