DEPUTY COMMISSIONER OF INCOME TAX, AURANGABAD vs. DHANANJAY BABRUVAN KENDER, BEED

The Assessing Officer on perusal of the seized material found during the course of search noted that the assessee has made cash payments to various persons to the extent of Rs.79,82,000/-. In absence of any explanation given by the assessee regarding the source of the above payments along with any supporting evidence, the Assessing Officer, invoking the provisions of section 69C of the Act, made addition of the same.

The Assessing Officer further noted from pages 25 to 33 of item No.2 that it is a purchase deed of the agricultural land executed on 07.04.2018. The purchase consideration is Rs.8,56,000/-. In absence of any explanation given by the assessee regarding the source of the same, the Assessing Officer treated the amount of Rs.8,56,000/- as deemed income of the assessee u/s 69 of the Act.

Further, the Assessing Officer noted that during the course of search action at the business premises of the assessee various documents were found and seized. On perusal of pages 15 to 17 of item No.2 he observed that it is Form No.16A issued by the Executive Engineer, PWD, Ambajogai, Beed. As per Form No.16A the total payment for contract work to the extent of Rs.32,60,02,477/- was made during the year under consideration. However, from the return filed by the assessee he noted that the assessee has shown gross receipts to the extent of Rs.10,44,63,302/-. He further noted that the assessee has disclosed the TDS of Rs.65,64,172/- against the gross receipts of Rs.32,60,02,477/- but declared the receipts to the extent of Rs.10,44,63,302/-. In absence of any explanation given by the assessee reconciling the difference of Rs.32,60,02,477/- along with supporting documentary evidence, the Assessing Officer made addition of the same. The Assessing Officer accordingly determined the total income of the assessee at Rs.24,34,05,555/- as against the returned income of Rs.1,30,28,380/-.

In appeal the Ld. CIT(A) deleted the additions made by the Assessing Officer in respect of unexplained expenditure u/s 69C and difference in the contract receipt. So far as the addition of Rs.79,82,000/- made by the Assessing Officer u/s 69C of the Act is concerned, the Ld. CIT(A) deleted the same by observing as under: “3.2 I have considered the submission made by the appellant in support of the Ground No.1. The appellant has submitted that the seized material on which reliance has been placed by the AO while making these additions are rough records mainly noted for the purpose of memory of some matters and for the purpose of keeping check over the working of the business. The appellant has demonstrated that all these expenses are actually made for the purpose of business and are also debited to the P and L account and form part of the books of accounts maintained by the appellant. As the appellant has successfully demonstrated that the expenses are allowable regular business expenses and the AO has treated the same as unexplained expenditure without any corroborative evidence, the addition of Rs.79,82,000/- made by the AO is hereby deleted. Ground No.1 of the appeal is, therefore, ALLOWED.”

So far as the addition of Rs.22,15,39,175/- being the difference between the contract receipts disclosed by the assessee and the certificate issued by the Executive Engineer, PWD is concerned, he deleted the same by observing as under: “5.2 Vide this ground of appeal the appellant contended that the AO has erred in treating the receipts of the sundry debtors of A.Y. 2018-19 i.e. of earlier year as gross receipts of the AY 2019-20 i.e. of current year on the basis of Form 16A wherein the TDS is deducted by the payee on payment basis amounting to Rs.22,15,39,175/-. I have gone through the submission made by the appellant and find that the appellant has successfully demonstrated that the amount of Rs.22,15,39,175/- was already reflected in the 26AS for the AY 2018-19. Hence,

Aggrieved with such order of the Ld. CIT(A) / NFAC, the Revenue is in appeal before the Tribunal by raising the following grounds:

The Ld. DR submitted that because of non-compliance to various statutory notices issued by the Assessing Officer he passed the order ex-parte. The assessee has filed the requisite details after the date given by the Assessing Officer. He submitted that when the assessee filed various details before the Ld. CIT(A) he should have called for a remand report from the Assessing Officer. Referring to the decision of Hon’ble Kerala High Court in the case of CIT vs. E.D. Benny reported in (2016) 283 CTR 212 (Ker), he submitted that the Hon’ble High Court in the said decision has held that even if additional evidence produced by the assessee are in nature of clinching evidence leaving no further room for any doubt or controversy, Commissioner (Appeals) is under statutory obligation to put additional material/evidence taken on record by him to Assessing Officer.

Referring to the decision of Hon’ble Delhi High Court in the case of CIT vs. Jansampark Advertising and Marketing P. Ltd. reported in (2015) 375 ITR 373 (Del), he submitted that where the Assessing Officer has failed to discharge his obligation to conduct a proper inquiry to take the matter to logical conclusion it is the obliation of the Ld. CIT(A) to ensure that effective enquiry was carried out. He accordingly submitted that he has no objection if the matter is restored to the file of the Ld. CIT(A) for adjudication of the issue afresh.

