ITAT: Bank crisis ‘reasonable cause’ for not producing documents during assessment

ITO Vs M/s Ishika Foods (P) Ltd. (ITAT Jaipur)

Conclusion: Where the business of assessee was discontinued and the premises had been taken over by the Bank as part of its recovery proceedings, the crisis being faced upon consequent action taken by Bank was the reasonable cause which prevented assessee from submitting the requisite information/documents on the notices issued by AO and for remaining non complied with the same.

Held:  On perusal of the assessment order, it was noted that the notice u/s 143(2) was issued and in compliance thereof, the authorized representative appeared on behalf of assessee. However, subsequent notices issued during the year 2014 onwards had remained uncomplied with and the assessment was thereafter completed u/s 144 vide order dated 16.02.2016. At the same time, it was a matter of record that due to non-payment of dues, Jammu and Kashmir Bank had taken over the possession of the assessee’s factory premises in December, 2014 and the properties were disposed off and thereafter, the matter was taken up before the Debt Recovery Tribunal. In such circumstances, where the business of assessee was discontinued and the premises had been taken over by the Bank as part of its recovery proceedings, it was quite likely that the focus of assessee-company and its directors was directed towards the crises being faced by them due to non recovery of the Bank dues and consequent action taken by the Bank and it was therefore likely that the notices issued by AO had remained uncomplied with and there was reasonable cause which prevented assessee from submitting the requisite information/documents. Therefore, where the assessment had been completed u/s 144, CIT(A) where he deemed it appropriate to admit the additional evidences under rule 46A(1) to adjudicate the grounds of appeal and also on principle of natural justice, there were no infirmity in such action of CIT(A) in admitting such additional evidences. It was also noted that these additional evidences had been sent to AO for necessary examination and therefore, as far as Revenue’s interest was concerned, the same had been duly safe-guarded by way of providing the reasonable opportunity to AO.

FULL TEXT OF THE ITAT JUDGEMENT

This is an appeal filed by the Revenue against the order of ld. CIT(A)-22, Alwar dated 20.08.2019 for A.Y 2013-14 wherein the limited ground raised by the Revenue relates to acceptance of additional evidences submitted by the assessee before the ld. CIT(A) in contravention of Rule 46A(1) of the I.T. Rules.

2. Briefly, the facts of the case are that the assessee has filed its return of income declaring loss of Rs. 36,710/- on 28/09/2013. The assessment was completed u/s 144 of the Act wherein the assessed income was determined by AO at Rs. 7,25,02,276/-. Being aggrieved, the assessee carried the matter in appeal before the ld. CIT(A), Alwar and also submitted the additional evidences before the ld. CIT(A). Thereafter, the ld CIT(A) called for the remand report from the Assessing Officer wherein the Assessing Officer examined the additional evidences as well as submission made by the assessee and various additions made by the Assessing Officer during the course of assessment proceedings were held not sustainable on account of additional evidences, submissions, the books of accounts, bank statement and other details submitted by the assessee during the remand proceedings. Thereafter, taking into consideration the remand report submitted by the AO and the submissions and additional evidences, the additions made by the Assessing Officer were substantially reduced by the ld. CIT(A). In the above factual background, the only dispute which has been raised by the Revenue is regarding acceptance of additional evidences by the ld CIT(A), though, on merits, the Revenue does not have any grievance and has not contested the findings of the ld CIT(A).

3. During the course of hearing, the ld. DR submitted that during the course of assessment proceedings, the assessee signed power of attorney in favour of his Counsel which is on record which means that the assessee, later on, knowingly avoided attendance before the AO from time to time in the assessment proceedings. It was also submitted that all the notices/questionnaires were sent on the last known address of assessee which is deemed proper service of notice. It was accordingly submitted that the additional evidences furnished by the assessee are not admissible because there was no reasonable cause which prevented the assessee to attend assessment proceedings. It was accordingly submitted that ld. CIT(A) has erred in accepting the additional evidences in contravention of Rule 46A(1) of the I.T. Rules.

