Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, ‘’ C’’ BENCH, AHMEDABAD
Before: SHRI RAJPAL YADAV & SHRI WASEEM AHMED
आदेश/O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Commissioner of Income Tax(Appeals)-1, Vadodara dated 15/03/2016 (in short “Ld.CIT(A)”) arising in the matter of assessment order passed under s.147 r.w.s. 144 of the Income Tax Act, 1961 (here-in-after referred to as "the Act") dt.22/12/2008 relevant to the Assessment Year 2005-2006.
The assessee has raised the following grounds of appeal.
1.00 NOT ALLOWING CLAIM U/S 10B OF THE ACT. 1.01 On the facts and circumstances of appellant's case and in law, the Id CIT (Appeal) has erred in not allowing deduction u/s 10B of the Act in respect of addition made u/s 68 of the Act. 1.02 Your appellant therefore prays Your Honour to hold so now and direct the Id AO to treat addition made u/s 68 of the Act as eligible for deduction u/s 10B of the Act, 2.00 ADDITION OF RS. 1, 18, 06.330/- MADE ON ACCOUNT OF CASH CREDIT U/S 68 OF THE ACT. 2.01 On the facts and the circumstances of the appellant's case and in law, the Id. CIT (Appeals) has erred in confirming the action of Id AO of making addition u/s 68 of the Act to the tune of Rs.1, 18, 06.330/-although necessary conditions such as identity of the persons, genuineness of the transaction and creditworthiness of the persons advancing loans are fulfilled. While doing so, the Id CIT (Appeals) out rightly rejected the additional evidences furnished by the appellant although the same was covered by Rule 46A. 2.02 Your appellant therefore prays Your Hour to hold so now and direct the Id AO to accept the additional evidences and deleted the impugned addition.
3.00 Your appellant craves leave to add, amend and/or delete all or any ground(s) take hereinabove.
At the outset, we note that the issues raised by the assessee in ground no 1 and 2 are interconnected, therefore we have clubbed them together for the sake of brevity and convenience.
The issue raised by the assessee in ground no. 1 is that the Ld. CIT-A erred by denying the deduction under section 10B of the Act in relation to the income considered under section 68 of the Act.
The 2nd issue raised in ground no. 2 is that the Ld. CIT-A erred in confirming the addition amounting to Rs. 1,18,06,330.00 under section 68 of the Income Tax Act.
Briefly stated facts of the case are that the assessee is a Private Limited Company and engaged in the business of refurbishing/reconditioning /remanufacturing of imported electrical equipment by using good component out of obsolete electronic/electrical equipment. The assessee in the year under consideration has enhanced its authorized capital to Rs. 1,60,97,500.00 which was Rs. 32,91,100.00 in the preceding year. The assessee claims that the capital was increased during the year by making the transfer entry of its liability which was in the form of unsecured loans and sundry creditor. The assessee in this regard filed a chart as reproduced below:
NAME OF OP BAL AMOUNT RECEVEIVED SHARE CL BAL PERSON DURING YEAR APPLICATION MONEY UNSECURED LOANS AC SHAH 0 9526918 4588000 438919 AJAY DESHMUKH 2069491 2904264 1547840 2299665 AMIT 0 140000 0 70000 DESHMUKH SHOBHA A 227716 1098891 847430 479177 DESHMUKH SUB TOTAL 2297207 3287761 SUNDRY CREDITOR CAMPBELL 4764609 1040521 5805130 0 TECHNOLOGICAL RESOURCES GRAND TOTAL 7061816 14710594 12788400 3287761 5.1 However, the AO on perusal of the chart observed that the assesses in the year under consideration has received the sum of Rs. 1,47,10,594.00 from the said parties.
5.2 The AO also noted that the assessee filed the confirmation of one of the parties namely Shri Ajay Deshmukh along with PAN who advanced the loan to it. However, the document did not establish the creditworthiness of the Shri Ajay Deshmukh therefore the AO treated the sum of Rs. 29,04,264/- as unexplained cash credits under section 68 of the Act and added to the total income of the assessee on protective basis.
5.3 The assessee with respect to the remaining parties failed to discharge its onus to establish the identity, genuineness and creditworthiness of the loan parties. Therefore, the AO considered the balance amount of Rs. 1,18,06,330.00 (1,47,10,594.00 – 29,04,264) as unexplained cash credits under section 68 of the Act and added to the total income of the assessee.
Aggrieved assessee preferred an appeal to the Ld. CIT-A. The Ld. CIT-A deleted the addition by observing that the assessee was eligible for the deduction under section 10B of the Act, therefore the addition was barren. Subsequently, the Revenue carried the matter before the ITAT wherein it was held that the Ld. CIT-A did not consider the merit of the case while allowing the deduction under section 10B of the Act with respect to the addition under section 68 of the Act. The Hon’ble ITAT accordingly remanded the matter back to the Ld. CIT-A to decide the issue afresh after providing reasonable opportunity to both the parties in vide order dated 29-10-2010.
