Loading judgment…
Facts
The Revenue appealed against an order by the NFAC which deleted an addition made under Section 69A. The assessee, a non-filer, had made significant cash deposits and withdrawals. Notices were issued, but the assessee remained absent and did not comply. The Assessing Officer made an addition based on this non-compliance.
Held
The Tribunal held that the NFAC erred by admitting additional evidence without following the procedure laid down in Rule 46A of the Income-tax Rules. Specifically, the Assessing Officer was not given an opportunity to examine the evidence or cross-examine the assessee. This procedural lapse vitiated the order.
Key Issues
Whether the CIT(A) correctly deleted the addition by admitting additional evidence without affording the AO an opportunity to examine or rebut it, as per Rule 46A.
Sections Cited
250, 69A, 148, 142(1), 133(6), 147, 144, 144B, 194H, 46A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, JAIPUR BENCH “B”, JAIPUR
Before: SHRI GAGAN GOYAL & SHRI NARINDER KUMAR
This appeal by the revenue is directed against the order of NFAC, Delhi dated 06.02.2024 passed u/s. 250 of the Income Tax Act, 1961 (in short ‘the Act’).The revenue has raised the following grounds of appeal: -
1. Whether on the facts and circumstances of the case, the learned CIT(A), NFAC, Delhi was justified in deleting the addition of Rs. 2,79,75,700/-, made u/s. 69A of the act by treating cash deposit of Rs.43,60,700/- and cash withdrawal of Rs. 2,36,15,000/- as turnover but estimation of 2% net profit on gross receipt of Rs.
12,84,53,162/- and restriction of addition from Rs. 2,79,75,700/- to Rs. 25,69,063/- which resulted tax effect of Rs. 1,96,28,005/-?
2. The CIT (A), NFAC relied on the submission made by the assessee during the appeal proceedings. However, the same has not been sent to JAO for remand report as per the Income-Tax Rule 46A (3), since the submission made before the CIT (A) the same was never submitted before the AO.
The brief facts of the case are that the assessee firm was amongst the non- filers of return for the year under consideration. As per information received through multiyear NMS cases in AIMS category P-1, it is gathered that the assessee firm has deposited cash of Rs. 43,60,700/- in current account and cash withdrawals from current account of Rs. 2,36,15,000/- and commission of Rs. 37,123/- as per T.D.S. Return (Section 194H of the Act). In view of these facts a notice u/s. 148 of the Act was issued on 19.03.2021. The assessee firm neither filed any return in response to the same nor any adjournment requested. Notices u/s. 142(1) of the Act was also issued on 22.06.2021, 20.11.2021 and 19.01.2022. But none of the notices ever complied by the assessee. Ultimately, the case of the assessee was assessed at a figure of Rs. 2, 80, 12,823/- (Rs. 2, 79, 75,700/- u/s. 69A of the Act + Rs. 37,123/- commission income). The assessee being aggrieved with this order of the AO preferred an appeal before the Ld. CIT (A), who in turn allowed the appeal of the assessee and reversed the order of the AO. Now the Revenue being aggrieved preferred the present appeal before us.
We have gone through the order of the AO, order of the Ld. CIT (A) and arguments of the DR Alongwith the grounds taken before us. It is observed that in this case the assessee was totally absent before the AO and notices u/s. 133(6) of the Act were also issued to the banker of the assessee, i.e. Central Bank of India.
But there was no response from the banker also. The assessee partner-ship firm was closed on 31.03.2017. In its submissions before the Ld. CIT (A) the assessee submitted that as the business of firm was wind up w.e.f. 31.03.2017 and shifted from Kota to Mandi Gobindgarh. In support of its claim the partners of the firm Mr. Rahul Kumar and Mr. Manish Bhagria produced their erstwhile rent agreement of house at Kota alongwith Aadhar Cards issued at Kota vis-à-vis rent agreement of house at Mandi Gobindgarh and Aadhar Card issued there.
It is also claimed by the assessee that their tax audit report was duly filed by their consultant Mr. Ashok Gupta on 07.11.2017 but he died thereafter because of certain illness and diseases. Because of this reason nobody was there to take care of developments took place, i.e. issuance of notice u/s. 148 of the Act and consequential order passed u/s. 147 r.w.s. 144 and 144B of the Act. Before the Ld. CIT (A) the assessee filed copy of his tax audit report and based on the same the Ld. CIT (A) assumed that these are the withdrawals and deposits in the normal course of business, i.e. Kachhi Arhat and trading in agricultural produce.
