DCIT., CIRCLE-3(1) , HYDERABAD vs. SOUTH ASIAN CERAMIC TILES PRIVATE LIMITED, HYDERABAD

The Ld. CIT(A) erred both in law and on facts of the case in allowing relief to the assessee.

That the Ld. CIT(A) erred in admitting additional evidence in violation of Rule 46A of the Income Tax Rules, without affording the Assessing Officer an opportunity to rebut or examine such evidence.

That the Ld. CIT(A) was not justified in rejecting the findings of the Assessing Officer, which were based on clear discrepancies in the assessee's financials and lack of satisfactory explanation for the source of funds.

That the Ld. CIT(A) misinterpreted the scope of Section 69 and wrongly held that the provisions were not applicable, despite the assessee failing to substantiate the source of the investment with credible evidence.

The Ld. CIT(A) erred in appreciating the requirements of invocation of the provisions of section 69. 6. Appellant craves leave to amend or alter any ground or add any other grounds. which may be necessary.”

Succinctly stated, the assessee company which is engaged in the business of manufacturing of ceramic tiles had filed its return of income for AY 2022-23 on 26/10/2022 declaring a loss of (Rs.18,74,49,155/-). Thereafter, the case of the assessee company was selected for complete scrutiny under the Faceless Assessment Scheme-2019 for verification of certain issues, viz., (i) that the assessee company had shown high liabilities in its balance sheet as compared to its low income/receipts declared in the return of income; (ii) that the assessee company had though disclosed significant amount of capital/loans

Thereafter, the AO issued notices under section 143(2)/142(1) of the Act.

During the course of the assessment proceedings, it was observed by the AO that the assessee company had in its balance sheet disclosed “unsecured loans” to the tune of Rs.17,38,91,674/-. As the assessee company out of the total loans of Rs.17,38,91,674/- could verify the loans aggregating to Rs.14,21,65,413/- only, therefore, the AO was constrained to treat the balance amount of the unsecured loans of Rs.3,17,26,261/- as unexplained cash credits under section 68 of the Act.

Apart from that, the AO observed that the assessee company had during the subject year made investments in tangible assets of 4 Rs.66,62,39,100/-. On being queried, it was the claim of the assessee company that it had commenced production in the subject year, i.e., Financial Year 2021-22 and amount lying in CWIP of Rs.53,22,24,563/- was during the subject year capitalized to the respective “block of assets” and it had during the year under consideration made an investment in fixed assets of Rs.13,01,49,074/-. As the assessee company failed to provide any corroborative evidence for the investment made in tangible assets along with the source of the said investments, therefore, the AO after putting the assessee company to notice brought the same within the meaning of unexplained investment under section 69 of the Act.

Also, the AO observed that the assessee company had during the year under consideration made payments to sundry creditors of Rs.62,62,96,168/-. The AO called upon the assessee company to provide the details and source of the payments along with the confirmation from parties, copies of their returns of income, bank statements, bills/vouchers, etc., but the assessee company failed to furnish the requisite details. As the assessee company had failed to substantiate the source of the payments made to the creditors, therefore, the AO issued notices under section 133(6) of the Act to the respective parties but the payments made to sundry creditors amounting to Rs.38,30,75,528/- (out of Rs.62,62,96,168/-) could not be 5 DCIT vs. South Asian Ceramic Tiles Pvt Ltd verified, therefore, he held the same as unexplained cash credits under section 68 of the Act. The AO based on his aforesaid observations determined the income of the assessee company at Rs.35,75,01,708/- after making the aforementioned additions, viz., (i) addition of unconfirmed loans made under section 68 of the Act: Rs.3,17,26,261/-; (ii) addition of unexplained investment under section 69 of the Act regarding investment in tangible assets: Rs.13,01,49,074/-; and (iii) addition of unexplained cash credits under section 68 regarding unsecured loans: Rs.38,30,75,528/-.

Aggrieved, the assessee company carried the matter in appeal before the CIT(A), who allowed the same and vacated all the aforementioned three additions that were made by the AO.

The revenue being aggrieved with the order of the CIT(A) has carried the matter in appeal before us.

We have heard the Learned Authorized Representatives of both parties, perused the orders of the authorities below and the material available on record.

Ms. U. Mini Chandran, Ld. CIT-DR, at the threshold of hearing of the appeal submitted that the CIT(A) while disposing of the appeal had grossly erred in law and facts of the case by admitting certain additional documentary evidence in violation of Rule 46A of the Income Tax

Per contra, Shri Pawan Kumar Chakrapani, CA, Learned Authorized Representative (for short, “Ld. AR”) for the assessee company/respondent failed to rebut the aforementioned contention of the revenue that the CIT(A) had admitted the above mentioned additional evidence in violation of Rule 46A of the Income Tax Rules, 1962. 12. We have given thoughtful consideration to the contentions advanced by the Learned Authorized Representatives of both parties in the backdrop of the orders of the authorities below.

Before proceeding further, we deem it apposite to cull out Rule 46A of the Income Tax Rules, 1962 which contemplates the set of circumstances under which additional evidence can be filed by an appellant before the CIT(A), as well as the manner in which such 8 DCIT vs. South Asian Ceramic Tiles Pvt Ltd additional evidence can be admitted by the said appellate authority, as under:

As is discernible on a perusal of Rule 46A, the CIT(A) shall not take into account any additional evidence produced under sub-rule (1) of Rule 46A unless the AO has allowed a reasonable opportunity, viz., (i) to examine the evidence or document or to cross-examine the witness produced by the appellant, or (ii) to produce any evidence or document or any witness in rebuttal of the additional evidence produced by the appellant. Although, we find that sub-rule (4) of Rule 46A of the IT Rules, 1962 carves out an exception in a case where the Commissioner (Appeals) had directed the production of any documents, 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, but the same does not apply to the case before us. We say so, for the reason that in the present case before us, the assessee company had furnished the documentary evidence, viz., PANs, copies of the returns of income and the financial statements of the parties and had prayed for admission of the same as additional evidence under Rule 46A (Annexure-F). In our view, the CIT(A) had grossly erred in disposing of the appeal by admitting the aforementioned additional evidence by not following the procedure contemplated under Rule 46A of the Income Tax Rules, 1962. Our aforesaid view is fortified by the judgment of the Hon’ble

We thus, in terms of our aforesaid observations, are of firm conviction that as the CIT(A) had admitted the aforementioned additional evidence without confronting the same to the AO as mandatorily required under sub-rule (3) of Rule 46A of the IT Rules, 1962, therefore, the order so passed by him cannot be sustained and is liable to be set aside. Accordingly, in all fairness and in the interest of justice, we herein set aside the order passed by the CIT(A), NAFAC to his file with a direction to re-decide the appeal after carrying out due compliance of Rule 46A with respect to the additional documentary evidence produced by the assessee before him and re-adjudicate the appeal afresh.

"वभागीय""त"न"ध, आयकरअपील"यअ"धकरण /DR,ITAT, Hyderabad.

The Commissioner of Income Tax 6. गाड"फ़ाईल / Guard file