Liju K. Abraham , New Delhi vs Department Of Income Tax

ITO, Ward-36 (3), vs. Sh. Liju K. Abraham, New Delhi. Old Address: B-27, South Ganesh Nagar, Delhi - 110 092 New Address:- 477A, Nyay Khand-II, Indrapuram, Ghaziabad (PAN : AHJPA 0233B))

(APPELLANT) (RESPONDENT)

REVENUE BY : Shri Gaurav Dudeja, Sr. DR

ASSESSEE BY : NONE

Date of hearing : 26-06-2015 Date of Order : 30-06-2015

ORDER

PER H.S. SIDHU, JUDICIAL MEMBER

This appeal filed by the Revenue emanates from the order of Ld. CIT (Appeals)-XXVII, New Delhi dated 10.02.2012 for the Assessment Year 2007-08. The grounds of appeal taken by the revenue are as under :-

"1. In the facts and circumstances of the case, the Ld. CIT(A) erred in restricting the addition under section 68 of the I.T. Act, 1961 to Rs. 69,525/- taking peak deposit in the bank account in the month of March, 2007 as against addition 2 ITA No.2713/Del./2012

of Rs. 15,22,975/- made by the AO on account of unexplained cash deposits in the bank account with South Indian Bank Ltd., Delhi.

2. That the Ld. CIT(A) has erred in applying theory of peak, when the assessee has not furnished any evidence of sale or purchase and merely furnished receipts of transporter, which does not establish purchase and sale of electronic goods.

3. That the Ld. CIT(A) has erred in stating that the return of income was filed at Rs. 99,891/- whereas the return of income was filed by the assessee at Rs. 1,33,985/-.

4. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal."

2. The brief facts of the case are that the Return of income at Rs. 99,981/- was filed on 28.1.2008. The case of the assessee was selected for scrutiny on the basis of the AIR information. In the assessment order dated 30.1.2009 passed u/s. 143(3) of the Income Tax Act, 1961 (hereinafter called "the Act"), the income of the assessee was determined at Rs. 16,56,960/- by making an addition of Rs. 15,22,975/- u/s. 68 of the Act on account of unexplained cash deposits in the assessee's bank account.

3. Against the above addition, assessee appealed before the Ld.

CIT(A) who vide impugned order dated 10.2.2012 has restricted the

addition u/s. 68 of the I.T. Act to Rs. 69,525/- taking the peak deposit in

the bank account in the month of March, 2007 as against addition of Rs.

15,22,975/- made by the AO on account of unexplained cash deposits in

the bank account with South Indian Bank Ltd., Delhi.

3 ITA No.2713/Del./2012 4. Aggrieved with the aforesaid order of the Ld. CIT(A), the Revenue

is in appeal before the Tribunal.

5. At the time of the hearing, ld. DR submitted that the assessee filed

an Application under Rule 46A of the I.T. Rules, 1962 alongwith the copy

of his Bank Account and copies of Cargo receipts in proof of having sent

various goods to Eranakulam to the address of M/s Megotone Electronics.

The additional evidence filed by the assessee alongwith application under

Rule 46A was forwarded to the AO for his comments. The AO vide his

report dated 23.3.2011 submitted that the assessee had been provided

sufficient opportunity during the course of the assessment proceedings to

file his submissions and documentary evidence. But assessee has not made

the compliance. Assessee has not filed the additional evidences before the

AO, but assessee has filed the additional evidences before the CIT(A) and

the Ld. CIT(A) has deleted the addition in dispute without providing

sufficient opportunity to the AO and admitted the additional evidences and

deleted the addition in dispute which is contrary to Rule 46A of the IT

Rules, 1962. To support his contention he placed reliance upon the

decision rendered by the Hon'ble Jurisdictional High Court in the case of

CIT vs. Manish Buildwell reported in 204 Taxmann vs. 106 (Del.). He

requested that the issue in dispute may be set aside to the AO to

thoroughly examine the same and decide it according to law, after giving 4 ITA No.2713/Del./2012

adequate opportunity to the assessee for substantiating its claim before the

AO.

6. This case came up for hearing before the Bench many times

including on 1.10.2013 and the same was adjourned to 16.1.2014, because

the assessee did not appear before the Bench for which Notice by RAPAD

issued to the assessee through DR, but again assessee did not appear on

16.1.2014 and the Bench adjourned the matter for 7.5.2014 for which

notice was sent for 7.5.2014 through DR. On 7.5.2014 again nobody

present on behalf of the assessee. Again the Bench adjourned the case for

03.9.2014 and notice for this date was sent, but again on 3.9.2014 nobody

present for the assessee, despite issued notice through DR. Again the

Bench adjourned the case for 16.12.2014 and issued notice through DR.

On 16.12.2014 the Bench did not function and the matter was adjourned

for 16.4.2015. On 16.4.2015 the Bench did not function again and the case

was last fixed for 26.6.2015 and notice issued through RPAD to the

parties for 26.6.2015. But again on 26.6.2015 despite the RPAD issued

to the assessee, neither the assessee nor his Authorised Representative

appeared nor any application for adjournment was filed. Keeping in view

of the facts and circumstances of the case, as explained above, we are of

the view that the assessee is not interested to prosecute the matter in

dispute and no useful purpose would be served to send the notice again and

again to the assessee through RPAD or through the D.R. Therefore, we are 5 ITA No.2713/Del./2012

deciding the issue in dispute exparte assessee, after hearing the Ld. DR and

perusing the records.

