It is the duty of Ld CIT to find out to what extent the estimate already made by AO

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI ‘G’ BENCH

BEFORE SHRI G.C. GUPTA, VP AND SHRI A.N. PAHUJA,AM

ITA no.4598/Del. /2011

Assessment year: 2008-09

Assistant CIT, Sonepat Circle,

Sonepat

(Appellant)

Vs.

Shri Subhash Chander,

99, T.P. Scheme, Delhi

Road, Sonepat

[PAN AGNPC 7984 J ]

(Respondent)

Assessee by None

Revenue by Smt.Veena Joshi,. DR

Date of hearing 04-06-2012

Date of pronouncement 22-06-2012

O R D E R

A.N. PAHUJA:-

This appeal filed on 17.10.2011 by the Revenue against an order dated 08.08.2011 of the CIT(A), Rohtak, raises the following grounds:-

1) “On the facts and in the circumstances of the case, the ld. CIT(A) has erred in law and in facts in deleting the addition of ``11,523/-, which was made by the AO u/s 144 of the I.T. Act on account of profit on sale of ``2,30,460/- by applying rate of profit 10%. The learned CIT(A) has applied the rate of 5% which is not justified.

2) The ld. CIT(A) has erred in law and in facts in deleting the addition of ``4,25,075/- which was made by the AO on account of commission of trading of shares as the assessee had not declared any commission income in his return.

3) The ld. CIT(A) has also erred in law and fact in deleting the addition of ``2,00,000/- and `5,06,170/- out of ``58,55,500/- which was made by the AO on account of cash deposit in the bank account which the assessee failed to furnish the justification and source of the same before Assessing Officer as well as CIT(A).”

2. At the out, none appeared on behalf of the assessee nor any request for adjournment has been filed Considering the nature of issue and findings of the ld. CIT(A), the Bench proceeded to dispose of the appeal after hearing the ld. DR.

3. Adverting first to ground no.1 in the appeal, facts, in brief, as per relevant orders are that return declaring income of ``5,06,170/- filed on 31.07.2008 by the assessee, was selected for scrutiny with the service of a notice u/s 143(2) of the Income-tax Act, 1961 (hereinafter referred to as the Act). In response, Shri Sanjeev Chaudhary, AR on behalf of the assessee, sought adjournment to 16.10.2009, when again adjournment was sought for 30^th October, 2009. On that date none attended nor submitted any reply. Even the notice u/s 143(2) of the Act, fixing the hearing for 29.12.2009 and subsequent notice u/s 143(2) of the Act issued on 11.5.2010 went unresponded. Subsequently, in response to a notice u/s 142(1) of the Act issued on 4.8.2010 along a with a questionnaire, the ld. AR sought adjournment for 20.8.2010,when again none attended nor submitted any reply. Another notice issued on 24.9.2010 u/s 143(2) of the Act and notice u/s 142(1) of the Act ,issued on 8.10.2010,also went unresponded nor the assessee submitted any reply. In view of the persistent non compliance of various notices as aforesaid ,the Assessing Officer[AO in short] proceeded to complete the assessment u/s 144 of the Act.

4. On perusal of profit and loss account annexed with the return for the preceding year, the AO that the assessee declared closing stock of glass- ``2,30,460/- in the preceding year ,but in the year under consideration, corresponding opening stock was not reflected. Accordingly, the AO concluded that the assessee sold the goods without accounting for these in the books of accounts for the year under consideration and added 10% of the amount, resulting in addition of ``23,046/-

5. On appeal, the learned CIT(A) reduced the addition by 50% in the following terms:-

“5. Regarding ground No.4 of appeal, the AR submitted that the business of trading in glass was discontinued and the whole stock was sold for lump sum amount of `2 lacs. Even if the Assessing Officer were to estimate the income, it should not be more than 5% as per the provisions of section 44AF of the Act.

5.1 I have considered the issue and conclude that the ends of justice would be met if the income on sale of glass is estimated at 5% considering that it was old stock and therefore the ground of appeal is partly allowed.”

6. Ground no.2 in the appeal relates to addition of ``4,25,075/- on account of commission from trading in shares. The AO noticed during the course of assessment proceedings that the assessee received an amount of `4,00,998/- from M/s Best Bull Stock (P) Ltd., 6/79, WEA, Padam Singh, Karol Bagh, Delhi on account of commission on trading in shares; TDS of `24,077/- had also been deducted from the commission. Since the assessee has claimed credited of TDS in the return of income but no corresponding commission income had been declared, accordingly addition of ``4,25,075/- was made to the income of the assessee.

7. On appeal, the ld. CIT(A) deleted the addition on the ground that commission income of ``1,14,286/- was duly reflected after deducting the expenses. Accordingly, the ld. CIT(A) deleted the addition, without even examining the nature & genuineness of the various expenses.

