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Facts
The assessee filed his return for AY 2012-13, which was initially assessed under section 143(3). The case was later re-opened under section 147 due to receiving income from partnership firms, leading to a disallowance under section 14A. The CIT(A) dismissed the assessee's appeal, upholding the AO's action.
Held
The Tribunal held that the CIT(A) erred in not admitting additional evidence. The CIT(A) has co-terminus powers with the AO and can make further inquiries. Sub-section (4) of section 250 allows the CIT(A) to conduct further inquiries. In the interest of justice, additional evidence should have been admitted.
Key Issues
Whether the CIT(A) was justified in not admitting additional evidence and dismissing the appeal? Whether the addition made by the AO under Section 14A was correct?
Sections Cited
14A, 143(3), 147, 10(2A), 250
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Before: SHRI PAWAN SINGH & SHRI BIJAYANANDA PRUSETH
आदेश / O R D E R
PER BIJAYANANDA PRUSETH, AM:
This appeal by the assessee emanates from the order passed under section 250 of the Income-tax Act, 1961 (in short, ‘the Act’) dated 01.03.2024 by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [in short, ‘CIT(A)’] for the assessment year (AY) 2012-13.
The grounds of appeal
raised by the assessee are as under: “1. The Ld. CIT(A), National Faceless Appeal Centre (NFAC), Delhi has erred in law and in facts in not appreciating the fact that the assessment order passed by Ld. AO by invoking the provisions of sec. 148 of the I.T. Act is erroneous / in violation of principles of natural justice and is thus liable to be quashed.
2. Without prejudice to above, the Ld. CIT(A) has erred in law and in facts in confirming the action of the Ld. AO in reopening the case of appellant merely on basis of change of opinion without appreciating the fact that the appellant had disclosed full and complete facts at the time of original assessment and all /AY.2012-13 Sureshkumar Mavjibhai Bhingaradia these details were already examined. The impugned assessment order is thus liable to be quashed.
3. The Ld. CIT(A), NFAC has erred in law and in facts in confirming the action of the Ld. AO in making disallowance of Rs.10,00,092/- on account of expenditure incurred for earning the exempt income under section 14A. The impugned disallowance being bad in law and in facts is prayed to be allowed.
Your appellant craves liberty to add, alter, amend substitute or withdraw any of the grounds of appeal hereinabove contained.”
Brief facts of the case are that the assessee filed his return of income for AY.2012-13 on 09.09.2012, declaring total income of Rs.80,87,310/- after claiming deduction of Rs.12,08,093/- (net interest expenses). The case was selected for scrutiny and assessment u/s 143(3) of the Act was finalized on 30.01.2015, determining total income at Rs.81,60,700/- by disallowing excess interest paid @ 3% amounting to Rs.73,387/-. The assessee had paid interest @ 15% on the loans taken whereas he had received interest on loans given @ 12%. Subsequently, the case was re-opened for the reasons that assessee had received income of Rs.5,51,51,564/- from two partnership firms out of which Rs.4,56,55,976/- was profit from those two firms, which was claimed as exempt income u/s 10(2A) of the Act. As per section 14A of the Act, no deduction shall be allowed in respect of expenditure incurred by assessee in relation to income which does not form part of the total income. The Assessing Officer (in short, ‘AO’) issued various noticed to the assessee, which were not complied with. Therefore, he disallowed proportionate interest of Rs.10,00,092/- [(4,56,55,976 / 5,51,51,564) x 12,08,093] u/s 14A of the Act. The order was passed u/s 144 r.w.s 147 of the Act.
