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Facts
The assessee, a forex dealer, had its case reopened under Section 147 for high cash deposits. The Assessing Officer made significant additions for unexplained money under Section 69A and estimated net profit, leading to a drastically increased total income. The CIT(A) allowed the assessee's appeal, deleting the major addition and partly allowing the other, without obtaining a remand report for new evidence submitted by the assessee.
Held
The Tribunal found that the CIT(A) erred by not calling for a remand report under Section 250(4) of the Income Tax Act when new documents were presented by the assessee during appellate proceedings. Consequently, the Tribunal remanded the entire issue back to the Assessing Officer for fresh examination, providing both parties an opportunity to be heard and consider all documents. The assessee's cross-objection was dismissed as no specific grievance was raised against the CIT(A)'s order.
Key Issues
Whether the CIT(A) correctly deleted additions made by the AO without seeking a remand report under Section 250(4) for new evidence, and the proper procedure for admitting new documents at the appellate stage.
Sections Cited
147, 148, 142(1), 144, 69A, 250(4)
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Income Tax Appellate Tribunal, “C” BENCH KOLKATA
Before: Shri Sonjoy Sarma & Shri Rakesh Mishra
Assessment Year: 2018-19 Sumangal Forex & Travels Pvt. Ltd ……………….………………..….…..Cross-Objector 9, Baliaghata Road, Kol-700015. [PAN: AAVCS1781J] vs. ITO, Ward-11(1), Kolkata................................................……........……...…..…..Respondent Appearances by: Shri Srikumar Banerjee, AR, appeared on behalf of the assessee. Shri Arun Kr. Tiwari, CIT- DR, appeared on behalf of the Revenue. Date of concluding the hearing : February 10, 2024 Date of pronouncing the order : February 11, 2024 ORDER
Per Sonjoy Sarma, Judicial Member:
The revenue has filed an appeal against the order dated 25.07.2024 by the National Faceless Appeal Centre [hereinafter referred to as the ‘CIT(A)’] and the assessee has filed the corresponding cross- objection relating to assessment year 2018-19.
Brief facts of the case are that the assessee is a company and engaged in foreign currency exchange business as forex dealer. The assessee filed its return of income for assessment year 2018-19 declaring total income of Rs.1,45,236/-. Since, the assessee was non-responsive before the investigation wing as well as before the Assessing Officer, the case of the assessee was reopened under the provisions of section 147 of the Act for high value cash deposits to the tune of Rs.7,01,38,300/- in Indusind Bank A/c. Thereafter, notice u/s 148 of the Act was issued on 05.04.2022 against which the assessee did not file any return. Further, notice u/s 142(1) of the Act was issued to the assessee, however, the assessee did not file any reply against the notices issued by the Assessing Officer. Subsequently, reassessment order was framed on 24.03.2024 u/s 147 r.w.s. 144 of the Act by making addition of Rs.10,46,12,536/- on account of unexplained money u/s 69A of the Act being the difference between the total credits in bank accounts and the disclosed turnover by making an addition of Rs.31,63,037/- on account of unexplained purchase being net profit at 0.4% of the turnover. The total income of the assessee was determined at Rs.10,79,20,814/-.
