SRI. RAFFI BAIG,BANGALORE vs. ACIT, BANGALORE

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH “ B ” BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER I.T.A. No.1498/Bang/2013 (Assessment Year : 2004-05) Asst. Commissioner of Income Tax, Central Circle 2(2), Bangalore. …. Appellant Vs. Shri Raffi Baig, No.198/1, Khwaja Mansion, Das Compound, Basavanagudi, Bangalore. ….. Respondent. PAN ABDPR 6537M I.T.A. No.1540/Bang/2013 (Assessment Year : 2004-05) (By Assessee) Appellant By : Shri V. Srinivasan, C.A. Respondent By : Shri P.K. Srihari, Addl. CIT (D.R) Date of Hearing : 21.1.2015. Date of Pronouncement : 27.2.2015. O R D E R Per Shri Jason P. Boaz : These are two cross appeals one by the assessee and the other by Revenue, directed against the order of the CIT (Appeals) – II, Bangalore dt.5.8.2013 for Assessment Year 2004- 05. Since these cross appeals are inter-connected and have been heard together, they are disposed off by way of this common order.

ITA No.1498 & 1540/Bang/2013 2 2. The facts of the case, briefly, are as under :- 2.1 The assessee, an individual in the business of sale of flowers and carrying on agriculture, filed his return of income for Assessment Year 2004-05 on 16.11.2006 declaring income of Rs.1,82,000. The return was processed under Section 143(1) of the Income Tax Act, 1961 (in short 'the Act') and the case was taken up for scrutiny. The assessment was completed ex- parte under Section 144 of the Act vide order dt.18.12.2006 wherein the income of the assessee was determined at Rs.28,07,000 in view of the following additions / disallowances to the returned income. (i) Unexplained cash credit : Rs.23,50,000. (ii) Unproved Liability : Rs.1,50,000. 2.2 Aggrieved by the order of assessment for Assessment Year 2004-05 dt.28.12.2006, the assessee preferred an appeal before the CIT (Appeals) – VI, Bangalore. The learned CIT (Appeals) vide order dt.18.10.2009 dismissed the assessee's appeal by declining to condone the delay of 11 months in filing the appeal, holding that there was not only intentional delay in filing the appeal belatedly by the assessee but also there was no sufficient cause for the delay of 11 months in filing the appeal.

2.3 Aggrieved by the order of the CIT (Appeals) – VI, Bangalore dt.18.10.2009, the assessee preferred an appeal before this Tribunal. A co-ordinate bench of this Tribunal in its order in ITA No.1157/Bang/2009 dt.26.11.2010 set aside the order of the CIT (Appeals) – VI, Bangalore dt.18.10.2009 and restored the appeal for fresh adjudication on merits to the file of the CIT (Appeals), after condoning the delay in filing the appeal before the CIT (Appeals).

ITA No.1498 & 1540/Bang/2013 3 3. In the second round of proceedings before the CIT (Appeals) – II, Bangalore, the learned CIT (Appeals) disposed off the assessee's appeal vide order dt.5.8.2013 allowing the assessee partial relief. After hearing the assessee and considering the written submissions put forth by the assessee, the learned CIT (Appeals) allowed the assessee relief to the extent of Rs.18,50,000 and sustained the addition made by the Assessing Officer only to the extent of Rs.6,50,000 (Rs.5,00,000 plus Rs.1,50,000). 4. Aggrieved by the order of the CIT (Appeals) – II, Bangalore dt.5.8.2013, both the assessee and revenue have preferred appeals before the Tribunal raising various grounds. 4.1 The grounds raised in the assessee's appeal are as under :- “ 1. The orders of the authorities below in so far as they are against the appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case. 2. The learned CIT (Appeals) is not justified in sustaining a part of the addition amounting to Rs.5,00,000 in respect of the addition of Rs.23,50,000 made as unexplained cash credits under the facts and in the circumstances of the appellant’s case. 3. The learned CIT (Appeals) is not justified in upholding the addition of Rs.1,50,000 as unproved liability under the facts and in the circumstances of the appellant’s case. 4. Without prejudice to the right to seek waiver with the Hon'ble CCIT / DG, the appellant denies himself liable to be charged to interest under Section 234A, 234B and 234C of the Act, which under the facts and in the circumstances of the appellant’s case deserves to be cancelled. 5. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.” 4.2 Revenue in its appeal has raised the following grounds :- “1. The order of the learned CIT (Appeals) is clearly opposed to law as far as the findings re perverse, contrary to the facts and circumstances of the case and hence not sustainable.

