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Before: Shri I.C. Sudhir & Shri L.P. Sahu
ORDER Per L.P. Sahu, A.M.: This is an appeal by the Revenue against the order of ld. CIT(A)-V, New Delhi dated 31.03.2010 for the assessment year 2006-07 on the following grounds : “
1. The Ld.CIT(A) has erred on facts and in law in deleting the addition of Rs.1,55,00,000/- u/s. 68 of the I.T. Act as unexplained cash credit, ignoring the fact that necessary details were not submitted and the onus of proving necessary ingredients of section 68 was not discharged by the assessee.
2. The Ld. CIT(A) has erred on facts and in law in deleting the addition on account of disallowance of Rs.16,895/- claimed under the head “Advertisement” but not being a genuine business expenses.”
ITA No. 2922/Del./2010 2
As is culled out from the above grounds of appeal, the Revenue has challenged the deletion of only two additions, i.e., (1) addition of Rs.1,55,00,000/- on account of unexplained cash credits and (2) disallowance of advertisement expenses of Rs.16895/-.
The brief facts of the case are that the respondent is engaged in the real estate business. The assessee company filed its return of income on 06.01.2007 declaring total income of Rs.2,50,663/-. The case of the assessee was selected for scrutiny and statutory notices were issued. In response, the assessee produced books of accounts before the Assessing Officer.
3.1 With respect to addition of Rs.1,55,00,000/-, the brief facts are that this amount of addition comprises addition of Rs.84,00,000/- on account of unexplained share application money said to have been received by assessee from 11 parties and Rs.71,00,000/- on account of unexplained unsecured loans, as noted in the assessment order. The Assessing Officer, being mindful of the report of Investigation Wing that various companies
ITA No. 2922/Del./2010 3 featured as accommodation entry operators giving bogus entries of share application money, unsecured loans etc., the Assessing Officer thought it necessary to verify the impugned transactions of share applications and unsecured loans declared by the assessee. The AO issued summons to the companies from whom the assessee is said to have received the share application money and unsecured loans so as to verify the identity, creditworthiness of the creditors and genuineness of the transactions as contemplated u/s. 68 of the IT Act. The summons issued to share applicants returned back un-served in the cases of 10 companies out of 11 with the remarks “No Such Company on the address” and one of such companies, viz., M/s. Rapid Impex P. Ltd. received the summons, but did not respond the same. Similarly, out of summons issued to verify the unsecured loans, the summons in the case of three parties either returned back un-served or stood un-responded.
3.2. The assessee was apprised of the above facts vide letter dated 08.11.2008, asking him to explain the creditworthiness of the creditors and the genuineness of the transactions. However, on the ITA No. 2922/Del./2010 4 given date none appeared on behalf of the assessee. The AO, therefore, came to the conclusion that for want of any response from the side of assessee, the creditworthiness of the creditors and genuineness of the credits could not be proved/verified and therefore, he made addition of Rs.1,55,00,000/- (84,00,000 + 71,00,000) u/s. 68 of the Act to the total income of the assessee.
3.3 With respect to addition of Rs.16,895/-, the brief facts are that the AO noticed that the assessee company claimed expenses of Rs.16,895/- under the head “Advertisement”. The assessee claimed these expenses being commission on buy/sale dealing adjusted stating that this amount was deducted from the commission by Clarion Properties as share of advertisement given by Clarion. The AO, however, found that the advertisement did not mention even the name of assessee-company and concluded that this expenditure claimed by assessee-company was not a genuine business expense of the assessee company. He, therefore, disallowed the same and added it back to the total income of the assessee.
ITA No. 2922/Del./2010 5
Aggrieved by the above two additions, the assessee carried the matter in appeal before the ld.CIT(A) and submitted detailed written submissions and voluminous details/evidences running into 949 pages. The submissions of the assessee were forwarded to the Assessing Officer along with evidences filed before the first appellate authority for seeking comments of the AO. The AO submitted the remand report vide letter dated 17.03.2010, in which the AO has commented as under : "In this case, the assessee has submitted detailed written submissions along with voluminous paper book. The assessee company was given adequate opportunities during the course of assessment proceedings which was not properly availed and the assessee failed to file requisite evidences to substantiate the share capital received, unsecured loans and certain expenditure. In regard to share application money and unsecured loans, summons u/s 131 were duly issued to the concerned parties. However, there was no compliance from these parties. Thus, the assessee failed to prove the identity, credit worthiness and genuineness. The documents now submitted by the assessee for admission u/r 46A are nothing but repetition of documents submitted during the assessment proceedings. Hence the additional evidence should not be admitted. Further, my predecessor has investigated these issues in reference to the observation of the Investigation Wing. The observation of the investigation wing is as under: “One important^ fact is that the amount of accommodation entries taken by an assessee may be much more than what has been gathered and given by the directorate. This is because of the fact that the details obtained from the banks are only of the computerized period and no details have been obtained for the manually maintained part. Secondly, not all the accounts
ITA No. 2922/Del./2010 6 of the operators are known to the directorate since no one has admitted fully all the bank accounts operated by them. The complete list of entry operator is therefore being given to the AOs. They are required to particularly go through the schedules of unsecured loans, advances received, share application money and share holders list, etc. of the assessee carefully before framing the assessments.” As regards other additions, the submissions of the assessee may not be admitted as the assessee failed to provide the requisite details during the assessment proceedings even after providing numerous opportunities.”