Dissatisfied with the above order, the assessee preferred an appeal before the ld. CIT(A). The ld. CIT(A) after considering the various submissions made by the assessee allowed the appeal by observing as under:
4.1 Ground No. 1 to 9 relate to addition of Rs.10,46,12,536/- being the difference between the total credits in bank accounts and the disclosed turnover/gross receipts. In the instant case, the AO has noted that there are total cash deposits of Rs.81,47,88,900/- in appellant's five bank accounts maintained with Federal Bank, Karnataka Bank, Indusind Bank and Yes bank. Further, the appellant had total credits in his bank accounts to the tune of Rs.93,16,81,915/- but the turnover disclosed in the return of income is Rs.82,70,69,379/- only. Therefore, the AO made addition of Rs.10,46,12,536/- being the difference between the total credits in bank accounts and the disclosed turnover by treating as unexplained money u/s 69A of the Act as the appellant did not reconcile the difference and did not furnished explanation during the re-assessment proceedings. 4.1.1 During the appellate proceedings, the appellant has submitted that it is a forex dealer and has valid RBI certificate. The total purchase and sale of forex was controlled and supervised by the RBI authorities. The appellant has contended that the AO has followed a very short cut method and done a conceptual mistake as the AO has not mentioned anywhere in the assessment order that which deposits of the bank statement are not recorded as sales or in the books of accounts. It is submitted that the total 2 credit entries in the bank account cannot be equal to sale/turnover/gross receipts. It is further explained that the credit entries in bank account include contra entries of fund transfer from one bank account to another bank account, reversal entries like dishonour, fund received for share capital, advances, etc. 4.1.2 The matter has been examined and it is observed that there is no dispute about the forex business of the appellant and has purchased foreign currencies from various FFMC/ADIIs and these foreign currencies were sold to the individual passport holders in cash amounting to less than Rs.50,000. It is also not in dispute that the cash received on the sale of foreign exchange were subsequently deposited in the bank accounts. It is seen that the appellant had submitted the register of purchases and sales of foreign currency notes/coins from authorized dealers, other related forms e.g. Form FLM-4 and FLM-5 and FLM-8 during the assessment proceedings. During the appellate proceedings, the appellant has furnished the reconciliation statement to justify the difference In this regard, it is observed that the total credits in the bank account cannot be considered as total sales/turnover for any business. This is important to note that apart from the sales, credits in the bank account can also include interbank transfers reversal entries fund received for share capital, loans and advances or any capital nature On perusal of the written submissions, it is observed that the appellant reconciled the difference amount by furnishing reasons such as RTGS return, fund transfer from its own bank, credit of share capital and other adjustments. In this regard it is observed that the AO has not pointed out any specific discrepancy appearing in the bank account entry wise which may suggest that sales has not been booked and is not part of the turnover Further, it is seen that the A.O hao issued show cause notice for assessing the business income @1% on adjusted sales (refer para 3.3 of assessment order) and concluded at the addition on a/c of difference in total credit entries in bank accounts and total turnover in the assessment order (3.6 para of assessment order). So, there is no co-relation between the show cause notice and addition made in the assessment order. It is also pertinent to note that at one stage the AO has considered the total turnover of the appellant at Rs 93,16,81,915/- on the basis of the credit entries in the bank account refer para 3.6 of the assessment order) and has again taken the sales figure of Rs.82,70,69,379/- only (para B of the assessment order) for the purpose of enhancing net profit in the same assessment order So, the AO himself has considered two different sales figures in the same assessment order for same assessment year. 4.1.3 Considering the facts and circumstances of the case. I am of the view that the total credits in the bank account of the appellant cannot be considered as total sales/turnover for its business. Therefore, the AO is directed to delete the addition of Rs.10,46,12,536/ made on account of difference between the total credits in bank and the disclosed turnover. Thus, the sole issue raised vide ground no. 1 to 9 is allowed. 4.2. Ground No. 10 relates to addition of Rs.31,63,037/- being net profit at 0.4% of the turnover. The A.o has noted that the appellant failed to furnish 3 expenditure details, bills and invoices, books of account, ledgers and invoices in support of the claim of expenditure. During the appellate proceedings, the appellant contended that the AO had accepted the gross profit of Rs. 21,96,674/- by accepting the sale & purchase figures on the one hand whereas the net profit has been estimated at Rs.31,63,037/- (ie 0.40% of sales) on the other hands. This shows that the not profit is higher than the gross profit, which can never be happened in its foreign currency exchange business The appellant has also submitted that it's net profit ranges from 0.30 to 1.00% and its expenditure employee cost @0.08049% and other expenditures @0.16%, which are much below the industry norms. 4.2.1 The matter has been examined and it is observed that the appellant was specifically asked to furnish expenditure details, bills and invoices, books of account, ledgers and invoices in support of expenditure, which were neither furnished before the AO nor furnished during the appellate proceedings and therefore, the AO had rightly rejected the net result of the books of accounts during the re-assessment proceedings. During the appellate proceedings, the appellant has submitted the same argument as before the AO but failed to furnish any evidences of expenditure as sought by the AO and also mentioned in the decision part on the issue while rejecting the books of account and estimating the net profit. It is also seen that the appellant had claimed expenditure on a/c of employee at Rs. 6,65,744/-, depreciation at Rs 10,921/- and other expenses at Rs. 13,81,466/- in the profit & loss a/c but failed to substantiate its claim of expenditure especially on a/c of employees benefits & other expenses. It is also seen that the employee's expenditure as well as other expenses has been substantially increased in current financial year in comparison to earlier financial year. Under these facts & circumstance, I am of the view that the net profit at 0.10% of sale shall be sufficient to plug the leakage of revenue in absence of supporting evidences for claim of expenditure. Hence, the net profit is estimated at Rs 8,27,069/- (being 0.10% of total sales of Rs.82,70,69,379/-). Thus, the AO is directed to consider the net variance at Rs.6,81,829/- (8,27,069 - 1,45,240). Accordingly, this ground of appeal is partly allowed
