When any document or details was filed by assessee in pursuance to direction of CIT(A) then there would be no violation of Rule 46A.
INCOME TAX OFFICER vs. WAII INFRA PRIVATE LIMITED
GAUHATI TRIBUNAL
N.S. SAINI, AM & PAVAN KUMAR GADALE, JM.
ITA No. 126/GAU/2017
Mar 8, 2018
(2018) 52 CCH 0224 GauTrib
Legislation Referred to
Section 69 and Rule 46A of the Income Tax Rules, 1962
Case pertains to
Asst. Year 2012-2013
A perusal of the above provision shows that when any document or details is filed by the assessee in pursuance to the direction of the CIT(A), then there would be no violation of Rule 46A of I.T.Rules, 1962. The Id.AR of the assessee filed before us, copy of the written submissions filed by the assessee before the CIT(A). A perusal of the same shows that the assessee on a subsequent date of hearing only has filed various additional evidences before the CIT(A) in compliance with the direction of CIT(A) during the course of earlier hearing. The Id. DR could not produce any material before us to show that any additional evidence was admitted by the CIT(A) for deciding the appeal which was produced by the assessee of its own and not in compliance with the direction of CIT(A). In the above circumstances, we are constrained to hold that no additional evidence was admitted by the CIT(A) in violation of Rule 46A of I.T.Rules. Moreover, we find that one of the reason given by the CIT(A) for his finding that the addition of Rs.4,75,00,000/- and Rs.6,32,50,000/- is unsustainable in the instant case was that the business of the assessee company was not commenced during the relevant previous year and in such circumstance, the assessee could not be credited with earning of such huge income and on a judicial exercise of discretion conferred u/s.68 of the Act, it would be reasonable to presume that the said amounts were capital receipt. We find that no additional evidence was taken into consideration by the CIT(A) in arriving at the above finding. The AO himself admitted in the impugned order of assessment that the assessee is engaged in the business of hotel which is under construction at Itanagar. Thus, it is undisputed fact that the assesee’s hotel business could not be started during the year under consideration as the same was under construction only. The Hon’ble Supreme Court in the case of CIT Vs. Bharat Engineering and Construction Company, [1972] 83 ITR 187(SC) has held that it is not always necessary to infer that the amount credited in the books of the assessee is its income even in absence of satisfactory explanation about the nature and source of such credit given by the assessee. The word used in Section 68 of I.T.Act, 1961 “may” and not “shall” and, thus, a discretion has been conferred on the AO to treat the amount which is credited in the books of account as the income of the assessee if the explanation offered by the assessee in respect of its source is not found satisfactory and the said discretion has to be exercised keeping in view the facts and circumstances of the particular case. When the assessee could not have earned income during the year corresponding to the amount of unexplained credit in its books, the inference that the said amount was capital receipt and not income was reasonable. Similar view was expressed by the Hon’ble Supreme Court in the case of CIT Vs. PK Noorjahan, (1999) 237 ITR 571 (SC). In that case, the explanation of the assessee regarding source of the purchase consideration for its investment was rejected by the AO and the addition was made to the income of the assessee under Section 69 of the Act, on account of unexplained investment in the said plots of land. The said order of the AO was confirmed in appeal by the Appellate Assistant Commissioner. In the second appeal, the Tribunal, however, held that even though the explanation about nature and source of purchase money was not satisfactory but in the facts and circumstances of the case, it was not possible for the assessee to earn the amount invested in the property and that by no stretch of imagination could the assessee to credit with having earned this income in the course of assessment year. The Tribunal took the view that although, the explanation of the assessee was liable to be rejected, Section 69 conferred only a discretion of the AO to deal with the investment as the income of the assessee and it did not make it mandatory on his part to deal with the investment as income of the assessee as soon as the latter’s explanation happened to be rejected. On that view, the Tribunal allowed the appeals of the assessee and deleted the additions made by the AO u/s.69. Subsequently, the Hon’ble High Court also agreed with the said view of the Tribunal and the Hon’ble Supreme Court has also not found any error in the findings, recorded by the Tribunal in that case observing that the discretion has been conferred on the AO u/s.69 of the Act to treat the source of investment as the income of the assessee, if the explanation offered by the assessee is not found satisfactory and the said discretion has to be exercised keeping in view the facts and circumstances of the particular case. The ratio laid down in the above decision with relation to Section 69 is applicable with equal force in the instant case as the same word “may” has been used in Section 68 of the Act also. Thus, we find that the CIT(A) has deleted the addition of Rs.4,75,00,000/- and Rs.6,32,50,000/- after dully appreciating the entire facts in proper perspective. The Id. DR could not point out any specific defect or error in the order of CIT(A) in deleting the said additions and on the above ground wherein no additional evidence was taken into consideration. Hence, we do not find any good reason to interfere with the order of CIT(A) and the same is hereby confirmed. CIT Vs. Bharat Engineering and Construction Company, [1972] 83 ITR 187(SC), CIT Vs. PK Noorjahan, (1999) 237 ITR 571 (SC) (Followed).