ITA No.1498 & 1540/Bang/2013 4 2. The CIT (Appeals) erred in deleting unexplained cash credits of Rs.18,50,000 merely on the basis of a chart showing sources of funds for clearing certain liabilities. The CIT (Appeals) ought to have remanded the matter to the Assessing Officer for verification of the assessee's stand that the immediate sources for clearing these liabilities re as per the chart submitted with reference to the bank accounts of the assessee. 3. The CIT (Appeals) erred in deleting the above addition without even mentioning the mode of clearing i.e. whether cash or in cheque or the relevant dates. From the appellate order it is clear that the assessee had not produced any books of accounts and in such circumstances the CIT (Appeals) ought to have upheld the additions. 4. The CIT (Appeals) ought to have appreciated that the assessee had gained a long time of nearly 6 years and in that period the assessee could have prepared the books of accounts and produce them for verification instead of producing a self serving chart for the sources of the funds.” 5. Ground Nos.1 and 5 of the assessee's appeal and Ground No.1 of Revenue’s appeal are general in nature and not having been urged before us are dismissed as infructuous. 6. In Ground No.4 of the assessee's appeal, the assessee has denied itself liable to be charged interest u/s. 234A, 234B & 234C of the Act. The charging of interest is consequential and mandatory and the Assessing Officer has no discretion in the matter. We, therefore, uphold the action of the Assessing Officer in charging the said interest. The Assessing Officer is, however, directed to recompute the interest chargeable u/s. 234A, 234B and 234C of the Act, if any, while giving effect to this order. 7.1 The effective grounds that remain for adjudication are Grounds No.2 to 4 of Revenue’s appeal relating to the deletion of the addition of unexplained cash credits amounting to Rs.18,50,000 by the learned CIT(A) in the impugned order. 7.2 The effective ground that remains for adjudication in the assessee's appeal are Ground Nos.2 and 3 which are in respect of the addition of Rs.6,50,000 (i.e. Rs.5,00,000 plus Rs.1,50,000) sustained by the learned CIT(A) in the impugned order.

ITA No.1498 & 1540/Bang/2013 5 7.3 In support of the grounds raised by revenue, the learned Departmental Representative submitted that the learned CIT(A) was not justified in deleting the addition made on account of unexplained cash credits to the extent of Rs.18,50,000 based on the explanations put forth by the assessee in appellate proceedings. It was submitted that the learned CIT(A) ought to have, but has not called for any remand report of the Assessing Officer for verification of the assessee's claim and the explanations put forth, which were never before the Assessing Officer in the ex-parte assessment proceedings. The learned CIT(A) proceeded to delete the addition to the extent of Rs.18,50,000 merely on the basis of submissions made by the assessee regarding the sources in the form of a chart. The learned Departmental Representative prayed that in view of the above actions of the learned CIT(A) being clearly violative of the principles of natural justice, the entire matter may be restored to the file of the Assessing Officer for consideration of the details and submissions made by the assessee in appellate proceedings before the learned CIT(A) in respect of the cash credits and for fresh adjudication thereon. 7.4.1 Per contra, the learned Authorised Representative strongly supported the impugned order of the learned CIT(A) on the point of deletion of the addition on account of unexplained cash credits to the extent of Rs.18,50,000. The learned Authorised Representative submitted that the learned CIT(A) had gone by the facts available in the statement of affairs and that the original addition made by the Assessing Officer was incorrect, as there was no question of any unexplained credit of Rs.23,50,000 in the period under consideration. The learned Authorised Representative submitted the only fresh credit during the year under

ITA No.1498 & 1540/Bang/2013 6 consideration was Rs.1,50,000 and the sum of Rs.23,50,000 was actually the liabilities shown in the statement of affairs of the assessee in the earlier year, which were cleared during the year. It was contended by the learned Authorised Representative that the addition has been made was based on the scrutiny of the statement of affairs filed with the Department from which itself the sources for clearing the old liabilities were apparent and the same was explained by filing a chart before the learned CIT(A) in appellate proceedings. 7.5 The learned Authorised Representative further submitted in support of the assessee's claim that the learned CIT(A) had wrongly sustained the addition on account of unexplained credits to the extent of Rs.5,00,000 in respect of advances given, that was shown in the statement of affairs as on 31.3.2003 and which was settled during the year under appeal. The learned Authorised Representative contend that therefore this addition of Rs.5 lakhs sustained by the learned CIT(A) ought to be deleted. In respect of the addition of unexplained liability of Rs.1,50,000 sustained by the learned CIT(A), the learned Authorised Representative submitted that being a fresh credit during the year under consideration, the assessee may be afforded another opportunity to present its case before the Assessing Officer. Per contra, the learned Departmental Representative supported the impugned order of learned CIT(A) in upholding the addition of Rs.5,00,000 on account of unexplained credits. The learned Departmental Representative also opposed the assessee's plea for being afforded fresh opportunity before the Assessing Officer in respect of the addition of the Rs.1,50,000 on account of unexplained liability sustained by the learned CIT(A).

