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Facts
The assessee, a salaried typist, declared a low income against a large turnover, claiming to be a benamidar for business transactions. The AO made additions under sections 37, 68, and 69A. The CIT(A) deleted these additions. The revenue appealed, and the assessee filed a cross-objection.
Held
The Tribunal found inconsistencies in the assessee's statements and behavior between the AO and CIT(A) stages. The CIT(A) did not follow proper procedure for admitting additional evidence. The Tribunal set aside the CIT(A)'s order and restored the matter to the CIT(A) for fresh adjudication with specific directions.
Key Issues
Whether the CIT(A) erred in deleting additions by not properly considering the assessee's conduct and by not following due procedure for admitting additional evidence, and whether the assessee's business operations were genuine.
Sections Cited
144, 143(3), 37, 68, 69A, 251, 46A, 271
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Income Tax Appellate Tribunal, JAIPUR BENCH “A”, JAIPUR
Before: SHRI SANDEEP GOSAIN & SHRI GAGAN GOYAL
PER GAGAN GOYAL, A.M: This appeal and cross objection are filed by the revenue and the assessee respectively against the order of NFAC, Delhi dated 22.09.2024 passed u/s. 250 of the Income Tax Act, 1961 (in short ‘the Act’). The revenue has raised the following grounds of appeal:-
1. 1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition of Rs. 39,048/- made by the AO of 10% of Direct expenses regarding cartage and coolies as assessee has details/documents of such expenses.
2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) was justified in deleting the addition of Rs. 49,519/- made by the AO of 10% of Indirect expenses claimed as assessee has not furnished details/documents of such expenses.
3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition of Rs. 10,00,000/- made by the AO on account of capital introduced by the assessee is treated as unexplained cash credit u/s. 68 of the I.T. Act, 1961.
4. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition of Rs. 19,07,000/- made by the AO on account of cash deposit in bank was treated as income of the assessee from undisclosed sources u/s. 69A of the I.T. Act, 1961.
Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition of Rs. 1,11,89,435/- made by the AO on account of difference of balance between books of accounts of assessee and debtors was treated as undisclosed money u/s. 69A of the I.T. Act, 1961. In CO No. 20/JP/2024, the assessee has raised the following grounds of appeal:-
The Ld. AO is wrongly objecting on the decision of CIT(A) on justified deletion of wrong addition of Rs. 39,048/- on percentage basis of Direct expenses regarding cartage and coolies which were duly furnished to the CIT(A) who after due verification of bills and ledger deleted the wrong addition.
2. The Ld. AO is wrongly objecting on the decision of CIT(A) on justified deletion of wrong addition of Rs. 49,519/- on percentage basis of Indirect expenses which were duly furnished to the CIT(A) who after due verification of bills and ledger deleted the wrong addition 3. The Ld. AO is wrongly objecting on the decision of CIT(A) on justified deletion of wrong addition of Rs. 10,00,000/- u/s. 68 as unexplained cash credit whereas this was loan taken and correctly capital introduced by the assessee which were duly furnished to the CIT(A) who after due verification of personal balance sheet and confirmation, deleted the wrong addition. 4. The Ld. AO is wrongly objecting on the decision of CIT(A) on justified deletion of wrong addition of Rs. 19,07,000/- u/s 69A as undisclosed sources whereas this cash deposit was on account of cash received from debtors and cash withdrawn from bank which after due verification of cash book, bank statement and audited financials the Ld. CIT(A) deleted the addition.
5. The Ld. AO is wrongly objecting on the decision of CIT(A) on justified deletion of wrong addition of Rs.1,11,89,435/- u/s 69A as undisclosed money whereas there is no difference of balance between books of accounts of assessee and debtors as the debtor had confirmed balance of only 1 unit out of 2 units which after due verification of ledgers confirmed by the debtor which was matched with the books of accounts the Ld. CIT(A) deleted the addition.