(Para 9)
Cases Referred to
CIT Vs. Usha Stud Agricultural Farms Ltd., 301 ITR 384
CIT Vs. Bharat Engineering and Construction Company, 83 ITR 187(SC)
CIT Vs. PK Noorjahan, (1999) 237 ITR 571 (SC)
Counsel appeared:
NG.J. Gangte, Addl.CIT for the Revenue.: Sanjay Mody, FCA for the Assessee
- S. SAINI, AM.
- This is an appeal filed by the assessee against the order of CIT(A)-1, Guwahati, dated 30.05.2016 for assessment year 2012-2013.
- The Revenue has raised the following grounds of appeal
(j) The Id. CIT(A) has erred in law and on the facts by admitting additional evidence in violation of Rule 46A of the Income Tax Rules, 1962.
(ii) For that the Ld. CIT(A) was not justified in law as well as in facts in deleting the addition of securities premium of Rs.4,75,00,000/-
(iii) For that the Ld. CIT(A) was not justified in law as well as in facts in deleting the addition of unsecured loan of Rs. 6,32,50,000/-
- Briefly stated the facts are as follows
According to the AO the assessee company has filed its return of income for the assessment year under appeal on 04.12.2013 showing total income at Nil. The assessee is engaged in the business of Hotel, which is under construction at Itanagar in Arunachal Pradesh. As the assessee has not appeared on the various dates fixed for hearing and, therefore, he completed the assessment vide order dated 30.03.2015 passed u/s. 144 of the Act. The AO observed from the financial statements that during the period the assessee company had received Rs.4,75,00,000/- as security premium and had taken unsecured loan amounting to Rs.6,32,50,000/-. As per the AO, as the assessee neither appeared nor furnished any documents in support of the said transactions and, therefore, nothing could be ascertained about the genuineness of the transaction. He, therefore, added Rs.4,75,00,000/- and Rs.6,32,50,000/- to the income as undisclosed income of the assessee company.
- On appeal, the CIT(A) deleted such additions in its entirety.
- The CIT(A) has given various reasons for his action. In respect of addition of Rs.4,75,00,000/-, firstly, he found that 95000 shares of face value of Rs.100/- each were issued by the company during the year for total consideration of Rs.5,70,00,000/- which consisted of share capital of Rs.95,00,000/- and security premium of Rs.4,75,00,000/-. Those shares were allotted against opening brought forward share application money of Rs.3,86,76,000/- and opening brought forward unsecured loan of Rs.50,00,000/-. In other words, only Rs. 1,33,24,000/- was fresh credit during the year against share capital and security premium. Thus, as these amount of Rs.4,36,76,000/- (Rs.3,86,76,000/- + Rs.50,00,000/-) were brought forward balance of earlier years and were not fresh credit during the year under consideration and consequently addition to this extent during the year under consideration by invoking provisions of Section 68 of the Act was beyond the jurisdiction conferred under that section and for this, he relied upon the decision of Hon’ble Delhi High Court in the case of CIT Vs. Usha Stud Agricultural Farms Ltd., 301 ITR 384. The second reason given by the CIT(A) was that 95000 shares were issued by the assessee company against total consideration of Rs.5,70,00,000/-. A part of this transaction i.e. Rs.95,00,000/- which represents face value of shares issued were credited under the head “share capital account” and the balance amount of the same transaction i.e. Rs.4,75,00,000/- was credited under the head “security premium account”. According to the CIT(A) since the AO has accepted the transaction of Rs.95,00,000/- as genuine and correct, he can no longer reject the amount of Rs.4,75,00,000/- as not genuine as both the amounts are part of one and same transaction. Thirdly, the CIT(A) found that in respect of “security premium” and share capital only fresh credit during the year was Rs.1,33,24,000/- which was received from Smt. Devi Miji, who was one of the director of the assessee company. The AO undertook no attempt to examine or verify this fresh credit merely because the assessee company did not appear before him for hearing. As Smt. Devi Miji is one of the director of the assessee