2014 (9) TMI 570 - AT - Income Tax

Admission of additional evidence Violation of Rule 46A - Addition u/s 68 Unexplained share application money Whether the CIT(A) was justified in admitting the additional evidence in such circumstances and then deleting the addition by holding that the assessee discharged the initial burden to prove the genuineness of the credit entries - Held that - A notice has been issued u/s 142(1) of the Act, and the assessee was asked to furnish copies of the Annual accounts with Schedules and Computation of income, which were not furnished - The assessee intentionally ignored the assessment proceedings and no effective case has been made out that it was prevented by a sufficient cause in producing the books of account and relevant evidence before the AO during the course of assessment proceedings. The assessee did place such things before the CIT(A) and the further fact that the purpose of assessment is to determine correct total income, the assessee should be granted with one more opportunity to adduce necessary details and books of account etc. before the AO enabling him to finalize the assessment as per law - the requirement of sub-rule (3) of Rule 46A can be met under the given circumstances, if either the CIT(A) is directed to send the additional evidence to the AO by communicating that his threshold objection was not acceptable and he may examine the additional evidence on merits or the matter is restored to the AO with a direction to decide this issue afresh after taking into consideration the additional evidence filed by the assessee before the CIT(A) and allowing a further opportunity to the assessee to lead further evidence, if any - the second course of action is more befitting and time saving as well thus, the order is set aside and the matter is remitted back to the AO for fresh adjudication for the question of addition u/s 68 Decided in favour of revenue. Prior paid expenses for sales tax disallowed Held that - Following the decision in DCIT Vs Glaxo Smithkline Consumer Healthcare Ltd. 2007 (7) TMI 334 - ITAT CHANDIGARH - deduction for sales tax or other tax and duty etc. is allowable u/s 43B on payment basis - As the nature of the amount paid by the assessee, being sales tax is not disputed and the further fact that such sum was paid during the previous year, CIT(A) was justified in allowing the claim Decided against revenue. Various expenses disallowed - Marketing expenses, reduction in foreign travelling expenses, unexplained foreign travelling expenses, miscellaneous expenses and depreciation on certain additions to the fixed assets - Held that - The assessee did not furnish supporting bill/vouchers of such expenses before the AO for examination - CIT(A) has deleted the addition by relying on the additional evidence in contravention of rule 46A(3), thus, the matter on these issues is liable to be remitted back to the AO for fresh adjudication Decided in favour of revenue.

Summary

Issues Involved:
1. Deletion of addition made by the Assessing Officer (AO) under Section 68 of the Income-tax Act, 1961.
2. Admission of additional evidence by the Commissioner of Income Tax (Appeals) [CIT(A)] in violation of Rule 46A of the Income-tax Rules, 1962.
3. Deletion of addition on account of prior period expenses.
4. Deletion of addition on account of marketing expenses.
5. Restriction of addition on account of foreign travelling expenses.
6. Deletion of addition on account of unexplained foreign travelling expenses.
7. Deletion of addition on account of miscellaneous expenses.
8. Deletion of addition on account of disallowed depreciation on certain fixed assets.

Detailed Analysis:

1. Deletion of Addition under Section 68:
The AO added Rs. 95,30,000/- as unexplained share application money under Section 68 due to the assessee's failure to provide details such as PAN, addresses, and confirmations of share applicants. The CIT(A) admitted additional evidence during appellate proceedings, including names, addresses, PANs, and confirmations, and deleted the addition. The Tribunal noted that the AO had provided multiple opportunities for the assessee to furnish the required details, which were not adequately complied with. The CIT(A) was criticized for admitting the additional evidence without proper verification and without giving the AO a reasonable opportunity to examine it, violating Rule 46A(3). The Tribunal remitted the matter back to the AO for fresh adjudication, allowing the assessee another opportunity to provide necessary details.

2. Admission of Additional Evidence in Violation of Rule 46A:
The Tribunal emphasized that the CIT(A) must not take into account any additional evidence unless the AO is given a reasonable opportunity to examine it. The CIT(A) admitted additional evidence without informing the AO about the rejection of his objections and without allowing him to verify the evidence on merits. This was deemed a violation of Rule 46A(3), rendering the admission of additional evidence illegal. The Tribunal remitted the matter back to the AO for fresh examination, ensuring compliance with Rule 46A.

3. Deletion of Addition on Account of Prior Period Expenses:
The AO disallowed Rs. 7,09,812/- as prior period expenses. The CIT(A) allowed the deduction based on the Special Bench decision in DCIT Vs Glaxo Smithkline Consumer Healthcare Ltd., which permits deduction of sales tax on a payment basis under Section 43B. The Tribunal upheld the CIT(A)'s decision, allowing the deduction.

4. Deletion of Addition on Account of Marketing Expenses:
The AO disallowed 20% of marketing expenses due to lack of supporting bills/vouchers, resulting in an addition of Rs. 37,04,440/-. The CIT(A) deleted the addition based on additional evidence. The Tribunal, noting the violation of Rule 46A(3), remitted the matter back to the AO for fresh adjudication after considering the additional evidence.

5. Restriction of Addition on Account of Foreign Travelling Expenses:
The AO disallowed 20% of foreign travelling expenses, resulting in an addition of Rs. 11,30,474/-. The CIT(A) reduced the disallowance to Rs. 2,00,000/- based on additional evidence. The Tribunal remitted the matter back to the AO for fresh examination in light of the evidence.

6. Deletion of Addition on Account of Unexplained Foreign Travelling Expenses:
The AO disallowed Rs. 2,50,000/- spent on the director's travel to South Africa due to lack of supporting bills. The CIT(A) deleted the addition based on additional evidence. The Tribunal remitted the matter back to the AO for fresh adjudication, ensuring compliance with Rule 46A(3).

7. Deletion of Addition on Account of Miscellaneous Expenses:
The AO disallowed 20% of miscellaneous expenses, resulting in an addition of Rs. 26,436/-. The CIT(A) deleted the addition based on additional evidence. The Tribunal remitted the matter back to the AO for fresh examination in light of the evidence.

8. Deletion of Addition on Account of Disallowed Depreciation:
The AO disallowed depreciation of Rs. 1,06,436/- due to lack of supporting bills for additions to fixed assets. The CIT(A) deleted the addition based on additional evidence. The Tribunal remitted the matter back to the AO for fresh adjudication, ensuring compliance with Rule 46A(3).

Conclusion:
The Tribunal allowed the appeal partly, remitting several issues back to the AO for fresh adjudication after considering additional evidence and ensuring compliance with Rule 46A. The Tribunal emphasized the need for proper verification and reasonable opportunity for the AO to examine additional evidence.