2022 (2) TMI 699 - AT - Income Tax

Addition u/s 68 - Unexplained sundry creditors - HELD THAT - During the appeal proceedings, the assessee filed confirmation letters from various parties including copies of ledgers and bank statement in respect of assessee's claim that sundry creditors are genuine creditors. These documents were sent to AO calling for remand report from him. AO instead of sending a remand report, objected vide his letter dated 8.2.2019 that the fresh evidence filed by the assessee shall not be admitted on the reason that letters issued to creditors calling for information u/s.133(6) of the Act to the address provided by the assessee were returned unserved and the assessee has not furnished correct address even after sufficient opportunities to give the particulars during the hearing. Being so, when the assessee failed to furnish requisite details even after giving adequate opportunity of hearing to the assessee, the fresh evidence by the assessee shall not be admitted by the CIT(Appeals). CIT(Appeals) overlooked the objection of the AO and considered the various additional evidence filed by the assessee before him and decided the issue in favour of the assessee on merits. When the AO objected to admission of additional evidence before the CIT(Appeals) vide his letter dated 8.2.2019, the CIT(Appeals) decided the issue on merits overlooking the letter written by the AO that fresh evidence should not be admitted. As appropriate for the CIT(Appeals) to point out to the AO that he is not going to consider the objections raised by the AO for not admitting additional evidence and he is going to decide the issue on merits. For this purpose, he should have called the comments of the AO merits of the additional evidence filed by the assessee. In the present case, the CIT(Appeals) failed to do so. Appeal of the revenue is allowed for statistical purposes.

Summary

Issues:
- Admission of fresh evidence without deciding on exceptions under sec. 46A
- Failure to consider AO's objection on admitting fresh evidence
- Violation of principles of natural justice

Analysis:
1. The appeal involved a dispute regarding the admission of fresh evidence without determining if it falls under any exceptions provided in sec. 46A of the Act. The AO raised concerns about the credibility of the evidence submitted by the assessee, particularly regarding the authenticity of sundry creditors amounting to &8377; 9,97,27,645. The CIT(Appeals) admitted the additional evidence and decided the issue in favor of the assessee without addressing the AO's objections. This raised questions about the proper application of the law and procedural fairness.

2. The failure to consider the objection raised by the AO regarding the admission of fresh evidence was a critical aspect of the case. The AO contended that the evidence should not be admitted due to discrepancies in the information provided by the assessee and the return of notices to creditors. Despite the AO's objection, the CIT(Appeals) proceeded to evaluate the additional evidence and ruled in favor of the assessee. This failure to address the objection demonstrated a lack of procedural diligence and adherence to natural justice principles.

3. The judgment highlighted a violation of principles of natural justice due to the CIT(Appeals) overlooking the AO's objection and proceeding to decide the matter on merits without proper consideration of the objections raised. The failure to engage with the AO's concerns and provide an opportunity for the AO to comment on the additional evidence led to a decision that lacked procedural fairness. As a remedy, the issue was remitted back to the AO for fresh consideration, emphasizing the importance of upholding principles of natural justice and providing a fair hearing to all parties involved.

Overall, the judgment underscored the significance of procedural fairness, adherence to legal provisions, and the need for authorities to consider objections raised by concerned parties before making a decision. The remittal of the issue to the AO for de novo consideration aimed to rectify the procedural lapses and ensure a fair assessment based on all relevant evidence and submissions.