company, proprietor of M/s M.D.Earthmovers which is a registered Class-I contractor of the PWD Department, Government of Arunachal Pradesh and held a valid PAN Card bearing No.APWPM 5827 J issued by the Income Tax Department. The opening brought forward credit balance in her name was Rs. 1,06,76,000/- which were credited in the earlier year in the books of accounts of the assessee company which was accepted in the year of credit as genuine by the department, her identity is well established. A perusal of the Form 26AS (which was also accessible by the AO) shows that TDS was deducted from her on contract works worth Rs. 10.84 crores and Rs.6.89 crores in A.Y.2011-12 and A.Y.2012-2013, respectively and hence, her creditworthiness could not be doubted. Moreover, the transaction with her in the year under appeal were entirely routed through bank accounts and, therefore, there was also no cause for the AO to doubt the genuineness of the transaction. Moreover, part of Rs.1,33,24,000/- received from her during the year was credited under the head “share capital account” was treated as genuine by the AO and, hence, it was not open to the AO to treat the remaining part of the very same transaction as non-genuine. Fourthly, the CIT(A) observed from the assessment order that assessee’s hotel was under construction during the year under appeal and assessee company’s business has not yet commenced during the year under appeal and in such situation in the very nature of things it was impossible for the assessee company to have earned such a huge amount during the year under consideration when it had not even started any commercial activity. In the circumstances, as the assessee was not in a position to earn such income during the year under consideration, therefore, keeping in view the decisions of the Hon’ble Supreme Court in the case of CIT Vs. Bharat Engineering and Construction Company, 83 ITR 187(SC) and CIT Vs. PK Noorjahan, 237 ITR 571 (SC), the addition of such huge amount is not sustainable. The Fifth reason cited by the CIT(A) is that he found that the hearing notices issued by the AO were delivered to the appellant much after the date fixed for hearing and, therefore, the assessee could not have been expected to attend such hearing. In such a case, the AO himself was partly responsible for non-attendance of the assessee as he has fixed the date of hearing within a short time of the date of issue of notice and thereby did not take into account the time which would take for the notice to reach the assessee. Provisions of Section 68 of the Act cannot be invoked as a punishment for non-attendance of scrutiny hearing specially in a case like this where the hearing notices itself were not served to the assessee before the date of hearing. In such circumstances, without bringing on record any material to impeach either identity, creditworthiness of the creditors or genuineness of the transaction, the addition made is unsustainable. Similarly in respect of unsecured loan of Rs.6,32,50,000/-, he found that Rs.30,00,000/- was brought forward balance of earlier year and Rs.6,02,50,000/- was fresh credit during the year under consideration. Therefore, addition of Rs.30,00,000/- during the current year was without jurisdiction. Further the entire fresh credit during the year of Rs.6,02,50,000/- was from Shri Taluk Sonam, who was also a director of the assessee company and proprietor of M/s Warie Enterprise and has a valid PAN card bearing No.CHHPS 2738 B issued by the Income Tax Department. On 28.01.2016, the very same AO (ITO Ward, Itanagar) has issued to him a certificate certifying his identity as a Tribal person of Arunachal Pradesh who was exempted from paying income tax u/s. 10(26) of the Act. He also observed that entire transaction of Rs.6,02,50,000/- with Shri Taluk Sonam was conducted through banking channel. Amount was paid to the assessee company by said Shri Taluk Sonam by issuing cheques from his saving bank account which also shows that he had the said sum in his bank account before transferring to the assessee. Moreover, the brought forward credit balance of Shri Taluk Sonam in the books of assessee company was Rs.1,80,00,000/- and