ACIT, NEW DELHI vs. SHRI RAMIT VOHRA, NEW DELHI

Per Anadee Nath Misshra, AM

(A) This appeal by Revenue is filed against the order of Learned Commissioner of Income Tax (Appeals)-XXVIII, New Delhi, [“Ld. CIT(A)”, for short], dated 29.06.2012 for Assessment Year 2009-10. The original grounds of appeal are as under:

“1. That the Ld. CIT (A) erred in admitting additional evidences under rule 46A despite the fact that the repeated opportunities were given by the assessee by the AO and he was not prevented by sufficient cause from producing the evidence. 2. That the Ld .CIT (A) erred in admitting additional evidences in contravention of the judgment of Hon’ble Delhi high Court in the case of CIT v. Manish Build Well Pvt. Ltd. [2012] 204 TAXMAN 106 that additional evidence can be produced at first appellate stage only when conditions

ITA No.- 4373/Del/2012. Ramit Vohra. stipulated in rule 46 A are satisfied. 3. That the order of Ld.CIT (A) is perverse and fit to be set aside as she has completely overlooked the reasons mentioned in the assessment order for making additions. 4. That the Ld. CIT(A) failed to provide any opportunity to the AO to appear personally during hearing despite the fact that a request was made by the Addl. CIT, Range-39, vide letter dated 01.06.2012 while forwarding Remand Report of AO to allow the AO to appear in hearing. 5. That the Ld. CIT (A) erred in deleting the addition of Rs. 1,31,761/- on account of income from house property merely on the submission of the assessee completely ignoring the reason mentioned in the assessment order. 6. That the Ld. CIT(A) erred in deleting the addition of Rs. 1,31,761/- on account of income from house property on the basis of additional evidence submitted by the assessee without providing AO opportunity of rebuttal under rule 46 A. 7. That the Ld. CIT (A) erred in deleting the addition of Rs.20,69,898/- made on account of bogus purchases merely on the submission of the assessee completely ignoring the fact that assessee failed to furnish neither the complete address nor the confirmations of the persons from whom purchases were claimed to be made either before the AO or before the CIT (A). 8. That the Ld. CIT (A) erred in deleting the addition of Rs.20,69,898/- made on account of bogus purchases on the CIT v. Escorts Ltd. (338 ITR 435) as the facts of this case are completely different and the ratio decidendi of above judgment is not applicable in this case. 9. That the Ld. CIT(A) erred in deleting the addition of Rs.54,29,787/- made on account of unexplained sundry creditor merely on the submission of the assessee completely ignoring the fact that the assessee failed to furnish neither the complete address nor the confirmations of the sundry creditors either before the CIT (A). 10. That the Ld. CIT (A) erred in deleting the additions Rs.54,29,787/- made on account of unexplained sundry creditors on the basis of the judgment of Hon’ble Delhi High Court in the case of CIT v. Escorts Ltd. (338 ITR 435) as the facts of this case are completely different and the ratio decidendi on above judgment is not applicable in this case. 11. That the Ld. CIT (A) erred in deleting the addition of Rs.4,83,994/- made on account of incorrect claim of depreciation merely on the submission of the

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ITA No.- 4373/Del/2012. Ramit Vohra. assessee completely ignoring the reasons mentioned by the AO. 12. That the Ld. CIT (A) erred in deleting the addition of Rs.44,32,000/- made on account of unexplained addition in capital merely on the submission of the assessee completely ignoring the reasons mentioned by the AO. 13. That the Ld. CIT (A) erred in deleting the addition of Rs.44,32,000/- made on account of unexplained addition in capital basis of additional evidence submitted by the assessee without providing AO opportunity of rebuttal under rule 46 A. 14. That the Ld. CIT (A) erred in deleting the addition of Rs.8,59,643/- made on account of unexplained investment in asset merely on the submission of the assessee completely ignoring the reasons mentioned by the AO. 15. That the Ld. CIT(A) erred in deleting the addition of Rs.8,59,643/- made on account of claim of depreciation disallowed merely on the submission of the assessee completely ignoring the reasons mentioned by the AO. 16. That the Ld. CIT(A) erred in deleting the addition of Rs.8,59,643/- made on account of claim of depreciation on the basis of additional evidence submitted by the assessee without providing AO opportunity of rebuttal under rule 46 A. 17. That the Ld. CIT (A) erred in deleting the addition of Rs.45,29,191/- made on account of deemed dividend u/s. 2(22)(e) merely on the submission of the assessee completely ignoring the reasons mentioned by the AO. 18. That the Ld. CIT(A) erred in deleting the addition of Rs.44,32,000/- made on account of unexplained addition in capital on the basis of additional evidence submitted by the assessee without providing AO opportunity of rebuttal under rule 46 A. 19. That the Ld. CIT (A) erred in deleting the addition of Rs. 1,20,239/- on account of interest payment on housing loan on the submission of the assessee that this has not been claimed in P&L A/c. despite the fact that the assessee filed to establish above by producing the books of account.”

(A.1) subsequently, the grounds of appeal were revised. The revised grounds of

appeal are as under:

“1. The Ld. CIT (A) erred in admitting additional evidences under rule 46A of I.T. Rules, 1962 despite the fact that the repeated opportunities were given to the assessee by the AO and he was not prevented by sufficient cause

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ITA No.- 4373/Del/2012. Ramit Vohra. from producing the evidences before him. 2. That the Ld. CIT (A) erred in deleting the addition of Rs. 1,31,761/- on account of income from house property on the basis of additional evidence submitted by the assessee under rule 46A thereby ignoring the reasons mentioned in the assessment order. 3. That the Ld. CIT (A) erred in deleting the addition of Rs.20,69,898/- made on account of bogus purchases based on the judgment of Hon’ble Delhi High Courts in the case of CIT' V. Escorts Ltd.(338 ITR 435) as the facts of this case are completely different and the ratio dicidendi of above judgment is not applicable in this case. 4. That the Ld. CIT (A) erred in deleting the addition of Rs.54,29,787/- made on account of unexplained sundry creditors on the basis of judgment of Hon’ble Delhi High Court in the case of CIT V. Escorts Ltd. (338 ITR 435) as the facts of this case are completely different and the ratio dicidendi on above judgment is not applicable in this case. 5. That the Ld. CIT(A) erred in deleting the addition of Rs.4,83,994/- made on account of incorrect claim of depreciation merely on the submission of the assessee, thereby completely ignoring the reasons mentioned by the AO. 6. That the Ld. CIT (A) erred in deleting the addition of Rs.44,32,000/- made on account of unexplained addition in capital merely on the submission of the assessee, thereby completely ignoring the reasons mentioned by the AO. 7. That the Ld. CIT (A) erred in deleting the addition of Rs.8,59,643/- made on account of unexplained investment in asset merely on the submission of the assessee, thereby completely ignoring the reasons mentioned by the AO and without providing AO, opportunity of rebuttal under rule 46A. 8. That the Ld. CIT (A) erred in deleting the addition of Rs.45,29,191/- made on account of deemed dividend u/s 2(22)(e) merely on the submission of the assessee, thereby completely ignoring the reasons mentioned in assessment order by the AO. 9. That the Ld. CIT(A) erred in deleting the addition of Rs. 1,20,239/- on account of interest payment on housing loan on the submission of the assessee that this has not been claimed in P&L A/c., despite the fact that the assessee failed to establish the same by producing the books of account. 10. That the grounds of appeal arc without prejudice to one another. 11. The appellant craves to add, amend or modify the grounds of appeal at any time.”

(B) At the time of hearing before us, the Ld. Departmental Representative (“DR”,

for short) appearing for Revenue, did not press the aforesaid grounds no.- 2, 5 and

9 of the Revised Grounds of appeal. Assessment Order was passed Under Section

144 of the Income Tax Act, 1961 (“I.T. Act”, for short) on 28.12.2011 in which total

income was determined at Rs. 2,16,95,055/- as against the returned income of Rs.

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ITA No.- 4373/Del/2012. Ramit Vohra. 36,20,086/-; as per following computation:

S.No Description Amount 1. INCOME FROM HOUSE PROPERTY 1,31,761

i. Net profit from business as show by the assessee : Rs. 37,29,547 ii. Add: bogus purchase : 20,69,898 iii. Add: Claim of depreciation : Rs. 4,83,994 iv. Add: Interest Payment disallowed : Rs. 1,20,213 v. Add: Personal expenses : Rs. 18,482 1,52,50,621 3. INCOME FROM OTHER SOURCES

i. As per the return : NIL ii. Unexplained Sundry Creditor : Rs. 54,29,787 ii. Unexplained in capital : Rs. 44,32,000 iv. Unexplained investment in fixed assets : Rs. 8,59,643 v. Deemed dividend : Rs. 45,29,191 2,18,04,516 4. GROSS TOTAL INCOME

(B.1) In the Assessment Order, the Assessing Officer (“AO”, for short) has included

a discussion on Best Judgment Assessment U/s 144 of I.T. Act. The relevant portion

is reproduced as under:

The assessee failed to produce books of account along with the original bills and vouchers despite getting repeated opportunities. Though, the AR of the assessee appeared on 02.08.2011 and 10.08.2011 but thereafter he failed to appear. First show-cause notice was issued to the assessee on 11.10.2011, which is reproduced below:- 1) You are provided last opportunity

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ITA No.- 4373/Del/2012. Ramit Vohra.

