DYAPA RAJINI,HYDERABAD vs. INCOME TAX OFFICER, WARD-9(3), HYDERABAD

The assessee is engaged in the business of purchase and sale of matching material for women clothing and she was also running a tailoring centre. For the year under consideration she declared total income of Rs. 1,33,900/- and net agricultural income of Rs. 52,450/-. Though the return was processed u/s 143(1) of the Act it was later on taken up for scrutiny under CASS and the assessee was called upon to explain the source for frequent deposits and withdrawals in the bank account since the assessee could not furnish sufficient evidence in that regard, the A.O. proceeded to complete the assessment to the best of his judgement, u/s 144 of the Act, wherein he observed that the assessee has furnished inaccurate particulars and concealed the bank

During the first appellate proceedings the assessee filed additional evidence under Rule 46A wherein it was submitted that most of the deposits in the bank account were made in October 2007 in connection with obtaining Visa for her son for seeking higher studies. These deposits are pooled up in the form of receiving advances from customers and sales effected in her business.

Since this information was furnished for the first time, the Ld. CIT(A) called for remand report from the Assessing Officer who in turn stated that the assessee did not maintain books of account and return was filed as “No Account Case”. In other words, income was declared on estimate basis as per section 44AA of the Act. It was also stated that the cash book was prepared at a later stage, on the strength of the Savings Bank Account held by the assessee with APCOB. If cash book is really maintained there is no reason as to why the assessee could not furnish the cash book and the ledger, along with the necessary evidences for the expenses claimed, before the Assessing Officer at the time of completion of scrutiny assessment. He also objected to the admission of the additional evidence on the ground that nothing prevented assessee from furnishing proper details before the Assessing Officer. Thus it is not a fit case for admission of additional evidence.

A copy of the remand report was forwarded to the assessee on 15.02.2017. The assessee, vide written submissions dated 20.03.2017 (copy not placed on record before the Tribunal), submitted that her case is squarely covered under sub-clauses (b) and (c)of Rule 46A(1) of the

The Assessing Officer has filed a rejoinder to the statement made in the written submission, by filing a further report on 20.04.2017 wherein it was stated that the assessee herself opted to file the return on the ground that she is not liable to maintain accounts as per section 44AA of the Act whereas now she claims that she pooled up the monies and deposited in her bank account in the month of October 2007. An affidavit appears to have been filed before the Assessing Officer (copy was not placed on record) to state that after fulfilling the formalities of obtaining necessary documents, the money deposited was withdrawn. The amounts deposited were immediately withdawn in cash by 26th October, 2007 whereas the son of the assessee left abroad in the month of April 2008. Had the deposits been made by the assessee in connection with the foreign travel of her son by pooling up of funds for this purpose, the money should have been kept till her son leaves India upto 31.03.2018.

He further stated that when the assessee’s gross receipts during the year were declared as 19,86,222/-, receiving deposits of huge amount of Rs. 46,32,200/- is not possible hence peak of such credits was treated as unexplained money and the assessment was made accordingly. In fact the assessee has declared sales only to the tune of Rs. 17,13,202/- which proves that the assessee is fabricating the

As per the AIR data, there are transactions to the tune of Rs.45,91,700/- in APCOB account which are not limited to the extent of transactions appearing in the month of October 2007 as explained by the assessee in her affidavit. Since the assessee has not complied with the notices, there is no other alternative but to complete the assessment ex-parte. If the assessee has a genuine case she should have explained the sources for the entire deposits in her bank account, at the assessment stage. Had the assessee repaid the amounts in cash, it would amount to payment exceeding the prescribed limits.

A.O further maintained that for a person who is carrying on business of running tailoring shop and selling of matching dress material, it is not possible to receive such huge deposits in cash amounting to Rs. 46.32 lakhs and especially a sum of Rs. 14.74 lakhs in the month of October 2007 itself. It was thus submitted that the account copy should be considered as a fabricated material.

It was also submitted that the case law relied upon by the assessee is not applicable to the case of the assessee and furnishing a copy of the Passport is not at all sufficient to prove the funds deposited in bank. In sum and substance it was contended that at the time of appellate proceedings the assessee fabricated the issues and furnished vague evidences like recently prepared books of account, affidavit, copy of passport etc., and mere narration cannot be considered as evidence covered under Rule 46A of IT Rules.

Ld. CIT(A) however admitted the additional evidence and proceeded to decide the appeal by taking cognisance of the additional evidence. He observed that huge amounts in cash were deposited in the

However, he was of the opinion that the deposits having been considered as pooled monies from advances received from customers against which sales were effected, the entire deposits should be treated as her business turnover and accordingly directed the A.O to estimate the profit @ 8% on the profits which works out to Rs. 5,12,184/-. Thus the income of the assessee was directed to be adopted at Rs.5,12,184/-, apart from the agricultural income.

