SANTOSH MAHADEO DALVI,MUMBAI, MAHARASHTRA vs. DCIT 20(1), MUMBAI, MUMBAI, MAHARASHTRA

Ground No. 2 relates to rejection of the additional evidences furnished by the assessee before the learned CIT(A). Since the adjudication of this ground would have a direct bearing upon the manner in which the remaining grounds are required to be considered, we deem it appropriate to adjudicate this ground at the outset.

The assessee filed its return of income for the assessment year 2020-21 on 01.01.2021 declaring total income of Rs.3,24,05,620/-. The case was selected for limited scrutiny for examining the issue relating to income from house property and notice under section 143(2) of the Act was issued on 29.06.2021. During the course of assessment proceedings, notice under section 142(1) was issued calling for various details and documentary evidences in respect of the house properties declared by the assessee. Thereafter, by letter dated 15.12.2021, the Assessing Officer specifically called for, inter alia, copies of loan sanction letters, interest certificates, purchase deeds, documentary evidence regarding interior work carried out at the Crescent Bay property and electricity bills for the relevant period, as well as evidence regarding the date of occupation of the property.

Subsequently, a show-cause letter dated 19.08.2022 was issued by the Assessing Officer proposing to determine income from house property at Rs.4,91,400/- as against the loss declared by the assessee. The assessee submitted a reply on 02.09.2022. In respect of the Crescent Bay property, the assessee had claimed that possession was obtained on 03.10.2019 and that interior work was thereafter undertaken, as a result of which the property was not ready for occupation during the remaining part of the year. The assessee accordingly claimed vacancy allowance and declared the annual value at nil. In respect of the interest claimed, the assessee submitted certain material, pursuant to which the Assessing Officer allowed deduction to the extent supported by the evidence available before him.

However, the Assessing Officer found that the assessee had not furnished documentary evidence in support of the claim of interior work or electricity bills to substantiate the alleged vacancy of the Crescent Bay property. Similarly, in respect of the Navi Mumbai property, the assessee had not furnished the complete loan documents and evidence of interest payment despite being specifically called upon to do so. The Assessing Officer accordingly determined the annual value of the Crescent Bay property on the basis of the prevailing fair rent and disallowed the interest claim relating to the Navi Mumbai property for want of supporting evidence. The assessment was ultimately completed under section 143(3) read with section 144B of the Act on 21.09.2022.

Before the learned CIT(A), the assessee sought to furnish additional evidences which had not been produced before the Assessing Officer. The learned CIT(A), in paragraph 8 onwards of his order, examined the admissibility of the additional evidences with reference to section 250 of the Act read with Rule 46A of the Income Tax Rules, 1962. The learned CIT(A) noted that the assessee had relied, inter alia, upon shifting of residence, misplaced records and general disruption caused by the COVID-19 pandemic. He observed that the onus was upon the assessee to establish that its case fell within any of the circumstances specified in Rule 46A(1).

The learned CIT(A), however, rejected the explanation furnished by the assessee. According to him, the assessment proceedings had extended over a considerable period and specific requisitions had been made by the Assessing Officer for the very evidences which were subsequently sought to be produced before the appellate authority. He held that the reasons advanced by the assessee did not constitute sufficient cause within the meaning of Rule 46A and that there was no failure on the part of the Assessing Officer in affording opportunity to the assessee. He accordingly rejected the additional evidences.

The learned CIT(A) also specifically considered the plea of the assessee that the non-compliance was attributable to disruption caused by the COVID-19 pandemic. He observed that the assessment proceedings were conducted after what he considered to be the peak period of pandemic-related restrictions and that electronic compliance mechanisms were operational under the faceless assessment regime. He further noted that the assessee was a qualified Chartered Accountant engaged with a reputed organisation and, therefore, according to him, could not be regarded as lacking professional resources or technical capability to comply with the statutory requirements. On this basis, he concluded that the general plea of COVID-related disruption did not constitute reasonable or sufficient cause for failure to furnish the requisite details and evidences.

On merits, the learned CIT(A) thereafter upheld the findings of the Assessing Officer. Aggrieved by the order of the learned CIT(A), the assessee is in appeal before us. During the course of hearing, the learned Authorised Representative (“ld.AR”) submitted that the additional evidences furnished before the learned CIT(A) had been rejected without properly appreciating the facts and circumstances in which the same could not be furnished before the Assessing Officer. It was submitted that the relevant period substantially overlapped with the period affected by the COVID-19 pandemic and that the assessee was prevented by sufficient cause from furnishing the requisite evidences before the Assessing Officer. It was further submitted that the evidences sought to be furnished were directly relevant for adjudication of the issues arising in the appeal.

