2018 (11) TMI 1259 - HC - Income Tax

Unexplained fixed deposits - Commissioner of Income-tax (Appeals) admitted the fixed deposit register as a fresh evidence without giving an opportunity of being heard to the Assessing Officer as prescribed under Rule 46A(3) - Held that - The verification said to have been done by the appellate authority is only a perusal of the list and not a verification of the genuineness of such transactions. The details as entered in the list of cheque payments were also taken as true by the first appellate authority. The first appellate authority erred in having so deleted the addition on mere assumption based on surmises and conjectures; without actually verifying the genuineness of the transactions. The Tribunal also relied on the findings of the CIT (Appeals) with respect to the verification done for the previous years. There is absolutely no verification done as to how many deposits of the previous year were revalidated in the present year. This is a permissible exercise by the AO, who has to do it at the first instance. In fact, the first appellate authority could also have done the said exercise or at least called for a remand report from the AO, which measure was not resorted to. In such circumstances, though after 22 years, we are constrained to remand the matter to the AO. The assessee shall produce the list of depositors and prove their genuineness before the AO. Question of law is answered in favour of the Revenue and against the assessee.

Summary

Issues:
1. Proper maintenance of fixed deposit register by the assessee.
2. Addition of unsecured loans towards income.
3. Adequacy of verification of deposits by the appellate authority.
4. Necessity of remanding the matter to the Assessing Officer for further investigation.

Issue 1: Proper maintenance of fixed deposit register
The appeal questioned the correctness of upholding the finding that the assessee properly maintained the fixed deposit register, despite procedural irregularities. The Tribunal's decision was challenged on grounds of natural justice and validity, emphasizing the failure to provide the Assessing Officer with an opportunity to examine the fixed deposit register as fresh evidence.

Issue 2: Addition of unsecured loans towards income
The Assessing Officer noted unsecured loans credited to the balance sheet and requested detailed information from the assessee, which was not adequately provided. Despite various opportunities given to the assessee, including adjournments and filing under Section 144A, the unsecured loans were added to the income due to non-compliance and lack of response.

Issue 3: Adequacy of verification of deposits
The first appellate authority deleted the addition of unsecured loans based on fixed deposit registers produced by the assessee. However, the appellate authority's verification process was deemed insufficient, merely perusing the list of deposits without confirming their genuineness. The Tribunal also failed to conduct a thorough assessment of the previous year's deposits and their revalidation in the current assessment year, highlighting the need for proper verification procedures.

Issue 4: Necessity of remanding the matter
The judgment emphasized the importance of remanding the matter to the Assessing Officer for a detailed examination of the list of depositors and verification of their genuineness. The appellate authorities' decisions were set aside, directing the AO to obtain the necessary list or have the assessee provide it for further scrutiny within a specified timeframe. The ultimate decision on the matter was left to the AO after proper verification processes were completed.