2020 (12) TMI 298 - AT - Income Tax

Unsecured loans u/s.68, ad-hoc disallowance of expenses, disallowance of interest for non-deduction of TDS, difference in gross receipts as per books of accounts and as per statement of receipts filed during the course of assessment proceedings, disallowance of sales tax and disallowance of ROC fees - Whether CIT (Appeals) failed to give an opportunity to the AO as envisaged in rule 46A of I.T.Rules, 1962 for examination of evidence furnished by the assessee company during the appellate proceedings ? - HELD THAT - It is a well settled principle of law that when additional evidences are filed before the appellate authority, it is the duty of the appellate authority to confront those additional evidences to the AO for his comments and obtain necessary reports from the AO on admissibility of the additional evidences and veracity of such additional evidences filed before deciding the issues. No doubt, the appellate authority had powers to examine issue on its own but when the appellate authority has decided the issue on its own without calling for remand report from the AO then the appellate authority should give detailed reasons in support of its conclusions, otherwise it amounts to violation of Rule 46A of I.T.Rules, 1962. In this case, on perusal of the order of CIT(A),we find that although the assessee has filed additional evidences in support of its case, but the learned CIT(A) has decided the issues without confronting those documents to the Assessing Officer for his comments in violation of Rule 46A of I.T.Rules, 1962 - Appeal filed by the Revenue is treated as allowed for statistical purposes.

Issues Involved:
1. Addition of unsecured loans under Section 68 of the Income Tax Act.
2. Disallowance of interest under Section 40(a)(ia) for non-deduction of TDS.
3. Disallowance of operating expenditure.
4. Violation of Rule 46A of Income Tax Rules, 1962 by the CIT(A).

Issue-wise Detailed Analysis:

1. Addition of Unsecured Loans under Section 68:
The Assessing Officer (AO) added ?3,98,00,000 to the income of the assessee under Section 68, treating it as unexplained credit. The assessee argued that this amount was a loan taken by the promoter group from Future Capital, which was credited to the bank account of M/s. Rajkishore Engineering and Constructions Pvt. Ltd. (RKECPL) and later adjusted against dues from M/s. Rajkishore Developers Pvt. Ltd. (RKD). The CIT(A) accepted the assessee's explanation, noting that the loan was capitalized and converted into equity shares, thus explaining the source of the ?3,98,00,000. The Tribunal found that the CIT(A) did not provide the AO an opportunity to examine these additional evidences, violating Rule 46A. Therefore, the issue was remanded back to the AO for re-examination.

2. Disallowance of Interest under Section 40(a)(ia):
The AO disallowed ?51,90,715 as interest for non-deduction of TDS. The CIT(A) noted that from AY 2015-16, the disallowance under Section 40(a)(ia) should be restricted to 30% of the expenditure, as per the Finance Act, 2014. Accordingly, the CIT(A) restricted the disallowance to ?15,57,215, providing the assessee relief of ?36,33,500. The Tribunal upheld this finding but remanded the issue back to the AO for re-examination due to the violation of Rule 46A.

3. Disallowance of Operating Expenditure:
The AO disallowed 20% of the construction cost claimed by the assessee, amounting to ?92,75,428, due to lack of detailed supporting documents. The CIT(A) found the disallowance excessive and reduced it to 7.5% of the expenditure, amounting to ?34,78,285, providing relief of ?57,97,143. The Tribunal noted that the CIT(A) did not allow the AO to comment on the additional evidences and remanded the issue back to the AO for re-examination.

4. Violation of Rule 46A of Income Tax Rules, 1962:
The Tribunal observed that the CIT(A) admitted additional evidences without giving the AO an opportunity to examine them, violating Rule 46A. The Tribunal emphasized that the appellate authority must confront additional evidences to the AO for his comments and obtain necessary reports before deciding the issues. As the CIT(A) failed to do so, the Tribunal remanded all issues back to the AO for re-examination in light of the additional evidences.

Conclusion:
The Tribunal allowed the appeal filed by the Revenue for statistical purposes, remanding the issues back to the AO for re-examination in accordance with the law and after considering the additional evidences filed by the assessee. The order was pronounced in the open court on 4th December, 2020.

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