2024 (5) TMI 346 - AT - Income Tax

ITAT admits additional evidence under Rule 46A, deletes unexplained receipts and Section 40A(3) additions after documentary proof

Sanjeev Mittal, C/o M/s. RRA Taxindia Versus DCIT, Circle-II, Faridabad. And ACIT, Circle-II, Faridabad. Versus Sanjeev Mittal

ITAT Delhi upheld CIT(A)'s admission of additional evidence under Rule 46A(1)(c)(d), citing Delhi HC precedent in Virgin Securities case, finding evidence ... CIT(A) justification of admitting additional evidenced produced - whether the Ld. CIT(A) is right in law in admitting the additional evidence under clause (c) & (d) of Rule 46A(1) of the Rules? - HELD THAT:- In our opinion, the reply is in affirmative. This is because the issue is squarely covered by the decision of Hon’ble Delhi High Court in CIT vs. Virgin Securities and Credits (P) Ltd. [2011 (2) TMI 207 - DELHI HIGH COURT] it could not be disputed that this additional evidence was crucial to the disposal of the appeal and had a direct bearing on the quantum of claim made by the assessee. The plea of the assessee which taken before the AO remained the same. The Assessing Officer had taken adverse note because of non-production of certain documents to support the plea and it was in these circumstances, the additional evidence was submitted before the Commissioner (Appeals). It could not be said nor was it the case of the revenue that additional evidence was not permissible at all before the first appellate authority. On the contrary, rule 46A of the Income-tax Rules permits the Commissioner (Appeals) to admit additional evidence if he finds that the same is crucial for disposal of the appeal. In the facts of the instant case, therefore, no substantial question of law arose Thus we reject this ground and hold that the Ld. CIT(A) was perfectly justified in admitting the additional evidence produced by the assessee before him. Unexplained receipts - Addition of receipts as per cash book maintained by the assessee - copy of sale deed of the property sold by the assessee to authenticate the said receipts shown in assessee’s cash book was not submitted - HELD THAT:- Before the Ld. CIT(A) the assessee not only produced sale deed but also sale agreement between assessee and M/s. S.R. Forging Ltd. showing advance given to the assessee and confirmation of M/s. S.R. Forging Ltd. whom the assessee sold the property. It is quite evident that the source of receipt of the impugned sum been explained. Therefore the Ld. CIT(A) was convinced about the genuineness of the advances of Rs. 1.47 crore received by the assessee. We find no reason to interfere with the findings of the Ld. CIT(A). Only because documentary evidence was not filed at the time of assessment which were filed by way of additional evidence before the Ld. CIT(A) which he admitted after giving full opportunity to the Ld. AO to rebut/offer comments in remand proceeding. In our humble opinion, the impugned addition cannot be sustained. This ground is decided against the Revenue. Addition u/s 40A(3) - said sum was found debited to the trading account as purchases which according to Ld. AO could not be substantiated by the assessee - HELD THAT:- We found by the Ld. CIT(A) on the basis of evidence validly admitted by him by following the due process of law and recording his finding that during the year the assessee had not, in fact, made any purchases. As ascertained from the sale deed dated 10.05.2011 of the property that the assessee had bought the property, 50% of which was his share. This accounted for payment of Rs. 90 lacs towards purchase of the property. The finding of the Ld. CIT(A) in this regard could not be assailed by the Revenue by bringing on record any adverse material. We, therefore, concur with the view of the Ld. CIT(A) and reject this ground of the Revenue too. Addition deleted by the Ld. CIT(A) is on account of calculation mistake - HELD THAT:- DR could not explain as to how there was no calculation mistake. In this view of the matter, this ground is without any basis and is rejected. Disallowance of interest u/s 36(1)(iii) - assessee had paid interest on borrowed funds and claimed deduction thereof whereas he had advanced interest free loans to six parties - CIT(A) sustained the said disallowance - HELD THAT:- There is no finding either of the Ld. AO or of the Ld. CIT(A) that interest has been paid for purposes other than business. The contention of the assessee has been that the interest bearing capital borrowed has been used for the purposes of assessee’s business. This contention of the assessee has not been controverted. The assessee