6.1 We find that Ld. CIT(A) has adjudicated the issue in dispute vide para no. 8 & 9 at page 5 to 6 of his impugned order dated 10.2.2012. For the sake of convenience, we are reproducing the para no. 8 & 9 of the impugned as under:-

"8. I have carefully considered the appellant's submissions and the observation made by the AO in the assessment order and the remand report. The appellant was provided only four days i.e. 24.12.2007 to 29.12.2007 to file his explanation with regard to the letter of Sh. Paul K. Kurien received by the AO, on 4.12.2007. The additional documentary evidence filed by the appellant is crucial for deciding the issue involved in the 'appeal filed by the appellant. The same is, therefore, admitted.

9. The AO has added the whole of the cash amount deposited in the appellant's bank account amouting to Rs. 15,22,975/- on the ground that Sh. Parul K. Kurein, Prop. M/s Megatone Electronics had denied having any business dealings with the appellant. Even in the face of this denial by M/s Megatone Electronics Both the cash deposits and cash withdrawals in the appellant's bank account had to be taken into account for arriving at the correct picture but the AO has only taken into account the deposits in the bank account and has ignored the cash withdrawals from the same account. On perusal of the bank account, it is seen that after each cash deposit there is a cash withdrawal either 6 ITA No.2713/Del./2012

next day or in a couple of days. Even if the appellant was not doing any business what could have been added to his income on account to these cash deposits was the peak deposit in his bank account which was Rs. 69,525/- in the month of March, 2007. Keeping in view the facts of the case as discussed above, the addition on account of unexplained cash deposits in the appellant's bank account is restricted to Rs. 69,525/-. The AO is directed accordingly."

6.2 After perusing the aforesaid finding of the Ld. CIT(A), we are of the considered view that Ld. CIT(A) has himself admitted that the assessee was provided only four days i.e. 24.12.2007 to 29.12.2007 to file his explanation with regard to the letter of Sh. Paul K. Kurien received by the AO, on 4.12.2007. As stated above, the assessee has not filed any additional evidence before the AO and he has filed the additional evidences before the Ld. CIT(A) with Application under Rule 46A of the I.T. Rules, 1962. We find that the Hon'ble Jurisdictional High Court in the case of CIT vs. Manish Buildwell 204 Taxman 106 (Delhi) has held as under:-

"Since the Commissioner (Appeals) himself refers to rule 46A and has also admitted that the confirmation letters adduced by the assessee before him were technically fresh evidence, it is not possible to accept the plea of the assessee that the Commissioner (Appeals), in examining the confirmation letters, was exercising his independent powers of enquiry under sub-section (4) of section 250. It is true that the Commissioner (Appeals), as first appellate authority, has co-terminous powers over the sources of income constituting the subject-matter of the assessment, except the power to tackle new sources of income not considered by the Assessing Officer, and can do what the Assessing Officer can do and can direct the Assessing Officer to do what he has 7 ITA No.2713/Del./2012

failed to do, but in the instant case, the Commissioner (Appeals) did not exercise this right. This power, which is recognized in sub-section (4) of section 250, has to be exercised by the Commissioner (Appeals) and there should be material on record to show that he, while disposing of the appeal, had directed further enquiry and called for the confirmation letters from the assessee even in respect of receipt of monies from customers by way of cheques. Rule 46A is a provision which is invoked, on the other hand, by the assessee who is in an appeal before the Commissioner (Appeals). Once the assessee invokes rule 46A and prays for admission of additional evidence before the Commissioner (Appeals), then the procedure prescribed in the said rule has to be scrupulously followed. The fact that sub-section (4) of section 250 confers powers on the Commissioner (Appeals) to conduct an enquiry as he thinks fit, while disposing of the appeal, cannot be relied upon to contend that the procedural requirements of rule 46A need not be complied with. If such a plea of the assessee is accepted, it would reduce rule 46A to a dead letter because it would then be open to every assessee to furnish additional evidence before the Commissioner (Appeals) and, thereafter, contend that the evidence should be accepted and taken on record by the Commissioner (Appeals) by virtue of his powers of enquiry under sub-section (4) of section 250. This would mean in turn that the requirement of recording reasons for admitting the additional evidence, the requirement of examining whether the conditions for admitting the additional evidence are satisfied, the requirement that the Assessing Officer should be allowed a reasonable opportunity of examining the evidence, etc., can be thrown to the winds, a position which is wholly unacceptable and may result in unacceptable and unjust consequences. The fundamental rule which is valid in all branches of law, including Income-tax law, is that the assessee should adduce the entire evidence in his possession at the earliest point of time. This ensures full, fair and detailed enquiry and verification.