4.1 The assessee filed rejoinder to the remand report. The ld.CIT(A), after considering the submissions of the assessee, remand report of AO, its rejoinder by assessee, voluminous evidences furnished before him and various case laws, deleted the additions vide impugned order, irked by which, the Revenue is in appeal before the ITAT.
During the course of hearing, the ld. DR relying upon the assessment order, submitted that the ld. CIT(A) was not justified in admitting the voluminous additional evidences which the assessee failed to produce before the Assessing Officer despite sufficient opportunities extended to him. Non-existence of the parties from whom the amounts are said to have been received by assessee,
ITA No. 2922/Del./2010 7 stood corroborated by the facts that the summons issued to such parties returned back un-served with remarks “no such firm on the address”. Moreover, the burden that lay on the assessee to prove the identity, creditworthiness of creditors and genuineness of transactions, was on the assessee, which he utterly failed to substantiate before the AO by any evidence on record. The assessee was apprised of the enquiry results by the AO vide letter dated 08.11.2008 requiring him to discharge the burden cast upon him u/s. 68 of the Act, but the assessee did not appear nor filed any reply or evidence as testimony to discharge the said onus. Much emphasis is laid on admission of additional evidences stating it to be defiance of Rule 46A of the IT Rules.
On the other hand, the ld. AR of the assessee repudiating the contentions of the ld. DR, relied on the order of the ld. CIT(A) and submitted that while calling for the remand report all the evidences were sent to the AO, but none of the evidences has been controverted by the Assessing Officer. It was submitted that in the remand report itself, the AO has accepted that the documents compiled in the paper book was repetition of documents submitted
ITA No. 2922/Del./2010 8 in assessment proceedings. The assessee has given fresh addresses of all the creditors and the AO has not confronted it as to at which addresses the summons were sent. As also submitted in the rejoinder, the ld. AR stated that voluminous evidences were furnished during the course of assessment proceedings. The assessee had submitted a detailed chart before the first appellate authority giving name, PAN, place of assessment, amount invested, cheque Nos., share application forms, confirmations, bank statements, balance sheets etc. However, none of the above evidences has been commented upon by the AO. In addition to decisions relied upon before the first appellate authority, the assessee has relied on the following decisions : (i). M/s. Ghaziabad Ispat Udyog Ltd. vs. DCIT (ITA No. 2436/Del./15-ITAT Deli Bench) (ii). Principal CIT vs. N.C. Cables Ltd., 391 ITR 11(Delhi HC) (iii). ACIT vs. Express Earth Movers (ITA No. 508/Del./2012- ITAT Delhi Bench).
