THE ACIT GANDHIDHAM CIRCLE, GANDHIDHAM vs. SOFTEL MACHINES LIMITED , GANDHIDHAM ( KUTCH)

The Ld.CIT(A) has erred in law and on facts in deleting the disallowance of Rs.1,26,56,927/-, being amortization of advertisement expenses based on new evidences furnished by the assessee during appellate proceedings without seeking comments of the Assessing officer. The assessee did not furnish any explanation during the assessment proceedings for proposing the disallowance. In respect of expenses of amortized advertisement expenses, the Ld.CIT(A) also allowed the appeal of the assessee based on the new evidence. During the assessment proceedings, the assessee did not even reply to the Softel Machines Limited disallowance proposed and did not produce such details. These are new evidences which the Ld. CIT(A) ought to have put before the assessing officer to submit comments / acceptability of the new evidence under Rule 46A of Income Tax Rule. However, the same was not remanded before the assessing officer.

The assessee craves leave to add, amend, alter or withdraw any or more grounds of appeal at the time of hearing of appeal.”

In response to the statutory notices issued, the assessee has submitted incomplete details online.

About unexplained share application money, the assessing officer noticed that in the audited copies of accounts, in the balance sheet, it was noticed that during the year the assessee has received large share application money from three parties amounting to Rs.1,28,00,000/- but no explanation or supporting documents like confirmation of accounts, supporting bank statements, name of the shareholders ITRs etc. have been filed by the assessee. Therefore, Assessing Officer had issued various notices to assessee for filing details related to share application money receipt for checking the source and authenticity of share application money and receipts. In response to the various notices, assessee has not filed any reply. As the share application money was received from three applicant, the assessee ought to have filed contra confirmation, identity proof and source of addition made to share application money as required u/s 68 of the Act i.e. identity, genuineness and creditworthiness of the parties who gave share application money. In this case, the assessee- company ought to have furnished details with full proof /evidences of increase in shares capital. It should have furnished details such as name and address of the person, their confirmation letter, bank accounts/statements, PAN, mode, date and source of investment. However, assessee failed to file any of those details in spite of various opportunities. Therefore, the genuineness of the share capital, creditworthiness &identity of the person from whom such amount were received is not verifiable. It is the primary onus of the assessee to prove identity and creditworthiness of the depositors and genuineness of the transactions. Therefore, assessing officer observed that it is a settled law, that if there is an entry in the accounts of the assessee, which shows the receipt of a sum the burden is on the assessee to explain the nature and source of such credit. In this regard, it has been held in number of case laws that this initial burden extends to establish –

About disallowance on account of non-deduction of TDS for sales promotion & telemarketing expenses, the assessing officer, on perusal of the P & L account and submissions filed during the course of assessment proceedings, it was noted that the assessee has claimed sales promotion & telemarketing expenses. The assessee was requested to explain as to why the 30% of the said sales promotion & telemarketing expenses of Rs. 17,98,373/- i.e. Rs.5,39,512/- should not be disallowed as the assessee has failed to deduct TDS on the said sales promotion & telemarketing expenses. No explanation is offered by the assessee in this regard. As per the provisions of the Act the assessee is required to deduct TDS for the sales promotion & telemarketing expenses, since the assessee has failed to deduct the same. Hence the amount of Rs.5,39,512/- was disallowed u/s.40(a)(ia) of the Act by the assessing officer.

About disallowance on account of TDS deducted but not deposit till the due date of filling return of income u/s.40(a)(ia) of the Act, the assessing officer, on perusal of the audit report it was noted that the assessee has deducted TDS on the amount of Rs.2,29,58,699/- for various expenditure but same was not deposited till the due date of filling of Return. As per the provisions of the Act the assessee was required to deduct TDS and deposit the same till due date of filling of return of income. Since the Assessee has failed to do so, the amount of Rs.68,87,610/- being 30% of the total amount was disallowed u/s.40(a)(ia) r.w.s. 200(1) of the Act and added back to the total income of the assessee.

