2022 (3) TMI 718 - AT - Income Tax

Addition u/s 68 - unexplained investment - genuineness of transaction could not be established/proved by the assessee - CIT-A deleted the addition - HELD THAT - Merely on the basis of opening balances without making a substantive inquiry, the sundry creditors could not have been rejected. The order of assessment indicates that based upon the remarks on the envelopes issued to the creditors of the assessee, the AO has presumed them to be bogus liability treating them income of the assessee from undisclosed sources. The lack of attempt of inquiry by Ld. AO is exhibited by observations in rejecting the books of accounts of the assessee without actually calling for them and which has been rightly made foundation by the Ld. First Appellate Authority, to hold that rejection of books of accounts was not in accordance with the provisions of the Act. In the judgment relied by the counsel for assessee of M/s. Pranidhi Holdings Pvt. Ltd. 2018 (4) TMI 403 - DELHI HIGH COURT as held that when assessee has brought on record all the documents necessary to establish the creditworthiness of the creditors and the genuineness of the transaction and the AO has not preferred to file any comment then there is no scope of interference into the findings returned by the Ld. CIT(A). In the appeal in hand also, as in spite of opportunity by the Ld. First Appellate Authority, calling for comments on merits of the additional evidence, the Ld. AO failed to respond, now before this Tribunal, the revenue cannot succeed. Addition for failure of assessee to reconcile the amounts in record to the transactions - HELD THAT - This issue with regard to validity of addition is restored to Ld. FAA for deciding the issue afresh after granting adequate opportunity of hearing to both the parties and by passing a speaking order on the issue.

Summary

Issues Involved:
1. Deletion of addition of ?2,30,56,317/- made by the AO on account of income from undisclosed sources u/s 68 of the Income Tax Act.
2. Deletion of addition of ?1,14,754/- made by the AO on account of difference in bank reconciliation.
3. Admission of additional evidences by the CIT(A) under Rule 46A of the Income Tax Rules, 1962.

Issue-wise Detailed Analysis:

1. Deletion of Addition of ?2,30,56,317/- under Section 68:
The revenue challenged the deletion of ?2,30,56,317/- added by the Assessing Officer (AO) as income from undisclosed sources under Section 68 of the Income Tax Act. The AO alleged that the assessee failed to establish the genuineness of the sundry creditors. The First Appellate Authority (FAA) allowed additional evidence under Rule 46A and concluded that the AO had not requested the books of accounts and hence could not reject them without examination. The FAA found that the creditors were genuine based on the additional evidence, including ledger accounts and bank statements. The Tribunal upheld the FAA’s decision, noting that the AO had sufficient opportunity to rebut the additional evidence but failed to do so. The Tribunal emphasized that the AO’s rejection of the books of accounts without substantive inquiry was not justified.

2. Deletion of Addition of ?1,14,754/- for Bank Reconciliation Difference:
The revenue contended that the FAA erred in deleting the addition of ?1,14,754/- related to a bank reconciliation difference with M/s. Orient Links Pvt. Ltd. The Tribunal noted that the FAA had not provided any findings on this issue. The assessee’s counsel conceded that the matter could be remitted back to the FAA for a fresh decision. Consequently, the Tribunal restored this issue to the FAA for a detailed examination and a speaking order after granting adequate opportunity to both parties.

3. Admission of Additional Evidence under Rule 46A:
The revenue argued that the FAA admitted additional evidence without giving the AO sufficient opportunity for rebuttal. The Tribunal reviewed the FAA’s order and found that the FAA had provided multiple opportunities to the AO to comment on the additional evidence, but the AO did not respond adequately. The Tribunal cited several judicial precedents supporting the FAA’s decision to admit additional evidence in the interest of justice, especially when the AO had not given the assessee a fair chance to present the evidence initially. The Tribunal concluded that the FAA had acted correctly and there was no illegality in admitting the additional evidence.

Conclusion:
The Tribunal upheld the FAA’s decision to delete the addition of ?2,30,56,317/- under Section 68, finding that the FAA had rightly admitted additional evidence and the AO had not conducted a proper inquiry. The Tribunal restored the issue of the addition of ?1,14,754/- to the FAA for a fresh decision. The Tribunal found no fault in the FAA’s process of admitting additional evidence under Rule 46A and dismissed the revenue’s appeal on this ground. The appeal was partly allowed for statistical purposes.