2021 (4) TMI 343 - AT - Income Tax

Reopening of assessment u/s 147 - assessee maintained five bank accounts and the total credits appearing in these accounts is ₹ 1,88,28,865/- whereas the assessee has declared a turnover of ₹ 1,80,76,482/- and, thus, the assessee has concealed the particulars of income amounting to ₹ 7,52,383/- and, during the course of assessment proceedings, there was non-compliance from the side of the assessee for which he made the above addition in the order passed u/s.147/148/144 - HELD THAT - AO could not have ignored the audited balance sheet filed along with the return of income. As sufficient force in the argument of the Ld. Counsel that the deposits in the bank accounts stand fully explained and, in fact, the actual deposits in the bank accounts are much more than the amount mentioned by the AO. Considering the totality of the facts and considering the smallness of the amount in question,we donot think it proper to restore the issue back to the file of the lower authorities since the assessment year involved is A.Y. 2011-12 and the various documents/details filed by the assessee before the CIT(A) were also forwarded to the AO for his comments although he has not given any comments. In my considered opinion, the audited balance sheet which was filed along with the return of income cannot be considered as an additional evidence. If the AO had given a cursory look to the audited balance sheet, he could have seen the differences. A bare perusal of the audited balance sheet shows that the cash in hand as on 31.03.2010 at ₹ 6,77,576.81 has gone down to ₹ 65,585.56 as on 31.03.2011. Similarly, other debts has gone down from ₹ 66,67,356.79 as on 31.03.2010 to ₹ 61,06,363.52 as on 31.03.2011. The fixed assets as on 31.03.2010 has gone down from ₹ 34,87,321.80 to ₹ 29,63,883.91 after depreciation of ₹ 6,44,091.61. I find, the AO, in the instant case has also not rejected the books by invoking the provisions of Section 145(1) and has simply gone for the addition on the basis of the information received from the Investigation Wing which was the reason for reopening of the case. Since the Ld. Counsel has demonstrated before me regarding the source of deposits in the bank account which includes the increase in share capital to the tune of ₹ 43,37,700/- and the net sale proceeds and movement in current assets/current liabilities and the books of account were not rejected by invoking the provisions of section 145(1), therefore,set aside the order of the CIT(A) and direct the AO to delete the addition. The grounds raised by the assessee are accordingly allowed.

Summary

Issues involved:
1. Reopening of assessment based on undisclosed income.
2. Admission of additional evidence under Rule 46A of IT Rules, 1962.
3. Justification of addition on account of discrepancies in bank accounts.
4. Rejection of additional evidence by CIT(A).
5. Discrepancies in the assessment process and non-compliance by the assessee.
6. Interpretation of audited balance sheet and trading results.
7. Application of Section 145(1) regarding rejection of books of account.

Detailed Analysis:

1. The assessment was reopened due to undisclosed income as the assessee had maintained multiple bank accounts with total credits exceeding the declared turnover, indicating concealment of income. The AO added the undisclosed amount to the total income, leading to the appeal.

2. The assessee submitted additional evidence under Rule 46A of IT Rules, 1962, before the CIT(A), including audited balance sheets and bank details. However, the CIT(A) rejected these additional evidences, leading to a dispute regarding the admission of such evidence.

3. The CIT(A) justified the addition made by the AO, stating that the explanations provided by the assessee regarding discrepancies in bank accounts were insufficient. The CIT(A) emphasized the lack of clarity in the nature of the business and the failure to disclose essential details, leading to the dismissal of the appeal.

4. The CIT(A) rejected the additional evidence filed by the assessee, citing non-justification of admissibility under Rule 46A. The rejection of crucial evidence played a significant role in upholding the AO's decision to add the undisclosed income to the total income.

5. The appeal highlighted discrepancies in the assessment process, emphasizing the lack of proper opportunity given to the assessee and the failure to comply with statutory notices. The non-compliance from the assessee's side and the subsequent dismissal of the appeal raised concerns about the fairness of the assessment process.

6. The interpretation of the audited balance sheet and trading results became crucial in determining the legitimacy of the undisclosed income addition. The Ld. Counsel argued that the balance sheet and financial data provided sufficient explanation for the discrepancies in bank accounts, emphasizing the need for a thorough examination by the CIT(A).

7. The application of Section 145(1) regarding the rejection of books of account became a focal point in the appeal. The Ld. Counsel relied on legal precedents to argue that in the absence of defects in the books of account, the trading results should have been accepted, questioning the AO's authority to make additions without proper justification.

This detailed analysis covers the various issues involved in the legal judgment, providing insights into the arguments presented, decisions made, and legal interpretations applied throughout the appeal process.