Decision of CIT(A) reversing the order of AO was not justified as documentary evidence was not in existence and also the contents were not adduced before AO by way of additional evidence

HIGH COURT OF CALCUTTA

ITAT NO.194 OF 2013, G.A. NO.3486 OF 2013

Commissioner of Income-tax, Kolkata-III..................................................................Appellant.
v.
Trimline Vyapaar (P.) Ltd. ........................................................................................Respondent

GIRISH CHANDRA GUPTA AND TAPABRATA CHAKRABORTY, JJ.

Date :MARCH 24, 2014

Appearances

Ms. M. Bhargava for the Appellant.
Ananda Sen for the Respondent.

Section 69A read with section 251 of the Income Tax Act, 1961 and rule 46A of the Income Tax Rules, 1962 — Unexplained Money — Decision of CIT(A) reversing the order of AO was not justified as documentary evidence was not in existence and also the contents were not adduced before AO by way of additional evidence — Commissioner of Income Tax v. Trimline Vyapaar Pvt Ltd.

FACTS:

Cash deposit was made in Bank account maintained by the assessee. On verification of its accounts, it was found that there were several transactions which were not supported by the books of account of assessee and could not justify the amount of cash deposit as well as cheque deposited in the bank account. Consequently, notice u/s 148 was issued to assessee. It was ascertained by AO that some cash was received from different companies out of sale proceeds of unquoted shares. Subsequently, notice u/s 133(6) were sent to different parties involved in those transactions but the notices were returned post remark nor known. Later, assessee submitted fresh addresses and notices were resent. Consequently, summon u/s 131 was served to companies to appear with books of account for relevant years but none appeared. On the basis of findings of AO the total income was assessed. On appeal by assessee, CIT(A) held in favour of assessee. On further appeal by Revenue Tribunal affirmed the order of CIT(A). Being aggrieved, Revenue went on appeal before High Court.

HELD

that the documents relied upon by the assessee before the appellate authority were not documents of the assessee. They were documents purporting to have been submitted by the noticees to whom notices u/s 133(6) and section 131 were issued. The finding of AO was that notices issued u/s 133(6) and summons issued u/s 131 remained unresponded and unserved respectively. There was a presumption in law (section 114(e) of the Evidence Act) that all official and judicial acts were regularly performed. It was not open to any judicial or quasi-judicial authority to lightly assume that the contents of any judicial or quasi-judicial order or the observation or findings made therein are untrue or incorrect. The findings recorded by AO could not have been upset by the CIT (A) without giving an opportunity to the former to explain, merely because the assessee took the stand that "all the parties to whom notices u/s 133 (6) were issued complied to the same and confirmed the transaction". The submission that there could be no violation of sub-rule (3) except in a case covered by sub-rule (1) of Rule 46A would make the situation worse. Sub-rule (1) of Rule 46A contemplates a case where the assessee himself wants to adduce evidence at the appellate stage. Assessee wanted to rely, at the appellate stage, upon documents allegedly submitted by the noticees u/s 133(6) and 131. All these noticees were third parties who according to the AO did not respond and could not also be served. The alleged replies allegedly made by the third parties were not and could not have been in the possession or control of the assessee. Therefore, the assessee could not have relied upon them either before the AO or before the CIT (A). There was nothing to show that the third parties appeared before the CIT (A). In the absence of the third parties, the contents of these documents could not have been proved. Therefore, neither the existence of the documents nor the contents thereof were proved. The appellate authority proceeded to reverse the orders u/s 147/143(3) on the basis of documentary evidence of which neither the existence nor the contents were proved. On the top of that the so-called additional evidence was permitted to be adduced without giving any opportunity to the AO to examine them in gross violation of the principles of natural justice as also the provision contained in sub-rule (3) of Rule 46A. The finding that " the AO was not justified in treating the cash deposit in the bank account of assessee of Rs.99,40,000/- as undisclosed income" was for the aforesaid reasons altogether perverse. The aforesaid finding made by the CIT (A) was equally perverse. The genuineness of the transaction was the issue to the knowledge and notice of the assessee. He tried to prove the genuineness of the transaction by inadmissible evidence at the appellate stage. The aforesaid finding of Tribunal was obviously based on the inadmissible additional evidence adduced by the assessee before the CIT (A). Therefore, the finding of the Tribunal was equally perverse. Order passed by the CIT (A) and Tribunal were set aside. In the result, appeal was answered in favour of Revenue.