is the best judge of his business needs. Revenue cannot allege that there was no business exigency to borrow interest bearing funds for the purposes of business of the assessee. No direct linkage has been established by the Revenue that interest bearing borrowed funds have been diverted for advancing interest free loans. There is no such allegation at all. The impugned disallowance, in our view, does not rest on any solid legal foundation. In this view of the matter, the alternate plea raised by the assessee that rate of interest has been applied for the whole year and not only for the period of advances given becomes infructuous. We therefore decide the main ground in favour of the assessee. Addition commission expenses for want of documentary evidence - disallowance has been maintained by the Ld. CIT(A) with the observation that he was not convinced that the payments were made through accounted money of the assessee - HELD THAT:- The assessee brought on record before the Ld. CIT(A) party-wise details of commission paid by him along with PAN and addresses of the recipients of the impugned commission. Evidence produced before CIT(A) were examined in remand proceedings by the AO and no fault was found by him. The sustenance of the claim of impugned commission expenses by the Ld. CIT(A) is based on conjecture and surmises alone and not on facts. We, therefore, hold that the impugned disallowance is not warranted. We, therefore direct the Ld. AO to delete the same. Decided in favour of assessee. Issues Involved:1. Admission of additional evidence by CIT(A) u/s Rule 46A(1).2. Deletion of addition of Rs. 1.47 crore u/s 68 of the Act.3. Deletion of addition of Rs. 90 lacs u/s 40A(3) of the Act.4. Deletion of disallowance of Rs. 24,000/- due to calculation mistake.5. Sustenance of disallowance of interest of Rs. 15,04,008/- u/s 36(1)(iii) of the Act.6. Confirmation of disallowance of commission expenses of Rs. 1,10,000/-.Summary:1. Admission of Additional Evidence:The Revenue questioned whether the CIT(A) was right in admitting additional evidence under clause (c) & (d) of Rule 46A(1). The Tribunal upheld the CIT(A)'s decision, citing the Delhi High Court's ruling in CIT vs. Virgin Securities and Credits (P) Ltd. (2011) 332 ITR 396 (Delhi), which allows the CIT(A) to admit additional evidence if it is crucial for the disposal of the appeal. The Tribunal found that the CIT(A) followed due process by obtaining a remand report from the AO before admitting the additional evidence.2. Deletion of Addition of Rs. 1.47 Crore u/s 68:The AO added Rs. 1.47 crore as unexplained cash receipts. The CIT(A) deleted this addition after the assessee provided the sale deed and sale agreement showing the advance received from M/s. S.R. Forging Ltd. The Tribunal found no reason to interfere with the CIT(A)'s findings, as the additional evidence explained the source of the receipts.3. Deletion of Addition of Rs. 90 Lacs u/s 40A(3):The AO added Rs. 90 lacs as purchases made in cash. The CIT(A) found that no such purchases were made during the year and that the amount pertained to a property jointly bought, with the assessee's share being 50%. The Tribunal upheld the CIT(A)'s decision, finding no infirmity in the evidence provided.4. Deletion of Disallowance of Rs. 24,000/-:The CIT(A) deleted the addition of Rs. 24,000/- due to a calculation mistake. The Tribunal found no basis for the Revenue's objection and upheld the CIT(A)'s decision.5. Sustenance of Disallowance of Interest u/s 36(1)(iii):The AO disallowed interest of Rs. 15,04,008/- on the grounds that the assessee had advanced interest-free loans while incurring interest expenses. The Tribunal found that the borrowed capital was used for business purposes and that no direct linkage was established between the borrowed funds and the interest-free loans. The Tribunal directed the AO to delete the disallowance.6. Confirmation of Disallowance of Commission Expenses:The AO disallowed Rs. 1,10,000/- in commission expenses for lack of documentary evidence. The CIT(A) upheld this disallowance. The Tribunal found that the assessee provided sufficient evidence, including party-wise details and PAN of the recipients, which was examined in remand proceedings with no faults found. The Tribunal directed the AO to delete the disallowance.Conclusion:The appeal of the Revenue is dismissed, and the appeal of the assessee is allowed. The Tribunal upheld the CIT(A)'s decisions on admitting additional evidence and deleting the additions and disallowances, while directing the AO to delete the disallowances of interest and commission expenses.