2019 (12) TMI 487 - AT - Income Tax

Enhancing the income by CIT-A u/s 251(2) - assessee has raised the issue of breach of principle of natural justice for not considering the submission of the assessee as well as disregard of voluminous evidence tendered before the Assessing Officer - HELD THAT - CIT(A) issued show cause notice under section 251(2) of the Act proposing to enhance the income on the issues raised in the said notice. After considering the submission of the assessee, he rejected the objection of the assessee. We find that the learned CIT(A) has followed the decision of the Hon ble Supreme Court in the case of CIT Vs Kanpur Coal Syndicate 1964 (4) TMI 18 - SUPREME COURT on this issue and Ld. counsel of the assessee could not rebut before us the finding of the learned CIT(A) on the issue. In the facts of the instant case before us, the addition has been made in respect of source of income shown in the return of income and the opportunity has been provided to the assessee by way of issue show cause notice by the learned CIT(A). In view of these facts, we do not find any violation of the principle of natural justice. In our opinion, the finding of the learned CIT(A) on the issue in dispute is well reasoned and we do not find any error in the same. Accordingly, we uphold the authority of the learned CIT(A) in enhancing the income. The grounds of appeal of the assessee in this respect are accordingly dismissed. Difference in cash balance available in bank as well as in books of accounts - HELD THAT - The assessee in its written submissions has raised the issue that opening balance of trade receivables has not been taken into account by the learned CIT(A) and also no adjustment has been made for other non-cash expenditure like depreciation, forex loss booked, etc. CIT(DR) has submitted that issue needs verification at the end of lower authorities. We are in agreement with the learned DR because this is a matter of factual verification on the basis of financial statement of earlier year as well as financial statement of the year under consideration. Accordingly, we set aside the finding of the learned CIT(A) on the issue of addition and restore the matter back to the file of the Ld. CIT(A) for deciding afresh after providing adequate opportunity of being heard to both the assessee as well as to the Assessing Officer. Addition for 50% out of trade payables - HELD THAT - Mere sample copy of documentary evidence for one transaction of import, is not sufficient to decide the issue in dispute whether the purchases in reference are bogus as held by the learned CIT(A) and the assessee should produce documentary evidence in support of all the purchases made during the year under consideration. We are of the considered opinion that this issue needs verification by the lower authorities. Accordingly, we set aside the finding of the learned CIT(A) on the issue in dispute and restore the matter back to the file of the learned CIT(A) for deciding afresh in accordance with law, after affording adequate opportunity of being heard to both the assessee as well as the Assessing Officer. The grounds of appeal are accordingly allowed for statistical purposes.

Summary

Issues Involved:
1. Enhancement of income under section 251(2) of the Income-tax Act, 1961.
2. Addition of ?15,28,51,640/- by the CIT(A) despite satisfactory investigation by the Assessing Officer.
3. Alleged breach of natural justice principles by the CIT(A).
4. Addition of ?4,51,21,897/- as unexplained "cash in hand".
5. Addition of ?10,77,29,743/- by treating 50% of outstanding trade liability as income.
6. Initiation of penalty proceedings under section 271(1)(c) of the Act.

Detailed Analysis:

1. Enhancement of Income under Section 251(2):
The assessee argued that the CIT(A) erred in enhancing the income on issues already investigated and found satisfactory by the Assessing Officer. The Tribunal upheld the CIT(A)'s authority to enhance the income, referencing Supreme Court decisions (e.g., Kanpur Coal Syndicate, Jute Corporation of India) which affirm that the CIT(A) has plenary powers in disposing of an appeal, including enhancing the assessment. The Tribunal found no violation of natural justice principles as the CIT(A) issued a show-cause notice and provided an opportunity for the assessee to respond.

2. Addition of ?15,28,51,640/-:
The CIT(A) made an addition of ?15,28,51,640/- based on discrepancies in the assessee's accounts, including unexplained cash in hand and bogus liabilities. The Tribunal noted that the CIT(A) followed proper procedures, including issuing a show-cause notice and considering the assessee's objections. The Tribunal found the CIT(A)'s actions justified and dismissed the assessee's grounds of appeal on this issue.

3. Alleged Breach of Natural Justice:
The assessee claimed a breach of natural justice as the CIT(A) issued a show-cause notice without conveying reasons for the proposed additions and disregarded the appellant's explanations. The Tribunal found that the CIT(A) provided adequate opportunity for the assessee to present its case and did not violate natural justice principles. The Tribunal upheld the CIT(A)'s findings and dismissed the related grounds of appeal.

4. Addition of ?4,51,21,897/- as Unexplained "Cash in Hand":
The CIT(A) added ?4,51,21,897/- as unexplained cash in hand, which the assessee argued was part of the closing bank balance. The Tribunal found that the CIT(A) erroneously computed the cash availability and did not consider the opening balance of trade receivables or non-cash expenditures like depreciation and forex loss. The Tribunal set aside the CIT(A)'s finding on this issue and remanded the matter back to the CIT(A) for fresh consideration, providing an opportunity for both the assessee and the Assessing Officer to present their cases.

5. Addition of ?10,77,29,743/- by Treating 50% of Outstanding Trade Liability as Income:
The CIT(A) treated 50% of the outstanding trade liability as bogus and added ?10,77,29,743/- to the assessee's income. The Tribunal noted that the CIT(A) did not consider documentary evidence supporting the purchases from the sister concern. The Tribunal agreed with the assessee that no addition could be made for opening trade payables without liability waiver under section 41(1). The Tribunal remanded the issue back to the CIT(A) for fresh verification of documentary evidence for all purchases made during the year.

6. Initiation of Penalty Proceedings under Section 271(1)(c):
The Tribunal did not specifically address the initiation of penalty proceedings under section 271(1)(c) in the judgment.

Conclusion:
The Tribunal upheld the CIT(A)'s authority to enhance the income but found that certain additions required further verification. The Tribunal remanded the issues of unexplained cash in hand and bogus trade liabilities back to the CIT(A) for fresh consideration, providing an opportunity for both parties to present their cases. The appeal was partly allowed for statistical purposes.