2009 (3) TMI 626 - AT - Income Tax

Addition u/s 144 - best judgement assessment - admission of additional evidence by the commissioner (appeals) - Rule 46A - Held that - The application of the assessee made under rule 46A of IT Rules however was required to be disposed of first before he heard the appeal and decided the same on merits. Having not done that his order has to be set aside. - Accordingly setting aside the order of learned CIT(A) we direct him to first dispose of assessee s application made under rule 46A of IT Rules 1962 by way of a reasoned order in terms of sub-rule (2) of rule 46A of IT Rules 1962 and thereafter proceed to dispose of the appeal on merits

Summary

Issues:
Appeal against deletion of addition of undisclosed income deposited in bank account under section 144 of the Act.

Analysis:
1. The Revenue appealed against the order of the learned CIT (A) deleting the addition of Rs. 14,00,000 made by the AO under section 144 of the Act, arguing that the AO had established the amount as undisclosed income deposited in the bank account.

2. The AO had treated the investment of Rs. 14 lakhs in the bank account as undisclosed income since the explanation provided by the assessee regarding the source of the deposits from the sale of agricultural produce was not supported by evidence, especially considering the drought-hit area where the agricultural land was located.

3. The learned CIT (A) accepted the assessee's claim that the funds came from agricultural earnings, as the AO did not make sufficient inquiries or provide contradictory evidence regarding the agricultural income source, leading to the deletion of the addition.

4. The Departmental Representative argued that the CIT (A) did not conduct necessary inquiries himself and relied on evidence not presented before the assessing authority, thus requesting the order to be set aside.

5. The assessee's counsel referred to an application under rule 46A of IT Rules, 1962 for additional evidence, highlighting that the CIT (A) considered the evidence after receiving a remand report and justified the decision based on the evidence available during the appeal process.

6. Upon review, the ITAT found that the CIT (A) did not pass a written order as required under rule 46A of IT Rules, 1962 before admitting the additional evidence, leading to the decision being set aside. The ITAT directed the CIT (A) to first dispose of the assessee's application under rule 46A before proceeding to decide the appeal on merits, emphasizing the need for a fair hearing for both parties.

7. Consequently, the appeal of the Revenue was allowed for statistical purposes only, with instructions for the proper disposal of the application under rule 46A before further proceedings on the appeal.