4. Per contra, the ld. AR submitted that as per order of the AO, he issued u/s 142(1) on 19.01.2015, 02.02.2015 and 26.10.2015 etc. However, the assessee did not receive any such notice. It was submitted that even assessment order passed u/s 144 dated 16.02.2016 was not received by the assessee. It was submitted that assessee was doing business at Bhiwadi but the business was discontinued as the Jammu & Kashmir Bank has taken over the possession of the factory in December, 2014 due to assessee’s failure to repay the loan amount to the Bank. It was submitted that there was heavy dispute among the Directors due to loss in the company and Bank has taken possession of the factory premises under SARFAESI Act on 25.05.2015. Subsequently, the bank has disposed off whole properties of the company and now the case is before Debt Recovery Tribunal. The copy of possession letter of bank, notice of bank, copy of case before Debt Recovery Tribunal were submitted before the ld. CIT(A). It was accordingly submitted that as the assessee did not receive the notice and the assessment was completed ex-party u/s 144, the assessee applied for certified copies of the assessment order and filed appeal before ld. CIT(A). The ld. CIT(A) has rightly appreciated the factual position of the assessee and has condoned the delay in filing the appeal and in acceptance of additional evidences.

5. It was further submitted that it is not a case where additional evidences were accepted and decision arrived at by the ld. CIT(A) rather the additional evidences were sent to the Assessing Officer for necessary verification and basis such verification, the Assessing Officer in his remand report has stated very clear that the addition so made during the course of ex-party assessment u/s 144 are not sustainable after going through such additional evidences. Further, our reference was drawn to the addition made on account of unsecured loan of Rs. 4,03,63,046/-. It was submitted that the said amount represent the credit balance of bank cash credit limit and loan borrowed from Jammu & Kashmir Bank and those details were apparent on the face of the balance-sheet and as part of the additional evidences, the assessee again submitted a copy of the balance-sheet as well as copy of the bank statement of the Jammu & Kashmir Bank along with sanctioned letter which were taken on record and the Assessing Officer in his remand report has stated very clearly that the addition made on account of unsecured loan is not sustainable. Further, regarding addition on account of share capital received of Rs. 75,00,000/-, it was submitted that the company during the year has not received any fresh share application money rather the shares have been allotted to seven persons whose money was already deposited in unsecured loan account and share were issued after transferring the money from unsecured loan account to share capital account. It was submitted that as part of the additional evidences, the assessee explained the transaction from its books of accounts and also produced a copy of confirmation from its shareholders and basis examination thereof, the Assessing Officer has not given any adverse finding in the remand report. It was submitted that the similar position exist in respect of disallowance of expenses and the addition made on account of interest received. It was accordingly submitted that the ld CIT(A) has rightly appreciated the facts and circumstances of the case and the additional evidences have been rightly accepted in the interest of justice and relief provided by the ld CIT(A) which are not under challenge by the Revenue.

6. We have heard the rival contentions and perused the material available on record. The relevant finding of the ld. CIT(A) while accepting the additional evidences and sending the same to AO for seeking the remand report are contained at Para 6.5 of his order which reads as under:-

“6.5 I have perused the assessment order as well as remand report of the A.O, submissions and cross reply of the appellant including judicial citations given therein. Following facts have emerged;

1. That the appellant company has its factory at Bhiwadi and doing the business in food industry.

2. That the appellant company was doing Business at Bhiwadi but the business was discontinued because the Jammu & Kashmir Bank has taken the possession of the Factory in December 2014 due to failure to repay the loan amount of the Bank. There was heavy Dispute among the Directors due to loss in the company and Bank has taken possession under SARFAESI Act on 25/05/2015. Bank has disposed off whole properties of the company and now the case is before Debt Recovery Tribunal.

3. That the appellant company has submitted that they have not received any notice during assessment proceedings as the company was closed because of bank takeover and therefore could not file any details.

4. That there is a loan balance as per the balance sheet amounting to Rs. 4,03,63,046/-. Since the case remain unrepresented at the assessment level accordingly, the A. O has treated the loan amount as unexplained and added it to the income of the assessee company.

5. That the appellant company has filed additional evidences in support of the claim as the assessment was made ex-parte and the entire unsecured loan was added as income of the appellant company u/s 144 of the Act. In view of the facts and circumstances of the case, the additional evidences have been taken on record under rule 46A of IT Rules, 1962 as found necessary to adjudicate on the grounds of appeal and also on the principle of natural justice. The additional evidences have been remanded to the A.O under rule 46A(4) to examine the evidences and for his comments. The A.O has submitted the remand report vide letter dated: 30/07/2019. The appellant was provided with a copy of the remand report and the cross reply was filed on 06/08/2019.

