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Facts
The Revenue appealed against the order of the CIT(A) which allowed the assessee's appeal concerning additions made by the AO. The AO had made additions for unexplained cash credits and disallowance on debtors. The CIT(A) deleted these additions.
Held
The Tribunal held that the AO made additions based on presumptions and without concrete evidence, failing to issue a show cause notice, which violates the principle of natural justice. The additions were thus not sustainable.
Key Issues
Whether additions made by the AO without concrete evidence and without issuing a show cause notice are sustainable in law.
Sections Cited
143(2), 133(6), 68, 142(1), 144B
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH “A’’ : NEW DELHI
Before: SHRI MAHAVIR SINGH
ORDER PER MAHAVIR SINGH, VP: This appeal has been filed by the Revenue against the order dated 30.05.2023 passed by the NFAC, Delhi for the assessment year 2017-18 on the following grounds:-
1. Ld. CIT (Appeal), National Faceless Assessment Centre has allowed appeal of the assessee in respect of the addition of Rs. 42,01,500/- where Ld. CIT (Appeals), National Faceless Assessment Centre, Delhi noted that Ld. AO has failed to provided any basis for considering 35% of the cash deposit as unexplained cash credits which is in contradiction to the analysis made by the Assessing Officer in the form of Trend Analysis which has clearly been elaborated in Para No. 8.1 to Para No. 8.6 and Para No. 9 of the Assessment Order and therefore, it is clear that Ld. CIT(Appeal), National Faceless Assessment Centre, Delhi has grossly failed to appreciate the fact that the addition has duly been made on the basis of delayed examination of the information and documents on record
2. Further, Ld. CIT (Appeal), National Faccless Asscssment Centre, Delhi has contended that the Assessing Officer has not given any specific observation/ deficiency with regards to the addition made amounting to Rs. 1.10.69.223/- being 20% of the total debtors of Rs. 5.53.46.114/- being considered as accommodation entries in the nature of bogus sales. However, kind reference is drawn towards Para No. 10 of the Assessment order wherein Assessing Officer had mentioned in details of notices u/s 133(6) of the Income Tax Act, 1961 issued to the debtors and the result of the enquiries and hence, the decision of the Hon'ble CIT(Appeals), National Faceless Assessment Centre, Delhi that the Assessing Officer has failed to make the addition considering any basis is far from facts.
3. Further, the Hon'ble CIT(Appeal), National Faceless Assessment Centre, Delhi has mentioned that the Assessing Officer has failed to substantiate the addition of Rs. 1,46,62.977/- in the assessment order. However, kind reference is drawn towards Para No. 11 of the Assessment Order wherein it has clearly been mentioned that the assessee has declared unsecured loans which were out to be verified in terms of identity, genuineness and creditworthiness as per provision of Section 68 of the Income Tax Act, 1961, however, the same could not be verified and accordingly, added to the income of the assessce. Hence, the contention of Learned CIT(Appeals), National Faceless Assessment Centre. Delhi that the addition has been made without any basis is far from facts.
4. Learned Commissioner of Income Tax (Appeals)/National Faceless Assessment Centre, Delhi has quashed the assessment order with remarks that Assessing Officer has failed to issue Show Cause Notice to the assessee and the Appellate Authority failed to appreciate the fact that the purpose of Show Cause Notice is to grant a final opportunity of being heard to the assessee and in this case multiple opportunities were already provided to the assessee in the form of statutory notices issued during the course of assessment proceedings. Further, it had clearly been mentioned in the Notice u/s 142(1) of the Income Tax Act. 1961 dated 28.09.2019 issued vide DIN No. ITBA/ AST/F/ 142(1)/ 2019-20/ 1018419983(1), Assessing Officer has clearly mentioned that the abovementioned notice under reference is a final opportunity after providing multiple opportunities and hence, the principle of natural justice has duly been met.
The Learned CIT(Appeals), National Faceless Assessment Centre, Delhi has erred in not appreciating the fact that the assessment in this case was not done under Faceless Scheme us 144B and non-issue of Show Cause Notice cannot be fatal to proceedings since the Assessing Officer has issued/ given multiple summons/ notices/ opportunities seeking specific details which the assessee chose not to avail before the Assessing Officer.
The Appellant craves to add, amend or alter any ground of appeal. Before or during the course of hearing of the appeal.