• Despite getting repeated opportunities you have neither filed the books of account nor other details as asked vide notice u/s 142(1) of the Income-tax Act, 1961, 24.03.2011, 16.06.2011 and order sheet entry dated 02.08.2011. • Despite getting repeated opportunities you have neither filed confirmations of Sundry Creditors and Sundry Debtors nor their PAN , copy of their ledgers and their complete address. In absence of confirmations, the Sundry Creditors and Sundry Debtors remained unverified. • Following notices issued u/s 133(6) of the Income-tax Act, on the basis of your earlier year assessment record, to verify your claim of Sundry Creditors/Debtors came back un-served:- i. M/s Neelkanth Enterprises ii. M/s Jai Bhagwati Enterprises iii. M/s Mittal Timber Products Pvt. Ltd. iv. M/s Jyoti Enterprises v. M/s Keshav International M/s Omprakash Fatechand has denied having any transactions with your

vide letter dated 22.07.2011

• Despite getting repeated opportunities you have failed to produce original bills and vouchers pertaining to the expenses claimed by you in the P&L A/c, hence the claim of these expenses remained unverified. • Despite getting repeated opportunities you have neither produced original bills regarding the claim of addition in Fixed Assets of ?7,60,388 (more than 6 months) and 299,255/- (less than 6 months) not submitted evidence of their put to use. 2) Kindly explain why the purchase of Car (26,06,500/-), mobile phone (21 6,700/-), AC (2.25,312/-), Computer (21,04,500) and water dispenser (216,076) should not be treated as personal expenditure not incurred wholly and exclusively for the purpose of business u/s 37(1) of the Income-tax Act

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ITA No.- 4373/Del/2012. Ramit Vohra.

as you have failed to furnish any evidence in support of your claim despite getting repeated opportunities. 3) It also appears that you have taken housing loan from the Union Bank of India keeping your property A-313, Shivalik, Malviya Nagar, New Delhi as per the details submitted by the bank. Kindly furnish the complete details regarding the housing loan taken, complete address of the property purchased. Kindly also explain why you have not disclosed this fact in your return of income or in your submissions. Kindly also explain how you have submitted in your submission dated 10.08.2011 that you have no immovable asset. Kindly also explain why the annual rent from the above property should not be estimated as you have failed to furnish your personal balance sheet for the F. Y. 2007-08 and 2008-09. 4) The details regarding the notices issued to the assessee and failure of the assessee to make compliance are given below: Sl. Details of notice Mode of Remarks No. issued service

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ITA No.- 4373/Del/2012. Ramit Vohra. other details to 08.07.2011. He again requested for adjournment on 08.07.2011. The hearing was again adjourned to 12.07.2011. There was no compliance on 12.07.2011.

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ITA No.- 4373/Del/2012. Ramit Vohra.

Thus, it is quite evident that the assessee failed to appear without Any reasonable cause and failed to produce books of account with a deliberate intention to hoodwink the Department by avoiding further scrutinizing of his business affairs. Penalty proceedings u/s 271(l)(b) of the Income-tax Act, 1961, are initiated for non-compliance of above three statutory notices without any reasonable cause. Since, the assessee failed to furnish the books of account with supporting bills/vouchers/invoices, hence, the expenses shown by the assessee are not verifiable. It is also evident that books of account are not maintained. There cannot be any other explanation of the non-production of books of account as the Authorized Representative appeared on 02.08.2011 and 0.08.2011 and he was directed to produce the books of account vide order sheet entry. Since, books of account have not been produced despite getting reasonable opportunities and adequate time, hence, question of rejecting the books of account does not arise. Moreover, it is also evident that the assessee has not maintained books of account as per the provision of section 44AA of the Income-tax act, 1961, thus, penalty proceedings u/s 271A of the Income-tax Act, 1961 are initiated for non-maintenance of books of account as required by section 44AA of the Income-tax Act, 1961. Now the only option left is to complete the assessment u/s 144 of the Income-tax act, 1961, on the basis of the information available on record. The Hon’ble SC has elaborated about the powers and duty of the Assessing Officer making the best judgement in the following judgement :- CST v. H.M. Esufali, H.M. Abdulai [1973} 32 STC 77 (SC) CST v. H.M. Esufali, H.M. Abdulai [1973} 90 ITR 271 (SC) The relevant portion of the judgment is:- “It is a well settled law that the assessing authority while making the best judgement ” assessment, no doubt, should arrive at its conclusion without any bias and on rational basis. That authority should not

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ITA No.- 4373/Del/2012. Ramit Vohra.

be vindictive or capricious. If the estimate made by the assessing authority is a bona fide estimate and is based on a rational basis, the fact that there is no good proof in support of that estimate is immaterial. Prima facie, the assessing authority is the best judge of the situation. In the present case, there is no dispute that the assessee’s accounts were rightly discarded. We do not agree with the High Court that it is the duty of the assessing authority to adduce proof in support of its estimate. If the basis adopted by the A.O is a relevant one whether it was the most appropriate or not is immaterial. There is no justification in interfering with the same. ” To sum up the import of the decision is that: (i) While making a best judgment assessment, the A.O can take assistance of assessee’s accounts, information gathered and surrounding circumstances of the case; (ii) The A.O is not duty bound to state precisely the account of suppressed turnover or undisclosed income, where it is obvious that the assessee is maintaining false accounts or no accounts. The assessee cannot plead that it is the duty of the A.O to prove conclusively the amount of suppressed turnover or undisclosed income, as this fact is in his personal knowledge; (iii) The burden of proving the fact is on the assessee who cannot be permitted to take advantage of his own illegal acts; (iv) The appellate authorities cannot substitute their “best judgment’ for that of the A.O. (v) Estimate of income is allowed and there may be an overestimate or an underestimate. As long as the estimate is not arbitrary, has nexus with facts discovered and basis adopted is relevant, there can be no ground for interfering with the “best judgment” of the A.O; (vi) In judging a best judgment assessment, the powers of the appellate are restricted. They have merely to see whether the books of accounts were rightly rejected or not and thereafter if the conclusion is positive, then whether or not the basis for estimation has reasonable nexus with the

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ITA No.- 4373/Del/2012. Ramit Vohra.

estimate. Even though the basis adopted may not be most appropriate basis, but if it is such that such conclusion was also possible among several other possible conclusions, the estimate of the A.O cannot be disturbed; and (vii) While making best judgment assessment:- (a) the conclusion drawn should be unbiased and rationally made, (b) the authority should not be vindictive or capricious (c) estimate should be bona fide. (viii) Good proof is not required while making an estimate provided the accounts are rightly rejected and estimate is fair and reasonable.”

(B.2) To justify the various additions made in the Assessment Order, the AO has

also included detailed discussion in the Assessment Order in respect of the various

additions made by him in the aforesaid order dated 28.12.2011 Under Section 144

of I.T. Act. The relevant portion of the Assessment Order is reproduced as under:

“5. EVIDENCE OF MANIPULATION IN ACCOUNTS

As mentioned above, the assessee has not submitted the relevant details with an obvious intention to avoid deeper scrutiny of his accounts and business affairs. The complete information about his business is in the exclusive knowledge of the assessee which he has deliberately not furnished with malafide motive , hence, I am left with no option other than to reasonably estimate the profit of the assessee on the basis of the information available on record. From the perusal of the Balance Sheet of the assessee for the F.Y. 2007-08 and F.Y. 2008-09, it has been observed that the Sundry Creditors have declined from Rs. 2,54,96,604/- in the F.Y. 2007-08 to Rs. 54,29,787/- i.e. by a whopping 80%. This becomes even more strange if we consider the fact that purchases have increased from Rs.12,97,13,220/- to Rs. 20,69,89,766/- i.e. by 60%. Under normal circumstances, Sundry Creditors should have increased by around 60% but they have decreased by 80%. This is something which cannot be reasonably explained and it clearly indicates that something is amiss. A similar analysis of the Sundry Debtors also points towards the fact that something is not correct in the accounts as the Sundry Debtors have also decreased from Rs. 3,97,39,400/- to Rs. 3,30,53,065/- i.e. by 16.86% despite increase in sales from Rs. 12,74,55,170/- to Rs. 21,43,94,341/- i.e. by 68%.

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ITA No.- 4373/Del/2012. Ramit Vohra.

