ACIT, JAMMU vs. DEVELOPMENT BANK LTD. J AND K STATE COOPERATIVE AGRICULTURE AND RURAL , JAMMU
Facts
The Assessing Officer (AO) made ex-parte additions totaling Rs. 95,83,65,565/- for investments in time deposits and mutual funds for AY 2016-17, as the assessee, a cooperative bank, did not file a regular return or submit supporting documents during assessment proceedings. The CIT(A) deleted these additions, finding that the investments were made from available funds and reflected in the audited balance sheet. The revenue appealed, arguing the CIT(A) violated Rule 46A(3) by accepting fresh evidence without providing the AO an opportunity to examine it.
Held
The tribunal found that the CIT(A) violated Rule 46A(3) by admitting additional evidence without forwarding it to the AO for a remand report or verification, thereby denying natural justice. Citing High Court judgments on the mandatory nature of Rule 46A(3), the tribunal set aside the CIT(A)'s order. The case for both assessment years was remanded back to the AO for fresh assessment, directing the assessee to produce all necessary documentary evidence for verification.
Key Issues
Whether the CIT(A) erred in deleting additions by admitting additional evidence from the assessee without affording the Assessing Officer an opportunity to examine it, thereby violating Rule 46A(3) of the Income Tax Rules, 1962, warranting a remand to the AO for fresh assessment.
Sections Cited
Section 250 of the Income Tax Act, 1961, Section 147 of the Income Tax Act, 1961, Section 144 of the Income Tax Act, 1961, Section 144B of the Income Tax Act, 1961, Section 142(1) of the Income Tax Act, 1961, Section 148 of the Income Tax Act, 1961, Section 69 of the Income Tax Act, 1961, Section 139 of the Income Tax Act, 1961
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, AMRITSAR BENCH, AMRITSAR
Before: SH. UDAYAN DASGUPTA & SH. KRINWANT SAHAY
Per Udayan Dasgupta, J.M.:
These two appeals are filed by the revenue against the orders of the Ld. CIT (A), NFAC passed u/s 250 of the Income Tax Act 61 (henceforth the Act), both dated
28/03/2024 , which has emanated from the orders of the NFAC, Delhi, both dated 27/03/2022, passed u/s 147 rws 144 / 144B of the Act.
2 I.T.A. Nos. 296 & 297/Asr/2024 Assessment Years: 2016-17 & 2017-18
Since both the appeals relate to identical facts and contain almost identical
grounds, both are taken up together for disposal for the sake of convenience.
The grounds of appeal taken by the revenue for Asstt. Year: 2016-17 in Form
36 are as follows:
“1. The Ld. Commissioner of Income-tax (Appeals), National Faceless Assessment Centre, Delhi has erred in law and on the facts in deleting the addition of Rs. 42,00,33,942/- made by the Assessing Officer on account of Time Deposit as the Ld. Commissioner of Income-tax (Appeals) did not provide an opportunity to Assessing Officer to file response by calling remand report to the submissions made by assessee during the appellate stage. The assessee did not file any submission during the assessment proceedings as well, therefore the Assessing Officer did not get any chance to counter the submissions of assessee.
The Ld. Commissioner of Income-tax (Appeals), National Faceless Assessment Centre, Delhi has erred in law and on the facts in deleting the addition of Rs. 53,83,31,623/- made by the Assessing Officer on account of Mutual Funds as the Ld. Commissioner of Income-tax (Appeals) did not provide an opportunity to Assessing Officer to file response by calling remand report to the submissions made by assessee during the appellate stage. The assessee did not file any submission during the assessment proceedings as well, therefore the Assessing Officer did not get any chance to counter the submissions of assessee.
The Ld. Commissioner of Income-tax (Appeals), National Faceless Assessment Centre, Delhi has erred in law and on the facts in deleting the addition of Rs. 42,00,33,942/- made by the Assessing Officer on account of Time Deposit as the Ld. Commissioner of Income-tax (Appeals) admitted the evidence of the assessee during the appellate stage in contravention of Rule 46A(3) ignoring the fact that the assessee did not file any submission during the assessment proceedings
3 I.T.A. Nos. 296 & 297/Asr/2024 Assessment Years: 2016-17 & 2017-18 4. The Ld. Commissioner of Income-tax (Appeals), National Faceless Assessment Centre, Delhi has erred in law and on the facts in deleting the addition of Rs. 53,83,31,623/- made by the Assessing Officer on account of Mutual Funds as the Ld. Commissioner of Income-tax (Appeals) admitted the evidence of the assessee during the appellate stage in contravention of Rule 46A(3) Ignoring the fact that the assessee did not file any submission during the assessment proceedings
(a) The order of the Ld. CIT(A), National Faceless Assessment Centre, Delhi is erroneous and not tenable in law and on facts.
(b) The appellant craves leave to add, alter or amend any/all of the grounds of appeal before the before or during the course of the hearing of the appeal.”