None appeared on behalf of the assessee, despite issue of notice of hearing, hence, we are proceeding exparte qua the assessee, after hearing the Ld. DR and perusing the records.
Brief facts of the case are that notice u/s. 143(2) of the Act was issued on 24.09.2018 and duly served. The case was selected for scrutiny through CASS and assessment was completed on 15.11.2019 at an assessed income of Rs. 2,93,35,390/-. On perusal of assessment order, it is observed that the addition was made on account of unexplained cash credit u/s. 68 of the Act and disallowance in respect of 20% of total debtors, amounting to Rs. 2,79,33,700/-. Accordingly, a sum of Rs. 2,79,33,700/- was added back to the income of the assessee. Against the aforesaid action, assessee preferred the appeal before the Ld. CIT(A), who vide his impugned order has allowed the appeal of the assessee. Aggrieved, the Revenue is in appeal before us.
Ld. DR relied upon the order of the AO. 5. We have heard the Ld. DR and perused the records. We find Ld. CIT(A) has discussed the issues in dispute elaborately by observing as under:- “5.1 In the underline case the Id. AO has carried out three additions amounting to Rs. 2,79,33,700/-. Aggrieved by the Ld. AO the appellant has filed an appeal with multiple grounds. On perusal of grounds, it has observed that the appellant has objected on the way the assessment proceedings were conducted, in this regard the appellant has raised specific grounds along with other grounds pertaining to additions carried out by the Ld. AO. Ground No. 4, 5, 11, 13: 5.2 In view of the above, it is imperative to adjudicate the legality of the assessment order before getting the merit of the case. 5.3 The appellant has contested the Ld. AO has carried out the additions without any evidences in hand and such evidences are 4 surmises and conjectures. The appellant has also contested that he was not provided any show cause notice proposing the additions the carried out by the Ld. AO. Therefore, the order passed by the Ld. AO is bad in law and void ab-initio. 5.4 The above contentions are considered and evaluated vis-à-vis the assessment order and the following observations are being made. 5.5 Further it is also observed in the assessment order that there is no mentioning of any show cause notice/intimation to the appellant for proposed addition to be carried out. This is grossly against principle of natural justice. 5.6 On perusal of observation (a5 mentioned in table above), it is evident that the Ld. AO has carried out additions under presumptions and without any evidences on record. In respect of first addition on account of cash deposited it is seen that the Ld. AO has partly treated cash deposited as unexplained cash credit whereas the appellant has claimed the same as Sales. The Ld. AO has also not provided any basis for considering only 35% as unexplained cash credit. 5.7 It is also observed that the Ld. AO has not provided any specific findings that a particular sales entry appearing in the books of account of the appellant is not an actual sale but unexplained cash credit. This clearly indicate that the Ld. AO has presumed certain portion of cash deposited as unexplained cash credit. On perusal of the assessment order, it is also noted that the total sales of the appellant for year under consideration is in line with past two years sales and therefore treating 35% cash deposits as unexplained cash credit is not justified. 5.8 Further in respect of second addition, the Ld. AO had sent notices to 24 parties and on perusal of chart depicted in the assessment order it is observed that four parties have responded to the assessing officer's notices. However, the Ld. AO has not given any specific observations/deficiency in such complied notices. He has considered entire amount of debtors (Rs.5,53,46, 114/-) outstanding as on 31.03.2017 for the purpose of calculating 20% disallowances. Once again, the Ld. AO has not provided basis of adopting 20% being disallowed. It is also observed that the Ld.
