2015 (5) TMI 477 - AT - Income Tax

Addition on Sundry Creditors - CIT(A) deleted the addition - whether CIT(A) has erred in accepting the additional evidence during the course of appellate proceedings without giving any opportunity to the AO to cross examine the additional evidence submitted by AOI? - Held that - The Tribunal in the assessment Year 2008-09 in assessee;s own case held that sub-rule (3) of Rule 46A interdicts the CIT (A) from taking into account any evidence produced for the first time before him unless the AO has had a reasonable opportunity of examining the evidence and rebut the same. In the instant case, there is nothing in the impugned order of the ld. CIT (A) to show that after the objections were raised by the AO in his remand report dated 14.7.2011 against admission of additional evidence, the ld. CIT(A) asked the AO to examine the genuineness of the additional evidence. Thus, the end result has been that additional evidence was admitted and accepted as genuine without the AO furnishing his comments and without verification. Since in the case under consideration, the ld. CIT(A) did not follow the procedure laid down in Rule 46A of the IT Rules,1962 , we find merit in the contentions of the ld. DR and therefore, in the interest of justice and fair play, vacate the findings of the Ld. CIT(A) and restore the issues raised in various grounds of appeal before us to his file, with the directions to follow the mandate in terms of Rule 46A of the IT Rules, 1962 as also principles of natural justice and thereafter, dispose of the matter in accordance with law. See CIT vs. Manish Buildwell 2011 (11) TMI 35 - DELHI HIGH COURT - Decided in favour of revenue by way of remand. Addition made on house tax paid for the directors premises - CIT(A) deleted the addition - Held that - CIT(A) has observed that similar issue arose for adjudication in the immediately preceding year in the case of the assessee. There is no change in the facts of the case this year. Not only that, the assessments of the assessee company for the assessment years 2005-06 and 2007-08 were completed u/s. 143(3) and no such disallowance was made by the Assessing Officer. Since the properties have been taken on rent by the company for its business purposes and the rent agreements provide for payment of the house tax by the assessee company, it was held that this payment was for business considerations and was therefore an allowable expenditure in the case of the assessee. It has also been submitted that, there has been no revision of the rent of the premises for the last so many years and for that reason too the payment of house tax by the assessee was justified. In these circumstances, the disallowance made by the AO was deleted We find no infirmity in the impugned order and the Ld. CIT(A) has passed a reasoned, order and on the principle of consistency too the impugned order does not need any interference - Decided against revenue.

Summary

Issues involved:
1. Deletion of addition on Sundry Creditors.
2. Acceptance of additional evidence without giving an opportunity to the AO.
3. Deletion of total addition despite incomplete documentation.
4. Deletion of addition made on house tax paid for the director's premises.

Issue 1: Deletion of Addition on Sundry Creditors
The Revenue challenged the deletion of Rs. 37,02,418/- on sundry creditors by the CIT(A). The AO had made this addition because the assessee failed to provide confirmations for sundry creditors exceeding Rs. 80,000/-. Notices issued to 35 parties under section 133(6) of the Income Tax Act returned unserved, and the assessee could not establish the existence of these creditors. The AO referenced various judgments, concluding that the assessee did not discharge the onus of proving the creditors' genuineness, identity, and creditworthiness. The CIT(A), however, admitted additional evidence and deleted the addition without following Rule 46A of the Income Tax Rules, which mandates giving the AO an opportunity to examine the evidence.

Issue 2: Acceptance of Additional Evidence
The Revenue argued that the CIT(A) erred in accepting additional evidence without allowing the AO to cross-examine it. The ITAT noted that in the assessee's case for the assessment year 2008-09, a similar issue was remanded back to the CIT(A) to follow Rule 46A. The ITAT emphasized that the CIT(A) must provide reasons for admitting additional evidence and allow the AO to examine and rebut it. The Tribunal found that the CIT(A) did not follow this procedure, thereby violating the principles of natural justice. Consequently, the ITAT set aside the CIT(A)'s findings and remanded the issue back to the CIT(A) for fresh adjudication following Rule 46A.

Issue 3: Deletion of Total Addition Despite Incomplete Documentation
The AO noted that the assessee failed to provide documentation for 34 out of 53 parties. The ITAT observed that the CIT(A) admitted additional evidence without verifying its genuineness or allowing the AO to cross-examine it. The Tribunal highlighted the necessity of adhering to Rule 46A and providing the AO with a reasonable opportunity to examine the additional evidence. The ITAT remanded the issue back to the CIT(A) for a fresh decision, ensuring compliance with Rule 46A and the principles of natural justice.

Issue 4: Deletion of Addition Made on House Tax Paid for the Director's Premises
The AO disallowed Rs. 35,680/- paid as house tax for rental properties owned by the directors, considering it an indirect benefit to the directors. The CIT(A) deleted this disallowance, noting that similar issues in previous years had been resolved in favor of the assessee. The properties were rented for business purposes, and the rental agreements included provisions for house tax payment by the company. The CIT(A) found the payment justified and allowable as a business expenditure. The ITAT upheld the CIT(A)'s decision, citing consistency and the business purpose of the expenditure.

Conclusion
The ITAT partly allowed the Revenue's appeal for statistical purposes. The issues concerning sundry creditors and additional evidence were remanded back to the CIT(A) for fresh adjudication following Rule 46A. The deletion of the addition on house tax was upheld, affirming the CIT(A)'s reasoned decision.