The brief facts of the case are that the assessee e-filled his return of income on 28.10.2017 declaring total income at Rs. 2,99,180/-. The case of the assessee was selected for scrutiny under CASS accordingly statutory notices were issued. During the assessment proceedings, the assessee submitted that he is only a salaried person as a typist in the company M/s. Emgee Cables and Communications Ltd. up-to May 2018. He never indulged in any business activity in his life and Mr. Shripal Choudhary, Director of M/s. Emgee Cables and Communications Ltd. pursued him to sign various documents including cheques.
He had not opened and operated any bank account in the name of New Generation Inc. and was not aware of any debtors and creditors.
Despite this statement by the assessee, AO was not satisfied with the claim of the assessee and was of the view that all the business transactions were either entered by the assessee himself or after his consent for the same and assessed the case after making additions u/s. 37, 68 and 69A of the Act amounting to Rs. 1,41,85,002/-. The assessee being aggrieved with the same preferred an appeal before the Ld. CIT(A), who in turn reversed the order of the AO and allowed the appeal of the assessee. Now the revenue being aggrieved with the appeal order, preferred the present appeal before us. The assessee also approached us through Cross Objection (C.O.). First, we are taking the matter of the revenue as the substantial issue is involved therein only, the assessee’s C.O. is found to be only for namesake.
We have gone through the order of the AO passed u/s. 144 r.w.s. 143(3) of the Act, order of the Ld. CIT(A) and submissions/arguments of both sides along with grounds taken by the revenue. It is observed that as the assessee has taken the stand before the AO that he is a benamidar of some Mr. Shripal Choudhary, Director of M/s. Emgee Cables and Communications Ltd. and never produced any information/evidence/document/explanation before the AO, but the same assessee fully cooperated before the first appellate authority by submitting all information like ITR, Audited Financials, confirmations of the parties along with VAT returns etc.
5. Now for us it is of utmost importance to analyse the behaviour of the assessee first before the AO and the First Appellate Authority. There is a 360 degree turn in the statement and behaviour of the assessee and this issue has not been discussed even by the Ld. CIT(A) in his order. The Ld. CIT(A) is not only an appellate authority but also having a concurrent jurisdiction to what the AO has during the assessment proceedings. Now here it is pertinent to mention ground no. 2 taken by the assessee before the Ld. CIT(A) as under:
That without prejudice to the ground no. 1 above on the facts and in the circumstances of the case the Ld. AO is wrong, unjust and has grossly erred in law in not accepting the submission of the appellant that in his statement recorded on oath under section 131 of the Act, that he is not the real owner of M/s. New Generation Inc. and that all the documents, transactions etc. relating to the said concern does not belong to him and is therefore not assessable in his hands. The assessing officer did not accept contention of the appellant that his employer Shri Shripal Choudhary, Director of M/s. Emgee Cables and Communications Ltd. made him to sign various papers without being aware of nature thereof without making any enquiry or issuing any summon to him.
On this issue the Ld. CIT(A) observed as under:
Ground Nos. 1 and 2 being general in nature, does not need any adjudication, as I find that even after making serious observations on the credentials of the assessee, the AO finally held that he is satisfied to hold all business activities ha been done by the assessee or through his consent. However, the AO progressed to make the assessment ex-parte u/s. 144 of the Act in absence of any details or documents or books of accounts furnished before him. At the appellate stage, the assessee had duly submitted audited final accounts, a copy of tax audit report dated:10.09.2017, entire set of VAT Return, copies of ledgers of various expenses, copies of confirmation of accounts in respect of certain sundry debtors and copies of affidavit, retracting the statement given before the AO. I have reasons to believe that such documentary evidence cannot be brushed aside and proceed to decide on the other grounds raised by the assessee, in light of the said documentary evidence.