/AY.2012-13 Sureshkumar Mavjibhai Bhingaradia 4. Aggrieved by the order of AO, the assessee filed appeal before the CIT(A). The appellant raised various grounds which are at para 3 of the appellate order. The CIT(A) issued various notices in response to which assessee filed submission which has been extracted in the appellate order. The appellant made application for admission of additional evidence which is at page 8 and 9 of appellate order. It was submitted that the requisite submission and other documents in response to notices of the AO could not be furnished through the assessee had sent the copy of notices to the CA of the assessee, M/s Mukund & Rohit, Vadodara. But due to oversight by the person dealing with taxation matter in the said CA firm, the notices remained unattended. The appellant was under bona fide belief that the CA was regularly attending the proceedings before AO. Under these circumstances, the explanation / evidence furnished constitutes additional evidence, which was prayed to be admitted. The CIT(A) dealt with the above issue at para 7.2.2 and 7.2.3 of the appellate order. He observed that appellant’s case was not covered by any of the clauses (a) to (d) of sub-rule (1) of Rule 46A of the I.T. Rules. Additional evidence can be admitted only for sufficient and valid reasons. The reason given by appellant is not sufficient to explain non-compliance before AO. The non-compliance was mainly due to negligence and inaction on part of the appellant. Thus, the additional evidence was not admitted. However, the CIT(A) also decided the case on merit based on the written submission given during the appellate proceedings. He has observed that appellant failed to /AY.2012-13 Sureshkumar Mavjibhai Bhingaradia provide any detailed explanation and documentary evidences in support of grounds of appeal raised by him. The appellant also failed to prove the nexus of borrowings with the introduction of capital in the partnership firm. In the result, the CIT(A) dismissed the appeal of the assessee.
5. Aggrieved by the order of CIT(A), the assessee filed appeal before the Tribunal. The learned Authorised Representative (ld. AR) of the assessee submitted written submission and a paper book containing 38 pages. He has also made application for admission of additional evidence enclosing 80 pages, which includes copies of acknowledgement of ITR and STI for the AYs.2010-11 to 2012-13, ledger accounts of various lenders and copy of application under Rule 46A before CIT(A). The same is reproduced for ready reference: “1. Assessee craves leave to place 80 pages as additional evidences on record of this Hon’ble Tribunal. Such additional evidences contain following documents in support of the grounds of appeal raised before Hon’ble the ITAT: Acknowledgment of lTR and STI for three years; Ledgers of concerned lenders; Ledgers of advances given to Ramdev Chemicals Industries; Application under Rule 46A filed before CIT(A);
2. At the assessment stage, relevant documents were sent by assessee to the office of the concerned Chartered Accountant looking after taxation matters. However, inadvertently and due to oversight, the concerned person handling taxation matters at the office of the concerned Chartered Accountant could not respond to the notices issued by AO. Under such facts and circumstances, ex-parte assessment came to be framed by the Assessing Officer for the year under consideration.
3. At the appellate stage, assessee categorically moved application under Rule 46A along with additional evidences (as enlisted in earlier part). However, such additional evidences were not admitted by CIT(A). Under such circumstances, application under Rule 46A filed before CIT(A) along with additional evidences furnished therewith are now sought to be placed before Hon'ble the ITAT as additional evidences.
/AY.2012-13 Sureshkumar Mavjibhai Bhingaradia 4. Additional evidences sought to be placed before this Hon'ble ITAT are very vital and decisive for determining the controversy on hand in just and equitable manner. Such documentary evidences also go to the root of the matter.”
As stated earlier, the CIT(A) has not admitted the additional evidence. The ld. AR submitted that the assessee has duly forwarded the notices issued by AO to his Chartered Accountant. These documents, which constitute additional evidences, were also sent to the office of the CA. But due to oversight, the person handling taxation matter did not respond to the notices issued by AO and an ex-parte order was passed by the AO. The additional evidences were not admitted by the CIT(A) under Rule 46A. The same were sought to be placed because they are vital and decisive for determining the controversy in the appeal in a just and equitable manner.
On the other hand, the learned Senior Departmental Representative (ld. Sr. DR) of the revenue supported the order of the lower authorities. He submitted that the case of the appellant is not covered under any clause (a) to (d) of rule 46A(1) of the I.T. Rules.
