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ITO,Ward-20(1) New Delhi Vs. Suresh Seth 14/A, 1st Floor, WEA Karol Bagh, New Delhi
February, 16th 2015
                    DELHI BENCH "G": NEW DELHI

                               ITA No. 1907/Del/2010
                             (Assessment Year: 2006-07)

               ITO,                    Suresh Seth
               Ward-20(1)        Vs.   14/A, 1st Floor,
               New Delhi               WEA Karol Bagh,
                                       New Delhi
               (Appellant)             (Respondent)
                    Appellant by    : B.R.R. Kumar, Sr. DR
                  Respondent by     : R.B. Arora, CA


      This is a departmental appeal against the order of the ld CIT(A)-XXII,

New Delhi dated 26th February 2010 for Assessment Year 2006-07.

2.    The facts in brief are that return of income was filed on 31st March 2007

declaring income of Rs.2,94,895/-. Subsequent thereto, it is apparent from the

order of assessment that various notices issued remained uncomplied. The

relevant portions which highlights the non-compliance by the assessee reads

as under:-

      "Return of income was filed on 31103/2007 declaring income of
      Rs.2,94,895/-. The same has been processed u/s 143(1) of the I.T. Act.
      Subsequently, the case was selected for scrutiny through CASS. Notice
      u/s 143(2), was issued on 10-08-2007 duly served upon the assessee
      accordingly. During the relevant financial year, the assessee has been
      deriving income from house property, capital gains & other sources. In
      response to the said notice neither anybody attended nor any
      application for adjournment was received. Thereafter, notice u/s.
      143(2) dated 24.8.20087 fixing the case for 07.09.2007 was issued, which
      was returned back un-served by the notice server with the remarks "Left
      the house". Another notice u/s. 143(2) dated 05.03.2008 fixing the case
      for 14.03.2008 was issued which remained uncomplied with. Thereafter
      notices u/s. 142(1) and 143(2) dated 14.08.2008 fixing the case for
      26.08.2008 was issued which was again returned back un-served by the
      notice server with the remarks "Left the house". Again notice u/s. 143(2)
                                                                        Page 2 of 8

      dated 04.09.2008 fixing the case for 15.09.2008 was issued, which was
      returned back un-served by the" notice server with the remarks "Left the
      house". Finally notices u/s 143(2)and 142(1) along with a show cause
      were issued on 22.09.2008, which were duly served on the assessee on
      24.09.2008, fixing the case for 15.10.2008. In response to this notice, Sh.
      Naresh Seth, brother and AR of the assessee attended on 15.10.2008
      and was asked to file details as per order sheet entry of date and the
      case was adjourned to 22.10.2008. On 22.10.2008 neither anybody
      attended nor any application for adjournment was received, Notice
      u/s. 143(2) and 142(1) along with show cause notice was issued on
      29.10.2008 and the case was fixed for 11.11.2008. This notice also
      remained uncomplied with. Again another show cause notice along
      with notices u/s. 142(1) and 143(2) dated 19.12.2008 fixing the case for
      23.12.2008 were issued which also remained uncomplied with."

3.    As a result thereof, the AO completed the assessment on 24 th

December, 2008, u/s 144 of the Act at an income of Rs.32,85,655/-.

4.    On appeal the ld CIT(A), observed that there are three issues in the

instant case namely:-

      (A)   Deposit of Rs.20,00,000/- in account with ICICI Bank.
      (B)   Addition of Rs.7,36,607/-, on account of so-called maximum
            credit balance on 28-06-2005.
      (C) Addition of Rs.2,54,158/- on account of so-called income from
            business @ 10% of total credits in bank account amounting to
            Rs.32,78,1911- (after reducing Rs.7,36,607/-, the maximum credit
            amount on 28-06-2005).
5.    He thereafter deleted all the aforesaid additions. As regards addition of

Rs.20 lakhs he has concluded as under:-

      "Documents have been filed in paper-book before me, to show that
      HUF has agreed to sell its property No. 24-F, Kamla Nagar, Kohlapur
      Road for Rs.1,05,00,000/- in July, 2005. However, the payments were to
      be completed by 31-03-2006 by buyers namely Shri Arun Khanna, Son
      of Sh. Shyam Kishore Khanna, and Smt. Asha Khanna wife of Sh. Arun
      Khanna Residents of 4831/26, Ansari Road, Darya Ganj, New Delhi-
             The buyers of the property have made payment of Rs.21,00,000/-
      in cash by making withdrawal in cash from Saving Bank Account
      No.3916 (Smt. Asha Khanna) and 1275 (Sh. Arun Khanna) both the
      above accounts maintained with The Khatri Co-operative (U) Bank Ltd.,
      Darya Ganj, New Delhi. As per copies of bank statement, for both the
      above accounts the amount was withdrawn prior to the date of
      deposit in bank account of Suresh Seth HUF with ICICI Bank Ltd.
                                                                        Page 3 of 8