The learned Departmental Representative (“ld.DR”), on the other hand, supported the order of the learned CIT(A). He submitted that several opportunities had been granted by the Assessing Officer and that the assessee had failed to avail the same. According to him, the conditions prescribed under Rule 46A for admission of additional evidence were not satisfied and, therefore, the learned CIT(A) was justified in refusing to admit the additional evidences.

We have considered the rival submissions and perused the material available on record. We find that the issue requires consideration in the context of the actual chronology of the assessment proceedings. The return was filed on 01.01.2021 and notice under section 143(2) was issued on 29.06.2021. The Assessing Officer thereafter issued a further requisition by letter dated 15.12.2021 calling for various documents and evidences. Subsequently, a show-cause letter was issued on 19.08.2022 and the assessee submitted its reply on 02.09.2022, whereafter the assessment was completed on 21.09.2022. Thus, the assessment proceedings were not confined to a period immediately following the COVID-19 pandemic; rather, the proceedings had commenced during June 2021 and continued thereafter, with further requisitions being issued in December 2021.

It is true that certain stages of the assessment proceedings took place after the period of the most stringent COVID-related restrictions. At the same time, it cannot be overlooked that the assessment proceedings had commenced in June 2021, when the effects and disruptions of the pandemic had not completely disappeared. The fact that electronic modes of communication were available cannot, by itself, lead to the conclusion that there could be no practical difficulty in collecting and collating documentary evidence. The documents sought by the Assessing Officer included loan sanction letters, interest certificates, purchase deeds, electricity bills and documentary evidence concerning interior work and occupation of the property. Collection of such material necessarily involves a degree of active effort and coordination with banks, financial institutions and other sources of records.

In these circumstances, while we appreciate the observation of the learned CIT(A) that the assessee is a Chartered Accountant and was professionally engaged, that circumstance by itself cannot be regarded as conclusive against the assessee. The proceedings had commenced during the period when the effects of COVID-19 were still prevailing and continued thereafter. The benefit of doubt, in the peculiar facts of the present case, ought to be given to the assessee to the extent that the disruption caused by the pandemic may have lingered beyond the period of the peak restrictions and may have affected the assessee’s ability to collect, collate and furnish the relevant supporting documents, even though the communications themselves could be made electronically.

We are also conscious of the fact that the additional evidences sought to be produced are not irrelevant or extraneous to the issues arising in the assessment. On the contrary, they relate directly to the claims made by the assessee in respect of vacancy and alleged non- habitability of the Crescent Bay property, the interest claimed in respect of the housing loans and the other consequential computation of income from house property. The assessment order itself records that the claims were not accepted, in material part, because the requisite supporting documents had not been furnished.

In our considered view, therefore, the present case is one where the ends of substantial justice would be better served by admitting the additional evidences rather than shutting out the assessee from producing evidence which goes to the root of the controversy merely on account of the delay in furnishing the same. When substantial justice is pitted against procedural delay, the former must ordinarily receive primacy, particularly where the evidence sought to be produced is relevant for determination of the correct taxable income. We accordingly find merit in Ground No. 2 raised by the assessee. Therefore, the additional evidences furnished by the assessee are admitted.

Having admitted the additional evidences, the matter necessarily requires fresh consideration by the Assessing Officer. The evidences were not before the Assessing Officer at the time of completing the assessment and, therefore, it would not be appropriate for us to adjudicate the merits of the various claims on the basis of documents which are being admitted for the first time at this stage. In view of this, the issues arising from the remaining grounds, are restored to the file of the Assessing Officer with a direction to admit and examine the additional evidences, verify the claims of the assessee and thereafter decide the issues afresh on merits, in accordance with law, after providing adequate opportunity of being heard to the assessee.

In view of the foregoing discussion, Ground No. 2 is allowed for statistical purposes. Since the matter has been restored to the file of the Assessing Officer for fresh adjudication after admission and examination of the additional evidences, the remaining grounds of appeal are also treated as allowed for statistical purposes.

In the result, the appeal of the assessee is allowed for statistical purposes.