ORDER

1. The Court : The subject matter of challenge in this appeal is a judgment and order dated 12th June, 2013 by which the learned Tribunal affirmed the order of the CIT (Appeal) and dismissed the appeal preferred by the revenue. The facts and circumstances of the case briefly stated are as follows:

2. Notices under section 148 of the Income Tax Act were issued seeking to reopen the assessment for the assessment years 2006-07 and 2007-08. The reasons recorded were as follows :

"A.Yr.2006-07:
Information has been received that cash deposit of Rs.36,15,000/-was made in Bank (maintained by the assessee company) account No. 848741 with ANB-AMRO Bank during the period 01.01.06 to 31.03.06. On verification of its accounts for the financial year 2005- 06 relating the A.Y. 2006-07, it is found that (1) Rs.99,379/- was received on account of interest during the relevant previous year (2) There was no fresh loan or capital received during the relevant previous year (3) There was no sale of shares. There was sale of investment to the tune of Rs.5,51,420/- but cheque deposits were more than crore at different dates during the period. (4) There has been increase of cash-in-hand on comparison with the earlier year. All these does not justify the cash deposits of Rs.36,15,000/- as well as cheque deposits at different dates in the said bank accounts during the relevant previous year. On the basis of the above, I have reason to believe that income has been escaped from assessment. Consequently, notice u/s 148 is issued for the purpose of reassessment u/s 147.

A.Yr.2007-08 :
Information has been received that cash deposit of Rs.56,15,000/-was made in Bank (maintained by the assessee company) account No. 84888741 with ANB-AMRO Bank during the period 01.04.06 to 31.03.07. On verification of its accounts for the financial year 2006- 07 relating the A.Y. 2007-08, it is found that (1) Rs.1,71,161/- was received on account of interest during the relevant previous year (2).

There was no fresh loan or capital received during the relevant previous year (3) There was no sale of shares. There was sale of investment to the tune of Rs.5,51,420/- but cheque deposits were more than crore at different dates during the period. (4) There has been increase of cash-in-hand on comparison with the earlier year. All these does not justify the cash deposits of Rs.36,15,000/- as well as cheque deposits more than crore at different dates in the said bank accounts during the relevant previous year. On the basis of the above, I have reason to believe that income has been escaped from assessment. Consequently, notice u/s 148 is issued for the purpose of reassessment u/s147."
3. The Assessing Officer while passing his order under section 147/143(3) of the Income Tax Act observed, inter alia, as follows :

"On being the receipt the notice u/s. 148, the reason for issuing 148 is served on 22.04.2010 to the assessee fixing the date of hearing on 10.05.2010. The Ld. A/R, A.K. Dudhewala appears on the day and requested for adjournment till 25.06.2010. On 25.06.2010, he is requested to furnish books of accounts with some details. The notice u/s. 133(6) were sent to different parties but the notice was returned with the post remark "Not known". On being informed, the Ld. A/R submitted fresh addresses of the companies and hearing was fixed on 13.11.2010. The Inspector was deputed to collect books, cash book, accounts etc. with notice u/s. 133(6) but Inspector reported that they could not produce any book. Consequently, summon u/s. 131 was served to the companies attend with books of accounts for A.Y. 2006-07 & 2007-08 on 16.12.2010 and 21.12.2010 but none appeared. As per books of the assessee, it was ascertained that following cash was received from different companies out of sale proceed of unquoted share.

