2021 (2) TMI 728 - AT - Income Tax

Case remitted for additional evidence examination & fair assessment of credits under Section 68

The Tribunal remitted the case back to the Commissioner of Income Tax (Appeals) for compliance with Rule 46A(3) to allow the Assessing Officer to examine ... Non admission of the additional evidence by the ld. CIT(A) - Addition u/s 68 - AO not satisfied as to the nature and source of the credit having been proved - HELD THAT:- The materials furnished for the first time by the assessee could perhaps have been called for by the ld. CIT(A) from it, but that would only be where he had, after applying himself to the facts and circumstances of the case, including the materials before the AO, come to the conclusion that some further were required, while the documents furnished before the ld. CIT(A) were at the very outset, i.e., the beginning of the proceedings before him, per the first letter addressed to him by the assessee-appellant. That is, there was no occasion for him to have considered calling for any of the said documents. Also, as it appears, no inquiry stands made by him with the assessee as to which of those documents were in fact furnished by the assessee before the assessing authority. This, rather, gives rise to the question as to whether it is a case to which r. 46A(4), which is akin to rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963, would, strictly speaking, apply. Suffice to state that he ought to have, in the view of the clear mandate of s. 68, recording a clear finding in the matter, required the AO, before whom the burden of proof is required to be discharged by the assessee, to examine the same. Reference here may also be made to Tin Box Co. v. CIT [2001 (2) TMI 13 - SUPREME COURT] explaining that an opportunity before an appellate authority does not substitute that before the assessing authority. The course suggested by us for being followed by the ld. CIT(A) supra, is equally valid for us, being in fact the dictate of justice in the facts and circumstances of the case. As exhorted by the Apex Court time and again, as in CIT v. Walchand & Co. (P.) Ltd. [1967 (3) TMI 2 - SUPREME COURT] wherein, expounding on the jurisdiction as well as the duty of the Tribunal as the final fact finding body, it explained that it is to deal with and determine questions which arise out of the subject-matter of the appeal in the light of the evidence, and consistently with the justice of the case. For the reasons afore-stated, notwithstanding the non-satisfaction of the conditions of r. 46A(1)/(2), as indeed of r. 46A(3), the issue with regard to the maintainability of the impugned credits u/s. 68 is restored to the file of the AO. He shall be at liberty to require, besides the documents furnished by the assessee before the ld. CIT(A), any other as he may deem fit and proper under the circumstances. Likewise, the assessee is not constrained in any manner. The whole purpose of the open set aside is a proper decision on the merits of the case, i.e., u/s. 68, law on which is well-settled. We may here also express our view with regard to the adverse inference drawn by the AO with regard to the creditor’s claim u/s. 54, since allowed. The said claim cannot be called into question in the instant proceedings. In fact, the AO also doesn’t do so, and his objection proceeds on the basis of the said claim, i.e., presuming its validity, inasmuch as the amount realized by way of sale proceeds of the property by the creditor stands invested by her in the purchase of another, claiming sec.54 exemption on that basis, which does not appear to have been examined in an assessment as else the AO would have referred thereto, also citing perhaps the creditor’s submissions therein, in support of his objection. The issue on merits is qua s. 68, i.e., toward furnishing a satisfactory explanation as to the nature and source of the credits in the assessee’s books, so that, irrespective of their taxability in the hands of the creditor, an assessee with the Revenue, where the same are shown by the assessee-firm as arising from the creditor, i.e., be it sourced from her capital or current income or even her confirmed liability, the onus on it to explain the same u/s. 68 gets discharged, which would shift back only on an infirmity in the assessee’s case being pointed out or material in rebuttal thereof brought out by the Revenue. Further, as afore-noted, it would be a different matter where the genuineness of the arrangement/s under which the credits arise is in doubt, which has to be on some cogent basis, and of which there is upto now no suggestion. This aspect, though concerning the merits of the addition, which we are not called upon to address, has been clarified inasmuch as while the AO relies thereon, the ld. CIT(A) has not expressed any view thereon, so that it may not, at least in principle, form a bone of contention between the parties or survive our adjudication, which has been sought to be guided by the decision in Walchand & Co. (P.) Ltd. (supra). Issues Involved:1. Delay in filing the appeal.2. Deletion of addition under Section 68 of the Income Tax Act, 1961.3. Admission of additional evidence by the Commissioner of Income Tax (Appeals) [CIT(A)].4. Opportunity for cross-verification under Rule 46A of the Income Tax Rules, 1962.Detailed Analysis:1. Delay in Filing the Appeal:The appeal was delayed by 5 days. The delay was explained in the condonation application, citing the Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020, and Gazetted Notifications by the Central Government extending compliance periods. The delay was condoned as it was statutorily provided, and no objection was raised by the assessee’s counsel.2. Deletion of Addition under Section 68:The assessee, a partnership firm in property development, filed its return of income for AY 2017-18. During assessment, the Assessing Officer (AO) observed credits of Rs. 80.50 lakhs from Smt. Sunita Khatri, which included an unsecured loan of Rs. 30.50 lakhs and an advance against building of Rs. 50 lakhs. The AO deemed these credits as unexplained income under Section 68. The CIT(A), however, accepted the assessee’s documentation, including ledger copies, confirmations, bank statements, ITR, and agreements, concluding that the nature and source of the credits were explained, and deleted the addition.3. Admission of Additional Evidence by CIT(A):The CIT(A) admitted additional evidence submitted by the assessee, which was not produced before the AO. The Revenue contended that the CIT(A) failed to record reasons for admitting this evidence and did not confront the AO with it for cross-verification, violating Rule 46A of the Income Tax Rules, 1962. The Tribunal noted that the CIT(A) did not comply with the mandatory requirements of Rule 46A(1) and (2) for admitting additional evidence and Rule 46A(3) for allowing the AO to examine it.4. Opportunity for Cross-Verification under Rule 46A:The Revenue argued that the CIT(A) did not give the AO an opportunity for cross-verification of the documents produced during the appellate proceedings. The Tribunal observed that the CIT(A) did not state any reason for the non-production of documents before the AO and did not allow the AO to rebut the evidence admitted. The Tribunal emphasized that the satisfaction of the AO regarding the genuineness of credits is crucial and the CIT(A) should have directed the AO to examine the additional evidence.Conclusion:The Tribunal remitted the matter back to the CIT(A) for compliance with Rule 46A(3), allowing the AO to examine the additional evidence. It highlighted that the AO’s satisfaction is essential for the genuineness of credits under Section 68. The Tribunal also noted the importance of a fair and thorough examination of the evidence to ensure justice. The appeal was allowed for statistical purposes, indicating the need for further examination by the AO.