Now, the assessee before the Ld. CIT-A made the submission along with application under Rule 46A of the Income Tax Rules to justify the amount received by it which was treated as unexplained cash credit.
However, the Ld. CIT-A rejected the application filed by the assessee under rule 46A of the Income Tax Rules with respect to the acceptance of additional evidence by observing that enough opportunities were provided to the assessee to put its points of contentions before the AO as well as in the first round of appeal and present proceedings. But the assessee failed to do so.
8.1 However, the Ld. CIT-A further observed that the addition of Rs. 29,04,264.00 made on protective basis on account of unexplained cash credit in the name of Shri Ajay Deshmukh had already been added to the income of this very person in his assessment order vide order dated 29-12-2010 on substantive basis. Similarly, the addition was also confirmed by the Ld. CIT-A vide order dated 01-12-2011. Therefore the Ld. CIT-A accordingly deleted the addition of Rs. 29,04,264/- in the hands of the assessee.
8.2 However in respect of the remaining amount of unexplained cash credit for the sum of Rs. 1,18,06,330.00, the Ld. CIT-A held that the assessee failed to establish the identity and creditworthiness of the lenders. Accordingly, the ld. CIT- A upheld the addition by confirming the order of the AO.
8.3 The Ld. CIT-A also observed that the deduction under section 10B of the Act would be allowable in a case where profit and gains has been derived by the 100% EOU from export of article or things or computer software. But the addition under section 68 of the Act cannot be said that it was the part of the export turnover. Thus, the Ld. CIT-A in view of the above disregarded the claim of the assessee. Hence, the assessee allowed the appeal of the assessee in part.
Being aggrieved by the order of the Ld. CIT-A, the assessee is in appeal before us. The Ld. AR for the assessee before us filed a paper book running from pages 1 to 40 and prayed for the admission of the additional evidence. The prayer of the assessee reads as under: The appellant craves leave to place 52 pages as additional evidences on record of this Hon’ble Tribunal. Such additional evidences contain documentary evidences w.r.t. the concerned lenders from whom funds have been received by the assessee and in respect of which, addition has been made by AO under section 68 of the Act. At the assessment stage, the matter was handled by Mr. Nitin Parmar, Income Tax Practitioner, and the assessee was under a bona fide belief that the necessary details, as required by the AO, were submitted from time to time. However, when the assessment order under section 144 r.w.s. 147 of the Act was served, it was learnt that Mr. Nitin Parmar had not furnished the required documentary evidences. Ld. CIT(A), in the first round of litigation, allowed deduction 10B and consequently held that all other grounds, including the ground challenging addition under section 68 of the Act, became infructuous. On Revenue's appeal, Hon’ble the ITAT upheld CIT(A)'s order qua the issue as to deduction under section 10B of the Act but remitted the matter to the file of AO qua the issue as to addition under section 68 of the Act with a direction to adjudicate the issue afresh after providing reasonable opportunity of being heard and pass a reasoned order thereafter. In the set- aside proceedings, assessee placed on record additional evidences w.r.t. the concerned lenders from whom funds have been received by the assessee and in respect of which, addition has been made by AO under section 68 of the Act. Assessee also moved an application under Rule 46A of the Income Tax Rules, 1962. However, CIT(A) rejected such additional evidences broadly on the count that assessee failed to furnish such evidences before AO despite several opportunities being granted by AO. Hence, such documents are now being placed before Your Honors as additional evidences. The additional evidences proposed to be placed before this Hon'ble ITAT are important and decisive evidences in determining the controversy in just and equitable manner. Such documents also go to the root of the matter. The appellant, therefore, prays to this Hon'ble ITAT to allow it to place these evidences on its record and prays the Hon'ble ITAT to consider these evidences while deciding the appeal.
On the other hand the Ld. DR vehemently supported the order of the authorities below.
We have heard the rival contentions of both the parties and perused the materials available on record. The assessee in the present case has filed the additional evidences under rule 46A of Income Tax Rule before the Ld. CIT (A) to justify the cash credit accepted by the assessee during the year amounting to Rs. 1,18,06,330.00. However, the same were not accepted by the Ld. CIT (A) on the ground that the assessee was afforded enough opportunities during the assessment/ appellate (1st and 2nd round) proceedings which were not availed by it (the assessee).
