2018 (12) TMI 132 - HC - Income Tax

Admission of additional evidence - Whether in the absence of any ground against admission of additional evidence, the Tribunal was right in law in holding that the CIT(A) was not entitled to consider the evidence of payment to the commission agent? - Held that - There were two premises for the appellate order first, that the CIT (A) differed from the AO with regard to appreciation of evidence it was held, in the appellate order, that some discrepancies with respect to the supplier s books and the statements by them could not result in such an adverse finding as to reject the assessee s claims as bogus, and two, that the previous years assessments had showed a consistent pattern with regard to the Revenue s behavior, accepting the assessee s claims regarding the same suppliers and agents. This court is of the opinion that the ITAT s reasoning is not entirely based on the consideration of the fresh evidence under Rule 46-A. It is based on its independent analysis and appreciation of the evidence on record. The assessee s counsel is correct in contending that the powers of the CIT (A) are wide under Section 250 of the Act; that the authority can adduce fresh findings. A close scrutiny of the ITAT s findings impugned in this case, would reveal that the tribunal took note of the assessee s lapses in replying to the AO s specific queries. It then considered the materials on record, in the form of statements made on behalf of M/s RKDNP with regard to what was actually paid. The other findings regarding improbability of such huge amounts remaining outstanding, no interest payable to the commission agent were to bolster the finding that the transactions reported were not credible. AO went to great lengths to find out whether and if any genuine transactions were entered into by its suppliers; the CIT (A) brushed aside those findings based on a solitary instance of export of rice by another party. However, the findings with respect to the seven supplies and those involved in it- and the statements recorded of representatives of those entities, were a matter of record. What the ITAT did was to analyze the CIT (A) s findings. That it was entitled to do, clearly. And while doing so, it frowned upon the CIT (A) s order to the extent it considered fresh material. However, those observations by no means are the only basis for upsetting the Appellate Commissioner s order; rather they are only asides, so to speak. If those observations are ignored, what is apparent is that the ITAT s findings are based on an independent analysis of the AO s reasoning While the CIT (A) could have considered the previous orders (of the revenue relating to past assessments) they could not have been the main bases for reversing the AO s order. The ITAT s impugned order, it is noticeable, is not based on the so called infirmity attached to the CIT (A) s order; it is based on its own overall analysis of the evidence. Those are clearly findings of fact, which do not indicate any unreasonableness or other infirmity, calling for interference. - Decided in favour of the revenue

Issues Involved:

1. Powers of Commissioner (Appeals) under Rule 46A.
2. Admission of additional evidence by CIT(A).
3. Assessment of transactions and genuineness of purchases and sales.
4. Opportunity for cross-examination.
5. Speculative transactions and treatment of profits and losses.
6. Application of Section 145 of the Income Tax Act.

Issue-Wise Detailed Analysis:

1. Powers of Commissioner (Appeals) under Rule 46A:
The primary issue addressed was whether the ITAT was correct in holding that the CIT(A) was not entitled to consider the evidence of payment to the commission agent under Rule 46A. The court noted that CIT(A) has plenary powers in disposing of an appeal, as highlighted in the Supreme Court's decision in Commissioner of Income Tax UP v. Kanpur Coal Syndicate, which states that the scope of the CIT(A)'s powers is conterminous with that of the Income-tax Officer.

2. Admission of Additional Evidence by CIT(A):
The court discussed the CIT(A)'s powers to admit additional evidence. It was argued that the CIT(A) can make further inquiries or direct the AO to do so. The court referred to Smt Mohindar Kaur v Central Government, which analyzed the provisions of Section 250(4) and Section 250(5) of the Act, stating that Rule 46A does not impair the power of CIT(A) to make further inquiries. The court also cited the Bombay High Court decision in Smt. Prabhavati Shah, which clarified that Rule 46A does not restrict CIT(A)'s powers to call for additional documents or witnesses.

3. Assessment of Transactions and Genuineness of Purchases and Sales:
The court examined the AO's findings, which doubted the genuineness of transactions shown by the assessee, including purchases and sales of rice. The AO found discrepancies in the statements of suppliers and commission agents, and the transportation of rice was not substantiated. The ITAT upheld the AO's findings, stating that the transactions were sham and motivated to reduce the income of the assessee.

4. Opportunity for Cross-Examination:
The assessee contended that the AO did not provide an opportunity for cross-examination of the parties whose statements were used against them. The court noted that the assessee did not request cross-examination during the proceedings and had obtained copies of relevant documents. Thus, the contention was deemed without merit.

5. Speculative Transactions and Treatment of Profits and Losses:
The assessee argued that in the absence of genuine transactions, the profits should be adjusted against speculative losses. The court rejected this argument, stating that speculative transactions presuppose genuineness, and since the transactions were found to be bogus, they could not be treated as speculative.

6. Application of Section 145 of the Income Tax Act:
The court discussed the application of Section 145, which allows the AO to make an assessment based on the best judgment if the correctness of the accounts is doubted. The AO applied this section to the transactions resulting in loss, while accepting the profit-making transactions. The court upheld the AO's discretion in this matter, stating that the assessee could not dispute the profit-making transactions voluntarily disclosed in their return.

Conclusion:
The court concluded that the ITAT's findings were based on an independent analysis of the evidence and were not solely reliant on the CIT(A)'s consideration of fresh material. The ITAT's order was upheld, and the appeal was dismissed, with the question framed being answered against the appellant assessee and in favor of the revenue.

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