2021 (6) TMI 494 - AT - Income Tax

Best judgment assessment u/s.144 - violation of Rule 46A - AO was not provided an opportunity to verify - HELD THAT - We on perusal of the assessment order found that the assessee before the A.O. has filed the return of income in response to notice u/s. 148 of the Act. When the notice u/s. 142(1) of the Act was issued twice and the show cause notice, there was no compliance. The assessee has submitted the details for the first time before the CIT (A) referred at para 5 of the CIT (A) order and the said information was not submitted before the A.O. for various reasons. We are of the considered opinion that, the assessee has to comply with Rules and regulations. when the documents were submitted for the first time before the CIT (A) the provisions of Rule 46A shall equally applicable. Accordingly, we find that there is a violation of Rule 46A as the A.O. was not provided an opportunity to verify and examine the evidences filed by the assessee in the appellate proceedings. The CIT (A) could have called for the remand report on the evidences filed by the assessee as referred at para 5 of the CIT (A) order but allowed the assessee appeal. Therefore, for limited purpose we find that the documents which the Ld. CIT (A) has relied are to be examined and verified by the Assessing officer. We set-aside the order of the CIT (A) and restore this disputed issue to the file of the assessing officer with above directions and the assessee should be provided with adequate opportunity of hearing and shall cooperate in submitting the information - Appeal filed by the revenue is allowed for statistical purposes.

Summary

Issues:
1. Addition u/s 69 of the Act based on unexplained investment.
2. Validity of additional evidence under Rule 46A and opportunity for AO to examine it.

Analysis:

Issue 1: Addition u/s 69 of the Act based on unexplained investment
The case involved the assessee, a Non-Resident Indian (NRI), who had invested ?2,00,00,000 in mutual funds during the financial year 2009-10. The Assessing Officer (AO) issued notices and show cause notices regarding the source of these investments, but the assessee failed to provide satisfactory explanations. Consequently, the AO treated the investment as unexplained under section 69 of the Income Tax Act, 1961, and assessed the total income accordingly. The Commissioner of Income Tax (Appeals) (CIT (A)) later considered the documentary evidence provided by the assessee, showing that the investments were made from proceeds of earlier tax-free bonds and mutual fund redemptions. The CIT (A) accepted the explanations and deleted the addition made by the AO, granting relief to the assessee.

Issue 2: Validity of additional evidence under Rule 46A and opportunity for AO to examine it
The Revenue challenged the CIT (A)'s decision to admit additional evidence under Rule 46A of the IT Rules without providing the AO an opportunity to verify it. The Tribunal noted that the assessee had submitted details for the first time before the CIT (A) and not during the assessment proceedings before the AO. The Tribunal found a violation of Rule 46A, as the AO was not given a chance to examine the evidences filed by the assessee in the appellate proceedings. It was observed that the CIT (A) should have called for a remand report on the evidence submitted. Consequently, the Tribunal set aside the CIT (A)'s order and remanded the disputed issue back to the AO for proper verification. The assessee was directed to cooperate and provide necessary information, emphasizing compliance with rules and regulations. The Revenue's appeal was allowed for statistical purposes.

In conclusion, the Tribunal upheld the Revenue's appeal, emphasizing the importance of following procedural rules and ensuring that the AO has a fair opportunity to examine all evidence presented during the assessment process.