6. We have gone through the affidavit of the assessee filed before the Ld. CIT(A) dated: 09.05.2022 vide page no. 21-23 of the paper book. It is observed that the serious allegations leveled against the AO and the Ld. CIT(A) is duty bound to take note of the contents of the affidavit filed before him in the light of the facts available on the file of the AO. It is also observed that on the guise of being benamidar of some Mr. Shripal Choudhary, Director of M/s. Emgee Cables and Communications Ltd., the assessee never produced and cooperated with the AO during the assessment proceedings but produced the same with affidavit before Ld. CIT(A). On these facts we need to understand the powers of the Ld. CIT(A) w.r.t. section 251 of the Act r.w.r 46A of the Rules as under:
Section - 251, Income-tax Act, 1961 - FA, 2024 Powers of the Joint Commissioner (Appeals) or theCommissioner (Appeals). 251. (1) In disposing of an appeal, theCommissioner (Appeals)] shall have the following powers— (a) in an appeal against an order of assessment, he may confirm, reduce, enhance orannul the assessment
Provided that where such appeal is against an order of assessment made under section 144, he may set aside the assessment and refer the case back to the Assessing Officer for making a fresh assessment; (aa) in an appeal against the order of assessment in respect of which the proceeding before the Settlement Commission abates under section 245HA, he may, after taking into consideration all the material and other information produced by the assessee before, or the results of the inquiry held or evidence recorded by, the Settlement Commission, in the course of the proceeding before it and such other material as may be brought on his record, confirm, reduce, enhance or annul the assessment;] (b) in an appeal against an order imposing a penalty, he may confirm or cancel such order or vary it so as either to enhance or to reduce the penalty; (c) in any other case, he may pass such orders in the appeal as he thinks fit.
(1A) In disposing of an appeal, the Joint Commissioner (Appeals) shall have the following powers— (a) in an appeal against an order of assessment, he may confirm, reduce, enhance or 11annul the assessment; (b) in an appeal against an order imposing a penalty, he may confirm or cancel such order or vary it so as either to enhance or to reduce the penalty; (c) in any other case, he may pass such orders in the appeal as he thinks fit.] (2) The Joint Commissioner (Appeals) or theCommissioner (Appeals), as the case may be, shall not enhance an assessment or a penalty or reduce the amount of refund unless the appellant has had a reasonable opportunity of showing cause against such enhancement or reduction. Explanation. —In disposing of an appeal, the Joint Commissioner (Appeals) or theCommissioner (Appeals) may consider and decide any matter arising out of the proceedings in which the order appealed against was passed, notwithstanding that such matter was not raised before the Joint Commissioner (Appeals) or theCommissioner (Appeals), as the case may be, by the appellant. 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 theJointCommissioner (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 Officerany evidence which is relevant to any ground of appeal; or (d) where the assessing Officerhas 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 Officerunder clause (a) of sub-section (1) of section 251 or the imposition of penalty under section 271.
In view of section 251 of the Act and Rule 46A of the Rules, it is clear that Sub-Rule (2) r.w. Sub-Rule (4), The Ld. CIT(A) is entitled to call for production of any document, or the examination of any witness to enable him to dispose of the application subject to the procedure laid down by the sub-rule (2). But, in this case nothing was called for by the Ld. CIT(A) and there is no evidence of following the procedure laid down by the sub-rule (2) of rule 46A of the Rules. In that case sub-rule (3) of Rule 46A of the Rules comes into picture and clearly the procedure laid down by the sub-rule (3) of rule 46A of the Rules has not been followed.
Rather, abruptly ignored and there is cruel miscarriage of the procedure in favour of the assessee by the Ld. CIT(A).
In view of the facts discussed, law and procedure have been torn in favour of the assessee. It is a clear case of ignorance, negligence and miscarriage of law. The Procedure followed by the Ld. CIT(A) vis-à-vis facts of the case are not reconciling with each other. The assessee was supposed to file a complaint with the police initially itself, when his name was misused, and he became benamidar of somebody. Secondly, at the AO level a person is representing himself as victim of fraud, the same person suddenly appeared before the first appellate authority with all the documents including tax audit report uploaded in his favour. Although here also there is a big contradiction in this story also, as discussed (supra) the assessee is still taking grounds that his statement before the AO was relied upon by the AO at the time of statement and the AO was supposed to rely on the same. On the other hand, in the same appellate proceeding, he is withdrawing his statement before the AO and participating in the proceedings as if he is the beneficial owner and not the benamidar.