This phenomenal decline in Sundry Creditors and decline in Sundry Creditors coupled with the fact that the assessee has taken huge amount of secured and unsecured loans from the banks and financial institutions clearly indicates that the assessee has cooked his books of account to make them more presentable to the banks so that higher amount of loans can be obtained. The above theory also gets substantial support from the fact that the assessee failed to furnish the complete address of Sundry Creditors and Sundry Debtors and their ledgers obviously to avoid deeper scrutiny. Moreover, notices issued to the following Sundry Debtors and Creditors , whose addresses have been taken from the assessment folder of assessee for the A.Y. 2008-09, have come back unserved:- i. M/s Neelkanth Enterprises ii. M/s Jai Bhagwati Enterprises iii. M/s Mittal Timber Products Pvt. Ltd. iv. M/s Jyoti Enterprises v. M/s Keshav International vi. M/s Jyoti International

Besides above, M/s Swaran Wood Products (I) Pvt. Ltd., in which assessee himself is a Director and majority shareholder , failed to furnish any reply despite the fact that the notice was served through registered post and it did not come back. The Hon’ble Delhi High Court has held in the case of Commissioner of Income-tax, Delhi (Central)- III v. Yamu Industries Ltd. [2007] [2008] 167 TAXMAN 67 (DELHI), that where notice was sent by registered post at correct address of assessee had not been received back ‘unserved’ within period of thirty days of its issuance, there was a presumption under law that said notice had been duly served upon assessee. Thus, the assessee not only deliberately failed to furnish the relevant information in his own case but also in the case of the company in which he is a Director. Assessee has shown debit balance of Rs. 45,29,191/- from M/s Swaran Wood Products (I) Pvt. Ltd. in which he himself is Director and a majority shareholder. The above company was a Sundry Creditor with outstanding credit balance of Rs. 1,24,24,934/- as on 31.03.2008. However, in the balance sheet as on 31.03.2009 the above company appeared as Sundry Debtor with a debit balance of Rs. 45,29,191/-. The case becomes even more fascinating by the fact the above company was not a debtor till 28.02.2009, as per the information furnished by the Union Bank of India. How the above company was transformed from a Sundry Creditor with credit balance of Rs. 1,24,24,934/- to a Sundry Debtor with debit balance of Rs. 45,29,191/- is a mystery which only the assessee can unravel. The case becomes even intriguing if we consider the fact that the assessee has not disclosed any transaction with his own private limited company - M/s Swaran Wood Products (I) Pvt. Ltd. in the earlier assessment years. Thus, the above transactions are certainly not a transaction in the nature of sales and

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ITA No.- 4373/Del/2012. Ramit Vohra. purchases but a loan transaction within the meaning of deemed dividend provision u/s 2(22)(e) of the Income-tax Act, 1961. With these manipulations the assessee managed to improve the Current Ratio (Current Assets/Current Liabilities) from 1.11 (646.93/579.17) as on 31.03.2008 to 1.14 (634.06/554.53) as on 31.03.2009, Total Indebtedness Ratio (Total Outside Liabilities / Total Net Worth) from 7.31 (579.17/79.21) as on 31.03.2008 to 3.93 (554.53/140.78) as on 3 L-Q3.2009 and the total drawing power from the banks. The law is well settled that for the income tax assessment proceedings, proof beyond reasonable doubt is not required. Preponderance of probability is sufficient to estimate the income or to make any disallowance. In numerous judicial pronouncements by the Hon’ble Supreme Courts, High Courts, ITATs, Courts have held that: (i) Unlike criminal proceedings where the charge has to be proved beyond doubt, income-tax proceedings are quasi-judicial. Tax liability in cases of suspicious transactions has to be assessed on the basis of the material available on record, surrounding circumstances, human conduct and preponderance of probabilities; (ii) Rules of evidence do not govern income tax proceedings and the AO is not fettered or bound by technical rules contained in the Indian Evidence Act and is entitled to act on material which may not be accepted as evidence in a court of law; (iii) In clandestine transactions, it is impossible to have direct evidence or demonstrative proof of every move and when the assessee is not forthcoming with proper facts and chooses to be elusive and evasive, the AO has no choice but to take recourse to estimate. The only caveat is that it should be reasonable and based on material available on record. It should not be perverse or based merely on conjectures. (iv) There is no presumption in law that the AO is supposed to discharge an impossible burden to assess the tax liability by direct evidence only and to establish the evasion beyond doubt as in criminal proceedings. He can assessee on consideration of material available on record, surrounding circumstances, human conduct, preponderance of probabilities and nature of incriminating information/ evidence available on record;

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(v) As regards the burden of proof, if the AO comes across material indicating accrual or receipt of income in the hands of the assessee, he is empowered to investigate the matter and ask relevant questions. The AO’s burden is initial in nature. Thereafter, the assessee has to give a proper explanation and disclose facts which are in his exclusive knowledge. The assessee has no option to remain selective, elusive, evasive or restrained in disclosure. After such explanation, the AO has to ascertain the correctness of the assessee’s submissions on the basis of material available on record, the surrounding circumstances, the conduct of the assessee, the preponderance of probabilities and the nature of incriminating information,' evidence available with him.

From the bare perusal of the facts discussed above, any prudent and reasonable person would conclude that the figures mentioned in the balance sheet and profit and loss accounts are not reliable. Penalty proceedings u/s 271(1 )(c) of the Income-tax Act, 1961, are initiated for furnishing of inaccurate particulars of his income by the assessee.

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ITA No.- 4373/Del/2012. Ramit Vohra. initiated for furnishing of inaccurate particulars of his income and concealment of income by the assessee.

i. M.A. UNNERI KUTTY vs. C.I.T. : S.L.P.(Civil) No.4789 of 199312 - Supreme Court. ii. Precision Finance Pvt. Ltd. v. CIT - (1994) 208 ITR 465 (Cal.) iii. United Commercial & Industrial Co. Pvt. Ltd. v. CIT -(1991) 187 ITR 596 (cal.) iv. Nizam Wool Agency v. CIT - Allahabad High Court (1992) 193 ITR 318 (All.) It is a well established judicial principle that the onus is on the assessee to establish the authenticity of the balances disclosed in the accounts. The burden to prove the creditworthiness of the creditors and the genuineness of the transactions is indisputably on the assessee. The Hon’ble Bombay High Court in the case of VELJI DEORAJ & COMPANY (1968) 68 ITR 708 (Bom.) has held that the assessee's duty to prove that an unexplained entry in his account books does not represent undisclosed income is not discharged by merely showing that the entry appears in the account of third party and that the party in whose name the amount is credited is not a fictitious party but a real party but the assessee also has to prove further that the entry made in the account book is a genuine entry. The assessee failed to discharge his primary onus despite getting repeated opportunities which establishes the fact that the assessee tried to scuttle the

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ITA No.- 4373/Del/2012. Ramit Vohra. investigation by not providing relevant information. Thus, the claim of Sundry Creditors of Rs. 54,29,787/- is treated as fictitious and false, hence, Rs. 54,29,787/- is treated as unexplained cash credit within the meaning of section 68 of the Income-tax Act, 1961, and added as the total income from undisclosed sources. Penalty proceedings u/s 271 (1 )(c) of the Income-tax Act, 1961, are initiated for furnishing of inaccurate particulars of his income and concealment of income by the assessee. 8. UNEXPLAINED ADDITION IN CAPITAL During the F.Y. 2008-09, the assessee has disclosed addition in capital of Rs. 44,32,000/-. The assessee has just mentioned in the balance sheet that the above amount has been transferred from his saving bank account. However, from the perusal of the reply submitted by the AR of the assessee vide letter dated 10.08.2011, it has been observed that the assessee failed to mention anything about the above saving bank account while listing his bank accounts. Thus, again the intention is obvious i.e. to avoid further scrutiny. As discussed above, it is a well settled legal position that the onus of establishing the source of any credit entry into the accounts of the assessee is on the assessee. Here , the action of the assessee by deliberately not mentioning any details about the saving bank accounts leads to only one conclusion that assessee does not want to furnish copy of bank statement to the assessing officer and he most certainly has something to hide. Under these circumstances, it is extremely logical and reasonable to believe that the source of the above addition in capital is unexplained. Thus, Rs. 44,32,000/- is treated as income from undisclosed sources. Penalty proceedings u/s 271(l)(c) of the Income-tax Act, 1961, are initiated for furnishing of inaccurate particulars of his income and concealment of income by the assessee. 9. UNEXPLAINED INVESTMENT IN FIXED ASSETS AND CLAIM OF DEPRECIATION ON PURCHASE OF ASSETS DURING THE YEAR The assessee has claimed the purchase of following depreciable assets during the F.Y. 2008-09:-

Name of Assets Addition Before After Rate of 30/09/2008 30/09/2008 DEP

FURNITURE & - 23,348.00 10% FIXTURE T.V. - 5,600.00 15% AIR 25,312.00 - 15% CONDITIONER

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ITA No.- 4373/Del/2012. Ramit Vohra. COMPUTER 68,100.00 - 60% MOBILE PHONE 16,700 - 15% WATER 16,076.00 - 15% DISPENSER CAR 608,500.00 - 15% CAMERA 10,000.00 - 15% DVD PLAYER 8,200.00 - 15% FIRE CYLINDER 23,907.00 15% REFRIGERATOR 17,500.00 15% TOTAL 7,60,388.00 99,255.00

Since, despite repeated opportunities the assessee failed to either produce the copy of their invoices and date of their put to use despite getting repeated opportunities vide various show-cause/notices u/s 142(1) of the Income-tax Act, 1961, as discussed above, hence, the above investments amounting to Rs. 8,59,643/- is treated as unexplained investment u/s 69 of the Income-tax Act, 1961, and added to the total income of the assessee as income from undisclosed sources. Similarly, claim of depreciation amounting to Rs. 4,83,994/- is disallowed and added back to the total income as the assessee failed to furnish the evidence of any business use. Penalty proceedings u/s 271 (1 )(c) of the Income-tax Act, 1961, are initiated for furnishing of inaccurate particulars of his income and concealment of income by the assessee.