ITA No.1498 & 1540/Bang/2013 7 7.6.1 We have heard the rival contentions and perused and carefully considered the material on record. We find from a perusal of the order of assessment for Assessment Year 2005-06 that it is completed ex-parte under Section 144 of the Act on the basis of material available on record, as both the assessee or the A.R. of the assessee had neither appeared before the Assessing Officer nor had any details been furnished in support of the return of income filed or as called for by the Assessing Officer under Section 142(1) of the Act. The Assessing Officer observed from the statement of affairs of the earlier year that the assessee had cleared certain liabilities reflected therein to the extent of Rs.23,50,000 in the year under consideration, the details of which are Rs.5,00,000 of Sri J.K. Malik; Rs.12,50,000 of Javed/ Naved and Rs.6,00,000 of Mother / Wife. On examination thereof, the Assessing Officer came to the view that the assessee had not declared any liquid source to repay these liabilities since the income shown by the assessee was only Rs.1,82,000 from flower business and Rs.1,25,000 as agricultural income. That apart, the assessee had shown a fresh credit of Rs.1,50,000 as loan taken from one Mr. Rajiv for which a separate addition was made by the Assessing Officer. Before the learned CIT(A), the assessee explained the sources for clearing the liabilities to the tune of Rs.23,50,000 in the form of the following chart :- No. Particulars of source Amount Remarks. (Rs.) 1. Cash (Rs.74,991 – 5,717) 69,274 Opening cash balance of Rs.74,991 minus Rs.5717 closing cash balance is available. 2. Flower & Real Estate 1,82,000 As per statement of affairs on 31.3.2004. Business.

ITA No.1498 & 1540/Bang/2013 8 3. Agricultural income 1,25,000 As per Statement of affairs on 31.3.2004. 4. Amount received on sale of 4,69,500 This includes Rs.3,29,500 shown in the Gottegere Lands Statement of Affairs on 31.3.2004 and the cost and development expenses of Rs.40,000 and Rs.1,00,000 shown in the statement of affairs on 31.3.2003. 5. Rental Deposit - Pantaloon 3,82,600 As per Statement of affairs on 31.3.2004. 6. Rental Deposit – Food 5,52,251 As per statement of affairs on 31.3.2004. Bazar. 7. Recovery of flat advance 5,00,000 As per Statement of affairs on 31.3.2004 & as compared to the statement of affairs as on 31.3.2003. 8. Loan from Mr. Raju 1,50,000 As per statement of affairs on 31.3.2004. Total Sources 24,30,625

7.6.2 From the above chart, it is seen that the assessee has sought to explain the availability of funds to the extent of Rs.23,50,000 for clearing the liabilities shown in the statement of affairs of the earlier financial year. From the material on record, it is clear that neither did the assessee or his A.R. appeared before the Assessing Officer nor were details whatsoever filed before the Assessing Officer leading to the assessment being completed ex-parte under Section 144 of the Act. In these circumstances, it was incumbent on the learned CIT(A) to have called for a report under Rule 46A of the IT Rules, 1962 or remand report under Section 250(4) of the Act from the Assessing Officer in respect of the details and evidences filed by the assessee in appellate proceedings and more so when huge relief was being allowed to the assessee. This action on the part of the learned CIT(A), in our opinion, is in clear violation of

ITA No.1498 & 1540/Bang/2013 9 the principles of natural justice. We, therefore, are of the opinion that the interests of equity and justice will be served if the assessment for Assessment Year 2004-05 originally completed ex-parte under Section 144 of the Act due to non-compliance by the assessee is set aside in respect of the cash credits of Rs.23,50,000 and the matter restored to the file of the Assessing Officer for fresh consideration, inter alia, of the details filed by the assessee before the learned CIT(A) in appellate proceedings and adjudication thereon. In this regard, since the assessment on this issue is to be done afresh, the additions of Rs.5,00,000 and Rs.1,50,000 sustained by the learned CIT(A) for want of proof are also restored to the file of the Assessing Officer for fresh consideration and adjudication. The Assessing Officer shall be free to call for such details as may be required to complete the assessment of the matter remanded afresh and the assessee shall be afforded adequate opportunities to file details and submissions required; after consideration of which only the Assessing Officer shall complete the order of assessment. It is ordered accordingly. 8. In the result, both the assessee's and Revenue’s appeals for Assessment Year 2005-06 are treated as allowed for statistical purposes. Order pronounced in the open court on 27th Feb., 2015.

(RAJPAL YADAV) (JASON P BOAZ) Judicial Member Accountant Member *Reddy gp