ITO 6(3)(3), MUMBAI vs. KALPAVRUKSHA CONSULTANTS P. LTD., MUMBAI

The present appeal filed by the revenue is directed against the order passed by the CIT(A)-12, Mumbai, dated 09.05.2016, which in turn arises from the order passed by the A.O under Sec. 143(3) of the Income Tax Act, 1961 (for short ‘Act’), dated 27.03.2015. The revenue assailing the order of the CIT(A) has raised before us the following grounds of appeal: “1. On the facts and circumstances of the case and in the law, the ld. CIT(A) has erred in deleting disallowance u/s. 41(1) of Rs.91,00,000/- based on fresh evidence/details produced at the appellate stage for the first time and in contravention of Rule 46A of the Income Tax Act, 1961, without giving opportunity of examining the same to the A.O.

The A.O during the course of the assessment proceedings observed, that the assessee had shown a sum of Rs.91,00,000/- as ‘Trade Payable’ to M/s Shri Gajanan Construction Company in its ‘balance sheet’ for the year ended 31.03.2012. On a perusal of the ‘balance sheets’ of the assessee company for the last three years, it was noticed by the A.O that the aforesaid amount was shown as a liability since financial year 2008-09, relevant to A.Y 2009-10. On a query raised by the A.O, it was submitted by the assessee that the aforesaid amount was an advance received from M/s Shri Gajanan Contruction company, towards an assignment for consultancy, which was planned to be executed in the immediate next year. However, as the aforementioned party failed to pay the requisite advance as was mutually decided, as well as could not provide the necessary facilities, thus, the aforesaid assignment could not be executed. Further, it was submitted by the assessee that due to some dispute and unavoidable circumstances, as the aforesaid assignment could not be executed, therefore, the aforesaid amount of Rs. 91,00,000/- was shown as a ‘Trade Payable’. It was the contention of the assessee that necessary steps were being taken to resolve the matter with the aforementioned party. However, not persuaded to subscribe to the aforesaid contentions advanced by the assessee, the A.O rejected the same. The A.O being of the view that the liability of the assessee as regards the aforesaid amount of Rs.91,00,000/- received from the aforementioned party had ceased, thus, on the basis of his said conviction added the same to the income of the assessee under Sec.41(1) of the Act.

Aggrieved, the assessee assailed the matter in appeal before the CIT(A). The CIT(A) during the course of the proceedings observed that the aforesaid liability of Rs.91,00,000/- stood adjusted by the assessee by way of installments from the financial year 2014-15 onwards and accordingly, no amount was outstanding towards the aforementioned party in the books of P a g e | Income Tax Officer-6(3)(3) Vs. M/s Kalpavruksha Consultant accounts of the assessee w.e.f financial year 2015-16. The CIT(A) while concluding as hereinabove, relied on a copy of bank statement and ledger account of the party, as were submitted by the assessee for the very first time, during the course of hearing of the appeal. On the basis of his aforesaid observations the CIT(A) deleted the addition of Rs.91,00,000/-.

The revenue being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. We find that the assessee respondent despite having been intimated of the hearing of the appeal, has neither put up an appearance, nor any application seeking an adjournment had been filed before us. In the backdrop of the aforesaid facts, we proceed with to dispose off the appeal as per Rule 26 of Appellate Tribunal Rules, 1963 after hearing the appellant revenue and perusing the orders of the lower authorities.

The ld. Departmental Representative (for short ‘D.R’) submitted that the CIT(A) had erred in admitting the ‘fresh evidence’ viz. copy of bank statement and ledger account, as were produced by the assessee for the first time before him during the course of hearing of the appeal, without confronting the same to the A.O. The ld. D.R submitted that the admission of the additional evidence by the CIT(A), without affording any opportunity to the A.O to examine and object to the admission of the same, was clearly in violation of Rule 46A of the Income Tax Rules, 1962. The ld. D.R submitted that in the backdrop of the aforesaid facts the matter in all fairness may be restored to the file of the CIT(A), with a direction to him to readjudicate the appeal after affording an opportunity to the A.O to put forth his objections as regards the admission of the aforementioned additional evidence.

We have heard the ld. D.R, perused the orders of the lower authorities and the material available on record. We are persuaded to be in agreement with the contention of the ld. D.R, that the CIT(A) had disposed off the appeal after admitting certain additional evidence viz. (i) copy of bank statement; and (ii) copies of ledger account without allowing a reasonable opportunity to the A.O to examine the same and put forth his objections as P a g e | Income Tax Officer-6(3)(3) Vs. M/s Kalpavruksha Consultant regards admission of the same. We are of the considered view, that the aforesaid action of the CIT(A) clearly militates against the express provisions of Rule 46A(3), which mandates that the CIT(A) before admitting any additional evidence would afford a reasonable opportunity to the A.O to examine such fresh evidence and rebut the admission of the same. We are of the considered view that as the CIT(A) had clearly bypassed the statutory requirement of affording an opportunity to the A.O, before admitting the additional evidence furnished by the assessee before him, thus, his order cannot be upheld. We thus, in terms of our aforesaid observations restore the matter to the file of the CIT(A), with a direction to readjudicate the same after affording an opportunity to the A.O to examine the additional/fresh evidence and file his objections, if any, as regards admission of the same. Needless to say, the CIT(A) while disposing off the appeal shall afford an opportunity of being heard to the assessee. The matter is restored to the file of the CIT(A), who is directed to dispose off the appeal afresh in terms of our aforesaid observations.

The order of the CIT(A) is set aside.