It is carefully observed with the facts on record before us that the assessee was not presented with clear and clean intentions from day one and rather mis used the legal procedure made available for genuine assessees. The Ld. CIT(A) also failed to smell the intentions of the assessee and rathermessed up the whole matter, instead of examining the same with due procedure of law diligently. We have gone through the financial and tax audit report of the assessee submitted along with the paper book vide page nos. 4-18 and observed that the size of the assessee’s balance sheet is Rs. 68,88,82,641/- consisting of Trade creditors of Rs. 68,72,20,531 against Trade Debtors of Rs. 61,48,34,355 with a closing stock of Rs. 6,96,44,567/- and VAT input available is Rs. 38,46,424. These are huge figures, and the assessee is declaring a meagre income of Rs. 2,99,179/- against the turnover of Rs. 144,41,53,550/-. These all are fudgedfigures, and the agenda of the assessee is not to carry out the genuine business operations. Rather, the intentions were to indulge in entry operations to accommodate various needs of the other business entities in terms of availability of VAT credits and bills of sales and purchase.
To carry out such a so-called massive business operation the assessee is claiming cartage and freight outward of Rs. 81,400/-, Godown Rent of Rs. 22,545/- and salary of Rs. 3,51,801/- only and surprisingly there is no communication and electricity charges claimed at all. The books of the assessee are manufactured and not written in due course. In such type of situation, Tribunal being a specialized adjudication body consists of a legal expert and accounting expert can’t be a mute spectator and allow such type of miscarriage. In nutshell, the order of the Ld. CIT(A) is set-aside in its entirety and matter is restored back to the file of the Ld. CIT(A) again with following directions as under:
1). Examine the matter of statement given before the AO, its retraction and truth about ground no. 2 taken before him. 2). Specific finding on the above must be the part of his order sheet and appeal order 3). Examine the relationship of the assessee with his employer Mr. Shripal Choudhary, Director of M/s. Emgee Cables and Communications Ltd. 4). True character of the assessee’s business operations in the light of our findings (supra) 5). Thorough examination of the results declared by the assessee in terms of turnover, Trade Debtors and Trade Creditors with their confirmations on record 6). Authenticity of Loans taken by the assessee and profitability factor of the venture being run by the assessee and its relationship with M/s. Emgee Cables and Communications Ltd. 7). All the enquiries and actions enumerated above should be carried out through remand report of the concerned AO.
In the result, the appeal of the revenue is allowed for statistical purposes with the above directions and the C.O. filed by the assessee is dismissed.
Order is pronounced in the open court on the 6thday of March2025.
Sd/- Sd/- (SANDEEP GOSAIN) (GAGAN GOYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER Jaipur, िदनांक/Dated: 06/03/2025 Copy of the Order forwarded to: 1. अपीलाथ�/The Appellant , 2. �ितवादी/ The Respondent. आयकर आयु� CIT 3. 4. िवभागीय �ितिनिध, आय.अपी.अिध., Sr.DR., ITAT, 5. गाड� फाइल/Guard file. BY ORDER, //True Copy// (Asstt.Registrar) ITAT, Jaipur
Details Date Initials Designation 1 Draft dictated on PC on 06.03.2025 Sr.PS/PS 2 Draft Placed before author 06.03.2025 Sr.PS/PS 3 Draft proposed & placed before the Second JM/AM Member 4 Draft discussed/approved by Second Member JM/AM 5. Approved Draft comes to the Sr.PS/PS Sr.PS/PS 6. Kept for pronouncement on Sr.PS/PS 7. File sent to the Bench Clerk Sr.PS/PS 8 Date on which the file goes to the Head clerk 9 Date of Dispatch of order