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2011 DIGILAW 1192 (KAR)

Commissioner of Income Tax v. Sanu Family Trust

2011-12-07

S.N.SATYANARAYANA, V.G.SABHAHIT

body2011
JUDGMENT V.G. Sabhahit and S.N. Satyanarayana, JJ.—This appeal is filed by the Revenue being aggrieved by the order passed by the Income Tax Appellate Tribunal, Bangalore Bench 'B' (hereinafter called the ITAT) in ITA No. 1820/Bang/2004 dated 26-4-2006 for the assessment year 1996-97, dismissing the appeal filed by the revenue. This appeal has been admitted on 14-9-2007 to consider the following substantial questions of law which arise for determination in this appeal: (1) Whether the Commissioner of Income Tax (Appeals) was correct in relying on fresh evidence filed before him contrary to provisions of Rule 46A of the Income Tax Rules, 1962? (2) Whether the additions made under Section 40(A)(3) by the Assessing Officer was just and proper in the facts and circumstances of the case which was not required to be interfered with by the appellate authority, and the Tribunal? (3) Whether the addition made by the Assessing Officer under Section 68 of the Income-Tax Act is just and proper? 2. The material facts leading up to this appeal giving rise to the abovesaid three questions of law are as follows: The assessee did not file return within the statutory due date under Section 439(1) of the Income Tax Act, 1961 (hereinafter called the Act'). The assessee filed return on 28-4-1997 admitting loss of Rs. 78,406/-. Again on 29-11-2001 the assessee filed a revised return of income showing the income as 'Nil'. A survey under Section 133A of the Act was conducted and the assessee did not cooperate during the course of survey. The revised return was filed after the survey action. The assessee was constructing a commercial complex and showed work-in-progress at Rs. 85,18,056/- in the revised return of income as against 'Nil' work-in-progress shown in the original return of income. As there was reason to believe that income assessable to tax has escaped assessment within the meaning of Section 147 of the Act and also to regularise assessee's revised return of income, the assessment was re-opened on 6-12-2001 taking necessary approval of the Addl. CIT, Range 1, Mangalore. In response to the notice under Section 148 of the Act requiring the assessee to file its return of income, the assessee by letter dated 12-12-2001 had requested to treat the return of income filed on 29-11-2001 as filed in response to notice under Section 148 of the Act. CIT, Range 1, Mangalore. In response to the notice under Section 148 of the Act requiring the assessee to file its return of income, the assessee by letter dated 12-12-2001 had requested to treat the return of income filed on 29-11-2001 as filed in response to notice under Section 148 of the Act. After hearing the representative of the assessee, the Assessing Officer held that the return has not been filed in accordance with law and it was found that no deduction under Section 40A(3) of the Act is permissible in respect of 20% of Rs. 7,50,335/- i.e., Rs. 1,50,067/- wherein payment had been made by cash even though the amount was in excess of Rs. 20,000/- and further, in respect of the amount paid to Mangala Builders Private Limited. M/s. Indus Constructions and M/s. Baliga Sales Corporation, Assessing Officer found that in view of the previsions of Section 68 of the Act, as there was discrepancy in the accounts maintained by the assessee and Mangala Builders Private Limited, M/s. Baliga Sales Corporation and M/s. Indus Construction to the extent of Rs. 38,000/-, Rs. 11,04,585/- and Rs. 17,10,000/-, added the said income and accordingly passed the order of assessment. Being aggrieved by the said order, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals), Mangalore. The first appellate authority by order dated 20-2-2004, held that disallowance under Section 40A(3) at Rs. 1,50,067/- and unexplained cash credit under Section 68 in respect of M/s. Mangala Builders Private Limited in a sum of Rs. 38,000/-, in respect of M/s. Baliga Sales Corporation in a sum of Rs. 11,04,585/- and in respect of M/s. Indus Construction in a sum of Rs. 17,10,000/- could not have been enforced as the said discrepancy in the account was not pertaining to the previous year in respect of M/s. Mangala Builders Private Limited, M/s. Baliga Sales Corporation and M/s. Indus Constructions; there was a mistake in making entries in the books of account and all the payments have been made in the form of DD and the same have been filed subsequently and therefore, deleted the said additions made of the Assessing Officer and allowed the appeal. Being aggrieved by the said order, the Revenue preferred an appeal in ITA No. 1820/Bang/2004 before the ITAT. Being aggrieved by the said order, the Revenue preferred an appeal in ITA No. 1820/Bang/2004 before the ITAT. The ITAT by order dated 26-4-2006 dismissed the appeal filed by the Revenue confirming the order passed by the First Appellate Authority. Aggrieved by the same, this appeal is filed by the Revenue which was admitted for consideration of the aforementioned substantial questions of law. 3. We have heard the learned counsel appearing for the appellant and learned counsel appearing for the respondent. 