             Thus the appellant has tried to establish co-relation between the
      account with ICICI Bank, in which cash was deposited and particulars
      of Suresh Seth HUF. The copy of Balance-sheet of Suresh Seth HUF, copy
      of Computation of Wealth and also copy of Return of Wealth filed by
      Suresh Seth HUF have been placed before me. Based on these
      documents I am inclined to admit that the appellant has been able to
      establish, beyond reasonable doubt, that cash which was deposited in
      account with ICICI Bank belongs to Suresh Seth HUF and not to the
      appellant. If at all any action is called for on this issue the AO should
      have considered the same in the hands of HUF.
             After considering the above facts, it is inferred that addition of
      Rs.20 lac made, for alleged for cash deposit, is not justified and cannot
      be sustained in the hands of appellant hence deleted. (relief Rs.20

6.    So far as the addition of Rs.9,90,765/- he has held as under:-

      "The additions of Rs. 7,36,260/- and Rs.2,54,158/- as peak credit and
      profit earned by the appellant respectively, were made by the Id AO,
      while framing his order on ex-parte basis. However when details of all
      the accounts and credit entries in bank account were available with
      him, he did not think it fit to make use of the available information, nor
      did he refer to any of the documents with particular comments.
      It is not clear when copy of bank statement was taken by the learned
      assessing officer by issue of notice under section 133(6), what
      prevented him to carry-out further investigations into entries in the
      account. Nor did he seek any further information from the bank. The
      information as to accounts from where the money has been
      transferred to account of the appellant could have been easily
      obtained from the bank.
      Now the AR had filed details of accounts of family members/relatives
      from where money was transferred to the account of appellant, It was
      also brought to my notice that the entries are not business transactions
      but are transfers entries from the account of family members as
      indicated in para 7B of this order. These do not constitute entries of
      business receipts hence calculating profit on them is not justified.
              For all the transfer entries from the family members confirmations
      were filed. I am inclined to accept the explanation of the appellant.
              Since all the entries in the credit of account of the appellant with
      Khatri Co-operative Bank Ltd, had adequately been explained with
      supporting documentary evidence. I am of the considered opinion
      that addition of Rs.9,90,765/- on account of alleged peak credit and
      business income do not survive and liable to be deleted. The assessee
      gets relief of Rs.9,90,765/-."

7.    In the light of the above factual position, the Revenue has preferred

the instant appeal.
                                                                          Page 4 of 8

8.    Ground No.4 of the grounds of appeal challenges the action of the ld

CIT(A), to entertain additional evidence without following the provisions of

Rule46A of the Income Tax Rules, 1962 (herein after `the Rules).

9.    Having considered the rival submissions, and after carefully perusing

the order of the authorities below and material on records, we find that the

assessee did furnish fresh evidences before the ld CIT(A), which has led him to

delete the additions. However, before doing so, we also find that there is no

finding that such additional evidence warrants admissions under Rule46A.

Which is not in conformity with Rule46A as held by the jurisdictional High Court

in Manish Buildwell (204 Taxman 106) wherein it has been observed as


          "Rule 46A is a provision which is invoked, on the other
          hand, by the assessee who is in an appeal before the
          Commissioner (Appeals). Once the assessee invokes Rule
          46A and prays for admission of additional evidence before
          the Commissioner (Appeals), then the procedure prescribed
          in the said rule has to be scrupulously followed. The fact
          that sub-section (4) of sec. 250 confers powers on the
          Commissioner (Appeals) to conduct an enquiry as he thinks
          fit, while disposing of the appeal, cannot be relied upon to
          contend that the procedural requirements of rule 46A need
          not be complied with. If such a plea of the assessee is
          accepted, it would reduce rule 46A to a dead letter because
          it would then be open to every assessee to furnish additional
          evidence before the Commissioner (Appeals) and, therefore,
          contend that the evidence should be accepted and taken on
          record by the Commissioner (Appeals) by virtue of his
                                                                 Page 5 of 8