As per the tax audit report filed by the assessee before the Ld. CIT(A), turnover for this year was Rs. 10,29,07,862/- and agreed N.P. was 2%. The Ld. CIT(A) further added Rs. 1,92,45,300/- (Rs. 2,36,15,000/- (-) Rs. 4,36,0,700/-) and applied the N.P. Rate of 2% on assumption basis. It is observed that the Ld. CIT(A) was extra lenient in this matter and forgot to follow the basic procedure even that the claim of the assessee really falls in the category of business turnover or not. In case it is not the Ld. CIT (A) is duty bound to verify the Identity, Genuineness and Creditworthiness of the deposits made (Withdrawals can certainly be adjusted against the withdrawals). It is beyond our understanding that how the Ld. CIT(A) can by-pass the procedure as prescribed under 46A of the Rules as reproduced herein below:
Rule - 46A, Income-tax Rules, 1962 Production of additional evidence before the Joint Commissioner (Appeals)and Commissioner (Appeals).
46A. (1) The appellant shall not be entitled to produce before the Joint 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 Joint Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals)] records in writing the reasons for its admission. (3) The Joint 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 Joint 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.
In view of the above, certainly the Ld. CIT (A) can admit additional evidences before him subject to a specific request by the assessee (which is missing in this case) and after recording the reasons as prescribed in Sub-Rule (2) of the Rule 46A and following the procedure laid down in Sub-Rule (3) of the Rule 46A of the Rules. Here in this case the steps laid down by Sub-Rules (2) and (3) of the Rule 46A of the Rules has been grossly ignored and violated. Within the bounds of specified circumstances, it was within the discretion of the Ld. CIT (A) under rule 46A of the Income-tax Rules to admit or not to admit further evidence at the appellate stage. In the present case, the assessee failed to produce evidence before the ITO despite repeated opportunities. The appellate authorities, therefore, cannot act arbitrarily or capriciously and were justified only when the procedure laid down in Rule 46A of the Rules is followed strictly.
A bare perusal of the provisions of section 250(4) shows that the Commissioner (Appeals), at the time of hearing of the appeal, can make such further inquiry as he deems fit and may ask the Assessing Officer to make such an inquiry. This provision in the Act vests in the appellate authority the power to make further inquiry which would include the power to admit further evidence. The procedure and the manner in which additional evidence is to be produced is laid down in rule 46A of the Rules. Rule 46A (1) lays down the grounds on which the appellate authority can allow additional evidence. Sub-rule (2) provides that the appellate authority, while admitting such evidence, must record its reasoning in writing. Sub-rule (3) provides that no evidence produced under sub-rule (1) shall be taken into account unless the Assessing Officer is given a reasonable opportunity of examining the evidence or documents produced or is permitted to cross-examine the witnesses examined or is permitted to produce any evidence or document in rebuttal to the additional evidence produced by the assessee. Sub-rule (4) is more in the nature of suo-moto power given to the appellate authority to direct the production of any document or witness to enable him to dispose of the appeal or for any other substantial cause. In the instant case, admittedly, the evidence was produced not on the direction of the Commissioner (Appeals) but by the assessee itself. Since the assessee could not produce that evidence because of its non-appearance before the Assessing Officer, which was explained by it satisfactorily before the Commissioner (Appeals), the Commissioner (Appeals) was justified in permitting the assessee to lead additional evidence. However, once he permitted the assessee to lead evidence in terms of sub-rule (3), he was bound to give an opportunity to the Assessing Officer to examine the documents and also give an opportunity to produce any evidence to the contrary if he so desired. This is also in accordance with the rule of natural justice. Further, the said provision is a mandatory provision and non-compliance of the same would vitiate the order itself.
In view of the above discussion on procedure to be adopted and on the facts of the case, matter is remanded back to the file of the Ld. CIT(A) and further directed to give an opportunity of being heard/rebut the claim of the assessee to the AO. In the result, grounds taken by the Revenue are allowed for statistical purposes.
In the result, the appeal of the Revenue is allowed for statistical purposes.
The Order is pronounced in the open court on the 1st day of May 2025.