DCIT Circle 1, Noida vs. Evergreen India Mart Pvt. Ltd. – Dispute Over Unexplained Cash Credits for AY 2014-15

Final Tribunal Order: DCIT Circle 1, Noida vs. Evergreen India Mart Pvt. Ltd.

Case Number: ITA 6571/DEL/2019

Appellant: DCIT Circle-1, Noida

Respondent: Evergreen India Mart Pvt. Ltd., Noida

Assessment Year: 2014-15

Date of Order: February 23, 2023

Order Type: Final Tribunal Order

Introduction

This article provides a detailed overview of the case between the DCIT Circle-1, Noida, and Evergreen India Mart Pvt. Ltd., Noida, concerning the assessment year 2014-15. The case was heard by the Income Tax Appellate Tribunal (ITAT), Delhi Bench ‘H’, on February 23, 2023, with Shri Shamim Yahya, Accountant Member, and Shri Anubhav Sharma, Judicial Member, presiding. The primary issue in this appeal was the addition of unexplained cash credits amounting to Rs. 9,40,80,349 under Section 68 of the Income Tax Act, 1961.

Background of the Case

The dispute arose when the Assessing Officer (AO) received information from the DCIT, Central Circle, Noida, following a search and seizure operation conducted on November 11, 2014, on the Tirupati Sunworld group of cases. During the investigation, it was discovered that Evergreen India Mart Pvt. Ltd. had provided a loan of Rs. 30,00,000 to M/s Sunworld City Pvt. Ltd. during the financial year 2013-14. However, the company’s income tax return for the assessment year 2014-15 declared a meager income of Rs. 1,03,320.

The AO questioned the commensurability of the loan amount with the company’s declared income and subsequently reopened the assessment. During the assessment proceedings, the AO requested the complete bank statement of the company for the relevant financial year. The company, however, submitted a bank statement covering only five days. Upon further investigation, the AO obtained the entire bank statement directly from Oriental Bank of Commerce, which revealed total credits amounting to Rs. 9,40,80,349. Due to the company’s failure to provide an adequate explanation, the AO treated the amount as unexplained cash credit under Section 68 and added it to the company’s income.

Appellant’s Grounds for Appeal

Evergreen India Mart Pvt. Ltd. appealed against the AO’s decision to the Commissioner of Income Tax (Appeals) [CIT(A)], arguing the following points:

• Unexplained Cash Credits: The company challenged the addition of Rs. 9,40,80,349 as unexplained cash credits, asserting that the transactions were legitimate and reflected in its books of accounts.
• Rejection of Books of Accounts: The company contended that the AO did not reject its books of accounts under Section 145(3) of the Income Tax Act, 1961, before making the addition, which was a procedural lapse.

CIT(A)’s Findings

The CIT(A) reviewed the evidence, including Form No. 3CA under Section 44AB and the statutory auditor’s report, which were not presented before the AO. The CIT(A) noted that the company’s books of accounts reflected a turnover of Rs. 6,17,56,106 and expenses of Rs. 6,16,51,158 for the relevant financial year. The CIT(A) observed that the AO had not rejected the company’s books of accounts during the assessment, leading to the deletion of the addition made by the AO.

Tribunal’s Findings

The ITAT, after hearing both parties, found that the CIT(A) had relied on additional evidence, such as the auditor’s report and Form No. 3CA, which were not available during the original assessment by the AO. The Tribunal held that this reliance on new evidence without providing the AO an opportunity to examine it was a violation of Rule 46A of the Income Tax Rules, which governs the admission of additional evidence at the appellate stage.

Conclusion of the Case

In light of the above findings, the Tribunal decided to remit the case back to the AO for a fresh assessment. The AO was directed to re-examine the issue, taking into account the additional evidence presented before the CIT(A). The Tribunal emphasized the need for the AO to provide the assessee with adequate opportunity to present its case. Consequently, the appeal by the Revenue was allowed for statistical purposes, and the Tribunal’s decision was pronounced on February 23, 2023.

Implications

This case highlights the importance of procedural compliance in tax assessments, particularly regarding the rejection of books of accounts and the admission of additional evidence at the appellate stage. The Tribunal’s decision underscores the necessity for a thorough examination of all relevant evidence before making additions under Section 68 of the Income Tax Act. It also emphasizes the need for taxpayers to cooperate fully during assessment proceedings to avoid adverse decisions.

The case of DCIT Circle-1, Noida vs. Evergreen India Mart Pvt. Ltd. serves as a critical reminder for both tax authorities and taxpayers about the procedural safeguards that must be adhered to during the assessment and appellate processes.

DCIT Circle 1, Noida vs. Evergreen India Mart Pvt. Ltd. – Dispute Over Unexplained Cash Credits for AY 2014-15