ITAT remitted the matter to AO where no verification of documents filed under rule 46A was sought

Facts of the case:

• The return of income was filed on 31.10.2005 at an income of Rs. 4,04,020/- for AY 2005-06.
• During the course of assessment proceedings, the AO took note of the fact that the assessee and his wife purchased property at front and rear side of portion at ground floor for a consideration of 40 Lakh each and 3,20,000 was paid as stamp duty on each portion.
• AO observed that the assessee had no details regarding particulars of payment made by him; and regarding the source to purchase these properties other than what the assessee informed about a home loan from HSBC Bank for Rs.55 lakhs and Rs.25 lakhs.
• AO observed that assessee has maintained a bank account with Dena bank. AO asked bank by summon u/s 133 (6) and found that Rs. 1,58,52,816/- in bank account whereas as per bank statement submitted by assessee total credit/deposits were Rs. 37,10,872/-.

• AO further observed that assessee has a joint bank account with his wife in HSBC and he has made cash deposits of Rs. 9,15,000/- on various dates. This bank account was not declared by assessee in his return.
• AO also observed from the information of HSBC that the assessee and his wife were maintaining Punjab National Bank loan account to which an amount of Rs.27 lakhs and Rs.28 lakhs were released.
• AO asked the information from Punjab National Bank and found that the assessee was maintaining Home Loan account in his name and another account in his wife’s name and one joint account also which were not declared by the assessee.
• On the above basis AO made the assessment u/s 143 (3) at Rs.1,37,75,290/- by making following additions:
• In view of deposit and withdrawal made of Rs.12,42,000/- in Dena Bank which was found unexplained
  • Unexplained credit entries with Dena Bank of Rs.88,94,226/-
  • Cash deposit of Rs.9,15,000/- u/s 68 on account on different dates in HSBC
  • 15,20,000/- on account of peak cash credits in this account were unexplained
  • 8,00,000/- on account of alleged sale of property
• Aggrieved from the assessment order assessee filed appeal before CIT (A) who admitted additional evidence filed by assessee and sought remand report from AO.
• AO in his remand report elaborated various addition which he made under section 68 or he added in absence of proper explanation and evidence.
• The ground of the revenue’s appeal in AY 2006-07 is against the deletion of addition of Rs.72,50,000/- without invoking the provisions of Rule 46A.
• In AY 2006-07 assessee returned the income of Rs.3,04,172/-.
• AO found that the assessee derived income mainly from house property and there are some credits/debits in his bank accounts.
• AO being unsatisfied with the explanation given by the assessee added Rs.1 lakh on cash deposits in the bank account and further added Rs.72,50,000/- claimed to have been received as an advance from Vivek Titus against agreement to sale of property as income from undisclosed sources.
• In this way he computed income of assessee at Rs.76,54,170/- in place of the assessee’s returned income of Rs.3,04,172/-.

Contention of the revenue:

• Creditworthiness of the donors has not been proved by the assessee.
• The gift deeds were not believed by the CIT (A) because they were neither notarized nor these were on the stamp paper.
• In AY 2006-07, CIT (A) has admitted certain documents for the first time before CIT (A) and the CIT (A) has not followed the Rules prescribed under Rule 46A.
• CIT (A) did not give an opportunity to the AO to make observations on the documents filed under rule 46A.

 Contention of the assessee:

• CIT (A) had admitted additional evidence and sought remand report from the assessee, and after considering additional evidence and remand report granted relief to assessee.
• Opening cash in hand and cash receipts during the year have been claimed to explain the cash deposits in the bank account.

Held by CIT (A):

• Amount of Rs. 50,50,000 out of Rs.88,94,226/- in Dena Bank was received by Padma Bhandari. It was found by CIT (A) that the said amount was given to assessee from the sale consideration of property. Hence creditworthiness of the Padma Bhandari was established and assessee is liable to get relief.
• Amount of Rs.13.00 lakhs credited in Dena bank is nothing but bank transfers from the accounts of Smt. Manjusha, w/o the appellant. The AO has verified it during the remand proceedings. AO added the said amount in absence of confirmation. As lender admitting the transaction and in light of other details filed assessee get relief on the said amount.
• The credits relating to Sh. S.S.H. Naqwi of Rs. 9,00 Lakhs and Shri Sheel Mehta of Rs.5,90,000/- have been squared up/repaid during the year. Hence such amount can not be treated as unexplained u/s 68.
• Amount of Rs. 3 Lakhs and Rs. 7 Lakhs received as gift by assessee from his daughters remained unexplained in light of creditworthiness and genuineness of donors.
• Further appellant get relief of Rs. 26,77,000/- i.e. cash deposit in Dena Bank, HSBC Bank and PNB bank as the cash was deposited from incoming cash from various sources.
• Regarding addition of Rs. 8,00,000/- on account of alleged sale of property CIT (A) found that this property found mentioned in the statement of affairs of earlier years but not in the statement of affairs filed along with the return of the relevant year. The buyer of the property was the tenet of the assessee. In case the investment in the property, if unexplained, should be taxed in the year of purchase, which is not the relevant year. Hence assessee got relief on this addition.
• In AY 2006-07 CIT (A) give part relief to the assessee by deleting the addition to the tune of Rs.72,50,000/-.

 Held by ITAT:

• The first appellate authority has observed that AO’s inference regarding the assessee filing fabricated bank statement is correct.
• Revenue could not furnish any material to controvert the finding of the CIT (A). In the absence of any other material to contradict the transactions made by the assessee, we are inclined to uphold the finding of the CIT (A).
• CIT (A) has given a relief of Rs.26,77,000/- out of Rs.36,77,000/- of peak credit added from bank accounts of Dena Bank, HSBC and PNB and sustained an amount of Rs. 10,00,000/-.
• CIT (A) has accepted the claim of the assessee that he had received Rs.20 lakhs from the sale of DG set and air-conditioners, Rs.8 lakhs from sale of property and rent of Rs.1,44,490/-, sale of roof rights of Rs.2,50,000/-, thus amounting to Rs.31,94,490/-.
• Once assessee has accepted the cash of Rs.31,94,490/- which has come into his bank accounts, then maximum sustenance that can be made to the difference of Rs.36,77,000/- minus Rs.31,94,490 i.e. Rs.4,82,510/-. Thus, this ground is allowed partly.
• In AY 2006-07, CIT(A) has believed the claim of assessee that the property was sold by the assessee to Shri Vivek Titus and the property was finally sold on 12.06.2006 i.e. assessment year 2007-08.
• The amount of Rs.72,50,000/- which is remitted in the account of the assessee and claimed by the assessee should have been the advance for the said property, has been accepted by the ld. CIT (A).
• CIT (A) concluded above on the evidences which had been for the first time produced before him as stated above.
• Revenue rightly contended that these documents should have been sent to the AO for seeking the remand report as prescribed under rule 46A.
• Hence ITAT remitted the matter to the file of AO.