4. The learned counsel appearing for the appellant submitted that in view of the provisions of Rule 46A of the Income Tax Rules, 1961 (hereinafter called the 'Rules'), no additional documents can be produced by the assessee as of right and reasons have to be assigned by the Appellate Authority for permitting the assessee to produce the additional documents. However, the same is subject to sub-rule (4) wherein the First Appellate Authority is not precluded from directing the parties to produce the documents which are inquired for the purpose of effectively deciding the appeal and in the present case, first appellate authority on the basis of the documents that were produced for the first time along with the letter, has relied upon those documents which were not available for the Assessing Officer and therefore, finding of the First Appellate Authority is based upon the documents which are not admissible and contrary to Rule 46A of the Rules. He further submitted that the assessee could not have made payment in excess of Rs. 20,000/- in cash but ought to have been paid by cheque and further, in respect of Mangala Builders Pvt. Ltd, M/s. Baliga Sales Corporation and M/s. Indus Constructions, it was found that there was discrepancy in the accounts maintained by the assessee and the respective firms denied after receiving payment as contended by the assessee and therefore, Appellate Authorities were not justified in deleting the undisclosed credit under Section 68 of the Act. 5. The learned counsel appearing for the respondent submitted that no additional documents have been produced before the First Appellate Authority. The Assessing Officer had the benefit of going through the accounts maintained by the assessee. 5. The learned counsel appearing for the respondent submitted that no additional documents have been produced before the First Appellate Authority. The Assessing Officer had the benefit of going through the accounts maintained by the assessee. Even otherwise, on the direction issued by the First Appellate Authority, documents have been produced and a copy of the letter has been produced by the assessee which according to him would clearly show that those particulars have been furnished as the information was directed to be furnished by the assessee to decide the case and therefore, there is no violation of Rule 46A of the Rules. He further submitted that the assessee was not doing a commercial activity of putting up construction for the purpose of sale and no exemption has been claimed under Section 48B of the Act and therefore, disallowance under Section 40A(3) of the Act would not arise end he submitted that where the expenditure is not towards income of the business, it is not necessary to issue the cheque in respect of the amount in excess of Rs. 20,000/ -under Sections 28 and 29 of the Act. So far as undisclosed credit is concerned, he submitted that in view of the documents that were available before the Assessing Officer and also the documents which were made available on the direction of the First Appellate Authority, it would be clear that the said amount cannot at all said to be undisclosed credit as the same has been accounted for in the return filed in the year 2001 and that as there was mistake in making entries, the same has been rectified and therefore, the concurrent findings on the question of fact arrived at by the Appellate Authorities are justified. 6. We have given careful consideration to the contentions of learned counsel appearing for the parties and scrutinized the material on record. Re: Substantial question of law No. (1):-- 7. The material on record would clearly show that the Assessing Officer had the benefit of looking into the books of account maintained by the assessee. 6. We have given careful consideration to the contentions of learned counsel appearing for the parties and scrutinized the material on record. Re: Substantial question of law No. (1):-- 7. The material on record would clearly show that the Assessing Officer had the benefit of looking into the books of account maintained by the assessee. There is no merit in the contention of learned counsel appearing for the appellant that documents were permitted to be produced for the first time at the request of the assessee and the said documents were not available before the Assessing Officer and therefore, reasons ought to have been awarded by the appellate authority for accepting the said documents and unless the conditions specified in Rule 46A of the Rules are satisfied, the documents could not be