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Income Tax Appellate Tribunal, “A” BENCH: KOLKATA
Before: Shri J. Sudhakar Reddy & Shri S.S. Viswanethra Ravi
This appeal by the Assessee is against the order dated 08-12-2016 of CIT(A),3, Kolkata for the assessment year 2012-13.
In this appeal the assessee has raised as many as nine grounds of appeal. Ground Nos. 1 to 9:-
1. That on the facts and in the circumstances of the case, the assessment order passed u/s. 143(3) of the Act dated 28/03/2015 by the Ld. Assessing Officer (A. 0.) assessing the total income at Rs.4,95,04,7101- is arbitrary, erroneous, without proper reasons and hence unsustainable in law.
2. That the Ld. A.O. acted arbitrarily and capriciously in having invoked provisions of sec. 68 of the Act and making addition of RsA,50,00,0001- on account of receipt of share application money from Rang Vardhan Febtrade Pvt. Ltd. in spite of the fact that all the evidences required for establishing the identity, creditworthiness and genuineness of the transaction had been filed during the impugned assessment proceeding.
3. That the Ld. A.O. further erred in having alleged bogus transactions with non-existent entities solely on the basis of the Inspector's report without considering the facts that all the corporate entities with whom Rang Vardhan Febtrade Pvt. Ltd. had transactions are registered with RoC, conducting business from their respective addresses registered with the RoC and LT. Department, assessed to income-tax and transactions are through banking channel.
4. That the Ld. A.O. erred in relying on an alleged Inspector's report for making addition u/s. 68 of the Act of an amount of RsA,50,00,0001- without confronting the assessee with the alleged report or providing the assessee an opportunity to rebut the alleged Inspector's report, thereby not following the Rules of Natural Justice.
5. That the Ld. A.O. erred in having alleged on sheer suspicion that the modus operandi in the instant case was to create necessary funds by bogus transactions to be utilized by the ultimate beneficiary, i.e. the appellant-company, in the garb of share application money without recording any plausible dissatisfaction over the evidences produced in support of the transactions and bringing on record any contrary evidence to dislodge the claim of the appellant.
6. That on the facts and in the circumstances of the case, when apparent is not real on the face of the facts, evidence on record and circumstances of the case could not have been denied by any conceivable evidence, the impugned action of the Ld. A.O. on human probability cannot be termed to be justified and valid in the eye of law and hence the addition of RsA,50,00,000/- made on that score is liable to be deleted.
7. That on the facts and in the circumstances of the case, the Ld. A.O. misdirected himself in having added back the entire amount of Rs. 4,50,00,000I- received against allotment of shares to Rang Vardhan Febtrade Pvt. Ltd. as unexplained cash credit in spite of the fact that conditions precedent for invoking provisions of sec. 68 of the Act are not fulfilled in the instant case.
That as the computation of assessed total income was erroneous on the facts of the case, the interests charged u/s. 234B & 234C should, accordingly, be directed to be deleted/modified.
9. That the order of the Ld. A.O. should, accordingly, be modified and your appellant be given such relief(s) as prayed for. .
10. That the appellant craves leave to amend, alter, modify, substitute, add to, abridge and/ or rescind any or all of the above grounds.”
Thereafter, the assessee filed to admit the following additional ground of appeal:-
"10. The Ld. CIT(A) erred in upholding the addition of Rs.4,,50,00, 0001- u/s 68 of the income Tax Act, 1961 made by the Ld. AO by relying on an alleged report of the Department's Inspector that none of the share applicant's were found at their addresses and without confronting the appellant with the alleged report or providing the appellant with an opportunity to rebut the alleged report, thereby violating the principles of natural justice.
The Ld. C1T(A) erred in not adjudicating the appellant's ground pressed before him regarding the Ld. AO’'s failure to follow the principle of natural justice in not providing it with a copy of the alleged report of the Department's Inspector, based on which the Ld. AO made the impugned addition of Rs. 4, 50,00,000/- u/s 68 of the Income Tax Act, 1961.
In light of the fact that the Ld. CIT(A) has ignored the principle of natural justice, the Order of the Ld. CIT(A) may be set aside jar fresh adjudication. "
The aforesaid grounds arise out of the impugned appellate order passed by the Ld. CIT(A)-3, Kolkata on 08/12/2016, upholding the Ld. AO's action of making addition u/s 68 of the Income Tax Act, 1961, relying on an alleged report of a Department Inspector and using it against the appellant without affording any opportunity of being heard to it thus failing to follow the principle of natural justice and the first ground of appeal also arises out of the order passed by the Ld. CIT(A)-3, Kolkata on 08/12/2016 and the whole fact leading to the aforesaid grounds being on record which does not require any investigation of fact, and the ground being the question of law arising out of the impugned appellate orders may be admitted.”
The ld. Counsel for the assessee prayed for admission of these additional grounds as all the facts are on record and as this is a legal issue not requiring any investigation into fresh facts.
The ld.AR submits that the AO made addition u/s. 68 of the Act by relying on the report of the Income-tax Inspector and the report was not confronted to the assessee in the assessment proceedings. The ld.AR submits to decide the additional ground, which does not require any investigation of facts. He relied on the judgment of the Hon’ble Supreme Court in the case of NTPC ( supra).
The ld.DR submitted that the facts relating to additional grounds raised by the assessee were on record and argued that the additional ground be taken up first as a primary issue.
Having heard both the parties and perusing the material available on record, we find that there is no new material/evidence, which is required to be referred in deciding the additional ground. In fact, this ground arises in this appellate order itself. In view of the same, we admit the additional ground and proceed to hear the appeal.
8. The ld.AR submits that the assessee is a company and engaged in the business of manufacturing of gold ornaments. The AO made addition of Rs.4,50,000/- being receipt of share application money from M/s. Rang Vardhan FabTrade Pvt. Ltd. The ld.AR submits that the addition was made on the basis of an Income-tax Inspector’s report and referred to para 9 of the assessment order and argued that the said report was not confronted to the assessee and as such, there was no violation of principle of natural justice. The ld.AR also submits that the assessee has raised a ground before the CIT-A challenging the action of the AO in not confronting with the said report to the assessee. The CIT-A without considering the same confirmed the addition made by the AO. The ld.AR argued that the said report was not in knowledge of the assessee and the same has to be ignored and cannot be relied upon by the authorities for the purpose of assessment unless it is confronted to the assessee. The ld. AR urged to restore the issue to the file of the AO for fresh adjudication of the same and to direct the AO to serve the copy of the said report on the assessee and provide an opportunity to make their submissions in such report. The ld. DR did not object to the proposition of the ld.AR.
Heard rival submissions and perused material available on record. We find that the AO made the addition of Rs.4,50,00,000/- by also relying on the Income-tax Inspector’s report, which is evident from para 10 of the AO’s order. We also find that the assessee raised a ground before the CIT-A questioning the action of the AO in not confronting the said report to the assessee. But, however, the CIT-A without considering the same confirmed the impugned addition made by the AO, which is clearly evident from 2nd page of page 23 of the CIT-A’s order. The CIT-A while noting this contention of the assessee did not provide an opportunity to the assessee. In view of the above discussion, in the interest of justice, we deem it fit and proper to remand the issue to the file of the AO. Addition cannot be based on material not confronted to the assessee. The AO shall ensure that the said report will be served on the assessee and the assessee is at liberty to rebut the same and file requisite evidences, if any, and to substantiate its claim. In other words, the assessee would be entitled to all legal options on this issue. The ground raised by the assessee is allowed for statistical purpose.
In view of the decision on preliminary issue as discussed, no separate adjudication is required on the original grounds raised in appeal memo.