The Income Tax Appellate Tribunal (ITAT) of Varanasi Bench has held that when the department relies on the incriminating material found during surveyscopies of the same should be provided to assessee in adherence to principles of natural justice.
A survey was conducted on the business premises of the assessee and its sister concerns of the group. During the course of the survey, operations carried out by Revenue under Section 133A of the Act, several documents and retrieved computer data backup etc. which were incriminating in nature as per annexures to the Survey Report drawn, were found and impounded by Revenue.
The assessee is a Private Limited Company and derives income under the head business and profession at a Book Profit of Rs. 73,84,528/- and paid taxes as per provisions of Section 115JB at Rs. 22,97,152/-, during the impugned assessment year. During the course of survey proceedings conducted by Revenue, a statement was recorded on oath of Shri Manjit Singh, the Director of the company on 5th October 2018 on the issues of undisclosed income and investment, and the details of undisclosed income and signed copies of Profit & Loss account and Balance-sheet retrieved from the computer of the group M/s Ratandeep Gold & Diamond Pvt. Limited.
The CIT(A) was not clear as to whether the AO has failed to explain what inference he is trying to achieve while disallowing 10% of unregistered purchases. The CIT(A) failed to issue a notice of hearing to the AO before condemning the AO or prejudicing the AO by deciding the issue against the AO.
It was contended by the department that the Principles of natural justice are breached as CIT(A) misdirected himself rather than acting as an adjudicator and/or investigator to unravel the truth to compute income chargeable to tax in the hands of the assessee as per the mandate of the provisions of the 1961 Act.
The assessee has claimed that the AO made additions without calling for an explanation from the assesseeand CIT(A) ought to have called for a remand report/comments from AO on the additional evidence filed by the assessee. It was contended that there was a violation of Rule 46A of the Income-tax Rules, 1961.Rules 46A of the Income-tax Rules, 1962, specifies that additional evidence means any evidence, whether oral or documentary, which is being produced before the CIT(A) for the first time and such evidencewas not produced before the assessing officer during assessment proceedings.
The disallowance by AO was the reason that the assessee has suppressed profits by inflating unregistered purchases which could be by way of introducing bogus unregistered purchases to inflate expenses and to suppress profits, and for which additions were estimated by the AO @10% of unregistered purchases in the absence of verification by the AO as no details were furnished by the assessee.
The Coram Shri Vijay Pal Rao, Judicial Member and Shri RamitKochar, Accountant Member observed that the CIT(A) completely misdirected himself by only seeing the average price of unregistered purchases vis-à-vis price of registered purchases, and coming to the erroneous conclusion that since the average price of unregistered purchases is less than the average price of registered purchases and hence there is no possibility of suppression of profits. The Order passed by the CIT(A) was set aside and the matter was restored to CIT(A) for fresh adjudication, after giving the proper opportunity of being heard to both the rival parties viz. the assessee as well the AO.
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