2012 (10) TMI 755 - AT - Income Tax

Reopening of assessment - difference in total sales in the trading account - Held that - AO added the amount merely because the creditors did not respond to notice issued u/s 133(6) but the assessee in his application under rule 46A of the IT Rules,1962 submitted confirmations of these parties but PIN code of these parties and their PAN was not mentioned in the said confirmations. CIT(A) discarded these confirmations and upheld the addition in these two assessment years, without examining either the nature of these liabilities or following the procedure laid down in rule 46A of the IT Rules,1962 in respect of applications filed by the assessee for admission of additional evidence in these two assessment years. It is not evident from the impugned orders as to why the assessee did not submit relevant confirmations before the AO and whether the assessee was given sufficient opportunity by the AO. The CIT(A) did not care to record any reasons before admitting additional evidence nor appears to have ascertained the genuineness of the said evidence through independent enquiries or through the AO . CIT(A) did not follow the procedure laid down in Rule 46A of the IT Rules,1962 nor even recorded any findings as to whether or not the assessee was prevented by sufficient cause from producing the said evidence/documents before the AO and nor even ascertained the nature of these liabilities, thus the findings of the CIT(A) are set aside and restore the issue back to his file, with the directions to follow the mandate in terms of Rule 46A of the IT Rules, 1962 - in favour of assessee for statistical purposes.

Summary

Issues:
- Addition of creditor amount in assessment years 2003-04 and 2004-05 despite confirmation from creditors.
- Failure to follow proper procedure under Rule 46A of the IT Rules, 1962 in admitting additional evidence.

Analysis:

Issue 1: Addition of Creditor Amount
In the assessment years 2003-04 and 2004-05, the Assessing Officer added amounts as creditors due to lack of response from M/s Gupta Traders and M/s Shri Krishna Traders to notices issued under section 133(6) of the Income-tax Act. The ld. CIT(A) upheld these additions as the genuineness of the creditors was not proven. The AR failed to convince the Assessing Officer about the authenticity of the creditors, as confirmations lacked essential details like PIN code and PAN. The AR did not provide further evidence or produce the creditors for verification. Consequently, the additions were upheld due to insufficient proof of creditor genuineness.

Issue 2: Failure to Follow Rule 46A Procedure
The appellant submitted confirmations under Rule 46A of the IT Rules, 1962 during the appellate proceedings. However, the confirmations lacked crucial details and were not presented before the Assessing Officer. The ld. CIT(A) upheld the additions without following the procedure laid down in Rule 46A. The CIT(A) did not record reasons for admitting additional evidence, nor did he ascertain if the appellant was prevented by sufficient cause from submitting the documents earlier. The CIT(A) failed to follow the mandated procedure under Rule 46A, leading to a lack of proper examination of evidence and nature of liabilities. As per legal precedents, strict compliance with Rule 46A is necessary when admitting additional evidence at the appellate stage. The failure to adhere to the rule necessitated vacating the CIT(A)'s findings and directing a reassessment following proper procedures and principles of natural justice.

In conclusion, the appeals were allowed primarily due to the failure to follow proper procedures under Rule 46A of the IT Rules, 1962. The case highlights the importance of providing complete and verified documentation to substantiate claims and the necessity of following prescribed procedures in tax assessments for fair and just outcomes.