ITO Vs Raj Maitry & Eskon Developer (ITAT Mumbai)
ITAT Mumbai held that Advance received from customers can’t be considered as income for the purposes of section 68 of the Act and powers of Ld. CIT (A) was coterminous with that of AO, and what an AO can do the same action, can be taken by him also.
The case of ITO Vs Raj Maitry & Eskon Developer was brought before the ITAT Mumbai, concerning the treatment of advance payments received from customers. The key contention revolved around whether such advances should be considered as income under section 68 of the Income Tax Act.
The dispute originated from the assessment year 2018-19 when the assessee, a partnership firm, filed its income tax return declaring a total income of Rs. 28,68,540/-. The assessment proceedings focused on two primary issues: income from real estate business and unsecured loans.
During the assessment proceedings, the Assessing Officer (AO) made significant additions to the income, including Rs. 12,63,66,352/- on account of advance received from customers under section 68 of the Act. However, the Ld. CIT (A) overturned these additions, leading to an appeal by the revenue before the ITAT Mumbai.
The crux of the appeal lay in whether the Ld. CIT (A) was justified in admitting additional evidence presented by the assessee without allowing the AO an opportunity to examine it, as mandated by Rule 46A(3) of the Income Tax Rules, 1962.
Upon review, the ITAT Mumbai observed that while the AO may have not been given a chance to examine the additional evidence, the information provided by the assessee was largely available on record before the AO. Furthermore, it was noted that advances received from customers cannot be considered as income under section 68 of the Act.
The ITAT Mumbai upheld the decision of the Ld. CIT (A), emphasizing that the powers of the Ld. CIT (A) are coterminous with those of the AO. Thus, actions permissible to the AO can also be taken by the Ld. CIT (A), as per Section 251 of the Income Tax Act.
The ruling reiterated established legal principles and precedents, highlighting the appellate authority’s discretion in considering additional evidence and exercising powers conferred by the statute. Judicial pronouncements cited by the ITAT Mumbai supported the decision, affirming the authority’s ability to permit additional evidence when necessary for the proper disposal of the appeal.
In conclusion, the ITAT Mumbai dismissed the appeal by the revenue, affirming the decision of the Ld. CIT (A). The case underscores the importance of proper assessment procedures and the interpretation of relevant provisions under the Income Tax Act, ensuring fair treatment for taxpayers within the bounds of the law.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal by revenue is directed against the order of National Faceless Appeal Centre (for short “NFAC”) dated 17.03.2023 u/s. 250 of the Income Tax Act, 1961 (in short ‘the Act’) for A.Y. 2018-19. The revenue has raised the following grounds (revised) of appeal:-
a. The order of the Ld. CIT (A) is erroneous in law and on the facts of the case.
b. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in not allowing the A.O. to examine the additional evidence admitted by him as per the provisions u/s. 46A(3) of the I. T. Rules, 1962.
c. On the facts and in circumstances of the case, the Ld. CIT (A) erred in accepting the additional evidences which had not stood the test of enquiries in assessment proceedings.
d. The appellant craves leave to add, alter, amend and modify any of the above grounds of appeal either before or at the time of hearing of the appeal, if considered necessary.
2. The Brief facts of the case are that assessee is a partnership firm, filed its return of income 22-09-2018 declaring total income at Rs. 28,68,540/-. Case of the assessee was selected for complete scrutiny on following issues specifically – A). Income from Real Estate Business and B). Unsecured Loans. During the assessment proceedings various notices were issued to the assessee u/s. 142(1) and 143(2) of the Act vide dated: 22.09.2019, 18.12.2020, 08.01.2021, 19.01.2021 and 04.02.2021, but no compliance was made by the assessee against these notices. Other notices were issued to assessee on 24.02.2021, 09.03.2021 and 27.03.2021 against these notices a partial compliance was done by assessee on 01.03.2021, 15.03.2021 and 26.03.2021 respectively.
3. Case of the assessee was assessed u/s. 143(3) r.w.s. 144B of the Act by making addition of Rs. 2,90,30,000/- on account of unsecured loans and Rs. 12,63,66,352/- on account of advance received from the customers u/s. 68 of the Act. Assessee being aggrieved with this order preferred an appeal before the Ld. CIT (A), who in turn deleted these additions made by the AO. Now Revenue being aggrieved with the order of Ld. CIT (A) passed u/s. 250 of the Act preferred this appeal before us.
4. We have gone through the order of AO u/s. 143(3) r.w.s. 144B of the Act, order of the Ld. CIT (A) passed u/s. 250 of the Act and submissions of the assessee alongwith grounds raised by the revenue. We observed that moot question before us is whether Ld. CIT(A) was justified in admitting the additional evidences adduced by the assessee before him without giving an opportunity of examination to the AO as provided in Rule 46A (3) of the I.T. Rules, 1962. Here it is also pertinent to examine whether allegation of not providing opportunity to the AO by Ld. CIT (A) is really exists or not.
5. We have observed order of Ld. CIT (A) and find that information furnished by the assessee before the Ld. CIT (A) is mostly available on record before the AO also. It is also observed that addition u/s. 68 of the Act on account of Unsecured Loan may be treated as such but as far as advance received from customers is concerned it’s a settled position of law, same can’t be considered as income for the purposes of section 68 of the Act. So, addition made u/s. 68 on account of customer’s advance treatment by AO was void-ab-initio and Ld. CIT (A) rightly handled the issue by analysing the same in the light of the fact that same has been duly reflected in the books of account as per the accounting system followed by the assessee under the head sales, advance and booking amount returned.
6. It is observed that the job which ought to have been done by the AO on amount received by assessee as customer’s advance, same has been carried out by the Ld. CIT(A) and due assessment has been carried out. As far as amount involved on account of unsecured loans are concerned as mentioned (supra) most of the documents were available before the AO and practically AO may have grievance that due procedure was not followed as prescribed under Rule 46A (3) of the Rules, but same was not required as the powers of Ld. CIT (A) was coterminous with that of AO, and what an AO can do the same action, can be taken by him also.
7. We found the order of Ld. CIT (A) to be reasonable and logical on the given set of facts and other than the issue of giving opportunity to AO under 46A (3) of the Rules, AO is not able to make out the case how it is prejudicial to the interest of revenue or what anomaly is there in the order of Ld. CIT (A). On this issue following judicial pronouncements alongwith the bare language of relevant Rule and section of the Act can be relied upon for better understanding of the issue under consideration:
Rule – 46A, Income-tax Rules, 1962
[Production of additional evidence before the [ [Joint Commissioner] (Appeals)] [and Commissioner (Appeals)].
46A. (1) The appellant shall not be entitled to produce before the [Joint Commissioner] (Appeals)] [or, as the case may be, the Commissioner (Appeals)], any evidence, whether oral or documentary, other than the evidence produced by him during the course of proceedings before the [Assessing Officer], except in the following circumstances, namely:
