ACIT- 19(3), MUMBAI vs. RAJENDRA S. BHATE, MUMBAI

Grounds raised by the Revenue are reproduced below:–

Brief facts are, the assessee is an individual. For the assessment year under dispute, the assessee filed his return of income on 29th February 2016, declaring total income of ` 2,53,45,080. The return of income filed by the assessee was selected for scrutiny and the Assessing Officer issued notices under section 143(2) of the Income Tax Act, 1961 (for short "the Act") to the assessee to appear in the assessment proceedings and explain certain details. As observed by 3 Rajendra S. Bhate the Assessing Officer, the notice issued under section 143(2) of the Act returned back un–served. Even, the notice under section 143(2) of the Act sent by e–mail also remained non–complied. Attempt made by the Assessing Officer to serve the notice through the Ward Inspector also could not bear any result, as the Inspector reported that the assessee is not available in the given address and ultimately he has to serve the notice by way of affixture. Thus, due to non–compliance of the assessee, the Assessing Officer proceeded to complete the assessment to the best of his judgment under section 144 of the Act on the basis of material available on record. From the material on record, he found that assessee’s case was selected for scrutiny due to the following reasons:–

Further, on verifying the return of income as well as other material on record, he found that while the assessee has shown interest received of ` 2,41,44,807, whereas, as per the ITS details, the total income received is ` 3,87,15,028=40. Since the assessee neither appeared nor explained the mismatch and the derivative transaction,

In course of proceedings before the learned Commissioner (Appeals), the assessee furnished certain additional evidences with regard to the addition of ` 56,75,52,250, as unexplained investment under section 69C of the Act on the basis CIB information. To explain the aforesaid transaction, the assessee furnished additional evidences along with a written note. After considering the submissions of the assessee and evidences filed, learned Commissioner (Appeals) deleted the addition made of ` 56,75,52,250.

The learned Departmental Representative submitted, the Assessing Officer has received CIB information with regard to the investment of ` 56,75,52,250, made by the assessee in derivative and futures & options transactions. He submitted, in course of assessment proceedings, the Assessing Officer made an effort to verify the aforesaid transaction on the basis of CIB information. However, the Assessing Officer’s attempt to make enquiry was prevented due to non–compliance of the assessee during the assessment proceedings. Therefore, the Assessing Officer was compelled to complete the assessment to the best of his judgment by adding back the amount of 5 Rajendra S. Bhate ` 56,75,52,250. He submitted, before the first appellate authority the assessee has furnished certain additional evidences to explain / reconcile the CIB information and purely relying upon the submissions of the assessee and the additional evidences filed, learned Commissioner (Appeals) has deleted the addition of ` 56,75,52,250. He submitted, considering the fact that the assessee did not appear before the Assessing Officer and failed to furnish any evidence to explain/reconcile the CIB information, learned Commissioner (Appeals) should have sent the submissions of the assessee and additional evidences for verification of the Assessing Officer and obtain a report from him. He submitted, without following the mandate of rule 46A, learned Commissioner (Appeals) has not only accepted additional evidences, but has deleted the entire addition relying upon such evidences. Drawing our attention to the order of learned Commissioner (Appeals), the learned Departmental Representative submitted, learned Commissioner (Appeals) has not even discussed in detail the nature of evidences filed by the assessee and simply going by the submissions of the assessee has deleted the addition. Thus, he submitted, the issue needs to be restored back to the Assessing Officer for fresh examination and adjudication.

The learned Authorised Representative submitted, before learned Commissioner (Appeals), the assessee has not only furnished all

We have considered rival submissions and perused the material on record. Undisputed facts are, the return of income filed by the 7 Rajendra S. Bhate assessee was selected for scrutiny for certain reasons enumerated in the earlier part of the order. In the course of assessment proceedings, the Assessing Officer wanted to verify the issues on which the return of income was picked–up for scrutiny and accordingly issued notice under section 143(2) of the Act to the assessee calling for the required information. It is evident, the assessee did not comply to the notice issued by the Assessing Officer. In fact, the assessee remained totally non–responsive during the assessment proceedings. Therefore, the Assessing Officer was compelled to complete the assessment to the best of his judgment under section 144 of the Act on the basis of information available on record. It is evident, the Assessing Officer was in possession of CIB/AIR information revealing investment/transaction amounting to ` 56,75,52,250, in derivatives, futures and options. Since the assessee neither appeared nor furnished any evidences to explain the nature and source of such transaction, in the absence of any evidences furnished by the assessee, the Assessing Officer had no other way, but to add back the amount of ` 56,75,52,250, to the income of the assessee.