The Ld. Counsel for the assessee on the other hand while supporting the order of the Ld. CIT(A) submitted that the Ld. CIT(A) after appreciating the facts properly has passed the order and therefore, the same should be upheld. He submitted that although the assessee did not file the details before the Assessing Officer on 22.09.2021 as asked by him, however, the assessee has filed the details along with various annexures on 25.09.2021. Therefore, the Assessing Officer should have considered the same before passing the order.

Referring to the decision of Hon’ble Bombay High Court in the case of Suryakant Dattatray Kakade vs. ACIT & Anr vide Income Tax Appeal No.1453 of 2016 order dated 18.03.2019, he submitted that the Hon’ble High Court has held in the said decision that the Tribunal need not set aside the matter to the file of the CIT(A) when all the details are available.

Referring to the decision of Hon’ble Supreme Court in the case of Ishwardas Sons vs. CIT reported in (2022) 447 ITR 755 (SC), he submitted that the Hon’ble Supreme Court in the said decision has held that when the issue has been correctly decided, remand should be avoided since it will entail the assessee extra expenditure and would not be in interest of justice. He accordingly submitted that the matter need not be set aside and the order of the Ld. CIT(A) be upheld.

We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the Assessing Officer in the instant case in absence of any compliance from the side of the assessee, in the order passed u/s 153A of the Act, determined the total income of the assessee at Rs.24,34,05,555/-. While doing so he made addition of Rs.79,82,000/- u/s 69C of the Act in absence of any details filed by the assessee regarding the source of payment along with supporting documentary evidence towards cash payments to various persons. The Assessing Officer also made addition of Rs.22,15,39,175/- being the difference between Form No.16A issued by the Executive Engineer, PWD towards contract receipts and the amount disclosed by the assessee in the Profit and Loss Account. We find the above additions have been deleted by the Ld. CIT(A), the reasons of which have already been reproduced in the preceding paragraphs. It is the submission of the Ld. DR that when the assessee failed to make any submission before the Assessing Officer for which he has passed an ex-parte order, the Ld. CIT(A) without calling for a remand report from the Assessing Officer or without giving any opportunity to the Assessing Officer should not have deleted the additions.

We find some force in the above arguments of the Ld. DR. A perusal of the assessment order shows that the assessee has not complied to the various statutory notices issued by the Assessing Officer for which he was constrained to pass the order on the basis of material available on record. Although the assessee has filed certain details before the Ld. CIT(A), however, the Ld. CIT(A) without calling for any remand report from the Assessing Officer or without giving any opportunity to the Assessing Officer to rebut those details and in a very cryptic order, deleted the additions.

A perusal of the order of the Ld. CIT(A) shows that it is a very cryptic one without appreciating the issue properly. We find the Hon’ble Delhi High Court in the case of CIT vs. Jansampark Advertising and Marketing P. Ltd. (supra) has observed as under:

The provision of appeal, before the CIT (Appeals) and then before the ITAT, is made more as a check on the abuse of power and authority by the AO. Whilst it is true that it is the obligation of the AO to conduct proper scrutiny of the material, given the fact that the two appellate authorities above are also forums for fact- finding, in the event of AO failing to discharge his functions properly, the obligation to conduct proper inquiry on facts would naturally shift to the door of the said appellate authority. For such purposes, we only need to point out one step in the procedure in appeal as prescribed in Section 250 of the Income Tax Act wherein, besides it being obligatory for the right of hearing to be afforded not only to the assessee but also the AO, the first appellate authority is given the liberty to make, or cause to be made, "further inquiry", in terms of sub-section (4) which reads as under:- “The Commissioner (Appeals) may, before disposing of any appeal, make such further inquiry as he thinks fit, or may direct the Assessing Officer to make further inquiry and report the result of the same to the Commissioner (Appeals)”.

The further inquiry envisaged under Section 250(4) quoted above is generally by calling what is known as "remand report". The purpose of this enabling clause is essentially to ensure that the matter of assessment reaches finality with all the requisite facts found. The assessment proceedings re- opened on the basis of preliminary satisfaction that some part of the income has escaped assessment, particularly when some unexplained credit entries have come to the notice (as in Section 68), cannot conclude, save and except by reaching satisfaction on the touchstone of the three tests mentioned earlier; viz. the identity of the third party making the payment, its creditworthiness and genuineness of the transaction. Whilst it is true that the assessee cannot be called upon to adduce conclusive proof on all these three questions, it is nonetheless legitimate expectation of the process that he would bring in some proof so as to discharge the initial burden placed on him. Since Section 68 itself declares that the credited sum would have to be included in the income of the assessee in the absence of explanation, or in the event of explanation being not satisfactory, it naturally follows that the material submitted by the assessee with his explanation must itself be wholesome or not untrue. It is only when the explanation and the material offered by the assessee at this stage passes this muster that the initial onus placed on him would shift leaving it to the AO to start inquiring into the affairs of the third party.

