2017 (1) TMI 1733 - AT - Income Tax

Tribunal rules on income, evidence, and sales reconciliation in tax appeal case

Kanniappan Murugadoss Versus Income Tax Officer, Non-Corporate Ward-7 (4)

The Tribunal confirmed the addition of unexplained cash deposits and cash introduction as income but remanded the matter for quantification based on the ... Admission of additional evidence - tribunal's power to admit additional evidence - Unexplained cash deposit addition - HELD THAT:- Clearly, the assessee has not furnished any explanation with regard to the nature and source of the cash deposits in his two bank accounts as well as that introduced in business. There was no dearth of opportunity with the assessee for producing the evidence, which it presses for admission before us vide application dated March 22, 2016. Rather, the very fact of its availability all through itself raises several questions, if not doubts, in the matter. A mere mention of the sale of property, if the reference thereto before the ld. CIT(A) is taken into account, without anything further, much less substantiated, cannot be in law regarded as an 'explanation', and was accordingly not considered by him. The aspect of 'any other substantial cause' stands also explained by the higher courts as in terms of the requirement by the tribunal for pronouncing its order in a satisfactory manner. The admission, as explained, is not to provide further innings or with a view to fill up the gaps in its case by a party and strengthen its case. We, accordingly, have no hesitation to hold that there is no requirement for the said 'evidence', even the credibility of which is suspect. The assessee's application or plea in this regard, i.e., admission of additional evidence, is accordingly rejected. Yes, of course, there is the quantitative aspect inasmuch as both the authorities have arrived at a different amount of the addition, resulting in cross appeals. The same though is independent of the evidence under reference. On merits bald statement before the first appellate authority can hardly be considered as an explanation. The provisions of section 69/69A stand rightly invoked by the Revenue. Quantum of the addition - We find the basis of a peak amount, as adopted by the ld. CIT(A), as reasonable. AO has himself allowed the assessee credit for ₹ 1 lac (out of ₹ 2.35 lacs withdrawn) against deposits in the SBI account, as well as for ₹ 0.10 lac withdrawn from PNB a/c, so that it is not that he was not alive to the same. The balance ₹ 1.35 lac stands withdrawn from the capital account on 31/3/2011, i.e., the last date of the year. The utilization of the same as well as of that withdrawn earlier (₹ 1.0 lac) in the books of the firm is to be seen before credit against the same could be allowed - With regard to the credit of ₹ 21.93 lacs in respect of cash credit in the assessee's capital account, ostensibly against 'journal entries' 'allowed' by the ld. CIT(A), we observe that the Revenue is rightly aggrieved (per Ground 2.3 of it's appeal) inasmuch as no opportunity to examine and, where so, meet and/or rebut has been provided to the AO. Further, who are the creditors; their capacity; the genuineness of the transactions, which aspects remain obscure or over-looked. In fact, it does not appear that the ld. CIT(A) has 'allowed' credit, or else the aggregate of cash deposits (as considered by him) would not amount to ₹ 103.07 lacs, i.e., as against ₹ 118.90 lacs by the AO, or at a difference of ₹ 15.83 lacs. Decision - Even as we confirm the addition in principle, the matter with regard to its quantification, being inchoate, clearly requires determination, to be decided after due verification, of course after allowing proper opportunity of hearing to the assessee. We direct accordingly. This decides the assessee's appeal and Gd. 2.3 of the Revenues' appeal. CIT(A) allowed relief to the assessee on the basis of a sales reconciliation - Revenue is aggrieved by it's admission, claimed to be in violation of Rule 46A - HELD THAT:- Only by virtue of it's payment that deduction in its respect obtains, i.e., u/s. 37(1) r/w. s. 43B, and the same gets in effect excluded in computing the assessee's income. This is rather further subject to the same representing a liability, as otherwise the question of its deduction does not arise. The payment is to be made during the relevant year, except where the liability arises for the current year, in which case it could be made up to the due date of filing the return u/s. 139(1) for that year. Then, again, we observe a difference of ₹ 4,23,517/- (in the reconciliation) in the account labour charges', qua which there is no claim by the assessee or even finding by the ld. CIT(A), though gets 'deleted' in pursuance of his order. The matter requires being examined by the AO, who shall adjudicate in accordance with law by issuing definite findings of fact and after allowing the assessee an opportunity to state and prove his case. We decide accordingly. In the result the assessee's appeal is partly allowed for statistical purposes, while the Revenue's appeal is partly allowed Issues Involved:1. Unexplained cash deposits in bank accounts.2. Cash introduction in the assessee's capital account.3. Difference in sales figures between Profit & Loss Account and sales-tax return.4. Admission of additional evidence (agreements for sale).5. Application of Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963.6. Quantification of addition based on peak amount.7. Admission of sales reconciliation and its compliance with Rule 46A.Issue-wise Detailed Analysis:1. Unexplained Cash Deposits in Bank Accounts:The assessee had cash deposits of Rs. 42.28 lacs and Rs. 13.87 lacs in savings bank accounts not reflected in the business books. These were assessed as income from other sources due to lack of explanation regarding their source. The Commissioner of Income-tax (Appeals) [CIT(A)] viewed that cash withdrawals should form a source for cash deposits, and thus, the peak amount available in all accounts should be considered for taxation.2. Cash Introduction in the Assessee's Capital Account:There was another cash introduction of Rs. 62.75 lacs in the assessee's capital account, assessed as business income due to unexplained source. The CIT(A) directed deletion of certain credits amounting to Rs. 21.93 lacs, which were journal entries in favor of specified persons.3. Difference in Sales Figures:A discrepancy of Rs. 37.57 lacs was found between the sales figures as per the Profit & Loss Account and the sales-tax return. The assessee explained this as due to excise duty included in the monthly sales turnover. However, this was not substantiated, leading to its addition as income. The CIT(A) directed exclusion of this addition based on the sales reconciliation provided by the assessee.4. Admission of Additional Evidence (Agreements for Sale):The assessee sought to admit additional evidence in the form of two agreements for sale of immovable properties, claiming cash receipts of Rs. 50 lacs. The Department Representative objected, citing Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963. The Tribunal found the assessee's conduct in not furnishing these agreements earlier as suspect and rejected the plea for admission of additional evidence.5. Application of Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963:Rule 29 restricts parties from producing additional evidence before the Tribunal unless required for passing orders or if the income-tax authorities did not give sufficient opportunity to the assessee. The Tribunal emphasized that additional evidence should not be admitted to patch up weak parts of a case or fill omissions. The assessee's application for additional evidence was rejected as it did not meet the criteria under Rule 29.6. Quantification of Addition Based on Peak Amount:The Tribunal agreed with the CIT(A) that the peak amount in all accounts should be considered for taxation. However, it noted discrepancies in the amounts considered by the Assessing Officer (AO) and the CIT(A). The Tribunal directed a verification process to determine the correct quantification of the addition, considering the material on record and allowing proper opportunity for hearing to the assessee.7. Admission of Sales Reconciliation and Compliance with Rule 46A:The Revenue contested the CIT(A)'s admission of sales reconciliation, claiming it violated Rule 46A. The Tribunal noted that the reconciliation should include sales and excise returns to substantiate claims. It directed the AO to examine the reconciliation and adjudicate in accordance with the law, ensuring definite findings of fact and allowing the assessee an opportunity to prove his case.Decision:The Tribunal confirmed the addition in principle but remanded the matter for quantification after due verification. The assessee's appeal was partly allowed for statistical purposes, and the Revenue's appeal was partly allowed.