2022 (12) TMI 933 - AT - Income Tax

Assessment u/s 144 - Whether AO ought to have invoked the provisions of Section 145(3) before framing the assessment u/s 144? - HELD THAT - Only when the AO proposed to frame the assessment on best judgment basis the estimation of income is required to be made but when the AO has made specific disallowance of the claim then this proposition of estimation of income does not apply. In any case, the AO while framing the assessment cannot take an arbitrary decision or make improper additions but the AO being an adjudicating authority is supposed to assess the real income of the assessee. We do not subscribe to this reasoning of the CIT(A) that the AO ought to have invoked the provisions of Section 145(3) before framing the assessment u/s 144 of the Act. CIT(A) duly acknowledged the fact that the assessee did not produce the books of account, bills and vouchers as well as other relevant records before the AO despite the notices issued u/s 142(1) of the Income Tax Act and thereby, the assessee has failed to prove its claim on account of current liabilities as well as the expenditures and particularly to establish that these expenses are incurred wholly and exclusively for the business of the assessee. Therefore, instead of allowing the assessee to discharge its primary onus in support of these claims, the CIT(A) on its own ask the assessee to produce the complete books of accounts, relevant vouchers and supporting documents including the copy of sale-deeds/agreements. Once the books of accounts and other relevant records was produced by the assessee first time during the appellate proceedings before the CIT(A), the principles of natural justice demands that the other party should be given an opportunity to verify the evidence first time produced at the appellate stage. CIT(A) without giving any reason in the impugned order as to why the books of accounts and other relevant material produced by the assessee was not referred to the AO for his examination and report has passed the impugned order. Both the parties have fairly agreed before us that the matter can be restored to the file of AO for de novo assessment. This in our considered opinion is a clear violation of principles of natural justice, as the AO was not even given an opportunity to verify this material/evidence and give his comments/report. As in the facts and circumstances of the case and in the interest of justice we set aside the impugned order of the CIT(A) and the matter is remanded to the record of the AO for passing the assessment order afresh after verification and examination of the relevant record, books of accounts to be produced by the assessee as well as affording a proper opportunity of hearing to the assessee.

Issues Involved:
1. Deletion of addition of Rs. 20,72,15,014/- by CIT(A) on account of current liabilities.
2. Deletion of addition of Rs. 3,52,49,419/- by CIT(A) on account of commission expenses.
3. Deletion of addition of Rs. 1,12,02,665/- by CIT(A) on account of consultancy fees.
4. Compliance with principles of natural justice and procedural requirements by CIT(A).

Issue-wise Detailed Analysis:

1. Deletion of Addition of Rs. 20,72,15,014/- on Account of Current Liabilities:
The Revenue contended that the CIT(A) erred in deleting the addition of Rs. 20,72,15,014/- on the grounds that the Assessing Officer (AO) had estimated the income under Section 144 and made the addition on an ad-hoc basis. The AO argued that the assessee failed to provide evidence for sundry creditors, advances from customers, and TDS payable despite receiving notices. The CIT(A) deleted the addition without rejecting the books of accounts under Section 145(3) and without any basis for the estimation. The Tribunal concluded that the CIT(A) should have referred the books of accounts and other relevant material produced by the assessee to the AO for examination and report, ensuring compliance with the principles of natural justice.

2. Deletion of Addition of Rs. 3,52,49,419/- on Account of Commission Expenses:
The AO made an addition of Rs. 3,52,49,419/- due to non-verification of commission expenses, as the assessee did not produce the books of account during the assessment proceedings. The CIT(A) deleted this addition, stating that the AO did not reject the books of accounts under Section 145(3) before making the addition. The Tribunal emphasized that the CIT(A) should have allowed the AO to verify the books of accounts and supporting evidence produced by the assessee during the appellate proceedings.

3. Deletion of Addition of Rs. 1,12,02,665/- on Account of Consultancy Fees:
The AO added Rs. 1,12,02,665/- on account of consultancy fees, which the assessee explained as site development expenses. The CIT(A) deleted the addition on the grounds that the AO did not reject the books of accounts under Section 145(3) and made the addition without any basis. The Tribunal found that the CIT(A) should have referred the matter to the AO for verification of the books of accounts and supporting evidence.

4. Compliance with Principles of Natural Justice and Procedural Requirements by CIT(A):
The Revenue argued that the CIT(A) violated the principles of natural justice by not providing the AO an opportunity to examine the evidence produced by the assessee during the appellate proceedings. The Tribunal agreed, highlighting that the CIT(A) should have referred the books of accounts and other relevant material to the AO for examination and report. The Tribunal concluded that the matter should be remanded to the AO for de novo assessment after verification and examination of the relevant records and books of accounts produced by the assessee, ensuring a proper opportunity of hearing to the assessee.

Conclusion:
The Tribunal set aside the impugned order of the CIT(A) and remanded the matter to the AO for fresh assessment after verification and examination of the relevant records and books of accounts produced by the assessee. The appeal of the Revenue was allowed for statistical purposes, and the Cross-objection filed by the assessee was dismissed.

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