We have heard both the parties and perused the materials available on record. Let us first decide about the admissibility of additional evidences of the appellant. We find that the AO passed ex-parte order u/s 144 r.w.s. 147 of the Act. In this case, original assessment order u/s 143(3) had been passed on 30.01.2015 determining total income at Rs.81,60,700/- as against returned income of Rs.80,87,310/- by making disallowance of interest expenses of Rs.73,387/-. In the subsequent order u/s 144 r.w.s. 147 of the Act, the AO /AY.2012-13 Sureshkumar Mavjibhai Bhingaradia made addition of Rs.10,00,092/- u/s 14A of the Act mainly because assessee did not reply to the notices issued by AO. Before CIT(A), assessee requested for admission for additional evidences because the CA of the assessee did not respond to the notices of AO despite being apprised of such notices by the assessee. The assessee had also supplied the necessary documents for submission before AO. The reasons for not accepting additional evidence by CIT(A) is that assessee was negligent and was not active during assessment proceedings. The CIT(A) observed that conditions under clause (a) to (d) of sub-Rule (1) of Rule 46A are not satisfied. 8.1 We are not in agreement with the view of the ld. CIT(A). It is well- settled that the CIT(A) is vested with co-terminus power that the AO has in making an assessment order. The Hon’ble Bombay High Court in the case of Smt. Prabhavati S. Shah vs. CIT, (1998) 100 Taxman 404 (Bombay) held that on a plain reading Rule 46A, it is clear that the same is intended to put fetters on the right of the appellant to produce before the AAC, any evidence, whether oral or documentary, other than evidence produced by him during the course of proceedings before the ITO except in the circumstances set out therein. It does not deal with the power of the AAC [CIT(A)] to make further inquiry, which is made clear by way of sub-Rule (4) which specifically provides that the restriction placed on the production of additional evidence by the appellant would not affect the powers of AAC to call for the production of any documents or the examination of any witness to enable him to dispose off the /AY.2012-13 Sureshkumar Mavjibhai Bhingaradia appeal. Further, under sub-section (4) of section 250 of the Act, the AAC is empowered to make such further inquiry as he thinks fit or direct the ITO to make further inquiry and to report the matter to him. On a conjoint reading of section 250 and Rule 46A, it is clear that the restrictions placed on the appellant to produce evidence do not affect the powers of AAC under sub- section (4) of section 250 of the Act. This decision has been followed by Hon’ble Kerala High Court in case of CIT vs. K. Ravindranathan Nair, 265 ITR 217 (Ker.). The purpose of Rule 46A appears to be ensured that evidence is primarily led before the AO. In the present case, we find that the assessee had filed all details during original assessment proceedings, where after considering submission and the order u/s 143(3) of the Act. During reassessment proceedings, assessee had sent the notices issued by AO as well as necessary details to CA, who did not appear before AO. Due to such non- compliance, AO made addition of Rs.10,00,092/- u/s 14A of the Act. Therefore, in the interest of justice, the CIT(A) should have admitted additional evidence and thereafter called for the remand report from AO and decided the matter accordingly. At this juncture, it may be mentioned that Rule 29 permits ITAT to admit additional evidence for any substantial cause. The intention behind the rule is that substantial justice should be done and the interest of justice should be the overriding consideration. In view of the clear statutory provisions discussed above and precedents cited supra, we set aside the order of the CIT(A) and remit the matter to the AO for de novo assessment order after /AY.2012-13 Sureshkumar Mavjibhai Bhingaradia considering the explanation and evidence produced by the appellant. The AO shall be at liberty to call for further details and evidence, if the details given are not adequate. The appellant is directed to be vigilant and submit all details and evidences as may be required by the AO by not seeking any adjournment without any valid reason.
Since we have set aside the order of CIT(A) and remitted the matter to the AO, the other grounds raised
by the appellant are academic in nature and do not require adjudication.
10. In the result, appeal of the assessee is allowed for statistical purpose. Order is pronounced in the open court on 10/02/2025.