AO has mentioned that out of 24 parties' genuineness of 8 have not been proved; despite that he has considered entire amount of debtors for the purpose of disallowances. Furthermore, the Ld. AO is found to be silent on which 16 parties are found to be genuine and what basis such parties are found to be genuine (considering only 4 parties complied with the notices of the Ld. AO). 5.9 In view of the above findings, it is observed that the order of the Ld. AO made addition under presumptions and that too without issuing show cause notice. In this regard, it is worth relying following judicial precedents: 1. Prashant Pratap Ahir Vs ACIT (ITAT Pune)
However, this presumption or suspicion how strong it may appear to be true, but needs to be corroborated by some evidence to establish a link that, said amount of cash deposits) is actually untaxed income credited in the form of cash credit. It is quite a trite law that suspicion how so ever strong may be but cannot be the basis of addition except for some material evidence brought on record. The theory of preponderance of probability is applied to weigh the evidences of either side and draw a conclusion in favour of a party which has more favourable factors in his side, and conclusions have to be drawn on the basis of certain admitted facts and materials and not on the basis of presumption of facts Once nothing has been proved against the appellant with aid of any direct material especially when three rounds of investigation have been carried out, then nothing can be implicated against the appellant. 1. 124 taxmann.com 527 (SC)[20-11-2020] Supreme Court SLP dismissed against impugned order of High Court holding that in absence of supporting evidence, additions based merely on presumption that assessee had earned undisclosed income and incurred expenses outside books of account would not be sustainable 1. ACIT, Udaipur vs M/S. Ankit Chirag Developers Pvt & ITA No. 295/Jodh/2016 6 -CIT vs. Shalimar Buildwell Pvt. Ltd. 86 CCH 250 (All.) -ACIT vs. M/s Ankit Chirag Developers ITA 180 & 295/Jodh/2016 5.10 In view of the above, I am considerate view that the Ld. AO has carried out additions under presumptions and without having concrete evidence for the same. The Ld. AO has also not issued show cause notice which breaches principal of natural justice. Therefore, the impugned assessment order is liable to be quashed and all the additions carried out are being deleted.
6. Upon careful perusing the finding of the Ld. CIT(A), as reproduced above, We note that Ld. CIT(A) observed that in the assessment order there is no mentioning of any show cause notice/intimation to the assessee for proposed addition to be carried out, which is against the principle of natural justice. It is evident that the AO has carried out additions under presumptions and without any evidences on record. In respect of first addition on account of cash deposited it was observed that AO has partly treated cash deposited as unexplained cash credit whereas the assessee has claimed the same as Sales. The AO has also not provided any basis for considering only 35% as unexplained cash credit. Also AO has not provided any specific findings that a particular sales entry appearing in the books of account of the assessee is not an actual sale but unexplained cash credit. This clearly indicate that the AO has presumed certain portion of cash deposited as unexplained cash credit. On perusal of the assessment order, it was noted that the total sales of the assessee for year under consideration is in line with past two years sales and therefore treating 35% cash deposits as unexplained cash credit is not justified. Therefore, addition on this account is not sustainable in the eyes of law and hence, was rightly deleted by the Ld. CIT(A), which does not need any interference on our part, therefore, we affirm the finding of the Ld. CIT(A) on this issue and accordingly, the ground no. 1 is rejected.
6.1 Further in respect of second addition, the AO had sent notices to 24 parties and on perusal of chart depicted in the assessment order it was observed that four parties have responded to the assessing officer's notices. However, the AO has not given any specific observations/deficiency in such complied notices. He has considered entire amount of debtors (Rs.5,53,46,114/-) outstanding as on 31.03.2017 for the purpose of calculating 20% disallowances. Once again, the AO has not provided basis of adopting 20% being disallowed. It is also observed that the AO has mentioned that out of 24 parties' genuineness of 8 have not been proved; despite that he has considered entire amount of debtors for the purpose of disallowances. Furthermore, the AO is found to be silent on which 16 parties are found to be genuine and what basis such parties are found to be genuine (considering only 4 parties complied with the notices of the Ld. AO). In view of the above findings, it was rightly observed that the order of the AO made addition under presumptions and that too without issuing show cause notice. In this regard, Ld. CIT(A) has rightly relied upon the decisions in the case of Prashant Pratap Ahir vs. ACIT (ITAT Pune) ITA No. 1954/Pun/2018. It is well settled law by the Hon’ble Supreme Court that in absence of supporting evidence, additions based merely on presumption that assessee had earned undisclosed income and incurred expenses outside books of account would not be sustainable. Therefore, Ld. CIT(A) has rightly held that since AO has carried out additions under presumptions and without having concrete evidence for the same and he has not issued show cause notice which is in violation of principle of natural justice and thus the assessment order is liable to be quashed and hence, Ld. CIT(A) correctly deleted all the additions in dispute, which in our opinion, do not need any interference on our part, therefore, we affirm the finding of the Ld. CIT(A) in deleting all the additions and reject the grounds raised by the Ld. CIT(A).