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ITA No.- 4373/Del/2012. Ramit Vohra. for furnishing of inaccurate particulars of his income and concealment of income by the assessee. 11. INTEREST PAYMENT ON HOUSING LOANS As per the information furnished by the Manager of Union Bank of India vide letter dated 16.07.2011, the assessee has paid interest on the two housing loans. The details are given below:-

Month Interest Accrued Interest Accrued Housing Loan I During (FY) Housing Loan II (2008- 09) April Loan was 6,116.00 May 6,277.00 Sanctioned in June December, 2008 6,088.00 July 6,149.00 August 6,129.00 September 5,870.00 October 5,993.00 November 5,757.00 December 5,899.00 7,572.00 January 5,837.00 17,982.00 February 5,309.00 11,261.00 March 5,746.00 12,254.00 71,170 49,069

Since, the interest paid on housing loans cannot be qualified as expenditure incurred wholly and exclusively for the purpose of business as per the provision of section 37(1) of the4pt«®e-tax Act, 1961, hence, the above interest payments i.e. Rs. 1,20,239/- are disallowed and added back to the total income. Penalty proceedings u/s 27l(l)(c) of the Income-tax Act, 1961, are initiated for furnishing of inaccurate particulars of his income and concealment of income by the assessee.

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ITA No.- 4373/Del/2012. Ramit Vohra. Delhi. The details regarding the interest payments on the housing loan are given in the above paragraph. As mentioned above, in all the show-cause notices issued to the assessee , following explanation was specifically asked from the assessee:-

“It also appears that you have taken housing loan from the Union Bank of India keeping your property A-313, Shivalik, Malviya Nagar, New Delhi as per the details submitted by the bank. Kindly furnish the complete details regarding the housing loan taken, complete address of the property purchased. Kindly also explain why you have not disclosed this fact in your return of income or in your submissions. Kindly also explain how you have submitted in your submission dated 10.08.2011 that you have no immovable asset. Kindly also explain why the annual rent from the above property should not be estimated as you have failed to furnish your personal balance sheet for the F. Y. 2007-08 and 2008-09. ” However, in the written submission dated 10.08.2011, the assessee submitted that he is not having any immovable property and he is residing in the parental house. However, the assessee failed to furnish any detail regarding his parental house. The payment of interest on the housing loan proves beyond any reasonable doubt that the assessee has acquired one residential house in the earlier financial years as he is paying EMI since April, 2008. However, the assessee may argue that he has not taken the possession of the above residential house in the F.Y. 2008-09 so no annual value can be determined. However, the bank statement of the ICICI bank submitted by the assessee reveals that the address mentioned in the statement is A-313, Shivalik, Malviya Nagar, Near Aurobindo College, Delhi 110017. The above bank statement pertains to the Scooter Loan taken by the assessee and the EMIs have been paid from 5th February, 2008. Thus, the possession of the above residential house has certainly been taken by the assessee either in the F.Y. 2008-09 or in the earlier financial years. Non-submission of details regarding his parental property lends credence to believe that the above parental property is also in the ownership of assessee, for which he can claim NIL annual value as per the provision of section 23 of the Income-tax Act, 1961. Because of the failure on the part of assessee, complete details regarding actual rent received/receivable is not available, from the above residential property, hence, I reasonably estimate the annual rent to be Rs. 3,60,000/- per annum i.e. Rs. 30,000/- per month keeping in view the fact that the property is located in posh South Delhi locality. The income from house property is computed as below: i. Annual value : Rs. 3,60,000/- ii. Less: Deduction (30%) : Rs. 1,08,000 iii. Less: Interest paid : Rs. 1,20,239/- Income from house property : Rs. 1,31,761/-

Page 19 of 39

ITA No.- 4373/Del/2012. Ramit Vohra. Thus, income from house property is estimated at Rs. 1,31,761/-. Penalty Proceedings u/s 271(1)(c) of the Income-tax Act, 1961, are initiated for furnishing of inaccurate particulars of his income and concealment of income by the assessee.

The assessee has claimed expenses of Rs. 77,460/- on staff welfare, Rs. 5,330/- on vehicle maintenance, Rs. 55,590/- on conveyance and traveling and Rs. 66,195/- on sales promotion expenses. It is a matter of common knowledge that all these expenses have elements of personal nature. Thus, 10% of above expenses i.e. Rs. 12,712/- is disallowed and added back to the total income of estimate basis. The assessee has also debited Rs. 1,84,823/- on telephone for which the assessee has himself added Rs. 18,482/- as personal expenses in the computation of income, hence, no further disallowance is required on account of telephone expenses.”

(C) The Assessee filed appeal before Ld. CIT(A) against the aforesaid Assessment

Order dated 28.12.2011. During appellate proceedings before Ld. CIT(A) the assessee

filed Additional Evidences. The Assessing Officer objected to admission of the

Additional Evidences vide letter (“remand report”) dated 31.05.2012. However, the Ld.

CIT(A) admitted the Additional Evidences. The relevant portion of the aforesaid

impugned order dated. 29.06.2012 of Ld. CIT(A), pertaining to admission of Additional

Evidences, is reproduced below for ease of reference:

“Additional evidence That before giving the submission on merits in reference to each addition as narrated in remand report by the A.O. it will be appropriate to justify the filing of additional evidence in regard to the remarks given by the A.O. on page 7.

The A.O. has given the following contentions for non-acceptance / Rejection of additional evidences:-

Page 20 of 39

ITA No.- 4373/Del/2012. Ramit Vohra. 1. Notice dated 23/08/10 for hearing dated 31/08/10

The A.O. has stressed that the appellant did not complied with the notice and has also wrongly contended that he (A.O) was heavily occupied in assessments related to Assessment year 2008-09 while neither it was the period of scrutiny selection nor scrutiny completion. That, merely coming to the room of the A.O. cannot be called compliance. He (assessee) must have filed the submission either before the A.O. or at the office dak receipt counter. That by giving the aforesaid facts the total blame has been put on the face of the appellant. It is questionable if the appellant did not attend why the order sheet was not recorded by giving the remark of his absence. Why it was not recorded in the order sheet for his absence and issue of fresh notice. The order sheets (Assessment proceedings) reflect as under:-

23/08/10 Nothing is recorded 22/07/11 Issue notice for compliance on 02/08/11 02/08/11 G.S. Kohli CA attended, case adjourned for 10/08/11 10/08/11 Partly detail filed. Case discussed and was asked to complete the reply of questionnaire letter.

It could have admitted fact that the month of August was not the period of holding of speedy assessments. But simultaneously it could not be denied that the (A.O) might have ended the matter by giving the impression that the fresh notice would be served upon after 31st December, thus, in these circumstances the assessee is not to be treated as assessee in default.

It is not fair to say that the record does not reveal that on which date hard copy of Profit & Loss Account was filed.

The A.O. has also not given any comment that the proceedings u/s 271(1 )(b) vide notice dated 11/05/05 was also dropped where the written submission was placed on the record that the hard copy of Profit & Loss Account had already been filed. It is evident that it was filed in compliance to the notice dated 24/03/11.

Page 21 of 39

ITA No.- 4373/Del/2012. Ramit Vohra. It is admitted by the A.O. that it was attended and case was adjourned for 08/07/11 and again it was adjourned for 12/07/11, simultaneously with remark that it proves the reluctance on the part of the assessee or A.R. of the assessee. But the A.O. has not given any comments in respect of the proceedings where the written submission was placed on the record vide letter dated 10/08/ 11 where the books of accounts were also produced and it were test- checked by the A.O. That such submission and production evidently proves that the appellant was not in default and was keen to get the assessment completed on merits as held in the immediate two earlier assessment years.

