2014 (6) TMI 254 - AT - Income Tax

Admission of fresh evidences under Rule 46A of the Rules Matter not remitted to AO - Violation of principle of audi alterem partem - Held that - CIT (A) while admitting and using the additional evidence filed by the assessee, did not give any opportunity of hearing to the AO - No remand report was called for - Nor was the AO asked to verify the contents of the additional evidence filed by the assessee - The action of the CIT (A) is in violation of the settled natural justice principle of audi alterem partem thus. the matter is remitted back to the AO for fresh adjudication on considering the additional evidence filed by the assessee before the CIT(A) Decided in favour of Revenue.

Summary

Issues:
1. Addition of income from undisclosed sources and disallowance of commission expenses.
2. Admission of fresh evidence without following proper procedure.

Analysis:

Issue 1: Addition of income from undisclosed sources and disallowance of commission expenses

The Department's appeal for Assessment Year 2008-09 challenged the deletion of an addition of Rs.25,26,120 made by the Assessing Officer under the head income from undisclosed sources and the relief of Rs.1,91,780 out of disallowed commission expenses by the Ld. CIT(A). The assessee, engaged in goods carrier and insurance commission agent businesses, maintained books of account for the latter but not for the former, offering income from truck business under section 44AE of the IT Act. The AO added Rs. 25,26,120 based on credit entries in the bank account and disallowed 50% of claimed expenses. The CIT(A) deleted the addition, accepting the appellant's explanation that the amount was related to freight receipts deposited in the bank account, supported by TDS certificates and payment details from various parties. The disallowance of expenses was reduced to 10% considering the nature of the appellant's business, providing relief of Rs.1,91,780.

Issue 2: Admission of fresh evidence without following proper procedure

The Department contended that the CIT(A) erred in admitting fresh evidence without following Rule 46A of the IT Rules, without calling for a remand report from the AO or allowing verification of the evidence. The appellant had submitted additional evidence regarding freight receipts and payments received, which the CIT(A) considered in deleting the addition. However, the Tribunal found that the AO was not given an opportunity to verify the new evidence, violating the principle of natural justice. As a result, the matter was remitted to the AO for a fresh decision, with the appellant to be given a fair hearing during the remand proceedings. The appeal by the Department was treated as allowed for statistical purposes.

In conclusion, the judgment addressed the issues of addition of income from undisclosed sources and disallowance of expenses, highlighting the importance of following proper procedures in admitting and considering fresh evidence to ensure fairness and compliance with natural justice principles.