2012 (11) TMI 807 - AT - Income Tax

Disallowance of 25% of the total expenses u/s 144 - CIT(A)restricted it to 5% - Held that - The assessee did not appear before the AO nor produced the relevant books of accounts or bi lls/vouchers before the AO or even before the ld. CIT(A). There is nothing to suggest as to whether or not the assessee preferred any appeal against the findings of the CIT(A) . . As under the scheme of s. 144 itself an assessment must be done only to the best of the officer s judgment and after taking into account all relevant materials which had been gathered , thus the proper thing for the CIT(A) to have done would have been to examine the relevant books and bills/vouchers and ascertain the relevancy and validity of the materials on the basis of which the AO added the amounts instead of deleting/reducing the additions - CIT(A) did not allow any opportunity to the AO before reducing the disallowances and concluding that completion of assessment u/s 144 was not proper. There is nothing to suggest that the CIT(A) undertook any independent enquiries or even called for any report from the AO in the light of his findings in the assessment order, even while being fully aware that assessment had been completed u/s 144 - set aside the order of the CIT(A) in order to enable him to decide the matter afresh - in favour of revenue by way of remand.

Summary

Issues Involved:
1. Restriction of disallowances to Rs.1,12,627/- by CIT(A).
2. Acceptance of self-serving documents by CIT(A) without cross-examination or production before the Assessing Officer (AO), contravening Rule 46A.
3. Request to set aside the CIT(A) order and restore the matter to the AO for re-examination of fresh evidence.

Detailed Analysis:

Issue 1: Restriction of Disallowances to Rs.1,12,627/- by CIT(A)
The AO disallowed 25% of the expenses claimed by the assessee, resulting in a disallowance of Rs.10,58,278/-, due to non-response to multiple notices. The CIT(A) reduced this disallowance to Rs.1,12,627/- after verifying assessment records and considering that the show cause notice was not served on the assessee. The CIT(A) found that the assessee's AR had submitted some details and that the assessment records did not show evidence of the show cause notice being served. The CIT(A) further scrutinized the P&L account and found certain expenses excessive, leading to a 5% disallowance of cash payments, amounting to Rs.1,12,627/-.

Issue 2: Acceptance of Self-Serving Documents by CIT(A)
The Revenue contended that the CIT(A) reduced the disallowance without allowing the AO an opportunity to examine the details and documents submitted by the assessee, violating Rule 46A of the IT Rules, 1962. The CIT(A) did not record reasons for admitting additional evidence or allow the AO to cross-examine these documents, which is a procedural lapse. The powers of the CIT(A) to admit additional evidence should be exercised judiciously with recorded reasons, which was not done in this case.

Issue 3: Request to Set Aside the CIT(A) Order
The Tribunal found that the CIT(A) did not provide the AO with an opportunity to examine the books of accounts or bills/vouchers before reducing the disallowance. The CIT(A) also failed to undertake independent inquiries or call for a report from the AO. The Tribunal emphasized that fairness and natural justice require the CIT(A) to pass a reasoned order reflecting the application of mind to the issues raised. The Tribunal set aside the CIT(A) order and remanded the matter for fresh adjudication, directing the CIT(A) to pass a speaking order in compliance with Section 250(6) of the Act.

Conclusion:
The Tribunal allowed the appeal for statistical purposes, directing the CIT(A) to re-examine the issues afresh, ensuring compliance with procedural fairness and natural justice. The CIT(A) must provide sufficient opportunity to both parties and pass a reasoned order reflecting proper application of mind.