This submission is in reference to the “remand report” dated 31/05/12 in respect of the captioned appeal.

The AO has absolutely reiterated the facts in her “Remand Report” from page 1 to 7 as it were given in Assessment Order framed u/s 144 of Income Tax Act, 1961. The appellant had placed on the record the submission vide letter /paper book dated 16th May, 2012 along with documentary evidences to prove that each addition / disallowance was not justified. The A.O. has not given any remark to such submission, however, from page 7 to 10 in her remand report she has objected or entertainment of additional evidence by giving the facts that the sufficient opportunity were provided to the assessee for filing these relevant documents during the course of Asstt proceedings which he failed to do so he (Assessee) did not comply with the sought information, therefore, an assessment has been completed on scientific basis after having considered the evidence produced by the assessee and after taking into consideration all relevant documents gathered by the A.O. himself. The A.O. had also stated in her report that the assessee’s submission is after-thought to explain the nexplained issues involved in the assessment proceedings. But keeping in view the facts that the sufficient opportunity has been provided during the course of assessment proceedings, therefore, it deserves to be rejected.

The A.O. admitted that it was attended and an adjournment was sought which was granted. But she has also given the remark that it proves the tendency of the assessee for lingering on the matter.

It is humbly submitted that the assessee was not habitual. The earlier two immediate assessment year has also been completed u/s 143(3) where the assessee has fully co-operated. An adjournment was sought by giving the sufficient cause which was accepted by the A.O., thus,

Page 22 of 39

ITA No.- 4373/Del/2012. Ramit Vohra. such remarks are morally wrong. '

It is an admitted fact that due to short of time-gap in between service of notice and its hearing it could not be attended on the fixed date, however, it was attended on the next day and the impression was given that the fresh notice would be served

Again the time-gap was short in between the date of notice and its hearing that it could not be attended on the fixed date. It was attended on the next date, but this time the appellant was not entertained and was told that an ex-parte order had been passed while as per the assessment order it were framed on 28/ 12/11.

In the remand report dated 1.06.2012 the Assessing Officer has stated as under: - * .

“In view of the above additional evidence filed before you deserves to be rejected on merits as well as on the ground that the assessee had sufficient opportunity to file the same during assessment proceedings. The assessee’s submission appears to be an after-thought to explain the unexplained issues involved in the assessment proceedings. Thus, the additional evidence should not be admitted under rule 46A. The additional evidences in no way fully explain the unexplained issues and hence the assessment framed under section 144 of the IT Act is justified and I stay with the assessment.”

It is evident from the assessment folder that during the course of assessment proceedings also repeated opportunities were given to the assessee but the assessee failed to furnish any explanation, hence, in my opinion, he is not entitled to submit any additional evidence at this stage. The Hon’ble Delhi High Court had held in the case of CIT v. Manish Build Well Pvt. Ltd. (2012) 204 TAXMAN 106 that additional evidences can be produced at first appellate stage only when conditions stipulated in rule 46A are satisfied and a finding is recorded.

The appellant has further contended that without prejudice to the above submission it. is submitted that the observation given by the A.O. for each date giving the remark it proves the tendency of the assessee for the lingering on the matter, totally remained negligent and non-cooperative throughout assessment proceedings was unjustified and were contrary to the past-history available on the record as given hereunder:-

Page 23 of 39

ITA No.- 4373/Del/2012. Ramit Vohra. I] The assessment for the two earlier Assessment year i.e. Assessment year 2007-08 and 2008-09 have been completed u/s 143(3) of Income Tax Act, 196l where the assessee has given his full cooperation and the declared results have also been accepted. II] Sufficient documents were placed on the record along with letter dated 10th August, 2011. The books of accounts were also produced which were test-checked as confirmed by the A.O. The appellant was also in possession of confirmation of trade creditors and other allied information sought by the learned A.O., thus, there was no reason to deprive their selves from the assessment proceedings. That an “affidavit” giving the contents on oath in respect of sufficient cause which prevented him in attending the A.O had also been placed on the record. The A.O. has also stated “medical certificate” provided by the assessee is merely related to headache and back ache, it does not prove that he was hospitalized was morally wrong. It is also quite admitted that headache and backache temporarily does not indicate any serious matter as stated by the A.O. But sometimes keeping in view the age of the appellant who is about 45 years not only the assessee, the entire family was in shock and disturbed and at the moment one must bear in mind that health is above all from all other matters. Further the contents in an “affidavit” as item no.4 along with documentary evidence that due to his ill-health the business was conducted in qr. ending 31st Dec, 2011 only to the tune of Rs.79,436/- while for the corresponding period of the previous year it were amounting to Rs.4,80,74,708/-, thus, it evidently proves that the entire activities of the humble appellant were freezed.

Iii] It is submitted the sole purpose of judiciary as well as of the revenue is to get at the truth. There should be no objection to consider any evidence produced to test its authenticity relevant and then to act on it as held by I.T.A.T. Delhi-A Bench [26 ITD 236] in the case of Electra (Jaipur) Pirt. Ltd. V. Inspecting Assistant Commissioner

“The sole purpose of judiciary as well as of the revenue is to get at the truth. If the truth is that the payment of commission was genuine and was dictated by the business needs, such a payment should not be disallowed merely on the ground that the assessee as to create a very high degree of suspicion. There should be no objection to consider any evidence produced to test its authenticity relevant and then to act on it. Similarly it has also been held by Madhya Pradesh High Court in the case of C.I.T. Vs. Shiya Dawoodi Bohara Jamat 304 ITR 336 It is submitted that the appellant had placed on the record the necessary documents like confirmation of trade creditors, sales tax / VAT assessment order and other relevant documents relating to each addition to prove the authenticity, genuineness and bonafidity of the declared profit and the A.O. has not given any particular comments on

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ITA No.- 4373/Del/2012. Ramit Vohra. such documents.

Those apart from the sufficient cause of time-gap in between date of notice and date of hearing an “affidavit” along with medical certificate are enclosed as an evidence to prove one of the sufficient causes which prevented him from attending the proceedings and its disposal on merits as it were held in the earlier two assessment years.

The appellant had also filed an application under rule 46A separately for an entertainment of supporting documents/evidences which were not produced during the course of Assessment proceedings and the additions has been held by the A.O.

The A.O. has only reiterated the facts in the remand report as framed in the assessment order and further she has also referred the case

CST v. H.M. Esufali, H.M. Abdulai [1973] 32 STC 77(SC) and

CST v. H.M. Esufali, H.M. Abdulai [1973] 90 ITR 271 (SC)

in support to prove the validity of an ex-parte order.

In this connection it is submitted that the method of accounting, its representation as well as its reliance has been changed by passage of time. These referred cases are related to 1973 while at present the “tax audit” is there, audit report is there in the prescribed Performa as inserted Income Tax Act, 1961.

The appellant has further contended that the Assessing Officer only reiterated the facts framed in assessment order to stand with its validity, such spirit is far off from the judiciary and natural law of justice as it is also held by Delhi High Court in the case of Commissioner of Income Tax vs. Virgin Securities & Credits Pvt. Ltd. 332 ITR 396

“The assessee produced requisite material before the Commissioner (Appeals) for the first time justifying the claims. The Commissioner (Appeals) called for a remand report from the Assessing Officer and thereafter deleted the addition and observed that the Assessing Officer in his remand report had not specifically commented upon the additional evidence submitted by the assessee. ”

It is submitted that the sufficient cause placed before you along with documentary evidence that even the business of the appellant was freezed in qr. ending 31/12/11 it was conducted only Rs.79,436/- as compared to corresponding period of the previous year where it were to

Page 25 of 39

ITA No.- 4373/Del/2012. Ramit Vohra. the tune of Rs.4,80,74,708/-. It evidently proves the sufficient cause which prevented him from attending the case otherwise there was no reason to deprive their selves from the assessment proceedings particularly where all the documents have been placed on the record, thus, it deserves to be entertained for the disposal of an appeal on merits.

In view of the facts and circumstances of the case, above discussion, judicial pronouncements cited above and keeping in view the past history and the fact that the declared income in the earlier years have been accepted by framing an assessment u/s 143(3) and to render justice being the sole purpose of judiciary, the documents placed on the record as additional evidence are admitted. Now I proceed to adjudicate the grounds of appeal on merits.”

(C.1) The Ld. CIT(A) went on to decide the appeal having admitted the Additional

Evidences, and allowed substantial relief to the assessee, vide the aforesaid impugned

order dated 31.05.2012. Aggrieved, Revenue has filed this present appeal in ITAT. In

the course of appellate proceedings, a Paper Book containing the following particulars

was filed from assessee’s side:

b] Comparative figures of Sale for qr. Ending 31/12/10 and

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ITA No.- 4373/Del/2012. Ramit Vohra. 31/12/11 to prove that the assessee could not run the business in qr. Ending 31/12/11 ue to the physically ill-health and mental depression he also could not attend the A.O. for its disposal on merits.

