ACIT, JAMMU vs. DEVELOPMENT BANK LTD. J AND K STATE COOPERATIVE AGRICULTURE AND RURAL , JAMMU

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 against which there has neither been any response nor any representation by the assessee.

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:

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 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 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.

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 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 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.

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.

The facts of the case and grounds of appeal are identical to 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.