It is for the aforesaid reason that rule 46A starts in a negative manner by saying that an appellant before the Commissioner (Appeals) shall not be entitled to produce before him any evidence, whether oral or documentary, other than the evidence adduced by him before the Assessing Officer. After 8 ITA No.2713/Del./2012

making such a general statement, exceptions have been carved out that in certain circumstances it would be open to the Commissioner (Appeals) to admit additional evidence. Therefore, additional evidence can be produced at the first appellate stage only when conditions stipulated in the rule 46A are satisfied and a finding is recorded. The conditions prescribed in rule 46A must be shown to exist before additional evidence is admitted and every procedural requirement mentioned in the rule has to be strictly complied with so that the rule is meaningfully exercised and not exercised in a routine or cursory manner. A distinction should be recognized and maintained between a case where the assessee invokes rule 46A to adduce additional evidence before the Commissioner (Appeals) and a case where the Commissioner (Appeals), without being prompted by the assessee, while dealing with the appeal, considers it fit to cause or make a further enquiry by virtue of the powers vested in him under sub-section (4) of section 250. It is only when he exercises his statutory suo moto power under the above sub-section, that the requirements of rule 46A need not be followed. On the other hand, whenever the assessee, who is in appeal before him, invokes rule 46A. it is incumbent upon the Commissioner (Appeals) to comply with the requirements of the rule strictly.

In the instant case, the Commissioner (Appeals) has observed that the additional evidence should be admitted because the assessee was prevented by adducing them before the Assessing Officer. This observation takes care of clause (c) of sub-rule (1) of rule 46A. The observation of the Commissioner (Appeals) also takes care of sub-rule (2) under which he is required to record his reasons for admitting the additional evidence. Thus, the requirements of sub-rules (1) and (2) of rule 46A have been complied with. However, sub- rule (3) which interdicts the Commissioner (Appeals) from taking into account any evidence produced for the first time before him unless the Assessing Officer has had a reasonable opportunity of examining the evidence and rebut the same, has not been complied with. There is nothing in the order of the Commissioner (Appeals) to show that the Assessing Officer was confronted with the confirmation letters received by the assessee from the customers who paid the amounts by cheques and asked for comments. Thus, the end result has 9 ITA No.2713/Del./2012

been that additional evidence was admitted and accepted as genuine without the Assessing Officer furnishing his comments and without verification. Since this is an indispensable requirement, the Tribunal ought to have restored the matter to the Commissioner (Appeals) with the direction to him to comply with sub-rule (3) of rule 46A. The error committed by the Tribunal is that it proceeded to mix up the powers of the Commissioner (Appeals) under sub-section (4) of section 250 with the powers vested in him under rule 46A. The Tribunal seems to have overlooked sub-rule (4) of rule 46A which itself takes note of the distinction between the powers conferred by the Commissioner (Appeals) under the statute while disposing of the assessee's appeal and the powers conferred upon him under rule 46A. The Tribunal erred in its interpretation of the provisions of rule 46A vis-a-

vis section 250(4). Its view that since in any case the Commissioner (Appeals), by virtue of his co-terminous power over the assessment order, was empowered to call for any documents or make any further enquiry as he thinks fit, there was no violation of rule 46A is erroneous. The Tribunal appears to have not appreciated the distinction between the two provisions. If the view of the Tribunal is accepted, it would make rule 46A otiose and it would open up the possibility of the assessees' contending that any additional evidence sought to be introduced by them before the Commissioner (Appeals) cannot be subjected to the conditions prescribed in rule 46A because in any case the Commissioner (Appeals) is vested with coterminous powers over the assessment orders or powers of independent enquiry under sub-section (4) of section 250. That is a consequence which cannot at all be countenanced.

For the above reason, the Tribunal was not right in law in holding that since the Commissioner (Appeals) possesses co- terminus powers over the assessment apart from appellate powers, there was no violation of rule 46A committed by him. The issue relating to the addition made under section 68 is restored to the Commissioner (Appeals) who would comply with the requirements of rule 46A and take a fresh decision on the merits of the additions in accordance with law."

10 ITA No.2713/Del./2012 6.3 Keeping in view of the decision of the Hon'ble Jurisdictional High Court rendered in the case of CIT vs. Manish Buildwell Pvt. Ltd. (Supra), we are of the considered view that the Ld. CIT(A) has not given the sufficient opportunity to the AO before admitting the additional evidences filed by the Assessee. Hence, respectfully following the order of the Hon'ble Jurisdictional High Court as aforesaid, we are setting aside the issue in dispute to the AO to decide the same De novo. Assessee has liberty to file additional documentary evidences, if any, before the AO for substantiating his claim before the AO.

7. In the result, the appeal of the Revenue is allowed for statistical purposes.

Order pronounced in Open Court on this 30th day of June,

2015.

Sd/- Sd/- (S.V. MEHROTRA) (H.S. SIDHU) ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated : the 30th June, 2015 SR BHATANGAR

Copy forwarded to: 1.Appellant 2.Respondent 3.CIT 4.CIT(A), New Delhi. 5.CIT(ITAT), New Delhi. AR, ITAT NEW DELHI. 11 ITA No.2713/Del./2012