Undisputedly, before the first appellate authority, the assessee had produced additional evidences to explain the nature and source of investment/transactions as reported in the CIB/AIR information. Admittedly, the aforesaid evidences were not filed before the 8 Rajendra S. Bhate Assessing Officer. Therefore, they have to be treated as additional evidences. It is a fact on record, on the basis of fresh evidences filed by the assessee and explanation submitted, learned Commissioner (Appeals) has deleted the entire addition made by the Assessing Officer. While doing so, though, learned Commissioner (Appeals) has primarily relied upon the additional evidences/explanation, he neither sent them for examination of the Assessing Officer nor has called for any report from him. Simply relying upon the evidences filed by the assessee, learned Commissioner (Appeals) has deleted the addition. No doubt, section 250 sub–section (4) of the Act empowers learned Commissioner (Appeals) to make such further enquiry as he thinks fit or he may direct the Assessing Officer to make such enquiry, however, it is at the complete discretion of learned Commissioner (Appeals). Section 250 sub–section (4) of the Act does not allow the assessee to furnish additional evidences suo–motu. Furnishing of additional evidences by the assessee is regulated under rule 46A and subject to restrictions/conditions imposed therein. On a reading of rule 46A(3), it is very much clear that if the assessee on his own furnishes additional evidences before the first appellate authority, such evidences shall not be taken into account unless the Assessing Officer has been allowed a reasonable opportunity verifying such evidences and offering his comment. Therefore, the power of the first appellate authority, as 9 Rajendra S. Bhate conferred under section 250(4) r/w rule 46A(4) is different from the opportunity given to the assessee under rule 46A(1). While rule 46A(1) is circumscribed by certain conditions, rule 46A(4) is not so as it provides ample power in terms of section 250(4) to the first appellate authority to make necessary enquiry for disposal of the appeal. In the present case, we are dealing with a situation as envisaged under rule 46A(1). It is evident from the facts on record, learned Commissioner (Appeals) on his own has neither made any enquiry nor has called for any evidences from the assessee. It is the assessee who, on his own, has furnished the additional evidences to explain the information contained in CIB/AIR report. Therefore, the procedure laid down in sub–rule (2) and (3) or rule 46A, has to be followed. In the facts of the present case, undisputedly, the procedure laid down in sub–rule (2) and (3) of rule 46A, have not been followed. Therefore, in our considered opinion, while granting relief to the assessee by relying upon the additional evidences, learned Commissioner (Appeals) has violated the conditions of rule 46A, as discussed above.

As regards the decision of the Hon'ble Jurisdictional High Court in Smt. Prabhavati S. Shah (supra), there cannot be two opinions with regard to the ratio laid down in the aforesaid decision. However, the Hon'ble Jurisdictional High Court was dealing with a case where the 10 Rajendra S. Bhate first appellate authority refused to admit the additional evidences filed by the assessee. In that context, the Hon'ble Jurisdictional High Court explaining the power of the first appellate authority under section 250(4) and (5) of the Act, held that the additional evidences filed by the assessee should not be rejected as the power of the learned Commissioner (Appeals) in making enquiry and calling for evidences is much wider and is not restricted by rule 46A. However, the facts are completely different in the present case, as explained by us herein before. Therefore, the aforesaid decision of the Hon'ble Jurisdictional High Court would be of no help to the assessee. In view of the aforesaid, we are inclined to set aside the impugned order of learned Commissioner (Appeals) and restore the issue back to his file for fresh adjudication after necessary compliance with the provisions of rule 46A. Needless to mention, before deciding the appeal, the assessee must be given reasonable opportunity of being heard. Grounds are allowed.

In the result, Revenue’s appeal is allowed for statistical purposes.

The cross objection filed by the assessee is in support of the order passed by learned Commissioner (Appeals). In view of our

To sum up, Revenue’s appeal is allowed for statistical purpose and cross objection is dismissed.