powers of enquiry under sub-section (4) of section 250.
This would mean in turn that the requirement of recording
reasons for admitting the additional evidence, the
requirement of examining whether the conditions for
admitting the additional evidence are satisfied, the
requirement that the AO should be allowed a reasonable
opportunity of examining the evidence, etc., can be thrown
to the winds, a position which is wholly unacceptable and
may result in unacceptable and unjust consequences. The
fundamental rule which is valid in all branches of law,
including Income tax law, is that the assessee should adduce
the entire evidence in his possession at the earliest point of
time. This ensures full, fair and detailed enquiry and
It is for the aforesaid reason that rule 46A starts in a
negative manner by saying that an appellant before the
Commissioner (Appeals) shall not be entitled to produce
before him any evidence, whether oral or documentary,
other than the evidence adduced by him before the AO.
After making such a general statement, exceptions have
been carved out that in certain circumstances it would be
open to the Commissioner (Appeals) to admit additional
evidence. Therefore, additional evidence can be produced
at the first appellate stage only when conditions stipulated
in rule 46A are satisfied and a finding is recorded. The
conditions prescribed in rule 46A must be shown to exist
before additional evidence is admitted and every procedural
requirement mentioned in rule has to be strictly complied
with so that rule is meaningfully exercised and not exercised
in a routine or cursory manner. A distinction should be
                                                                 Page 6 of 8

recognized and maintained between a case where the
assessee invokes rule 46A to adduce additional evidence
before the Commissioner (Appeals) and a case where the
Commissioner (Appeals), without being prompted by the
assessee, while dealing with the appeal, considers it fit to
cause or make a further enquiry by virtue of the powers
vested in him under sub-section (4) of section 250. It is only
when the exercises his statutory suo motu power under the
above sub-section, that the requirements of rule 46A need
not be followed. On the other hand, whenever the assessee,
who is in appeal before him, invokes rule 46A, it is
incumbent upon the Commissioner (Appeals) to comply with
the requirements of rule strictly.
In the instant case, the Commissioner (Appeals) has
observed that the additional evidence should be admitted
because the assessee was prevented by adducing them
before the AO. This observation takes care of clause (c) of
sub-rule (1) of rule 46A.            The observation of the
Commissioner (Appeals) also takes care of sub-rule (2)
under which he is required to record his reasons for
admitting the additional evidence. Thus, the requirements
of sub-rules (1) and (2) of rule 46A have been complied
with.     However, sub-rule (3) which interdicts the
Commissioner (Appeals) from taking into account any
evidence produced for the first time before him unless the
AO has had a reasonable opportunity of examining the
evidence and rebut the same, has a reasonable opportunity
of examining the evidence and rebut the same, has not been
complied with.     There is nothing in the order of the
Commissioner (Appeals) to show that the AO was
                                                                        Page 7 of 8

          confronted with the confirmation letters received by the
          assessee from the customers who paid the amounts by
          cheques and asked for comments. Thus, the end result has
          been that additional evidence was admitted and accepted as
          genuine without the AO furnishing his comments and
          without verification.    Since this is an indispensable
          requirement, the Tribunal ought to have restored the matter
          to the Commissioner (Appeals) with the direction to him to
          comply with sub-rule (3) of rule 46A."
10.   In the light of the above said case law we need to examine the instant

case. We have noted that obtaining a remand report per-se is not a

substitute for recording of the finding of the ld CIT(A) setting out the reason

and fulfilment of conditions of the Rule 46A. It would be also appropriate to

state here that assessee did not move an application under Rule 46A,

specifically stating the fulfilment of conditions specified under Rule 46A,

though it is seen that ld CIT(A) has noted that non-compliance before AO

was on account of the fact, that the assessee was having marital discord

with his wife Mrs. Sonu Seth which kept the assessee engaged in litigation. In

this regard the assessee had placed on record order of the Hon'ble High

Court of Delhi (PB Page 7 to 29) in support of the aforesaid averment made

before the ld CIT(A).

11.   In view of the aforesaid conspectus of the case, we feel it would be just

and fair to remit the matter back to the file of AO for fresh adjudication. As a

result the order of authorities below are set-aside, with a direction to the AO

to frame a fresh assessment after giving adequate opportunity to the

assessee in accordance with law.
                                                                         Page 8 of 8

12.      Thus the ground No.4 is allowed for statistical purposes. The remaining

grounds of appeal relating to merit of addition are thus are not being


13.      In the result the appeal is allowed for statistical purposes.

         Order pronounced in the open court on 06.02.2015.

              -Sd/-                                                    -Sd/-
         (N.K.SAINI)                                          (A. T. VARKEY)
       ACCOUNTANT MEMBER                                        JUDICIAL MEMBER
*A K Keot
Copy forwarded to
      1. Applicant
      2. Respondent
      3. CIT
      4. CIT (A)
      5. DR:ITAT
                                                             ASSISTANT REGISTRAR
                                                               ITAT, New Delhi
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