Aggrieved by the order of the Ld. CIT(A), assessee challenged before the Tribunal on the preliminary ground that the Ld. CIT(A) erred in directing the A.O. to add a sum of Rs. 5,12,184/- without affording an opportunity of being heard to the assessee. She further submitted that while considering the assessment order the Commissioner can enhance the assessment, if necessary, only with regard to items which were already considered by the Assessing Officer whereas in the instant case, the A.O. estimated the income under the head ‘other sources’ whereas the Ld. CIT(A) directed the A.O. to consider a sum of Rs. 5,12,184/- as business income which is contrary to law.

At the time hearing Learned Counsel for the Assessee placed before us the following decisions in support of his contention that it is not open to the first appellate authority to introduce into assessment new sources.

In the aforesaid decisions, the Courts have categorically observed that the taxability of income from a new source of income is within the jurisdiction of the Assessing Officer in a proceedings u/s 147 / 149 or of a Revision Authority u/s 263, if requisite conditions are fulfilled but such power cannot be exercised by a first appellate authority.

Learned Counsel for the Assessee strongly submitted that the assessee filed her return of income and accepted the assessment u/s 144 of the Act which speaks of turnover whereas in the instant case, the assessee has never stated that the amount received was part of the turnover. In fact there is nothing to indicate that the amount received as advances were part of the turnover or business receipts since it was stated before the Ld. CIT(A) that part of the amount was received as advances but later on either readjusted or returned. The main issue is with regard to the applicability of section 69 of the Act wherein the Ld. CIT(A) having already taken a decision in favour of the assessee he could not have made an addition creating a new source of income which was not the case of either the A.O. or the assessee more particularly when no proper opportunity was given to the assessee. He also submitted that he had appeared before the Ld. CIT(A) who did not discuss the matter during the course of hearing of the appeal, with regard to addition sought to be made under the head ‘business income’. Learned Counsel for the Assessee did not file any material whatsoever such as affidavit / written submission filed before the Ld. CIT(A) which were filed as additional evidence or compilation of cash book etc., which were filed as additional evidence.

In the same vein, Learned Departmental Representative submitted that Ld. CIT(A) has considered the issue after discussing with the assessee and more particularly after obtaining the remand report which was also put up to the assessee and hence it cannot be said that the assessee was not given a proper opportunity of being heard. He further submitted that assessee having admitted that the amounts were received as business advances it should be treated as turnover and thus supported the order of the Ld. CIT(A). However, the copies of the cash book, placed before the Ld. CIT(A), etc., could not be placed before the Tribunal so as to enable us to consider as to what was the case made out by the Tax Authorities. In fact though the assessee’s Counsel contends, vide Ground no.2, that the assessee was not given a proper opportunity of being heard, vis-à-vis an addition of Rs. 5,12,184/- by the Ld. CIT(A), neither the Ld. CIT’s order nor the assessment order were called for by the Learned Departmental Representative to bring to our notice as to what were the reasons for the Ld. CIT(A) to come to such conclusion. He further submitted that the decisions cited by the Ld. CIT(A) are distinguishable.

It is pertinent to notice that the A.O. neither filed a cross appeal nor a cross objection to contend that the Ld. CIT(A) has wrongly admitted the additional evidence or erred in deleting the addition of Rs. 17,20,222/- towards unexplained investment. In other words, the deletion of addition, based upon the order of the ITAT Hyderabad “A” Bench in the case of Vasepally Subbareddy, was not doubted or challenged before the Tribunal either by filing a cross appeal, cross objection or even in the form of petition under Rule 27 of the IT Rules.

I have carefully considered the rival submissions and perused the record. The Assessing Officer made an addition u/s 69 of the Act

The next issue that requires to be adjudicated is with regard to the powers of the Ld. CIT(A) in disposing of the first appeal. Learned Counsel for the Assessee relied upon the decision of the Hon’ble Delhi High Court in the case of CIT vs. Sardari Lal & Co(120 Taxman 595) wherein the Court observed that the taxability of income from a new source cannot be considered by the first appellate authority though he has a power of enhancement. While computing the total business income of the assessee, the Assessing Officer estimated the sales at an enhanced figure and applied a higher rate of Gross Profit. According to Hon’ble High Court the only matter dealt with by the Assessing Officer, in the assessment order, was the estimation of profits of the assessee whereas the AAC expressed doubts about the capacity of the assessee to raise finances for the purchase of goods and to show a huge turnover in the very first year of his business and thus, the enquiry was altogether on a new source of income which, according to the Court, is not permissible under law.

However, the fact remains that the assessee for the first time before the Ld. CIT(A) contended that it is the part of the turnover since she had taken advances from the customers in connection with business which indicates that it is a part of the turnover of the assessee. Thus it is an offshoot of the decision taken by the Ld. CIT(A). Having accepted that the source of receipt of money is advances received from the customers it implies that the same has to be taken as the turnover of the assessee. The power of the first appellate authority is coterminous with that of the Assessing Officer and he has got the power of enhancement. In fact while discharging the function as an Officer empowered to calculate the correct tax payable by the assessee, a

In the result, appeal filed by the assessee is allowed. Order pronounced in the open court on 27th April, 2018.