8.. Ground no.3 in the appeal relates to deletion of addition of ``2 lacs and ``5,06,170/- out of ``58,55,500/- made by the AO on account of cash deposited in the bank account. During the course of assessment proceedings on perusal of bank account no. 06121000004675 of the assessee with HDFC Bank it was noticed that the assessee deposited following amount in cash:-

                                                [In ` ]

03,07.2007   Cash deposited  3,60,000

09.07.2007   cash deposited  1,00,000

08.10.2007   cash deposited  2,84,500

18.10.2007   cash deposited  3,50,000

21.01.2008   cash deposited  10,00,000

14,02.2008   cash deposited  2,00,000

19.02.2008   cash deposited  10,000

22.02.2008   cash deposited  1,50,000

18.07.2008   cash deposited  2,00,000

05.08.2008   cash deposited  8,85,000

11.10.2008   cash deposited  5,00,000

16.10.2008   cash deposited  6,00,000

06.11.2008   cash deposited  5,00,000

Total                                     51,39,500

8.1 The assessee further maintained bank accounts no.01911000119218 with HDFC Bank Adrash Nagar, New Delhi, wherein he deposited cash of `7,16,000/- during the year under consideration as detailed hereunder:

                                                [In` ]

06.04.2007   cash deposited   49,000

11.04.2007   cash deposited   40,000

09.05.2007   cash deposited   1,20,000

21.05.2007   cash deposited   3,00,000

22.05.2007   cash deposited   7,000

19.06.2007   cash deposited   2,00,000

Total                                       7,16,000

8.2 Since the assessee did not explain the source of deposit of cash in the bank, the AO added the amount of ``58,55,500/- ,treating the same as investment out of undisclosed sources.

9. On appeal, the ld. CIT(A),without allowing any opportunity to the AO, concluded as under:-

“7. Regarding ground No.6 of appeal, the AR drawing attention to page 2 of the assessment order submitted that the deposits totaling ``51,39,500/- in a/c no.0612000004615 with HDFC Bank pertain to the period 3.7.2007 to 6.11.2008. The cash deposits during the year under consideration are only ``24,54,500/- but the Assessing Officer has added the entire amount, even

pertaining to the subsequent year. Therefore, addition of `26,85,000/- (51,39,500 – 24,54,500) in the year under consideration is erroneous. Further, the Assessing Officer has not given any set off for the sources of cash deposits from sale of old stock, current income, sale/acquisition of agriculture land and out of earlier withdrawals from bank.

7.1 I have carefully considered the issue and the submissions made by the AR. It is evident from the assessment order itself that cash deposits of ``26,85,000/- do not pertain to the year under consideration and therefore addition to this extent is deleted. On the issue of giving credit for the withdrawals made earlier, current income etc., no case has been made out in this regard by the AR and further no details alongwith evidence have been furnished to entertain such claim. However, it would be fair and reasonable to allow the set off for sale of old stock of glass of ``2.00 lacs and income declared declared of ``5,06,170/-. Since the appellant did not discharge the onus as to how the withdrawals made earlier have been utilized for subsequent cash deposits, no benefit on this account is given. In the result, the appellant gets relief of ``33,91,170/- on account of this addition and the ground of appeal is partly allowed.”

10.. The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A).The ld. DR supported the order of the AO while contending that the assessee did not produce any books of account before the AO. In the absence of books of accounts and the details as to whom such stock of glass was sold, the ld. CIT(A) was not justified in reducing the addition by 50% while applying rate of 5 % on the sale of glass ,or deleting the addition on account of commission, without giving any opportunity to the AO. .Even the set off of 2 lacs and income returned by the assessee, allowed by the ld. CIT(A) against unexplained cash deposited in the bank, is not in accordance with law, there being no evidence of any nexus between the amounts and even when the AO had not been allowed any opportunity.