6 a] Photocopy of sanction of loan by U.B.I for renovation, repair and extension of residential house for Rs. 10 lacs dated 20/09/05 and Rs. 17 lacs dated 17/12/08.

b] The breakup of interest charged by the bankers on such loan which no doubt tallies with the A.O.’s order.

c] Photocopy of Saving Account where the concerned payment have been highlighted to prove that it had been paid from the Saving Account by treating it as personal expenses, its disallowance u/s 37 was not justified.

d] Photocopy of I. Card and Driving License to prove that it is self- occupied property (residential house) and thus the determination of annual value was not justified.

E] Photocopy of Trading, Profit & Loss Account for the year ending 31st March, 2009 and Balance Sheet on that date along with Audit Report on the prescribed Form 3CD for the audit held u/s 44AB of the Income Tax Act, 1961.

8 a] Photocopy receipts for filing of VAT returns (Sales Tax returns) along with its “Summary” for the financial year 2008-09 to prove that the declared purchase and sales has been accepted by the concerned department.

b] For an instance the detail for the month of August, 2008 on the prescribed proforma DVAT 30 and DVAT 31 related to purchase and sales which are regularly filed with the departmental to establish that it leaves to scope of suspicion in respect of purchase and sales as the full particulars ae to be filed with the appropriate authorities.

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ITA No.- 4373/Del/2012. Ramit Vohra.

b] Confirmation of all the trade creditors to establish that an addition of entire outstanding creditors was not justified.

10 a] Capital Account of the assessee giving the day to day transactions related to the relevant Asstt. Year under appeal.

b] That an “annexure” giving the nature of debit and credit transactions.

b] Photocopy of the purchase invoice for an addition held amounting to Rs. 8,59,640/- in the relevant Asstt. Year.

b] The entire outstanding balance of Rs. 45,29,291/- is related to “Sale” to M/s Swaran Wood Products Pvt. Ltd. The detail of outstanding Bills is enclosed, thus, an action u/s 2(22)(E) was not justified.”

(C.1.1) At the time of hearing before us, the Ld. Departmental Representive (“Ld.

DR”, for short) vehemently protested the admission of Additional Evidences by the Ld.

CIT(A) during appellate proceedings before the Ld. CIT(A) despite the assessee having

failed to avail of opportunities provided by the AO during assessment proceedings. The

Ld. DR strongly expressed the further grievance of Revenue, that even after admission

of the Additional Evidences by the Ld. CIT(A), the Ld. CIT(A) failed to provide

reasonable opportunity to the Assessing officer in gross violation of Rule 46A(3) of

Income Tax Rules, 1962 (“I.T. Rules”, for short). The Ld. Authorised Representative of

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ITA No.- 4373/Del/2012. Ramit Vohra. the assessee strongly relied on the order of the Ld. CIT(A). He further relied on the

Paper Book filed from the assessee’s side during appellate proceedings in ITAT [already

reproduced by us in the foregoing paragraph (C.1)]. He also placed reliance on judicial

precedents considered by Ld. CIT(A) in her impugned Order.

(C.2) We have heard both sides patiently. We have also carefully perused the

materials on records. We have considered judicial precedents referred to in the records

or brought to our attention at the time of hearing before us. The statutory provisions

regarding admission of Additional Evidence by Commissioner of Income (Appeals) are

contained in Rule 46A of I.T. Rules, and are reproduced below for ease of reference:

“46(A). (1) the appellant shall not be entitled to produce before the [Deputy Commissioner of (Appeals) [or, as the case may be commissioner (Appeals)], any evidence, whether oral or documentary, other than the evidence produced by him during the course of proceedings before the [Assessing Officer], except in the following circumstances, namely:- (a) whether the [Assessing Officer] has refused to admit evidence which ought to have been admitted; or

(b) where the appellant was prevented by sufficient cause from producing the evidence which he was called upon to produce by the [Assessing Officer]; or

(c)whether the appellant was prevented by sufficient cause from producing before the [Assessing Officer]any evidence which is relevant to any ground of appeal; or

(d) whether the [Assessing Officer ] has made the order appealed against without giving sufficient opportunity to the appellant to adduce evidence relevant to any ground of appeal.

(2) No evidence shall be admitted under sub-rule (1) unless the [Deputy Commissioner (Appeals)] [or, as the case may be, the Commissioner (Appeals)] records in writing the reasons for its admission.

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ITA No.- 4373/Del/2012. Ramit Vohra. (3) The [Deputy Commissioner (Appeals)] [or, as the case may be, the Commissioner (Appeals) shall not take into account any evidence produced under sub-rule(1) unless the [Assessing Officer] has been allowed a reasonable opportunity-

(a) to examine the evidence or document or to cross-examine the witness produced by the appellant, or (b) to produce any evidence or document or any witness in rebuttal of the additional evidence produced by the appellant.

(4) Nothing contained in this rule shall affect the power of the [Deputy Commissioner (Appeals)] [or, as the case may be, the Commissioner (Appeals) to direct the production of any document, or the examination of any witness, to enable him to dispose of the appeal, or for any other substantial cause including the enhancement of the assessment of penalty (whether on his own motion or on the request of the [Assessing Officer]) under clause (a) of sub-section (1) of section 251 or the imposition of penalty under section 271.]”

(C.2.1) On perusal of the aforesaid impugned appellate order of Ld. CIT(A), we

find that the fact, that in earlier years the declared income of the assessee have been

accepted by framing assessment U/s 143(3) of I.T. Act, has been considered favourably

by Ld. CIT(A). However, in our view, the fact whether in earlier years the

declared income of the assessee have been accepted in framing assessment

U/s 143(3) of I.T. Act, or not; is an entirely irrelevant consideration for the

purpose of admission of Additional Evidences. Further, “…. To render justice

being the sole purpose of judiciary…” is the other reason cited by Ld. CIT(A) for

admission of Additional Evidences. We must add here that justice is to be

rendered in accordance with law and not in contravention of law. The law in

relation to admission of Additional Evidences, as contained is Rule 46A of I.T. Rules has

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ITA No.- 4373/Del/2012. Ramit Vohra. already been reproduced in foregoing paragraph (C.2) of this order. The

circumstances under which Ld. CIT(A) may admit Additional Evidences have

been exhaustively listed in clauses (a), (b), (c) and (d) of Rule 46A(1) of I.T.

Rules. However, on perusal of the impugned order of Ld. CIT(A) we find that she has

nowhere commented which of the aforesaid clauses of Rule 46A(1) of I.T. Rules were

applicable in the instant case. Moreover, we find that under Rule 46A(3) of I.T.

Rules, the Ld. CIT(A) is duty bound, once the Ld. CIT(A) admits the

Additional Evidences, to allow a reasonable opportunity to the AO, as per

clauses (a) and (b) of Rule 46A(3) of I.T. Rules. However, after admitting the

Additional Evidences, Ld. CIT(A) failed to provide such opportunity to the AO as has

been prescribed under Rule 46A(3) of I.T. Rules. After commissioner of Income

Tax (Appeals) admits Additional Evidences produced by assessee, scrutiny of

such Additional Evidences admitted by Commissioner of Income Tax

(Appeals) is the statutory right of the AO, conferred under Rule 46A(3) of

I.T. Rules. For our aforesaid views we take support from order of Co-ordinate Bench

of ITAT, Delhi in the case of ITO vs. Pardeepa Rani [2016] 73 taxmann.com 392 (Delhi-

Trib.) and order of Hon’ble Jurisdictional High Court in the case of CIT vs. Manish Build

Well (P) Ltd [2011] 16 taxmann.com 27 (Delhi). In the case of CIT vs. Manish Buildwell

(P) Ltd. (supra), Hon’ble Delhi High Court held as under:

“21. In our opinion, substantial questions of law do arise out of the order of the Tribunal in respect of its decision regarding the addition of Rs. 1,61,67,600/- made under Section 68. We, accordingly, re-frame the following substantial questions of law:- "1. Whether on the facts and in the circumstances of the case and on a proper