the said credit was accepted by the department in the year of credit. Further, in the immediately succeeding assessment year i.e. assessment year 2013- 2014, the assessee company had taken further unsecured loan of Rs.4,75,00,000/- from said Shri Taluk Sonam which was accepted by the AO as genuine and correct and after thorough scrutiny vide order of assessment dated 30.01.2016 passed u/s. 143(3) of the Act in the case of the assessee company itself. Thus, identity, creditworthiness of Shri Taluk Sonam and genuineness of transaction in question stands established. Moreover, as the commercial activity of the assessee company has not commenced, it was beyond the capacity of the assessee company to earn such huge income during the year under consideration and, therefore, in view of the decision of Hon’ble Supreme Court in the case of Bharat Engineering and Construction Company (supra) and in case of PK Noorjahan (supra), the addition of such huge amount is unsustainable. Therefore, the CIT(A) deleted the said addition of Rs.4,75,00,000/- and Rs.6,32,50,000/-. As the CIT(A) deleted the entire addition made in the relevant order of assessment, even though he found merit in the argument of the assessee to the effect that the order of assessment having been issued on 01.04.2015 is barred by limitation and further, also found merit in the contention of assessee that notices of hearing having been served upon the assessee after the date which were fixed for hearing were invalid, consequently, the assessment order passed u/s.144 of the Act was also invalid having been passed without giving the assessee a reasonable opportunity of being heard, he refrained from adjudicating those issues.
- Before us, the main contention of the DR was that the CIT(A) has admitted additional evidence in violation of Rule 46A of I.T.Rules in deleting the addition of Rs.4,75,00,000/- and Rs.6,32,50,000/-.
- On the other hand, the AR of the assessee drew our attention to the provisions of Rule 46A(4) and submitted that as no additional evidences were produced by the assessee of its own and only those evidences which were required and directed by the CIT(A) were filed by the assessee and, therefore, there was no violation of rule 46A of the I.T.Rules, 1962. In support of the above contention, the Id. AR of the assessee filed before us copy of written submissions filed by the assessee before the CIT(A). The Id. AR of the assessee also contended that the order of the CIT(A) is to be confirmed and the appeal of the Revenue is liable to be dismissed as the impugned order of assessment was barred by limitation as the impugned order of assessment was issued on 01.04.2015 after the prescribed time and in absence of any proper opportunity of being heard allowed to the assessee, the impugned order of assessment passed u/s. 144 is without jurisdiction and bad in law. He contended that in view of the provisions of Rule 27 of I.T.A.T.Rules and the decision of Lucknow Bench of the Tribunal in the case of AAA Paper Marketing Ltd. Vs. ACIT in ITA No.167/LKW/2016, order dated 28.04.2017 and Delhi Bench of the Tribunal in the case of DCIT Vs. Jubiliant Enpro Pvt. Ltd. in ITA No.560/Del/2010, dated 09.05.2014, the assessee is entitled to support the order of CIT(A) on the above issues also even in absence of any cross objection.
- We have heard rival submissions and perused the orders of lower authorities and materials available on record. We find that Rule 46A(4) of I.T.Rules, 1962 reads as under
“Production of additional evidence before the [Deputy Commissioner (Appeals)] [and Commissioner (Appeals) ].
46A. (1) xxxxxxxx
(2) xxxxxxxxx
(3) xxxxxxxxx
(4) Nothing contained in this rule shall affect the power of the [Deputy Commissioner (Appeals)] [or, as the case may be, the Commissioner (Appeals)] to direct the production of any document, or the examination of any witness, to enable him to dispose of the appeal, or for any other substantial cause including the enhancement of the assessment or penalty (whether on his own motion or on the request of the [Assessing Officer]) under clause (a) of sub-section (1) of section 251 or the imposition of penalty under section 271.]”