looked into. A copy of the letter along with which extract of the accounts and receipts which were produced would clearly show that the said information was being furnished in view of the direction of the first appellate authority that the assessee should produce the said documents for effective decision of the appeal and the conditions specified under Rule 46A(1) to (3) of the Rules is not applicable to sub-rule (4) which would clearly says that the said provision permitting additional evidence to be adduced in Appellate Court would not be subjected to the power of the Appellate Authority to direct the parties to produce any documents which in the opinion of the authority is necessary for the effective decision of the case. Further, it is clear that before the ITAT, no ground was raised regarding reception of additional evidence by the First Appellate Authority in contravention of Rule 46A of Rules and in any view of the matter, we hold that the first appellate authority was justified in relying upon the material produced and there is no violation of Rule 46A of the Rules and accordingly, answer the said question of law against the revenue and in favour of the assessee. Re: Substantial question of law No. (2):- 8. Re: Substantial question of law No. (2):- 8. It is clear from the order passed by the Assessing Officer that though the assessee which is described as family trust was putting up construction not for self-occupation, but for the business of selling a portion of the building and leasing over the premises, it cannot be said that it was being constructed as a private building and in view of the provisions under Sections 28 & 29 of the Act, it is clear that no payment in excess of Rs. 20,000, can be made except by way of cheque and admittedly in respect of the amount wherein payment has been made in cash in respect of the amount in excess of Rs. 20,000/-, the same has been disallowed. The material on record would clearly show that the assessee has been described as a family trust which is engaged in putting up commercial construction and that as observed by the Assessing Officer, certain agreements have been entered into for selling portion of the premises and even according to the submission of learned counsel appearing for the respondent, the property has now been leased and assessee was receiving rent and therefore, building was not being constructed for personal use and the obligation under Section 40(A)(3) of the Act could not said to have been absolved in respect of the assessee. Accordingly, the said finding of the Appellate Authority cannot be sustained and the same is set aside. Accordingly, we answer the substantial question of law in favour of the revenue and against the assessee. Re: Substantial question of law No. (3):- 9. The scrutiny of the material on record would clearly show that so far as undisclosed credit in respect of M/s. Mangala Builders Private Limited is concerned, the basis upon which Rs. 38,000/- was added, was in view of the difference in the books of account maintained by the assessee and M/s. Mangala Builders Private Limited and the "particulars that were produced before the First Appellate Authority were also available before the Assessing Officer which would clearly show that there was no difference in the books of account having regard to the balance carried forward for each year and therefore, concurrent finding arrived at by the First Appellate Authority and the ITAT is justified. Insofar as undisclosed credit added in respect of M/s. Indus Constructions and M/s. Baliga Sales Corporation, it is clear that material produced before the assessing officer and the First Appellate Authority would clearly show that it is not an undisclosed credit and it was purchase of materials on credit and payments have been made by DD and cheque. There was an error in writing the account, the same has been rectified and return has been filed in the year 2001 and the same has been accepted by the Appellate Authorities and therefore, finding of the appellate authorities deleting the additions of undisclosed income in respect of the abovesaid three firms is justified and does not call for interference in this appeals. Accordingly, we answer the substantial question of law in favour of the assessee and against the revenue. Accordingly, we pass the following: ORDER The appeal is allowed in part. The finding of the ITAT confirming the finding of the First Appellate Authority deleting the amount added i.e., Rs. 1,50,067/- (20% of the total amount paid by cash) is set aside and the order passed by the Assessing Officer is restored. The orders passed by the ITAT and the First Appellate Authority in all other respects are confirmed. Note: The above is true transcription of the judgment dictated to me by late Hon'ble Shri Justice V.G. Sabhahit presiding over the Division Bench with Hon'ble Shri Justice S.N. Satyanarayana in Open Court on 7-12-2011.