Having considered the rival submissions and the material available on record, we find that in the facts narrated above, the first and foremost question which is necessary to address is whether the ld. CIT(A) was justified in admitting the additional evidences in terms of Rule 46A ? A perusal of assessment order
ITA No. 2922/Del./2010 9 clearly reveals that the AO has nowhere mentioned that any of the evidences furnished before the ld. CIT(A) was submitted before the Assessing Officer for examination in the assessment proceedings. Moreover, when the assessee was apprised of the result of enquiry made by issuing summons, vide letter dated 08.11.2008 asking the assessee to discharge the onus of proving the conditions enumerated in section 68, the assessee neither appeared nor filed any reply or evidence, as is evident from the assessment order itself. In the remand report also, the Assessing Officer has commented that despite sufficient opportunities, the assessee could not adduce any evidence to support the creditworthiness and genuineness of the credits. The assessee in the rejoinder, we notice, at one place, has submitted that voluminous evidences were furnished during the course of assessment proceedings and some more evidences have been filed before the first appellate authority. However, neither the assessee nor the ld. CIT(A) demonstrates as to which evidences were furnished before the AO and which more before the ld. CIT(A) as additional evidence. It is no doubt true that in the remand report the AO has observed that the evidences furnished are the repetition of documents furnished
ITA No. 2922/Del./2010 10 in the assessment proceedings, but this observation is in sharp contradiction to the contents of assessment order, which categorically speaks of filing no reply or evidences to support the creditworthiness etc. of the creditors and genuineness of credits. The contention of the assessee has also been that new addresses of the creditors were furnished. It is, however, not made clear whether the new addresses were given to the AO before issuing the summons or to CIT(A) alone. The learned CIT(A) appeals has on the basis of voluminous additional evidences, has deleted the additions without first passing the speaking order on the admissibility of such additional evidences in terms of Rule 46A. The relevant provisions of Rule 46A of the IT Rules 1962, read as under: “(1) The appellant shall not be entitled to produce before the Deputy Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals), any evidence, whether oral or documentary, other than the evidence produced by him during the course of proceedings before the Assessing Officer, except in the following circumstances, namely:– (a) where the Assessing Officer has refused to admit evidence which ought to have been admitted; or (b) where the appellant was prevented by sufficient cause from producing the evidence which he was called upon to produce by the Assessing Officer; or ITA No. 2922/Del./2010 11
(c) where the appellant was prevented by sufficient cause from producing before the Assessing Officer any evidence which is relevant to any ground of appeal; or (d) where the Assessing Officer has made the order appealed against without giving sufficient opportunity to the appellant to adduce evidence relevant to any ground of appeal. (2) No evidence shall be admitted under sub-rule (1) unless the Deputy Commissioner (Appeals) or as the case may be, the Commissioner (Appeals) records in writing the reasons for its admission. (3) The Deputy Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals) shall not take into account any evidence produced under sub-rule (1) unless the Income-tax Officer has been allowed a reasonable opportunity (a) to examine the evidence or document or to cross-examine the witness produced by the appellant, or (b) to produce any evidence or document or any witness in rebuttal of the additional evidence produced by the appellant (4) Nothing contained in this rule shall affect the power of the Deputy Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals) to direct the production of any document, 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.”
The ld. CIT(A) appears to have arrived at his conclusions without ascertaining as to whether or not the assessee was prevented by sufficient cause from submitting the aforesaid
ITA No. 2922/Del./2010 12 additional documents/information before the AO as per provisions of Rule 46A of the IT Rules, 1962 or whether the AO refused to admit any evidence furnished before the AO. The ld. CIT(A) has also failed to address on satisfaction of any of the above exceptional conditions, which led him to consider the additional evidences. In these circumstances, we are of the opinion that the ld. CIT(A) considered additional evidence submitted by the assessee before him without following the procedure prescribed under Rule 46A. The question of consideration of the additional evidences by the ld. CIT(A), in our opinion, comes only subsequent to its first qualifying for admission in terms of rule 46A, which is mandatory in nature, especially when the AO in the remand report has objected on admissibility of such evidences. In the instant case, it is apparent from the findings in the assessment order, as well as remand report, the assessee was given sufficient opportunity by the AO to satisfy the conditions of section 68 and to substantiate the same with evidences, and the assessee appears to have assigned no reason for his failure to submit the said evidences before the AO. Even otherwise there is nothing to suggest as to whether or not the ld. CIT(A) examined the ITA No. 2922/Del./2010 13 genuineness of additional evidences submitted by the assessee before giving favour to assessee on the basis of such evidences. The remand report and assessment order also reveal that the ld. Assessing Officer has also not examined any such evidence with respect to identity, creditworthiness of creditors and genuineness of credits. In the totality of facts and circumstances, and in view of foregoing discussion, we consider it fit and proper to restore the matter back to the file of the AO for the consideration of the evidences/materials furnished by the assessee before the ld. CIT(A). The AO shall adjudicate the relevant issue afresh after making proper enquiries and verification of evidences submitted by the assessee. The assessee is also directed to submit all the relevant evidences/material before the Assessing Officer. Needless to say, the assessee shall be given reasonable opportunity of being heard. The decisions relied on by the assessee, therefore, being based on difference issues, are not applicable at this stage in the facts and circumstances, narrated above. Accordingly, ground No. 1 of the Revenue’s appeal is allowed for statistical purposes.
ITA No. 2922/Del./2010 14
Adverting to the second addition of Rs. 16,895/-, we do not find any justification to interfere with the order of the ld. CIT(A) on this count. The ld. CIT(A) after examining the issue has rightly observed that M/s. Clarion Properties Ltd. settled the commission bills of assessee after deducting the advertisement share of assessee of Rs.16,895/- and made net payment of Rs.96,908/- before deduction of TDS and Rs.41,334/- after deduction of TDS. No good reasons are assigned by the Revenue to discard this conclusion of the assessee, as the payment of net amount of commission was subjected to TDS and was made after deducting the assessee’s share of advertisement expenditure. Accordingly, ground No. 2 of the Revenue’s appeal deserves to be dismissed.