11.1 From the preceding discussion, we note that the assessee has defaulted in availing the opportunities of being heard provided by the AO during the assessment proceedings. It is the settled law that the assessee should be vigilant enough to pursue the appeal filed by it. Merely filing the appeal before the authorities is not sufficient enough on the part of the assessee but following it up for its prosecution is equally important. As such the assessee is under the obligation to track the progress of its case time to time till it is decided by the appropriate authorities. Thus, there remains no ambiguity to the fact that the assessee should certainly be penalize for not availing the opportunities provided by the authorities. But in our considered view the penalty/punishment to the assessee in the event of non-compliance should be commensurate to the default committed by it. For this matter, the penalty provisions have been provided under section 271(1)(b) of the Act as evident from the finding of the ld. CIT-A as reproduced below:
“Thereafter, the AO issued a questionnaire dated 30.06.2008 and hearing was fixed on 14.07.2008. The appellant asked for adjournment and the same was granted till 30.07.2008. No compliance was made on that date. Hence, the AO issued a reminder fixing hearing on 07.10.2008. Again, no compliance was made on that day. It was only when the AO issued notice u/s.271(1)(b) of the IT Act, 1961, that the appellant filed certain details. But, still the appellant filed only confirmation letter in the case of Shri Ajay Deshmukh with PAN. Details of other persons were not filed at all.”
11.2 In the present case, there was the addition of Rs. 1,18,06,330.00 on account of unexplained cash credit under section 68 of the Act. In case, the assessee is denied from filing the additional documents then there will be huge tax demand on the assessee in the present facts of the case. Thus it is transpired that there will be huge outflow of fund of the assessee in the form of the tax liability which could have been made nil/avoided after accepting the additional evidences provided the assessee succeeds based on them. In a situation, where the assessee succeeds in the appeal filed before the Ld. CIT (A) after considering the additional evidences, the demand of tax would become nil. But, in the event of non-acceptance of such additional evidences, the demand of tax would remain as it is. Thus, in nutshell and in our considered opinion, justice would be rendered to both the assessee and the revenue if the assessee is levied some cost for not availing the opportunity of being heard before the authorities below during the proceedings.
11.3 Besides the above, we also note that the Ld. CIT (A) has given enough power under rule 46A(4) of income tax rule for the admission of the additional evidences. The rule 46A(4) reads as under:
Production of additional evidence before the [Deputy Commissioner (Appeals)] [and Commissioner (Appeals)]. 46A . (1) XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX (2) XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX (3) XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX (4) Nothing contained in this rule shall affect the power of the [Deputy Commis- sioner (Appeals)] [or, as the case may be, the Commissioner (Appeals)] to direct the production of any document, or the examination of any witness, to enable him to dispose of the appeal, or for any other substantial cause including the enhancement of the assessment or penalty (whether on his own motion or on the request of the [Assessing Officer]) under clause (a) of sub-section (1) of section 251 or the imposition of penalty under section 271.] From the above provision, it is clear that the ld. CIT-A has power to direct the assessee to produce the necessary documents to dispose of the appeal to provide justice to the assessee. Thus the ld. CIT-A is empowered to admit the documents filed by the assessee as additional documents in the rule as discussed above.
11.4 We also note that Hon’ble Bombay High Court in the case of Smt. Prabhavati S. Shah v/s CIT reported in 231 ITR 1 has directed to admit the additional evidences by observing as under: “Further, under sub-section (4) of section 250 of the Act, the AAC is empowered to make such further inquiry as he thinks fit or to direct the ITO to make further inquiry and to report the matter to him. It is, thus, clear that the powers of the AAC are much wider than the powers of an ordinary court of appeal. The scope of his powers is coterminous with that of the ITO. He can do what the ITO can do. He can also direct the ITO to do what he failed to do. The power conferred on the AAC under the said sub-section being quasi-judicial power, it is incumbent on him to exercise the same if the facts and circumstances justify. If the AAC fails to exercise his discretion judicially and arbitrarily refuses to make enquiry in a case where the facts and circumstances so demand, his action would be open for correction by a higher authority. On a conjoint reading of section 250 and rule 46A, it is clear that the restrictions placed on the appellant to produce evidence do not affect the powers of the AAC under sub-section (4) of section 250. The purpose of rule 46A appears to be to ensure that evidence is primarily led before the ITO.”
11.5 A specific query was raised to the Ld. DR whether he has any objection if the matter is restore back to the file of the AO for fresh adjudication in the light of the additional evidences, but the Ld. DR was unable to advance any argument against the plea taken by the assessee.
11.6 However, the negligent/dilly-dally approach of the assessee in pursuing the matter before the Ld. CIT(A) cannot be neglected. Therefore, we are inclined to levy a cost of Rs.10,000/- upon the assessee for adopting the negligent approach in pursuing the matter before the Ld. CIT(A). Accordingly, we direct the assessee to deposit a sum of Rs.10,000/- to the Income Tax Department prior to the commencement of hearing before the AO. Hence, the appeal of the Assessee is allowed for statistical purposes.
11.7 As we have restored back the main issue to the file of the AO for fresh adjudication as per the provisions of law, we are not inclined to adjudicate the connected grounds of appeal raised by the assessee in the memo of appeal. As such, the other grounds of appeal do not require any separate adjudication. Hence we dismiss the same.
In the result, the appeal of the assessee is partly allowed for the statistical purposes.
Order pronounced in the Court on 20/01/2020 at Ahmedabad.