Facts of the Case

The present matter pertains to Assessment Year 2012–13, wherein the Assessing Officer (AO) initiated reassessment proceedings under Sections 147 and 148 of the Income Tax Act, 1961 based on information regarding substantial time deposits made by the assessee in Canara Bank.

The AO recorded that deposits amounted to ₹19.72 crores. Due to non-response from the assessee to notices issued under Section 142(1), the AO proceeded with a best judgment assessment under Section 144, making an addition of ₹16.86 crores under Section 69B on account of unexplained investments.

On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] conducted an independent inquiry under Section 250(4) and found that:

  • Actual deposits were only ₹9.50 crores
  • The higher figure was due to erroneous reporting by the bank
  • The deposits were sourced from overseas remittances from the assessee’s earnings in the USA

Accordingly, the CIT(A) deleted the entire addition.

The Income Tax Appellate Tribunal (ITAT) upheld the CIT(A)’s order. Aggrieved, the Revenue filed an appeal before the Delhi High Court.

Issues Involved

  1. Whether the CIT(A) was justified in admitting and relying upon additional evidence without strictly complying with Rule 46A(3) of the Income Tax Rules, 1962.
  2. Whether the CIT(A) exceeded jurisdiction while exercising powers under Section 250(4).
  3. Whether deletion of addition under Section 69B based on such evidence was legally sustainable.

Petitioner’s Arguments (Revenue)

  • The CIT(A) erred in admitting additional evidence without providing the AO an opportunity to examine the same, thereby violating Rule 46A(3).
  • The deletion of additions was based on fresh evidence not produced during assessment proceedings.
  • The CIT(A) acted beyond procedural limits, rendering the order unsustainable.

Respondent’s Arguments (Assessee)

  • The assessee did not receive notices as they were sent to an old address.
  • He became aware of proceedings only upon receiving a show-cause notice via email.
  • Due to advanced age (71 years) and COVID-19 restrictions, he could not participate in proceedings earlier.
  • The deposits were fully explained as originating from overseas earnings and remittances through NRE account.
  • Supporting bank statements and documents were duly furnished before the CIT(A).

Court Findings / Order

  • The CIT(A) possesses co-terminus powers with the Assessing Officer under the Act.
  • Under Section 250(4), the CIT(A) is empowered to conduct independent inquiries and call for additional evidence.
  • The CIT(A) rightly exercised powers to correct a grave factual error committed by the AO regarding deposit figures.
  • The source of funds (₹9.50 crores) was duly verified and established as overseas income.
  • No contrary evidence was produced by the Revenue to rebut these findings.

Important Clarification

  • Rule 46A does not restrict the statutory powers of CIT(A) under Section 250(4).
  • Where the assessee is denied proper opportunity before the AO, the CIT(A) can independently examine evidence.
  • Findings of fact by CIT(A), when affirmed by ITAT, are generally not interfered with unless perverse.

Sections Involved

  • Section 147 – Income Escaping Assessment
  • Section 148 – Issue of Notice for Reassessment
  • Section 142(1) – Inquiry before Assessment
  • Section 144 – Best Judgment Assessment
  • Section 69B – Unexplained Investments
  • Section 250(4) – Powers of CIT(A) to make further inquiry
  • Rule 46A – Admission of Additional Evidenc

Link to download the order -https://delhihighcourt.nic.in/app/showFileJudgment/RAS06122023ITA7012023_114814.pdf

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