2017 (3) TMI 953 - AT - Income Tax

Estimation of income u/s 144 by invoking provisions of section 44AD and 44AF - books of accounts were rejected - Power of CIT(A) to delelete the additions - Held that - We find that A.O. has mentioned several factors including non-compliances by the assessee. He has issued letters to 12 parties. Out of that only four have responded, wherein a lot of discrepancies have been noted. No where in the assessment order the A.O. has mentioned the provisions of section 44AD or section 44AF. In these circumstances in our considered opinion Ld. CIT-A s is order reflects a lack of applications of mind on the issue involved. He has proceeded to mention that A.O. had invoked provisions of section 44AD and section 44AF which is a totally wrong fact. The Ld. CIT-A has observed that assessee has not been granted opportunity to rebut the confirmations received from the parties. This also Ld. CIT-A has found to be a reason to set aside the order s of the A.O. We find that the powers of the Ld. CIT-A are coterminous with that of the A.O. further, more as held in the case of Kapoorchand Shrimal 1981 (8) TMI 2 - SUPREME Court it is the duty of the appellate authority to correct the errors in the order s of the authorities below and remit the matter to them if needed with necessary directions. Hence Ld. CIT-A s action in this regard is not correct. The issues raised in this appeal need to be remitted to the file for the Ld. CIT-A. Ld. CIT-A is directed to consider the issue afresh after properly appreciating the facts and pass a speaking order after giving the assessee adequate opportunity of being heard. Appeal of revenue allowed for statistical purposes.

Summary

Issues:
1. Deletion of additions based on fresh evidence without giving the AO an opportunity to refute.
2. Deletion of disallowance and invoking of provisions of sec. 44AD/44AF without proper justification.
3. Lack of sufficient opportunity granted to the assessee during assessment proceedings.

Analysis:

Issue 1: Deletion of additions based on fresh evidence without giving the AO an opportunity to refute:
The A.O. noted discrepancies in the details provided by the assessee, leading to the rejection of the books of accounts. The A.O. found non-compliance with notices issued under section 133(6) to various parties, resulting in discrepancies in sales/purchases and closing balances. Consequently, the A.O. estimated the net profit at 2% of the turnover, treating it as business income. Penalty proceedings were initiated under various sections for concealment of income and non-compliance with notice requirements.

Issue 2: Deletion of disallowance and invoking of provisions of sec. 44AD/44AF without proper justification:
Upon appeal, the Ld. CIT-A observed that the A.O. had rejected the book results based on differences in only 4 confirmations and incorrectly applied sections 44AD and 44AF. The Ld. CIT-A highlighted that the appellant's turnover was significantly higher and the accounts were audited, making the provisions inapplicable. The Ld. CIT-A emphasized that the A.O. did not provide sufficient opportunity to the appellant to reconcile discrepancies, leading to the deletion of the addition of ?91,00,915.

Issue 3: Lack of sufficient opportunity granted to the assessee during assessment proceedings:
The ITAT found that the Ld. CIT-A's order lacked proper consideration of the A.O.'s factors and incorrectly stated that the A.O. had invoked sections 44AD and 44AF. The ITAT noted that the Ld. CIT-A failed to correct errors in the A.O.'s order and did not exercise his powers effectively. Referring to a previous year's decision, the ITAT emphasized the need for a fresh consideration of the issues by the Ld. CIT-A, ensuring the assessee receives a fair opportunity to be heard.

In conclusion, the ITAT allowed the revenue's appeal for statistical purposes, directing the Ld. CIT-A to reconsider the issues after properly appreciating the facts and providing the assessee with adequate opportunity to present their case.