5. In result, the appeal of the appellant is partly allowed.”
4. Aggrieved by the said order, the revenue filed the present appeal before this Tribunal raising various grounds. However, the primary contention of the ld. DR is that the order passed by the ld. CIT(A) was incorrect as the assessee had submitted certain new documents that were never placed before the Assessing Officer when the assessment order was passed ex parte against the assessee. Furthermore, the ld. CIT(A) failed to call for a remand report u/s 250(4) of the Act which contrary to the provisions of the Act. As a result, the revenue was denied a fair opportunity to present its case and to raise objection regarding the additional documents filed during the appellate proceedings. Therefore, the impugned order requires reconsideration.
5. On the other hand, the ld. AR contended that the documents were duly submitted before the ld. CIT(A) and after verification the ld. CIT(A) passed the order in favour of the assessee. The ld. AR also argued that the ld. CIT(A) has co-terminus power with that of the Assessing Officer and was justified in allowing the appeal of the assessee. The ld. AR in order to support its case placed on-record a paper-book containing various documents submitted before the ld. CIT(A) which are as under:
SL Particulars Reference of our Number submission page number 1 Federal Bank -RTGS return being Table 1- page 44 the contra entry 2 Fund Transfer Yes bank 0050 to Table 2- page 44 Indusind bank 3 Share capital credited to Yes Bank Table 3A- page 44 3815 (Note1) 4 Share capital credited to Yes 0050 Table 3B- page 45 (note 1) 5 Fund Transfer from Yes bank0050 Table 4- page 45 to Yes bank 3815 6 Fund Transfer from IndusInd bank Table 5- page 46 to Yes bank 3815 7 Fund Transfer from Yes bank 3815 Table 6- page 47 to 51 to Yes bank 0050 on the same day 8 Yes Bank 0050-RTGS return being Table 7- page 52 the contra entry 9 Other adjustments Table 8- page 52
We, after hearing both the parties and perusing the materials available on record, find that the ld. CIT(A) while allowing the appeal of the assessee did not ensure that the Assessing Officer had the opportunity to examine the new documents filed as per section 250(4) of the Act which is mandatory for the ld. CIT(A) to call for a remand report from the Assessing Officer while new evidences were produced by the 5 assessee during the appellate proceedings. However, the ld. CIT(A) overlooked this requirement and passed the order without seeking any such report from the Assessing Officer. Considering the facts and circumstances of the case, we find that since new documents in question were never placed before the Assessing Officer and no remand report was sought, therefore, it is necessary to remand the entire issue for reconsideration. We accordingly remand the matter to the file of the Assessing Officer to reexamine by considering the documents filed by the assessee before the ld. CIT(A) and before this Bench as well after granting reasonable opportunity of being heard to the assessee.
So far as the cross-objection filed by the assessee is concerned, the assessee has not put any grievance against the order of the CIT(A). Hence, the corresponding C.O 60/Kol/2024 is dismissed.
In view of this, the present appeal of the Revenue is allowed for statistical purposes, whereas, the cross-objection of the assessee is dismissed. Kolkata, the 11th February, 2025.