Brief facts emerging from records are that the assessee is a cooperative bank
registered under the J & K Cooperative Societies Act 1960 under the hands of the Registrar of Cooperative Societies , J & K dated 4th October, 1962, (subsequently
amended by Act 1989), and is actively engaged in providing long term agricultural
credit to the agriculturist in the State of Jammu and Kashmir and has diversified into
providing of long term credit for farm mechanization , such as tractors, power tillers,
land development, dairy and poultry farming and sheep rearing schemes, etc.
In absence of any regular return being filed by the assessee for the Asst year
2016-17 coupled with information received by the AO that there has been an
investment made by the assessee amounting to Rs. 42 crores in Time Deposits and an
amount of Rs. 53.83 crores in Mutual Funds , during the FY 2015-16 ,proceedings were initiated by issue of notice u/s 148 dated 30th March, 2021, followed by
4 I.T.A. Nos. 296 & 297/Asr/2024 Assessment Years: 2016-17 & 2017-18 subsequent notices u/s 142(1) on various dates and SCN dated 2nd February, 2022,
against which there has neither been any response nor any representation by the
assessee.
In response to the final SCN issued on 16th February, 2022, the assessee 6.
responded by stating that the return has been filed in response to notice u/s 148 , on 8th March, 2022, but the same could not be e-verified in the portal due to some
technical glitches. However, in absence of any supporting papers and documents
,books of accounts , computation of income, being actually produced by the assessee
before the AO in course of assessment proceedings , the assessment has been
completed ex parte, on a total income of Rs. 95,83,65,565/- (being the sum total of
investments made in time deposits and mutual funds as stated above ).
The matter was carried in appeal before the first appellate authority and the Ld
CIT (A) NFAC, has deleted the additions made and allowed the appeal of the
assessee, with a specific finding that the investments in FD/TD and mutual funds are
made out of funds available with the assessee and are duly reflected in audited
balance sheet. The observation of the Ld. CIT (A) are as follows:
“After carefully considering the detailed submissions made by the Appellant as above, It is apparent that the Investments in FDR/Time deposits of Rs 42,00,33,942/- and in Mutual Funds of Ra 53,63,31,623/- were made out of funds available with the Appellant and have been duly reflected in the Audited Balance sheet. It is also observed that the AO has made
5 I.T.A. Nos. 296 & 297/Asr/2024 Assessment Years: 2016-17 & 2017-18 this addition u/s 69 of the IT Act, 1961. As per section 69 of the Act, additions can be made on Investments which are not recorded in the books of account, if any, maintained by the Appellant. In the case of the Appellant, the net Investments in Time deposits and in mutual funds have been made out of bank account maintained by the appellant and the entries have been duly reflected in the books of account maintained by the Appellant. The AO was therefore not justified in making the addition u/s 69. In view of the above the addition of Rs. 95,83,65,565/-made by the AO is hereby deleted. These grounds are allowed.
Now the revenue is in appeal on the grounds contained in the memorandum of
appeal, and apart from the merits, the main contention of the revenue is that Rule –
46A (3) of the Income Tax Rules ‘62, has been violated in the instant case, because
fresh documents has been filed by the assessee and accepted by the Ld. CIT(A) for
disposal of the appeal and no opportunity has been allowed to the AO for
examination of the same.
The LD. DR submitted that the assessee has submitted documents relating to
books of accounts and audited balance sheet amongst others, and various bank
particulars and evidences , to explain the source of the investments made in fixed
deposits ( TD ) and in mutual funds , and the said documentary evidences has been
accepted by the first appellate authority for deciding the appeal in favour of the
assessee, and relief has been granted , based on such new documents , without
allowing the AO any opportunity for examination and verification of the new
6 I.T.A. Nos. 296 & 297/Asr/2024 Assessment Years: 2016-17 & 2017-18 evidences because nothing has been produced or filed in course of assessment
proceedings.
He further submitted that in the instant case, the Ld CIT ( A ) has accepted the
fresh evidences but has not forwarded the same to the AO and has not even called for
a remand report from the AO , based on such fresh documents , which is clearly in
violation of the provisions of Rule 46A(3) because the AO is denied an opportunity
to examine the evidence or document or to cross examine the witness if required and
the AO was also denied the opportunity to produce any evidence in rebuttal of the
additional evidences now being produced, and the same has violated the principles of
natural justice .
