SREEMITRA MAGA CORP PRIVATE LIMITED,SECUNDERABAD vs. INCOME TAX OFFICER, WARD-3(1), HYDERABAD

Brief facts of the case are that the assessee company which deals in real estate, filed its return of income on 31.07.2007 declaring total income of Rs.2,51,130. The case was selected for scrutiny and accordingly notice for the assessment u/s 143(3) was issued to the assessee. The assessee filed the information called for and produced books of account and the relevant vouchers. On verification of the same, the AO found that the assessee is showing sundry creditors at Rs.10,10,10,000. He observed that the assessee has not produced any details of purchases for such an amount, nor has filed confirmations from the sundry creditors. The assessee’s representative filed the confirmation letters stating that the sundry credit of Rs.10,10,10,000 represents the amounts payable to the landlord for the purchase of land of 12.95 acres. The AO however, observed that the assessee has not furnished any details of purchases or confirmations from the sundry creditors. The assessee requested for time to furnish the said information. Inspite of giving sufficient time, the assessee did not furnish the said information and therefore, the AO treated the alleged expenditure incurred for purchase of land amounting to Rs.10,10,10,000 as unexplained expenditure u/s 69C of the Act and brought it to tax. Aggrieved, the assessee preferred an appeal before the CIT (A) who confirmed the order of the AO and the assessee filed further appeal before the ITAT.

The ITAT in ITA No.1206/Hyd/2011 vide orders dated 25.05.2012 remanded the issue to the file of the CIT (A) with the following directions: “ 6. We heard both the parties and perused the orders of the Revenue in general and paras 8.1 and 8.2 in particular of the impugned order of the CIT(A). It is a fact that both the agreements were in existence at the relevant point of time. but, for the reasons given in the orders, they could not be submitted by the assessee to the assessing officer, as a part of his duty in matters relating to discharge of onus. But this failure of the assessee, in our opinion, is not without acceptable reason, i.e. existence of differences among the people concerned with the impugned sale transactions. Such failure, in our opinion should not cost the assessee so heavily that led to the dismissal of the assessee's request for admission of additional evidence. Right of appeal conferred on the assessee under 5.253 of the Act is a very precious one. Similarly, the admission of additional evidence is equally a precious right and, of course, it is subjected to conditions prescribed in the rules. Therefore, in our opinion, the CIT(A) erred in dismissing the request of the assessee to admit the additional evidence. We have considered the A.P. High Court judgment in the case of A.K. Sabu Khan (1102 ITR 757), which is relied upon by the assessing officer. Facts in the case of A.K. Babu Khan Vs. CWT (102 ITR 757) before the Hon'ble A.P. High Court, relied upon by the Revenue, are distinguishable to the extent that the assessee could not file the impugned additional evidence even before the CIT(A), but filed for the first time before the ITAT, whereas in the present case, the CIT(A) declined to entertain the additional evidence filed by the assessee. Existence of disputes among the concerned parties constitutes a reasonable cause and it is adequate enough for the assessee's failure to furnish the impugned agreements before the assessing officer during the assessment proceedings. There is no evidence on records to decipher that the impugned agreements are created ones subsequently and therefore, are the sham agreements, Therefore, we direct the CIT(A) to admit the same, and if necessary to refer the additional evidence to the file of the assessing officer and require him to submit a remand report in support of its case. The CIT(A) shall thereafter pass a speaking order on the issues raised in the grounds of the assessee in the appeal before him in accordance with law and after giving reasonable opportunity of hearing to the assessee. 7. Since we have set aside the impugned order of the CIT(A). in the context of the grounds of the assessee against non-admission of the additional evidence, and having directed the CIT(Al to re-adjudicate the issues before him on merits, we are not inclined to go into other issues raised by the assessee in the other grounds raised by the assessee in this appeal”.

Consequent to the same, the CIT (A) passed the impugned order against which the assessee is in appeal before us.

The learned Counsel for the assessee submitted that the ITAT had accepted the existence of the un-registered agreement of sale between the Managing Director and the assessee company and therefore, the CIT (A) ought not to have again held that it is a sham document. He submitted that the CIT (A) instead of calling for a remand report has again reconsidered the findings of the AO in the remand report in the earlier proceedings to hold against the assessee. Therefore, according to him, the order of the CIT (A) has to be set aside and since the ITAT has already accepted the existence of the agreement of sale and the authorities having accepted the sale proceeds recorded by the assessee as well as of the closing stock ought not to have disturbed the sundry creditors and made the addition of Rs.10,10,00,000 u/s 69C of the I.T. Act. Thus, he prayed that the addition be deleted.

The learned DR, on the other hand, supported the orders of the authorities below.

Having regard to the rival contentions and the material on record, we find that the Tribunal in the earlier proceedings had only accepted the assessee’s explanation for not being able to present the un-registered agreement before the CIT (A) and had directed the CIT (A) to admit the same and if necessary, refer the matter to the file of the AO and require him to submit the remand report in support of his case and further directed the CIT (A) to pass a speaking order thereafter on the issues raised by the assessee. We find that the CIT (A) has not called for a remand report, but has continued to make her own assessment of the document and has completed the assessment by treating the amount of Rs.10,10,00,000 as bogus expenditure claimed to avoid taxes and therefore, as not allowable u/s 37 of the Act. Thus, we find that this is not in consonance with the directions of the ITAT. The assessee has filed the unregistered sale agreement at pages 75 to 80 of the Paper Book and also subsequent sale deeds, the proceeds of which, have been accepted in the hands of the company. Therefore, the Department on the one hand is accepting that the company has become the owner of the land, but is not accepting that there is a sale agreement between the M.D and the Company. The value of the closing stock has also not been disturbed by the authorities below. In view of the same, we are of the opinion that the CIT (A), needs to reconsider the issue de novo after obtaining a remand report from the AO on the acceptability of the unregistered agreement of sale filed by the assessee. In view of the same, we deem it fit and proper to remand this issue to the file of the CIT (A) for re-consideration afresh.

In the result, assessee’s appeal is treated as allowed for statistical purposes.