11.. We have heard the ld. DR and gone through the facts of the case. Indisputably, the assessee did not produce any books of account before the AO despite number of notices issued by the AO, seeking various details and documents. As a result, assessment was completed u/s 144 of the Act and findings of the AO in that connection have been upheld by the ld. CIT (A). Thereafter, the AO attributed 10% of the stock of glass sold outside the books by way of profit while the ld. CIT(A) without giving an opportunity to the AO reduced the addition by 50% on the ground that the business of trading in glass was discontinued. There is nothing to suggest as to whom the stock was sold and what was the margin. Despite being fully aware that assessment was completed in this case u/s 144 of the Act, the ld CIT(A) did not allow any opportunity to the AO before reducing the addition by 50% or deleting the addition on account of commission from trading in shares or allowing telescoping the income on sale of glass and returned income, against unexplained cash deposited in the bank. Even though , the assessee raised an additional ground, there is nothing to suggest as to whether or not the AO was confronted this additional ground before its admission nor any report of the AO is referred to in the impugned order. The ld. CIT(A) while allowing set off of amount of ``2 lacs on account of sale of old stock of glass and returned income of ``5,06,170/- did not refer to any evidence that sale of old glass or returned income had any nexus with the cash deposited in the bank account ,especially when the assessee did not produce relevant books of account before the AO or the ld. CIT(A). It is well established that unless there was a connection between the unexplained investment by way of cash and sale of old glass or returned income, it would be difficult to accord set off of the two figures as held in the case of CIT v. Devi Prasad Viswanath Prasad [1969] 72 ITR 194(SC) and CIT Vs. Jhaverbhai Biharilal & Co.160 ITR 634(Patna). As is apparent from the aforesaid facts narrated in the impugned order, the assessee did not appear before the AO nor produced the relevant books of accounts before the AO or even before the ld. CIT(A). Even before us none appeared on behalf of the assessee despite service of the notice. There is nothing to suggest as to whether or not the assessee preferred any appeal against the findings of the ld. CIT(A) . . We are of the opinion that under the scheme of s. 144 of the Act itself and on the statutory imperative that even an assessment under s. 144 must be done only to the best of the officer's judgment and after taking into account all relevant materials which had been gathered . In our judgment, the proper thing for the ld. CIT(A) to have done would have been to ascertain the relevancy and validity of the materials on the basis of which the AO added the amounts instead of deleting/reducing the additions . If the ld. CIT(A) found that any of those so-called materials in the assessment order were not in fact supported by any evidence, it would be his duty to find out

to what extent the estimate already made by the AO would be affected thereby. Even otherwise, the ld. CIT(A) did not allow any opportunity to the AO before reducing/deleting the disallowances. There is nothing to suggest that the ld. CIT(A) undertook any independent enquiries or even called for any report from the AO in the light of his findings in the assessment order, even while being fully aware that assessment had been completed u/s 144 of the Act . In these circumstances, especially when the ld. CIT(A) have not ascertained the complete facts nor recorded his specific findings on the relevancy of material gathered by the AO while there appears to be no apparent basis for reducing the addition on sale of glass or deleting the addition on account of commission, without giving any opportunity to the AO or even allowing the set off of `2 lacs and income returned by the assessee, against unexplained cash deposited in the bank ,without referring to any evidence, establishing nexus between the amounts and especially when the AO had not been allowed any opportunity, we are of the opinion that issues raised in ground nos.1 to 3 in the appeal before us, require reconsideration by the ld. CIT(A). The application of mind to the material facts and the arguments should manifest itself in the order. Section 250(6) of the Act mandates that the order of the CIT(A) while disposing of the appeal shall be in writing and shall state the points for determination, the decision thereon and the reason for the decision. As is apparent from the impugned order, in our opinion, the order passed by the ld. CIT(A) is cryptic and grossly violative of one of the facets of the rules of natural justice, namely, that every judicial/quasi-judicial body/authority must pass reasoned order which should reflect application of mind by the concerned authority to the issues/points raised before it. The requirement of recording of reasons and communication thereof has been read as an integral part of the concept of fair procedure and safeguard to ensure observance of the rule of law. We may point out that a ‘decision’ does not merely mean the ‘conclusion’. It embraces within its fold the reasons forming basis for the conclusion.[Mukhtiar Singh Vs. State of Punjab,(1995)1SCC 760(SC)]. In view of the foregoing, we consider it fair and appropriate to set aside the order of the ld. CIT(A) and restore the issues raised in ground nos.1 to 3 in the appeal to his file for deciding the matter afresh in accordance with law, after allowing sufficient opportunity to both the parties. Needless to say that while redeciding the appeal, the learned CIT(A) shall pass a speaking order, keeping in mind, inter alia, the mandate of provisions of sec. 250(6) of the Act. With these observations, ground nos. 1 to 3 are disposed of.

12. In the result, appeal is allowed but for statistical purposes.

Order pronounced in open Court

                                                        Sd/-                              Sd/-

                                              (G.C. GUPTA)            (A.N. PAHUJA)

                                            VICE PRESIDENT ACCOUNTANT MEMBER

NS

Copy of the Order forwarded to:-

1. Assessee

2. Assistant CIT,Sonepat Ci rcle,Sonepat

3. CIT concerned

4. CIT(Appeals), Rohtak.

5. DR, ITAT,’G’ Bench, New Delhi

6. Guard File.

By Order,

Deputy/Asstt.Registrar

ITAT, Delhi