The Ld AR , relied on the order of the first appellate authority and for further
support he filed a paper book containing written submissions and documentary
evidences depicting sources of investments made in bank deposits and mutual funds
along with copies of audited financials, along with list of depositors , and copies of
assessment orders of subsequent years and submitted that all the investments are duly
recorded in regular books of accounts and sources are all explained through bank
statements and the same has been duly accepted by the department in assessment
proceedings of subsequent years ( copies of assessment orders for Asst years 2018-19
enclosed in paper book ), and since the powers of the Ld CIT (A) are coterminous to
7 I.T.A. Nos. 296 & 297/Asr/2024 Assessment Years: 2016-17 & 2017-18 the powers of the AO , the first appellate authority has the jurisdiction to accept fresh
evidences because in this caseno proper opportunity of producing or adducing
evidences were allowed by the AO and he has refused to admit evidence which ought
to have been admitted in normal course and has not considered the return of income
already on record for the purpose of a judicious assessment, and relying on the
contents of his paper book the Ld AR prayed for upholding of the order of the first
appellate authority.
We have heard the rival submissions and considered the material on record.
We find from record that in the instant case that regular return was never filed by the
assessee in normal course u/s 139 of the Act, and the return in response to notice u/s
148, though stated to have been filed has never been e verified in the portal ,( thus
making it a no return case ) .
The contents of paper book submitted before us by the assessee, which consists
the explanation regarding source of investments in TD and MF, has never been filed
before the AO in course of assessment proceedings. It has been submitted before the
Ld CIT (A) in course of first appeal , and accepted by the Ld first appellate authority,
without affording any opportunity to the AO, to examine the documentary evidences
and allowing him to render any arguments in rebuttal of the said evidences and there
is nothing on record to show that copies of evidences contained in the paper book has
8 I.T.A. Nos. 296 & 297/Asr/2024 Assessment Years: 2016-17 & 2017-18 been forwarded to the AO calling for a remand report, and we are of the opinion that
the procedure of Rule 46A(3) of the IT Rules 62, has been violated in this case .
In the instant case the assessee who is in appeal has invoked Rule 46A,and it
is incumbent upon the CIT (A) to comply with the requirements of the Rule strictly.
The Ld. CIT(A) actions are well defined in the law through various judicial
precedents
The Hon’ble Delhi High Court’s judgment in the case of CIT v. Virgin
Securities and Credits P. Ltd (2011) 332 ITR 396 (Del) held that the CIT(A) should
admit the additional evidence if he finds that the same is crucial for the disposal of
the appeal.
Further Hon’ble Delhi High Court in the case of Chandrakant Chanu Bhai
Patel 202 Taxman 262 has held that if additional evidence is without any blemish
then in order to advance the cause of justice, the same ought to be admitted.
Thereafter, on receiving the application under rule 46A, the CIT (A) is
required to remanded it to the assessing officer to verify the evidences moved by the
appellant because admission of evidences without remanding it to assessing officer
were not found to be proper in the eye of law and such cases have been set aside by
the higher appellant authorities.
9 I.T.A. Nos. 296 & 297/Asr/2024 Assessment Years: 2016-17 & 2017-18 18. Hon’ble High Court of Delhi in the case of Commissioner of Income Tax vs.
Manish Build Well (P) Ltd. in ITA No.928/2011 dated 15.11.2011 reported as (2011)
63 DTR Judgements 369 wherein their lordships held that after admission of
additional evidence, it is mandatory to follow Rule 46A(3) of the Rule
In the instant case before us the Ld CIT (A) has not even discussed as to why
the documentary evidences could not be filed by the assessee before the AO in course
of assessment proceedings, inspite of granting of so many opportunities and there is
no justification as to why the AO will not be allowed an opportunity to verify the
documentary evidences and examine the books of account to arrive at the explanation
regarding the source of investments.
As such, we are of the opinion that in the interest of justice and to ascertain the
merits of the case , and for examination of documentary evidences, this matter needs
to be set aside back to the files of the AO , for fresh assessment as per procedure of
law , and the assessee is directed to produce all necessary documentary evidences
along with audited accounts , to substantiate and explain the source of deposits and
investments made in FD and MF , to the satisfaction of the AO .
The assessee will be allowed proper and reasonable opportunity of being
heard.
We have not expressed any opinion on merits.
10 I.T.A. Nos. 296 & 297/Asr/2024 Assessment Years: 2016-17 & 2017-18 23. The appeal of the revenue is allowed for statistical purpose.
I.T.A. No. 297/Asr/2024 for Asstt. Year: 2017-18:
The facts of the case and grounds of appeal are identical to ITA No.
296/ASR/2024 for the Asst year: 2016-17, considered and discussed above.
Our observation and direction applies mutatis mutandis to this appeal also.
This appeal of the revenue is also allowed for statistical purpose.
In the result, both the appeals filed by the revenue are allowed for statistical
purposes.
Order pronounced in accordance with Rule 34(4) of the Income Tax (Appellate
Tribunal) Rules, 1963 as on 29.05.2025.
Sd/- Sd/- (Krinwant Sahay) (Udayan Dasgupta) Accountant Member Judicial Member *GP/Sr.PS* Copy of the order forwarded to: (1)The Appellant: (2) The Respondent: (3) The CIT concerned (4) The Sr. DR, I.T.A.T True Copy By Order
