As per the natural justice AO must be given opportunity to rebut the claim in pursuance of fresh evidence produced before him

Last updated: 28 December 2011

Court :
INCOME TAX APPELLATE TRIBUNAL

Brief :
That, on the facts and circumstances of the case, the Ld. C.I.T.(A) has erred in law in accepting fresh evidences filed by the assessee without calling for remand report from the AO, which is in contravention of the provision of Rule 46.” Same common issues are for the assessment year 2002-03, which are in grounds No. 5 and 6 of the grounds of appeal. For the purpose of discussion, we will take up the appeal for assessment year 2001-02 on these common issues. The ld. A.O. for the assessment year 2001-02 after examining the bank account and statements furnished before him found that the assessee disclosed Rs. 1 crore Inter Corporate Deposit (ICD) in its account, whereas balance sheet showed only Rs. 50,00,000/- ICD on 31/3/2001. The receipt of Rs.50 lakhs could not be identified by the bank but clearly shows that the said amount was received from an account of Uco Bank bearing A/c. No.028112 and Cheque No. 260378. The ld. A.O. disbelieved the assessee’s contention. In that case, as explained by the assessee, the cheques received from another party should have been shown as outstanding balance as payable. The ld. A.O. found that no such liability has been disclosed in the balance sheet. He, therefore, came to the conclusion that this sum of Rs.50 lakhs is the undisclosed investment which was added to the assessee’s total income. By the same way for assessment year 2002- 03, the ld. A.O. added Rs.41,50,000/- as undisclosed investment.

Citation :
Income-tax Officer, Ward-4(2), Kolkata.(APPELLANT) Versus North East Enterprises (P) Ltd.,Kolkata. (PAN-AAACN8503E)(RESPONDENT)

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH- B, KOLKATA

Before Sri N.Vijayakumaran, Judicial Member & Sri C.D. Rao, Accountant Member

(/Assessment Years 2001-02 & 2002-03)

Income-tax Officer, Ward-4(2),

Kolkata.

(APPELLANT)

Versus

North East Enterprises (P) Ltd.,

Kolkata. (PAN-AAACN8503E)

(RESPONDENT)

For the Appellant: Sri S.K. Roy

For the Respondent: Sri Goutam Banerjee

Date of Hearing : 08/12/2011

Date of Pronouncement : 15/12/2011

ORDER

(N. Vijayakumaran), Judicial Member :

Both these departmental appeals arise out of the orders dated 07/9/2009 of ld. C.I.T.(A)-VI, Kolkata for assessment years 2001-02 & 2002-03. The grounds raised by the department for the assessment year 2001-02 are as follows :-

“1. That, on the facts and circumstances of the case, the Ld. C.I.T.(A) has erred in law in deleting the addition of Rs.50,00,000/- made by the AO on account of undisclosed investment.

2. That, on the facts and circumstances of the case, the Ld. C.I.T.(A) has erred in law in accepting fresh evidences filed by the assessee without calling for remand report from the AO, which is in contravention of the provision of Rule 46.” Same common issues are for the assessment year 2002-03, which are in grounds No. 5 and 6 of the grounds of appeal. For the purpose of discussion, we will take up the appeal for assessment year 2001-02 on these common issues.

2. The ld. A.O. for the assessment year 2001-02 after examining the bank account and statements furnished before him found that the assessee disclosed Rs. 1 crore Inter Corporate Deposit (ICD) in its account, whereas balance sheet showed only Rs. 50,00,000/- ICD on 31/3/2001. The receipt of Rs.50 lakhs could not be identified by the bank but clearly shows that the said amount was received from an account of Uco Bank bearing A/c. No.028112 and Cheque No. 260378. The ld. A.O. disbelieved the assessee’s contention. In that case, as explained by the assessee, the cheques received from another party should have been shown as outstanding balance as payable. The ld. A.O. found that no such liability has been disclosed in the balance sheet. He, therefore, came to the conclusion that this sum of Rs.50 lakhs is the undisclosed investment which was added to the assessee’s total income. By the same way for assessment year 2002- 03, the ld. A.O. added Rs.41,50,000/- as undisclosed investment.

3. On appeal, the ld. C.I.T.(A) deleted the addition on the ground that the assessee produced ledger account of bank book for the corresponding period and in that account the ICD amount of Rs.50 lakhs was shown as payment for the assessment year 2001-02 and Rs.41,50,000/- for the assessment year 2002-03. This made the ld. C.I.T.(A) to delete the additions for the assessment years under consideration on this head.

