ACIT, CIRCLE-3, THANE, THANE vs. PRAKASH JADHAVJI KHAKHAR, THANE

The Assessee filed its return of income on 14.01.2021, declaring a total income of Rs. 2,46,07,780/-. The case was selected for limited scrutiny under CASS and, accordingly, statutory notices were issued to the Assessee.

During the assessment proceedings, the Assessing Officer [“AO”] observed that the Assessee was engaged in the business of trading and export of fresh fruits and vegetables through its proprietary concerns, namely, M/s Kay Bee Farms and M/s Kay Bee Exports. The Assessee had disclosed sundry creditors amounting to Rs. 7,19,54,687/. The AO, thus in order to verify the transactions, vide notice dated 09.11.2021, required the Assessee to furnish details of sundry creditors exceeding Rs. 5 lakhs, together with supporting documents establishing the genuineness of the transactions.

In response, the Assessee furnished details of the sundry creditors and certain supporting documents. According to the AO, the requisite supporting evidence was not furnished in respect of the following parties:

The AO was, therefore, of the view that the onus is upon the Assessee to establish the identity and creditworthiness of the creditors and the genuineness of the transactions for the purposes of section 68 of the Act, therefore he accordingly, issued another show-cause notice dated 07.09.2022, requiring the Assessee to explain why the aforesaid sundry creditors should not be treated as unexplained cash credits. According to the AO, no response was furnished by the Assessee and therefore the AO, made an addition of Rs. 2,10,89,116/- under section 68 of the Act and subjected the same to tax under section 115BBE of the Act.

Thus, the Assessee being aggrieved by the assessment order, preferred an appeal before the Ld. Commissioner and filed, inter alia, following documents:

The Ld. Commissioner, after considering the documents and submissions of the Assessee, deleted the impugned addition.

Thus, the Revenue is aggrieved by the relief granted by the Ld. Commissioner. Its principal grievance is that the documents furnished by the Assessee for the first time during the appellate proceedings constituted additional evidence, which was admitted and relied upon by the Ld. Commissioner, without affording the AO an opportunity to examine the same, as required under Rule 46A of the Income-tax Rules, 1962. 9. The Assessee, though supported the impugned order, however did not refute such claim of the Revenue.

We have heard the parties, perused the material available on record and given thoughtful consideration to rival claims of the parties. The Ld. DR prayed for restoration of the matter for fresh examination. The Assessee did not dispute that certain documents had been furnished for the first time before the Ld. Commissioner and also did not object to the matter being restored to the AO for their examination and verification.

It is, thus, an undisputed position that the Ld. Commissioner considered the additional evidence furnished by the Assessee, without calling for a remand report from the AO or otherwise affording him an opportunity to examine and rebut the same. Consequently, the procedure prescribed under Rule 46A of the Income-tax Rules, 1962, was not complied with.

In these circumstances, and without expressing any opinion on the merits of the addition, we consider it appropriate to set aside the impugned order on this limited issue and restore the matter to the file of the jurisdictional Assessing Officer [“JAO”] for fresh adjudication.

The Assessee is also directed to cooperate in the proceedings and furnish the requisite confirmations, supporting documents and other evidence on which it seeks to rely within the time allowed by the JAO.

The JAO shall examine the evidence already available on record as well as the evidence furnished by the Assessee, conduct such verification as may be considered necessary and decide the issue afresh in accordance with law, after affording adequate opportunity of being heard to the Assessee, by passing a reasoned and speaking order.

We clarify that the scope of the remand shall remain confined to the addition relating to the aforesaid sundry creditors and no other concluded issue shall be reopened in pursuance of this order.

In the result, the appeal filed by the Revenue is allowed for statistical purposes.