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ITA No.- 4373/Del/2012. Ramit Vohra. interpretation of Rule 46A of the Income Tax Rules, 1962, the Tribunal was right in law in taking a decision on the merits of the addition made under Section 68 without affording an opportunity to the assessing officer of being heard as envisaged in sub-Rule (3) of Rule 46A?" 2. Whether on the facts and in the circumstances of the case the Tribunal was right in law in holding that since the CIT (A) possesses co-terminus powers over the assessment apart from appellate powers, there was no violation of Rule 46A committed by him ?" 22. As we have with the consent of the learned counsel, heard them on merits, we proceed to decide the aforesaid substantial questions of law. Since the CIT (A) himself refers to Rule 46A and has also admitted that the confirmation letters adduced by the assessee before him were technically fresh evidence, it is not possible to accept the plea of the learned counsel for the assessee that the CIT (A), in examining the confirmation letters, was exercising his independent powers of enquiry under sub-Section (4) of Section 250 of the Income tax Act. It is true that the CIT (A) as first appellate authority has conterminous powers over the sources of income constituting the subject matter of the assessment, except the power to tackle new sources of income not considered by the Assessing Officer, and can do what the Assessing Officer can do and can direct the Assessing Officer to do what he has failed to do, as held by the Supreme Court in the case of CIT v. Kanpur Coal Syndicate , [1964] 53 ITR 225 , but in this case, the CIT (A) did not exercise this right. This power, which is recognized in sub-Section (4) of section 250, has to be exercised by the CIT (A) and there should be material on record to show that he, while disposing of the appeal, had directed further enquiry and called for the confirmation letters from the assessee even in respect of receipt of monies from customers by way of cheques. Rule 46A is a provision in the Income Tax Rules, 1962 which is invoked, on the other hand, by the assessee who is in an appeal before the CIT (A). Once the assessee invokes Rule 46A and prays for admission of additional evidence before the CIT (A), then the procedure prescribed in the said rule has to be scrupulously followed. The fact that sub-Section (4) of Section 250 confers powers on the CIT (A) to conduct an enquiry as he thinks fit, while disposing of the appeal, cannot be relied upon to contend that the procedural requirements of Rule 46A need not be complied with. If such a plea of the assessee is accepted, it would reduce Rule 46A to a dead letter because it would then be open to every assessee to furnish additional evidence before the CIT (A) and thereafter contend that the evidence should be accepted and taken on record by the CIT (A) by virtue of his powers of enquiry under sub-Section (4) of Section 250. This would mean in turn that the requirement of recording reasons for admitting the additional evidence, the requirement of examining whether the conditions for admitting the additional evidence are satisfied, the requirement that the assessing officer should be allowed a reasonable opportunity of examining the evidence etc. can be thrown to the winds, a position which is wholly unacceptable and may result in unacceptable and unjust consequences. The fundamental rule which is valid in all branches of law, including Income Tax Law, is that the assessee should adduce the entire evidence in his possession at the earliest point of time. This ensures full, fair and detailed enquiry and verification.

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ITA No.- 4373/Del/2012. Ramit Vohra. A 7-Judge Bench of the Supreme Court in Keshav Mills Co. Ltd. v. CIT [1965] 56 ITR 365 had observed as under:- "Proceedings taken for the recovery of tax under the provisions of the Act are naturally intended to be over without unnecessary delay, and so, it is the duty of the parties, both the department and the assessee, to lead all their evidence at the stage when the matter is in charge of the Income-tax Officer." 23. It is for the aforesaid reason that Rule 46A starts in a negative manner by saying that an appellant before the CIT (A) shall not be entitled to produce before him any evidence, whether oral or documentary, other than the evidence adduced by him before the assessing officer. After making such a general statement, which is in consonance with the principle stated in the above judgment, exceptions have been carved out that in certain circumstances it would be open to the CIT (A) to admit additional evidence. Therefore, additional evidence can be produced at the first appellate stage when conditions stipulate in the Rule 46A are satisfied and a finding is recorded. Rule 46 A reads:- "Production of additional evidence before the [Deputy Commissioner (Appeals)] [and Commissioner (Appeals)]. 46A. (1) The appellant shall not be entitled to produce before the [Deputy Commissioner (Appeals)] [or, as the case may be, the Commissioner (Appeals)], any evidence, whether oral or documentary, other than the evidence produced by him during the course of proceedings before the [Assessing Officer], except in the following circumstances, namely : (a) where the [Assessing Officer] has refused to admit evidence which ought to have been admitted ; or (b) where the appellant was prevented by sufficient cause from producing the evidence which he was called upon to produce by the [Assessing Officer] ; or (c) where the appellant was prevented by sufficient cause from producing before the [Assessing Officer] any evidence which is relevant to any ground of appeal ; or (d) where the [Assessing Officer] has made the order appealed against without giving sufficient opportunity to the appellant to adduce evidence relevant to any ground of appeal. (2) No evidence shall be admitted under sub-rule (1) unless the [Deputy Commissioner (Appeals)] [or, as the case may be, the Commissioner (Appeals)] records in writing the reasons for its admission. (3) The [Deputy Commissioner (Appeals)] [or, as the case may be, the Commissioner (Appeals)] shall not take into account any evidence produced under sub-rule (1) unless the [Assessing Officer] has been allowed a reasonable opportunity

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ITA No.- 4373/Del/2012. Ramit Vohra. (a) to examine the evidence or document or to cross-examine the witness produced by the appellant, or (b) to produce any evidence or document or any witness in rebuttal of the additional evidence produced by the appellant. (4) Nothing contained in this rule shall affect the power of the [Deputy Commissioner (Appeals)] [or, as the case may be, the Commissioner (Appeals)] to direct the production of any document, or the examination of any witness, to enable him to dispose of the appeal, or for any other substantial cause including the enhancement of the assessment or penalty (whether on his own motion or on the request of the [Assessing Officer]) under clause (a) of sub-section (1) of section 251 or the imposition of penalty under section 271.] We are highlighting these aspects only to press home the point that the conditions prescribed in Rule 46A must be shown to exist before additional evidence is admitted and every procedural requirement mentioned in the Rule has to be strictly complied with so that the Rule is meaningfully exercised and not exercised in a routine or cursory manner. A distinction should be recognized and maintained between a case where the assessee invokes Rule 46A to adduce additional evidence before the CIT (A) and a case where the CIT (A), without being prompted by the assessee, while dealing with the appeal, considers it fit to cause or make a further enquiry by virtue of the powers vested in him under sub-Section (4) of Section 250. It is only when he exercises his statutory suo moto power under the above sub-section that the requirements of Rule 46A need not be followed. On the other hand, whenever the assessee who is in appeal before him invokes Rule 46A, it is incumbent upon the CIT (A) to comply with the requirements of the Rule strictly. 24. In the present case, the CIT (A) has observed that the additional evidence should be admitted because the assessee was prevented by adducing them before the assessing officer. This observation takes care of clause (c) of sub-rule (1) of Rule 46A. The observation of the CIT (A) also takes care of sub-rule (2) under which he is required to record his reasons for admitting the additional evidence. Thus, the requirement of sub- rules (1) and (2) of Rule 46A have been complied with. However, sub-rule (3) which interdicts the CIT (A) from taking into account any evidence produced for the first time before him unless the Assessing Officer has had a reasonable opportunity of examining the evidence and rebut the same, has not been complied with. There is nothing in the order of the CIT (A) to show that the Assessing Officer was confronted with the confirmation letters received by the assessee from the customers who paid the amounts by cheques and asked for comments. Thus, the end result has been that additional evidence was admitted and accepted as genuine without the Assessing Officer furnishing his comments and without verification. Since this is an indispensable requirement, we are of the view that the Tribunal ought to have restored the matter to the CIT (A) with the direction to him to comply with sub-rule (3) of Rule 46A. In our opinion and with respect, the error committed by the Tribunal is that it proceeded to mix up the powers of the CIT (A) under sub-section (4) of Section 250 with the powers vested in him under Rule 46A. The Tribunal seems to have overlooked sub-rule (4) of Rule 46A which itself

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ITA No.- 4373/Del/2012. Ramit Vohra. takes note of the distinction between the powers conferred by the CIT (A) under the statute while disposing of the assessee's appeal and the powers conferred upon him under Rule 46A. The Tribunal erred in its interpretation of the provisions of Rule 46A vis-Ã-vis Section 250(4). Its view that since in any case the CIT (A), by virtue of his conterminous powers over the assessment order, was empowered to call for any document or make any further enquiry as he thinks fit, there was no violation of Rule 46A is erroneous. The Tribunal appears to have not appreciated the distinction between the two provisions. If the view of the Tribunal is accepted, it would make Rule 46A otiose and it would open up the possibility of the assessees' contending that any additional evidence sought to be introduced by them before the CIT (A) cannot be subjected to the conditions prescribed in Rule 46A because in any case the CIT (A) is vested with conterminous powers over the assessment orders or powers of independent enquiry under sub-section (4) of Section 250. That is a consequence which cannot at all be countenanced."