1.	Long Life Agro (P) Ltd.	Rs.13,20,000
2.	Madhavan Vyapaar (P) Ltd.	Rs.10,00,000
3.	Immortal Vinimay Co. Ltd.	Rs.10,50,000
4.	Bhabatarini Sales (P) Ltd.	Rs.10,90,000
5.	Rani Sati Apartments (P) Ltd.	Rs.11,20,000
6.	Festino Agro Pvt. Ltd.	Rs.14,10,000
7.	Malavika Merchants (P) Ltd.	Rs.10,20,000
8.	Gajeshwar Sales (P) Ltd.	Rs.11,00,000
9.	Parijat Commodeal (P) Ltd.	Rs.8,30,000
		Rs.99,40,000''

4. It is not in dispute that identical observations were made by the Assessing Officer in respect of the assessment year 2007-08 made under section 147/143(3) of the Income Tax Act. Principally, on the basis of the aforesaid finding, total income was reassessed at a sum of Rs.99,51,090/- for the assessment year 2006-07 and at a sum of Rs.57,86,034/- for the assessment year 2007-08. Challenging the aforesaid orders, both passed on 28th December, 2010, the assessee preferred an appeal. The contention of the assessee was as follows:

"All the parties to whom notices u/s 133(6) were issued complied to the same and confirmed the transactions with the appellant company. The inspector also verified the transactions with their books of accounts. Thereafter, again the Income Tax Officer issued notices u/s. 131 asking for the same details as were asked for in the notices issued u/s. 133(6) of the Act. Once again all the companies furnished replies giving full details of the transactions with the Assessee company".

5. Mr. Sen, learned Advocate appearing for the assessee in support of his aforesaid contention raised before the CIT (Appeal) drew our attention to pages 181 to 207, 208 to 237 of the Paper Book (Vol.I), and pages 238 to 261, 262 to 299, 300 to 326, 327 to 351, 362 to 390 and 391 to 425 of the Paper Book (Vol.II) filed both before the CIT (Appeal) and the learned Tribunal in order to show that each of the parties to whom notices under section 133(6) of the Income Tax Act were issued by the Assessing Officer had duly replied to his queries and had also confirmed that they had purchased shares from the assessee and paid for the same in cash. Mr. Sen contended that these documents were also before the Assessing Officer.

6. Ms. Bhargava, learned Advocate appearing for the Revenue submitted that these documents were not before the Assessing Officer. They were documents relied upon and adduced by way of additional evidence by the assessee before the CIT (Appeal) which he allowed to be taken on record without affording any opportunity, far less a reasonable opportunity, to the Assessing Officer to examine them and thereby violated sub-rule (3) of Rule 46A of the Income Tax Rules, which provides as follows:
"The Deputy Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals) shall not take into account any evidence produced under sub-rule (1) unless the Assessing Officer has been allowed a reasonable opportunity —

(a)		to examine the evidence or document or to cross examine the witness produced by the appellant, or
(b)		to produce any evidence or document or any witness in rebuttal of the additional evidence produced by the appellant."

7. Mr. Sen submitted that there is no question of any violation of sub-rule (3) because his client did not adduce any additional evidence. He added that, in any event, alleged violation of sub-rule (3) can only be made provided any additional evidence has been adduced. Additional evidence, according to him, cannot be adduced unless sub-rule (1) of Rule 46A of the Income Tax Rules is complied with, which provides as follows:

"The appellant shall not be entitled to produce before the Deputy (Appeals), or, as the case may be, the Commissioner (Appeals), any evidence, whether oral or documentary, other than the evidence produced by him during the course of proceedings before the Assessing Officer except in the following circumstances, namely —

(a)		Where the Assessing Officer has refused to admit evidence which ought to have been admitted; or
(b)		where the appellant was prevented by sufficient cause from producing the evidence which he was called upon to produce by the Assessing Officer; or
(c)		where the appellant was prevented by sufficient cause from producing before the Assessing Officer any evidence which is relevant to any ground of appeal; or
(d)		where the Assessing Officer has made the order appealed against without giving sufficient opportunity to the appellant to adduce evidence relevant to any ground of appeal."