6. That the AO after examining the evidences has concluded as under:-

01. Addition on account of unexplained credit/unsecured loan of Rs. 4,03,63,046/-:

The AO made addition of Rs. 4,03,63,046/- on account of unsecured loans as it appeared in balance of the assessee company as on 31 03.2013. No compliance/ communication was made by Assessee Company during the course of assessee proceedings therefore, balance amount shown in balance sheet was added back in total of assessee as unexplained.

During the course of remand proceedings, AR of the assessee filed written submission and submitted as under:

“The learned Assessing Officer has made addition on Account of unexplained credit/ unsecured loan of R.s.40,36,30,46/- on lump sum basis. He made addition on perusal of Audited Balance sheet of the assessee. It is very much surprised to know that this amount is not unsecured loan but this amount is term borrowing from bank and it is clearly mentioned in Note-6 of the balance sheet. It is mentioned as under n the balance sheet:

The copy of Balance Sheet is enclosed herewith which was already with you. The Ld. ITO altogether ignored the facts that it is only bank balance of hank loan amount and he could have made an enquiry from the bank itself.

However now we are submitting complete Bank Statement of J & K Bank of Both the Accounts and loan sanctioned letter issued from bank to confirm the above amount. Both loans is given by J & K Bank whose sanction letter is also enclosed and balance as on 31.03.2013 is matched with books of accounts of the assessee. Hence the identity, creditworthiness of the bank and genuineness of transaction is proved.

I have considered written submission and all facts of the case mentioned supra. In facts it is credit balance of Banks CC Limit and loan of Jammu & Kashmir Bank as on 31.03.2013. Therefore, additions made on account of unexplained credit/ unsecured loans is not suitable.

The AO has submitted that all the loan amount of Rs. 4,03,63,046/- are basically credit balance of CC limit and loan amount of J & K Bank as on 31/03/2013. Therefore, there is no justification for making addition of the amount which already stands explained as loan advanced by the Bank.

Accordingly, the addition of Rs. 4,03,63,046/- is deleted and the appellant’s ground of appeal on this issue is allowed.”

7. Similar findings are recorded by the ld CIT(A) in respect of other additions made by the Assessing Officer while passing ex-parte order u/s 144 and in respect of which additional evidences have been submitted by the assessee during the course of appellate proceedings which have been sent to AO for necessary examination and submission of remand report and basis such additional evidences and remand report of the AO, the additions have been substantially deleted by the ld CIT(A) which are not under challenge before us.

8. On perusal of the assessment order, it is noted that the notice u/s 143(2) was issued on 04.09.2014 and in compliance thereof Sh. Rajesh Kumar, the authorized representative appeared on behalf of the assessee. However, subsequent notices issued during the year 2014 onwards have remained uncomplied with and the assessment was thereafter completed u/s 144 of the Act vide order dated 16.02.2016. At the same time, it is a matter of record that due to non-payment of dues, Jammu and Kashmir Bank has taken over the possession of the assessee’s factory premises in December, 2014 and the properties are disposed off and thereafter, the matter was taken up before the Debt Recovery Tribunal. In such circumstances, where the business of the assessee is discontinued and the premises have been taken over by the Bank as part of its recovery proceedings, it is quite likely that the focus of the assessee company and its directors is directed towards the crises being faced by them due to non recovery of the Bank dues and consequent action taken by the Bank and it is therefore likely that the notices issued by Assessing Officer have remained uncomplied with and there was reasonable cause which prevented the assessee from submitting the requisite information/documents. Therefore, in such peculiar facts and circumstances of the case and especially where the assessment has been completed u/s 144 of the Act, the ld. CIT(A) where he deemed it appropriate to admit the additional evidences under rule 46A(1) to adjudicate the grounds of appeal and also on principle of natural justice, we do not find any infirmity in such action of the ld. CIT(A) in admitting such additional evidences. It is also noted that these additional evidences have been sent to the Assessing Officer for necessary examination and therefore, as far as Revenue’s interest is concerned, the same has been duly safe-guarded by way of providing the reasonable opportunity to the AO.

In the result, appeal of the Revenue is dismissed in light of aforesaid directions.