2020 (3) TMI 423 - AT - Income Tax

Enhancement of assessment u/s 251 - additions were made by the CIT(A) in first round - matter was remanded back by ITAT to CIT(A) - assessee sought the adjournment - CIT(A) not satisfied with the reasons mentioned by the assessee and the Ld. CIT(A) has determined the income of the assessee on already determined income - HELD THAT - CIT(A) should have issued a fresh notice u/s. 251(2) to the assessee for substantiating its claim in order to prove the documentary evidences and to answer the query raised by the Ld. CIT(A) for the enhancement notice, but the same has not been done by the Ld. CIT(A), which is contrary to law and facts on the file and hence, the impugned order is not sustainable in the eyes of law. Further, the notice dated 16.5.2016 issued by the Inspector of Income Tax where the approval of the Ld. CIT(A)-I, Noida was of dated 17.5.2018, which shows the pre-determined mind of the Inspector and non application of mind of the authorities below and even the Inspector of Income is not competent to issue such notice. Even otherwise, on perusing the documentary evidences filed by assessee in the shape of paper book on the issues in dispute which I have discussed in the preceding paragraphs, AO has examined all the issues with supporting evidences filed by the assessee which is a matter of record. Therefore, the enhancement notice is not sustainable in the eyes of law and resultantly the enhancement made by the Ld. CIT(A) is not tenable, therefore Cancel the impugned order dated 29.10.2018 by accepting the appeal filed by the assessee.

Summary

Issues Involved:
1. Validity of the show cause notice issued by the Inspector of Income Tax.
2. Enhancement of income by the CIT(A) without issuing a fresh show cause notice.
3. Additions made under sections 68, 69, and 69C of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Validity of the show cause notice issued by the Inspector of Income Tax:
The show cause notice dated 16.05.2016 was issued by the Inspector of Income Tax, directing the assessee to furnish a reply. The Tribunal found this notice to be illegal and untenable because the Inspector had no authority to issue such a notice or to assume the functions of the CIT(A). The approval for the notice was granted by the CIT(A) on 17.05.2016, a day after the notice was issued, indicating a lack of proper authorization and application of mind. Consequently, the notice was deemed null and void ab initio.

2. Enhancement of income by the CIT(A) without issuing a fresh show cause notice:
The CIT(A) enhanced the income of the assessee by ?33,29,52,003 without issuing a fresh show cause notice as mandated by section 251(2) of the Income Tax Act, 1961. The Tribunal noted that the CIT(A) restored his earlier order with the same enhancements, which was against the principles of natural justice and without jurisdiction. The Tribunal emphasized that a fresh notice was essential to assume jurisdiction for any enhancement, and the failure to issue such a notice rendered the enhancement invalid.

3. Additions made under sections 68, 69, and 69C of the Income Tax Act, 1961:
- Section 68 (Unsecured Loans): The CIT(A) made an enhancement of ?12,75,00,000 under section 68, relating to short-term borrowings. The Tribunal found that the assessee had provided all necessary documentary evidence, including written confirmations, ledger statements, PAN cards, income tax returns, bank statements, and the partnership deed of the lender. These documents were verified and accepted by the AO. The CIT(A) did not conduct any further inquiries or provide a basis for the enhancement, making it arbitrary and baseless.

- Section 69 (Work-in-Progress): An enhancement of ?20,49,08,002 was made under section 69, relating to work-in-progress. The Tribunal highlighted that section 69 applies only to investments not recorded in the books of account. Since the work-in-progress was duly recorded in the audited balance sheet, section 69 was not applicable. The CIT(A)'s presumption that the land should appear under fixed assets was incorrect, as the land in question was part of the builder's inventory. The Tribunal noted that the assessee had provided all necessary documentary evidence to substantiate the work-in-progress, making the enhancement unwarranted.

- Section 69C (Negative Balance of Reserve & Surplus): The CIT(A) made an enhancement of ?4,94,001 under section 69C, relating to the negative balance of reserve and surplus. The Tribunal found this enhancement to be preposterous, as the negative balance represented losses suffered by the assessee, which were fully accounted for in the books of account. Since the source of the negative balance was verifiable and explained, section 69C was not applicable.

Conclusion:
The Tribunal concluded that the CIT(A) had not complied with the specific directions of the Tribunal to consider the documentary evidence and decide the issues afresh. The impugned order was passed in a hasty manner without proper consideration of the evidence. The Tribunal canceled the impugned order dated 29.10.2018 and allowed the appeal filed by the assessee, emphasizing that the enhancements made by the CIT(A) were not sustainable in law.