2011 (3) TMI 1243 - AT - Income Tax

Loan creditors and the commission claimed in the Profit and Loss Account disallowed - no reply to SCN - application for admission of additional evidence by assessee to CIT(A) accepted - Held that - In the present case the CIT(A) with respect seems to have overlooked that the assessee had taken the plea that whatever books of account were produced before the Assessing Officer and whatever Balance Sheet and Profit and Loss Account were filed before him were all wrong - Assessing Officer has recorded in the assessment order that the assessee did not bother to reply to the show cause notice issued by him - If at all the assessee wanted to say that the books of accounts on the basis of which the return was filed were not correctly written there was an opportunity given to him by the Assessing Officer to go before him and explain the same and file revised accounts before the Assessing Officer himself which could have been examined by him before the assessment order was passed. This aspect seems to have been overlooked by the CIT(A) and this was quite a strong impediment which the assessee was obliged to explain before the CIT(A) while seeking admission of the additional evidence - Appeals of revenue allowed by way of remand.

Summary

Issues:
Assessment of income based on discrepancies in transactions and balances, Addition of loan creditors and commission, Admission of additional evidence before CIT(A) under Rule 46A, CIT(A)'s failure to strictly follow Rule 46A leading to faulty procedure, Appeals challenging CIT(A)'s decision.

Assessment of Income:
The case involved discrepancies in transactions and balances declared by the assessee, leading to the Assessing Officer proposing additions to the income. The Assessing Officer's scrutiny revealed differences in balances of sundry creditors and debtors, prompting him to propose adding the loan creditors and commission to the total income. The assessee did not respond to the show cause notice, resulting in the addition of significant amounts to the declared income.

Admission of Additional Evidence:
The assessee, during the CIT(A) hearing, submitted additional evidence including revised statements, balance sheet, ledger accounts, and explanations for discrepancies. The request was made under Rule 46A, citing errors in the initial submissions due to reliance on an outside consultant for accounting. The CIT(A) forwarded the additional evidence to the Assessing Officer for examination, who recommended confirming the additions. The CIT(A) then allowed some relief based on the revised evidence presented.

Failure to Follow Rule 46A:
The main contention in the appeals was the CIT(A)'s failure to strictly adhere to Rule 46A regarding admission of additional evidence. The rule outlines specific circumstances for admitting new evidence, recording reasons for admission, and allowing the Assessing Officer to examine or rebut the evidence. The CIT(A) did not provide written reasons for admitting the additional evidence, leading to a flawed procedure. The failure to follow Rule 46A was deemed to have vitiated the CIT(A)'s order, resulting in the appeals being allowed for statistical purposes.

In conclusion, the judgment highlighted the importance of following procedural rules, particularly Rule 46A, in admitting additional evidence during tax assessments. The failure to adhere to the rule led to the appeals being allowed due to the faulty procedure followed by the CIT(A). The case underscored the significance of proper documentation and adherence to legal procedures in tax assessments to ensure fairness and accuracy in determining income and resolving disputes.