The CIT (Appeals), as also the ITAT, in the case at hand, in our view, unjustifiably criticized the AO for not having confronted the assessee with the facts regarding return of some of the summons under Section 131 or not having given opportunity for the identity of all the share applicants to be properly established. The order sheet entries taken note of in the order of CIT (Appeals) seem to indicate otherwise. The order of CIT (Appeals), which was confirmed by ITAT in the second appeal, does not demonstrate as to on the basis of which material it had been concluded that the genuineness of the transactions had been duly established. There is virtually no discussion in the said orders on such score, except for vague description of the material submitted by the assessee at the appellate stage. Whilst it does appear that the time given to the assessee for proving the identity of the third party was too short, and further that it is probably not always possible for the assessee placed in such situation to be able to enforce the physical attendance of such third party (who, in the case of share applicants vis-à-vis a company, would be individuals at large and may not be even in direct or personal contact), the curtains on such exercise at verification may not be drawn and adverse inferences reached only on the basis of returning undelivered of the summonses under Section 131. Conversely, with doubts as to the genuineness of some of the parties persisting on account of non-delivery of the processes, the initial burden on the assessee to adduce proof of identity cannot be treated as discharged.

We are inclined to agree with the CIT (Appeals), and consequently with ITAT, to the extent of their conclusion that the assessee herein had come up with some proof of identity of some of the entries in question. But, from this inference, or from the fact that the transactions were through banking channels, it does not necessarily follow that satisfaction as to the creditworthiness of the parties or the genuineness of the transactions in question would also have been established.

The AO here may have failed to discharge his obligation to conduct a proper inquiry to take the matter to logical conclusion. But CIT (Appeals), having noticed want of proper inquiry, could not have closed the chapter simply by allowing the appeal and deleting the additions made. It was also the obligation of the first appellate authority, as indeed of ITAT, to have ensured that effective inquiry was carried out, particularly in the face of the allegations of the Revenue that the account statements reveal a uniform pattern of cash deposits of equal amounts in the respective accounts preceding the transactions in question. This necessitated a detailed scrutiny of the material submitted by the assessee in response to the notice under Section 148 issued by the AO, as also the material submitted at the stage of appeals, if deemed proper by way of making or causing to be made a "further inquiry" in exercise of the power under Section 250(4). This approach not having been adopted, the impugned order of ITAT, and consequently that of CIT (Appeals), cannot be approved or upheld.”

We find the Hon’ble Kerala High Court in the case of CIT vs. E.D. Benny (supra) has held that even if additional evidences produced by the assessee are in the nature of clinching evidence leaving no further room for any doubt or controversy, Commissioner (Appeals) is under statutory obligation to put additional material/evidence taken on record by him to Assessing Officer. We, therefore, deem it proper to restore the issue to the file of the Ld. CIT(A) with a direction to call for a remand report from the Assessing Officer then decide the issue as per fact and law after providing due opportunity of being heard to the assessee.

So far as the two decisions relied on by the Ld. Counsel for the assessee are concerned, we find both the decisions are distinguishable and are not applicable to the facts of the present case. In the case of Suryakant Dattatray Kakade vs. ACIT & Anr (supra), the very first sentence of the order reads as under:

Further in that case the assessee has placed reliance on certain decisions to contend that in absence of any incriminatory material found during the course of search no addition could have been made in the assessment order passed u/s 153A r.w.s. 143(3) of the Act. The Hon’ble High Court has stated that the Tribunal should have decided the correctness of this contention bearing in mind the facts on record and there was no purpose in remanding the issue back to the file of the Assessing Officer since the facts necessary to decide the question were at large before the Tribunal. Therefore, the Hon’ble High Court has decided not to remand the matter.

Similarly in the case of Ishwardas Sons vs. CIT (supra) the issue was remission or cessation of trading liability (turnover tax). The Hon’ble High Court held that where the assessee claimed deduction of turnover tax on payment basis under section 43B and later got refund by virtue of exemption allowed in appeal, amount of turnover tax was to be assessed under section 41(1) in year in which refund was received. Since the payment in the instant case should only entail the assessee extra expenditure and would not be in the interest of justice, the appeal filed against the decision of Hon’ble High Court was dismissed. However, in the instant case it is not a simple case. The issues are complicated and require elaborate discussion on the basis of impounded material vis-à-vis explanation of the assessee regarding the source of cash expenditure and non-disclosure of huge contract receipts in the Profit and Loss Account which were received by the assessee as per Form No.16A issued by the Executive Engineer, PWD. In the light of the above, the two decisions relied on by the Ld. Counsel for the assessee are distinguishable and are not applicable to the facts of the present case. In view of the above discussion and relying on the decisions of Hon’ble Delhi High Court and Hon’ble Kerala High Court cited (supra), we deem it proper to restore the issues to the file of the Ld. CIT(A) with a direction to decide the issues afresh and in accordance with law after giving due opportunity of being heard to the assessee. We hold and direct accordingly. The grounds raised by the Revenue are accordingly allowed for statistical purposes.

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