8. The submission made by the learned counsel appearing for the assessee that these documents were before the Assessing Officer is according to us without any substance. The documents relied upon by the assessee before the appellate authority are not documents of the assessee. They are documents purporting to have been submitted by the noticees to whom notices under section 133(6) and section 131 of the Income Tax Act were issued. The finding of the Assessing Officer is that notices issued under section 133(6) and summons issued under section 131 of the Income Tax Act remained unresponded and unserved respectively. There is a presumption in law (section 114(e) of the Evidence Act) that all official and judicial acts were regularly performed. It is not open to any judicial or quasi-judicial authority to lightly assume that the contents of any judicial or quasi-judicial order or the observation or findings made therein are untrue or incorrect. The findings recorded by the Assessing Officer could not have been upset by the CIT (Appeal) without giving an opportunity to the former to explain, merely because the assessee took the stand that "all the parties to whom notices under section 133 (6) were issued complied to the same and confirmed the transaction". The submission that there could be no violation of sub-rule (3) except in a case covered by sub-rule (1) of Rule 46A would make the situation worse. Sub-rule (1) of Rule 46A contemplates a case where the assessee himself wants to adduce evidence at the appellate stage. The assessee in the case before us wanted to rely, at the appellate stage, upon documents allegedly submitted by the noticees under sections 133(6) and 131 of the Income Tax Act. All these noticees were third parties who according to the Assessing Officer did not respond and could not also be served. The alleged replies allegedly made by the third parties are not and could not have been in the possession or control of the assessee. Therefore, the assessee could not have relied upon them either before the Assessing Officer or before the CIT (Appeal). There is nothing to show that the third parties appeared before the CIT (Appeal). In the absence of the third parties, the contents of these documents could not have been proved. Therefore, neither the existence of the documents nor the contents thereof were proved. The appellate authority proceeded to reverse the orders under section 147/143(3) of the Income Tax Act on the basis of documentary evidence of which neither the existence nor the contents were proved. On the top of that the so-called additional evidence was permitted to be adduced without giving any opportunity to the Assessing Officer to examine them in gross violation of the principles of natural justice as also the provision contained in sub-rule (3) of Rule 46A. The finding that " the A.O. is not justified in treating the cash deposit in the bank account of the appellant of Rs.99,40,000/- as undisclosed income" is, according to us, for the aforesaid reasons altogether perverse.

9. Mr. Sen drew our attention to the following observations made by the CIT (Appeal).
"Thus the genuineness of the transactions stands proved by the assessing officer's own admission in the impugned order dated 28th December, 2010"

10. The aforesaid finding made by the CIT (Appeal) is equally perverse. The genuineness of the transaction was the issue to the knowledge and notice of the assessee. He tried to prove the genuineness of the transaction by inadmissible evidence at the appellate stage. The case of the Assessing Officer was misconstrued by the CIT (Appeal). From the recorded reasons, it would appear that his case was that "… sale of investment to the tune of Rs.5,51,420/- but cheque deposits were more than crore".

11. Mr. Sen also drew our attention to the finding of the learned Tribunal that " the belief about the escapement of income was formed on the basis of an erroneous assumption of facts and therefore reopening of assessment was not valid".

12. The aforesaid finding of the learned Tribunal is obviously based on the inadmissible additional evidence adduced by the assessee before the CIT (Appeal). Therefore, the finding of the Tribunal is equally perverse. We have not dealt with the reasons for the assessment year 2007-08 separately because it has been submitted before us that the reasons for reopening in the case of both the assessment years 2006-07 and 2007-08 are identical.

13. The order passed by the CIT (Appeal) and the order passed by the learned Tribunal are both set aside.

14. The appeal is thus allowed.

[2014] 224 TAXMAN 324 (CAL)