- A perusal of the above provision shows that when any document or details is filed by the assessee in pursuance to the direction of the CIT(A), then there would be no violation of Rule 46A of I.T.Rules, 1962. The Id.AR of the assessee filed before us, copy of the written submissions filed by the assessee before the CIT(A). A perusal of the same shows that the assessee on a subsequent date of hearing only has filed various additional evidences before the CIT(A) in compliance with the direction of CIT(A) during the course of earlier hearing. The Id. DR could not produce any material before us to show that any additional evidence was admitted by the CIT(A) for deciding the appeal which was produced by the assessee of its own and not in compliance with the direction of CIT(A). In the above circumstances, we are constrained to hold that no additional evidence was admitted by the CIT(A) in violation of Rule 46A of I.T.Rules. Moreover, we find that one of the reason given by the CIT(A) for his finding that the addition of Rs.4,75,00,000/- and Rs.6,32,50,000/- is unsustainable in the instant case was that the business of the assessee company was not commenced during the relevant previous year and in such circumstance, the assessee could not be credited with earning of such huge income and on a judicial exercise of discretion conferred u/s.68 of the Act, it would be reasonable to presume that the said amounts were capital receipt. We find that no additional evidence was taken into consideration by the CIT(A) in arriving at the above finding. The AO himself admitted in the impugned order of assessment that the assessee is engaged in the business of hotel which is under construction at Itanagar. Thus, it is undisputed fact that the assesee’s hotel business could not be started during the year under consideration as the same was under construction only. The Hon’ble Supreme Court in the case of CIT Vs. Bharat Engineering and Construction Company, [1972] 83 ITR 187(SC) has held that it is not always necessary to infer that the amount credited in the books of the assessee is its income even in absence of satisfactory explanation about the nature and source of such credit given by the assessee. The word used in Section 68 of I.T.Act, 1961 “may” and not “shall” and, thus, a discretion has been conferred on the AO to treat the amount which is credited in the books of account as the income of the assessee if the explanation offered by the assessee in respect of its source is not found satisfactory and the said discretion has to be exercised keeping in view the facts and circumstances of the particular case. When the assessee could not have earned income during the year corresponding to the amount of unexplained credit in its books, the inference that the said amount was capital receipt and not income was reasonable. Similar view was expressed by the Hon’ble Supreme Court in the case of CIT Vs. PK Noorjahan, (1999) 237 ITR 571 (SC). In that case, the explanation of the assessee regarding source of the purchase consideration for its investment was rejected by the AO and the addition was made to the income of the assessee under Section 69 of the Act, on account of unexplained investment in the said plots of land. The said order of the AO was confirmed in appeal by the Appellate Assistant Commissioner. In the second appeal, the Tribunal, however, held that even though the explanation about nature and source of purchase money was not satisfactory but in the facts and circumstances of the case, it was not possible for the assessee to earn the amount invested in the property and that by no stretch of imagination could the assessee to credit with having earned this income in the course of assessment year. The Tribunal took the view that although, the explanation of the assessee was liable to be rejected, Section 69 conferred only a discretion of the AO to deal with the investment as the income of the assessee and it did not make it mandatory on his part to deal with the investment as income of the assessee as soon as the latter’s explanation happened to be rejected. On that view, the Tribunal allowed the appeals of the assessee and deleted the additions made by the AO u/s.69. Subsequently, the Hon’ble High Court also agreed with the said view of the Tribunal and the Hon’ble Supreme Court has also not found any error in the findings, recorded by the Tribunal in that case observing that the discretion has been conferred on the AO u/s.69 of the Act to treat the source of investment as the income of the assessee, if the explanation offered by the assessee is not found satisfactory and the said discretion has to be exercised keeping in view the facts and circumstances of the particular case. The ratio laid down in the above decision with relation to Section 69 is applicable with equal force in the instant case as the same word “may” has been used in Section 68 of the Act also. Thus, we find that the CIT(A) has deleted the addition of Rs.4,75,00,000/- and Rs.6,32,50,000/- after dully appreciating the entire facts in proper perspective. The Id. DR could not point out any specific defect or error in the order of CIT(A) in deleting the said additions and on the above ground wherein no additional evidence was taken into consideration. Hence, we do not find any good reason to interfere with the order of CIT(A) and the same is hereby confirmed.
- Before parting with the appeal, we would like to observe that in view of our above decision, the issues raised by the assessee in terms of Rule 27 of ITAT Rules have become only academic in nature and infructuous and hence not adjudicated.
- In the result, appeal of the revenue is dismissed.
Order pronounced in pursuance with Rule 34/4 of ITAT Rules, by putting the copy of the same on Notice Board on Thursday the 08th day of March, 2018 at Guwahati.