About disallowance of amortization of advertisement expenses, the assessing officer noticed from the P & L Account, that the assessee has claimed an amount of Rs.1,26,56,927/- as amortization of advertisement expenses. When the assessee was called for further details the assessee has not replied for the same. Hence in absence of details, it was not clear how the advertisement expenses is amortized and claimed by the assessee. Hence the same was disallowed by the assessing officer.

Aggrieved by the order of the Assessing Officer, the assessee, carried the matter in appeal before the Ld. CIT(A), who has deleted the addition made by the assessing officer, by accepting the additional evidences. The additional evidences were submitted by the assessee, during the appellate proceedings, before the learned CIT (A). The ld.CIT(A) did not send these additional evidences to the assessing officer, to examine them and to call for a remand report. Therefore, revenue is in appeal before us.

Learned DR for the Revenue, vehemently argued that assessee submitted additional evidences before the learned CIT(A), during the appellate proceedings, in respect of all the additions made by the assessing officer, in the assessment order. Therefore, an opportunity should be given to the assessing officer to examine these additional evidences. In respect of Ground No.1, raised by the Revenue, ld.DR stated that assessee did not furnish any explanation or submission against various notices issued by the Assessing Officer, during the assessment proceedings, in respect of unexplained share application money and Ld. CIT(A) allowed the appeal of the assessee, based on the new evidences in the form of details of share applicants, such as PAN No., Address, Income Tax Return, Computation of Income, personal Balance Sheet, Bank Statement. These new evidences which were produced before the Ld. CIT(A) ought to have put before the Assessing Officer to submit comments, on the new evidences. However, Ld. CIT(A) did not call remand report from the Assessing Officer, therefore, it is a violation of Rule 46A of the Income Tax Rules. The Ld. DR submitted that during the assessment proceedings, the first assessing officer issued the notice dated 05.04.2018 and only few details were submitted by the assessee, which were not sufficient to frame the assessment order. Before the second Assessing Officer, when he took the charge on 05.07.2018, no compliance was made by the assessee, before the second Assessing Officer. The Ld. DR for the Revenue took us through, Para 5.5 of the order of Ld. CIT(A) and stated that ld.CIT(A) has admitted additional evidences / new evidences and these new evidences / additional evidences were admitted by ld.CIT(A) without calling the remand report. In respect of Ground Nos 2 and 3 raised by the Revenue, the Ld. DR submitted that assessee did not furnish any explanation during the assessment proceedings. In respect of amortized, advertisement expenses, the Ld. CIT(A) allowed the appeal of the assessee based on the new evidences. Apart from these facts the explanations regarding BIFR were not filed before the Assessing Officer, in respect of ground No.4 raised by the revenue. About Ground No. 5 raised by the Revenue, Ld. DR submitted that ld. CIT(A) has admitted additional evidences, therefore, the matter should be remitted back to the file of the CIT(A) with the direction to call the remand report in respect of these additional evidences.

The ld.DR also submitted written submission before the Bench and stated that in the paper book filed by the assessee, on 22/05/2025, at para 2, it is submitted that the assessee filed all the submission in hard copy before the office of the Id assessing officer. On perusal of the acknowledged covering letter submitted by the assessee (copy enclosed) it is observed that the assessee has only filed copy of IT return of the directors and identical details were also filed on e- filing portal (screen shot enclosed). But it has not filed the ledger account, confirmation, bank statements of the share applicants as well as the loan creditors. Also, the assessee has not filed any documentary evidence in support of claim of expenses on account of amortization of advertisement expenses, section 43B, payments, BIFR letter, TDS payments etc. In fact, the assessee could not have filed these details without show-cause notice (dated 13/12/2018). So, accepting assessee's submission that it has filed everything before the assessing officer on 5/5/2018 is beyond imagination. As per the screen shot of e-Filing portal submitted by the assessee, the assessee has filed only one submission on 5/5/2018 in response to the notice u/s 142(1) dated 5/4/2018. As per the assessment order, there was a change of incumbent and the new assessing officer sent first notice on 5/7/2018, thereafter 6 notices were sent on various dates and a final show cause notice was issued on 13/12/2018. Incidentally, all the 7 notices and the show cause notice remained unanswered and this fact is admitted by the assessee in his paper book. In para 4 and 5 on page 1 & 2 of the paper book, the assessee has expressly admitted that "the assessee could not make compliance online on e- filing portal and e-proceedings facility". Therefore, in such a scenario question of submission of evidences/reply before the assessing officer does not arise at all. Whatever assessee has filed is only as per submission filed on e-filing portal on 5/5/2018 and the same does not contain the relevant details as allegedly claimed by the assessee. Also, the submission filed in hard copy before the office of the Id assessing officer does not contain the relevant details as allegedly claimed by the assessee.The above facts clearly show that the CIT(A) has admitted additional evidence in violation of Rule 46A of the IT Rules, 1961. Therefore, the appeal filed by the department should be sustained and the order of the CIT(A) should be set aside.