(C.3) In the case of ITO vs. Pardeepa Rani (supra), co-ordinate Bench of ITAT, Delhi

has held as under:

“6.3 We are of the view that the CIT(A) after over-ruling the objection of the AO on the admissibility of the fresh evidences was required to communicate the decision to admit the evidence to the AO and provide him a reasonable opportunity to rebut the same. In the absence of any such exercises the order is in violation of the Statutory Rules and is open to the challenge of being perverse. Support is drawn from the decision of Jurisdictional High Court in the case of CIT v. Manish Buildwell (P.) Ltd.[2012]204 Taxman106/[2011]16 taxmann.com 27 (Delhi). A perusal of the said decision shows that considering the non-fulfillment of the requirements set out in sub-Rule (3) of Rule 46A the Hon'ble Court was pleased to restore the issue back to the CIT(A) directing the said Authority to address the shortcomings. The Hon'ble Court took into consideration the off repeated argument in such cases by noting that it is true that the powers of CIT(A) as First Appellate Authority are co-terminous with that of the AO by drawing attention to the distinction that the powers of the CIT(A) as First Appellate Authority are co- terminous power over the sources of income constituting the subject matter of the assessment, except the power to touch new sources of income not considered by the Assessing Officer. The Jurisdictional High Court has held that the CIT(A) can also do and can direct the Assessing Officer to do what he has failed to do, as held by the Supreme Court in the case of CIT v. Kanpur Coal Syndicate[1964] 53 ITR 225. The Hon'ble Court found that the CIT (A) in the facts before the Court which fact is evident from the facts of the present case also that the CIT(A) did not exercise the powers recognized in sub-Section (4) of section 250 and has to be exercised by the CIT (A). The Hon'ble Court has held that in order to show that the power under Sub-section (4) to section 250 is being exercised there should be material on record

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ITA No.- 4373/Del/2012. Ramit Vohra. to show that while disposing of the appeal, the CIT(A) had directed further enquiry and called for the confirmation letters from the assessee even in respect of receipt of monies from customers by way of cheques. Rule 46A, it was observed was a provision in the Income Tax Rules, 1962 which is invoked, on the other hand, by the assessee who is in an appeal before the CIT (A). Once the assessee invokes Rule 46A and prays for admission of additional evidence before the CIT (A), then the procedure prescribed in the said rule it has been held has to be scrupulously followed. The fact that sub-Section (4) of Section 250 confers powers on the CIT (A) to conduct an enquiry as he thinks fit, while disposing of the appeal the Hon'ble Court held cannot be relied upon to contend that the procedural requirements of Rule 46A need not be complied with. Their Lordships have held that if such a plea of the assessee is accepted then it would reduce Rule 46A to a dead letter because it would then be open to every assessee to furnish additional evidence before the CIT (A) and thereafter contend that the evidence should be accepted and taken on record by the CIT (A) by virtue of his powers of enquiry under sub-Section (4) of Section 250. The Court held that this would mean in turn that: (i) the requirement of recording reasons for admitting the additional evidence; (ii) the requirement of examining whether the conditions for admitting the additional evidence are satisfied; and (iii) the requirement that the assessing officer should be allowed a reasonable opportunity of examining the evidence etc. can all be thrown to the winds, a position which the Hon'ble Court held was wholly unacceptable and may result in unacceptable and unjust consequences. The Hon'ble Court held that the procedural requirements mentioned in the Rule must be strictly complied with so that the Rule is meaningfully exercised and not exercised in a routine or cursory manner. The Tribunal in view thereof in the facts before the Court was faulted with for over-looking the requirements of sub-Rule (3) of Rule 46A and confusing it with sub-Rule (4) of Rule 46A. Addressing the rationale for the Rule the Hon'ble Court observed that the fundamental rule which is valid in all branches of law, including Income Tax Law is that the assessee should adduce the entire evidence in his possession at the earliest point of time. This ensures full, fair and detailed enquiry and verification. Referring to the decision in Keshav Mills Co. Ltd. v. CIT [1965] 56 ITR 365 (SC), 7-Judge Bench judgement of the Supreme Court, it was observed that the Court held that "Proceedings taken for the recovery of tax under the provisions of the Act are naturally intended to be over without unnecessary delay, and so, it is the duty of the parties, both the department and the assessee, to lead all their evidence at the stage when the matter is in charge of the Income-tax Officer." It was held by the Jurisdictional High Court that it is for the said reason that Rule 46A starts in a negative manner by saying that an appellant before the CIT (A) shall not be entitled to produce before him any evidence, whether oral or documentary, other than the evidence placed by him before the assessing officer. Their Lordships held that after making the said general statement, which was found to be in consonance with the principle stated in the aforesaid judgment of the Apex Court, exceptions have been carved out setting out under what circumstances it would be open to the CIT (A) to admit additional evidence. The Court held that additional evidence can only then be produced at the first appellate stage when conditions stipulated in the Rule 46A are satisfied and a

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ITA No.- 4373/Del/2012. Ramit Vohra. finding is recorded to that extent which makes it clear in unambiguous language that firstly the conditions prescribed in Rule 46A must be shown to exist before additional evidence can be admitted and thereafter every procedural requirement mentioned in the Rule has to be strictly complied with so that the Rule is meaningfully exercised and not exercised in a routine or cursory manner. Their Lordships have held that a distinction should be recognized and maintained between a case where the assessee invokes Rule 46A to adduce additional evidence before the CIT (A) and a case where the CIT (A), without being prompted by the assessee, while dealing with the appeal, considers it fit to cause or make a further enquiry by virtue of the powers vested in him under sub-Section (4) of Section 250. It is only when the CIT(A) exercises his statutory power suo moto under the above sub- section that the requirements of Rule 46A need not be followed. On the other hand, whenever the assessee who is in appeal before him invokes Rule 46A, it is incumbent upon the CIT (A) to comply with the requirements of the Rule strictly. 6.4 In the facts of the case before the Hon'ble High Court it was found that the CIT(A) had recorded that the additional evidence should be admitted because the assessee was prevented by adducing them before the assessing officer. The said observation it was held would take care of clause (c) of sub-rule (1) of Rule 46A. The observation of the CIT (A) it was held would also take care of sub-rule (2) under which he is required to record his reasons for admitting the additional evidence. Thus, the requirement of sub-rules (1) and (2) of Rule 46A it was held had been complied with. However, the Hon'ble Court found that sub-rule (3) which interdicts the CIT (A) from taking into account any evidence produced for the first time before him unless the Assessing Officer has had a reasonable opportunity of examining the evidence and rebut the same, had not been complied with. The Court found that there was nothing in the order of the CIT (A) to show that the Assessing Officer was confronted with the confirmation letters received by the assessee from the customers who paid the amounts by cheques and asked for comments. Thus, the end result the Hon'ble Court held was that additional evidence were admitted and accepted as genuine without the Assessing Officer furnishing his comments and without verification. In these circumstances the Court held:— "Since this is an indispensable requirement, we are of the view that the Tribunal ought to have restored the matter to the CIT (A) with the direction to him to comply with sub-rule (3) of Rule 46A. In our opinion and with respect, the error committed by the Tribunal is that it proceeded to mix up the powers of the CIT (A) under sub- section (4) of Section 250 with the powers vested in him under Rule 46A." Commenting upon the order of the ITAT their Lordships further held that "the Tribunal erred in its interpretation of the provisions of Rule 46A vis-à- vis Section 250(4). Its view that since in any case the CIT (A), by virtue of his conterminous powers over the assessment order, was empowered to call for any document or make any further enquiry as he thinks fit, there was no violation of Rule 46A is erroneous. The Tribunal appears to have not appreciated the distinction between the two provisions. If the view of the Tribunal is accepted, it would make Rule 46A otiose and it would open up the possibility of the assessees' contending that any additional evidence sought to be introduced by

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ITA No.- 4373/Del/2012. Ramit Vohra. them before the CIT (A) cannot be subjected to the conditions prescribed in Rule 46A because in any case the CIT (A) is vested with conterminous powers over the assessment orders or powers of independent enquiry under sub-section (4) of Section 250. That is a consequence which cannot at all be countenanced."

(D) In view of the foregoing, and respectfully following the aforesaid precedents in

the cases of CIT vs. Manish Buildwell (supra) and ITO vs. Pardeepa Rani (supra); we

set aside the aforesaid impugned appellate order dated 29.06.2012 of Ld. CIT(A) with

the direction to pass fresh order. If the Ld. CIT(A) decides to admit Additional

Evidences, he should clearly state the specific clause(s) of Rule 46A(1) of I.T.

Rules that would apply; while recording the reasons under Rule 46A(2) of

I.T. Rules. Further, if the Ld. CIT(A) decides to admit Additional Evidences,

reasonable opportunity prescribed under Rule 46A(3) of I.T. Rules must be

provided by the Ld. CIT(A) to the AO.

(D.1) In the result, the appeal is partly allowed for statistical purposes.

Order pronounced in the open court on 19/09/19.

Sd/- Sd/- (H.S. SIDHU) (ANADEE NATH MISSHRA) JUDICIAL MEMBER ACCOUNTANT MEMBER

Dated: 19/09/19 (Pooja)