4. The ld. Departmental Representative objecting to the conclusion arrived at by the ld. C.I.T.(A) submitted before us that as per the natural justice, the ld. C.I.T.(A) ought to have given an opportunity to the ld. A.O. to rebut the claim of the assessee in pursuance of fresh evidence produced before him. The ld. C.I.T.(A) has not only given an opportunity to verify the correctness of the claim but also failed to call for the remand report from the ld. A.O. Therefore, it is a clear violation of Rule 46A of the Rules.

5. On the other hand, the learned counsel for the assessee submitted that all the documents, ledger accounts, audited books including the balance sheet and reconciliation statement from the bank were available/filed before the ld. A.O. The failure on the part of the ld. A.O. to look into the details cannot be a ground to object the proper appreciation at the level of the ld. C.I.T.(A). In the balance sheet itself, the assessee has disclosed the Inter Corporate Deposit for the assessment year 2001-02 as well as for assessment year 2002-03 and the ld. A.O. failed to see the same even after the initiation of reassessment proceeding and reassessment framed u/s. 147 read with sec. 143(3) of the Act. The learned counsel strongly objected to the argument of the ld. Departmental Representative for remitting back the assessment to the file of the ld. A.O. as there is no requirement at all.

6. We have considered the rival submissions and perused the material available on record. As observed by the ld. A.O., the receipts of Rs. 50 lakhs and Rs.41,50,000/- ICD for the assessment years 2001-02 and 2002-03 respectively were not satisfactorily explained before him, which led him to make addition of the said amounts as assessee’s undisclosed investment. In our considered opinion, while deciding the issue the ld. C.I.T.(A) ought to have called for the remand report as the receipts of ICD amounts were not satisfactorily explained before the ld. A.O., which were shown as payments. Hence, it is expected on the part of the ld. C.I.T.(A) to call for the remand report from the ld. A.O., which was not done. In view of the above, we are of the view that there is an error of opportunity. We, therefore, set aside the order of the ld. C.I.T.(A) and in

the interest of justice, instead of remitting the issue back to the file of the ld. C.I.T.(A), we deem it fit that it should go back to the file of the ld. A.O. for decision afresh in accordance with law. Hence this issue of alleged undisclosed investment of ICD amounts for the two assessment years under appeal is remitted back to the file of the ld. A.O.for proper adjudication. Needless to mention that assessee should be given reasonable opportunity of being heard.

7. Coming to the remaining issue only for the assessment year 2002-03, which is on the chargeability of interest amounting to Rs.21 lakhs on ICD loan of Rs. 1 crore given to M/s. Duncan Industries Ltd., the case of the assessee is that it does not accrue in the previous year relevant to the assessment year 2002-03 under appeal before us. However, the ld. A.O. was of the view that as the assessee is following mercantile system of accounting, it is the income of the assessee. Hence he brought to tax the notional interest on such loan as income of the assessee.

8. On appeal to the ld. C.I.T.(A), the ld. C.I.T. (A) held that this notional interest never accrued to the assessee as according to the assessee’s submission, deposit of Rs. 1 crore with M/s. Duncan Industries Ltd. was not renewed after 31/3/2001. The assessee’s contention is that right to receive any interest on this deposit ceased from 01/4/2001. The contractual statutory right to receive interest did not accrue to the assessee-company from 01/4/2001. Further, in the assessee’s own case for the asstt. year 2004-05, I.T.A.T., ‘B’ Bench, Kolkata in ITA No. 626/Kol/2009, dated 03/7/2009 decided the issue in favour of the assessee, which was followed by the ld. C.I.T.(A).

9. Before us, the learned counsel relied on the order of the Tribunal, cited supra, and filed a copy before us at pages 22 to 25 of the paper book. On perusal of the records, we are of the view that the ld. C.I.T.(A) has rightly deleted the addition made on account of notional interest on ICD loans and we find no justification to interfere with the same. Hence we set aside the issue of notional interest against the department and in favour of the assessee.

10. In the result, the departmental appeal for assessment year 2001-02 is allowed for statistical purposes and that for assessment year 2002-03 is partly allowed for statistical purposes

This order is pronounced in the Court on 15/12/11.

Sd/- Sd/-

(C.D. Rao), Accountant Member (N.Vijayakumaran) Judicial Member

Date: 15-12-2011 Order pronounced by Sri Mahavir

Singh, JM & Sri C.D.Rao, AM

Sd/- Sd/-

(CDR,AM) (MS, JM)

Copy of the order forwarded to:

1. The Appellant : I.T.O., Ward-6(3), Kolkata.

2. The Respondent : North East Enterprises (P) Ltd., 9, Old Post Office

Street, 6th floor, Kolkata-700 001.

3. The CIT(A)-VI, Kolkata.