On the other hand, Ld. Counsel for the assessee argued before the Bench ground wise and stated that during the assessment proceedings, the assessee has made the compliance. However, during the proceedings before Ld. CIT(A), the assessee has submitted some clarificatory documents, which should not be treated as additional evidences. Therefore, Ld. CIT(A) did not send these additional evidences to the file of Assessing Officer, for his examination and submit the remand report. Hence, order passed by the learned CIT(A), on merit, should be upheld.

We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. We have examined the assessment records/ assessment folder and noted that during the assessment proceedings, the assessee submitted only following documents and evidences, before the assessing officer, which are reproduced below: “ACIT, CIR-1, GANDHIDHAM Sub: Assessment for the A.Y-2016-17 Dear Madam, Further to our personal hearing on 29/11/2018, Please find submitted here with physical copies of the submission made by us online on 05/04/2018 for your reference. Documents enclosed:- 1. Copy of point wise reply of notice 2. Copy of Audited Balance sheet of F.Y. 2015-16 3. Copy of ITR F.Y. 2015-16 4. Copy of ITR of Director Mr. Analkumar Jain F.Y. 2015-16 5. Copy of ITR of Director Mrs. Bhairavi A. Jain FY. 2015-16 6. Copy of ITR of Director Mrs. Anita Jain F.Y. 2015-16 7. Copy a Last Assessment Order for F.Y.2014-15 8. Copy of Foreign Gain/Loss Account for F.Y. 2015-16 9. Copy of TDS challans and Returns For F.Y. 2015-16 Please find the above documents in order and kindly acknowledge the same. Thanking You, For Softel”

During the course of hearing, the Bench has instructed the Ld. CIT-DR to submit the assessment records before the Bench for verification of the fact whether assessee has filed additional evidences, during the appellate proceedings before the Ld. CIT(A). Accordingly, the Ld. CIT-DR produced the assessment records before the Bench. We have inspected the assessment records and order sheet of the assessing officer. We did not find the following details and documents in the assessment folder, which are reproduced below:

This is pertinent for the reason that even if the additional evidences are admitted but opportunity is not given to the assessing officer, and if the appeal is allowed by the CIT(A) by taking cognizance of the additional evidences, the Department will take ground before the Tribunal that there has been violation of principle of natural justice by not giving opportunity to assessing officer thereby violating the provision contained in Rule 46A of the Rules. The Tribunal, if found correct, without going into the merits of the case would simple set aside the matter Page | 14 to the file of the lower authorities to examine additional evidences and an opportunity should be given to the assessing officer to examine these additional evidences.

Therefore, we are of the view that an opportunity should be given to the Assessing Officer to examine these documents and evidences, hence, we remit entire lis ( appeal) of the assessee, back to the file of the Ld. CIT(A), with a direction to send these above documents and evidences to the Assessing Officer to call a proper remand report and after taking the remand report, the Ld. CIT(A) should also take the rejoinder from the assessee, on such remand report, and thereafter adjudicate the issue in accordance with law. Therefore, we set-aside the order of the Ld. CIT(A) and remit the matter back to the file of the Ld. CIT(A) with the direction to take the remand report from the Assessing Officer and adjudicate the issue in accordance with law. Statistical purposes the appeal of the Revenue is treated to be allowed.