Referred Sections:
Section 250 of Income Tax Act, 1961
Sub-section (1)
Section 246A.
Section 271.
Section 68.
Sub-Section (4)
Referred Cases / Judgments:
CIT vs. Manish Build Well (P.) Ltd. [2011] 16 taxmann.com 27(Delhi);
ITO vs. Pardeepa Rani [2016] 73 taxmann.com 392 (Delhi-Trib.).
CIT vs. Manish Build Well (P.) Ltd. 16 taxmann.com 27(Delhi)
ITO vs Pardeepa Rani 73 taxmann.com 392 (Delhi-Trib.)
FIT FOR PUBLICATION
Sd/- Sd/-
(JM) (AM)
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH: `A': NEW DELHI)
BEFORE SHRI H.S. SIDHU JUDICIAL MEMBER
AND
SHRI ANADEE NATH MISSHRA, ACCOUNTANT MEMBER
ITA No:- 4451/Del/2015
(Assessment Year: 2010-11)
Income Tax Officer, M/s Kalra Papers Pvt. Ltd.,
Ward 14(1), Vs. 20 and 34, Raja Garden,
New Delhi. New Delhi-110015.
PAN No: AAACK0705B
APPELLANT RESPONDENT
Revenue By : Shri Sanjog Kapoor, Sr. Dr
Assessee By : Shri Anil Jain, CA
Per Anadee Nath Misshra, AM
(A) This appeal by Revenue is filed against the impugned appellate order of
Learned Commissioner of Income Tax (Appeals)-V, New Delhi, ["Ld. CIT(A)", for
short], dated 24.04.2015 for Assessment Year 2010-11. Grounds taken in this appeal
of Revenue are as under:
"1. That the Ld. CIT(A)has erred in not taking the cognizance of the
Remand Report submitted by the AO wherein it was stated that the
assessee/AR was asked to file its explanation and the assessee failed to file any
explanation/reply despite the ' fact that the assessee was given six
opportunities spanning a period of eight months. Thus, the Ld. CIT(A) has not
acted in consonance with the provisions of Rule 46A while deciding the case.
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2. That on the facts and circumstances of the case & in law, the Ld.
CIT(A) has erred in deleting the addition of Rs. 5,44,314/- made being
speculation loss falls within the purview Explanation to Sec. 73 of the Act.
3. That on the facts and circumstances of the case & in law, the Ld.
CIT(A) has erred in deleting the disallowance of Rs. 43,98,987/- u/s 36(i)(iii),
being amount charged as interest on loans and advances.
4. That on the facts and circumstances of the case & in law, the Ld.
CIT(A) has erred in deleting the addition of Rs. 71,95,000/- made u/s 68, as
the assessee failed to discharge its onus to prove the genuineness of the
transaction by way of name, address, confirmation, bank a/c and PAN details
of the persons/party who have given amount for purchase of property.
5. That on the facts and circumstances of the case & in law, the Ld.
CIT(A) has erred in deleting the addition of Rs. 43,00,000/- made u/s 69 being
unexplained investment, as the assessee failed to substantiate its stand despite
given repetitive opportunity.
6. That on the facts and circumstances of the case & in law, the Ld.
CIT(A) has erred in reducing the disallowance made under the head telephone
Rs. 1,24,603/- & car exp. Rs. 3,95,844/-, being personal in nature in the hands
of the directors and their family members, from 20% disallowed by the AO to
10%.
7. That the order of the Ld. CIT(A) is erroneous and is not tenable on
facts and in law.
8. That the grounds of appeal are without prejudice to each other.
9. That the appellant craves leave to add, alter, amend or forego any
ground(s) of the appeal raised above at the time of the hearing."
(B) Assessment Order dated 30.03.2013 was passed by the Assessing Officer ("AO", for
short) U/s 143(3) of Income Tax Act, 1961 ("I.T. Act", for short) wherein total income was
assessed at Rs. 2,55,15,803/- as against return income of Rs. 22,52,024/-. The Assessee
filed appeal against the aforesaid Assessment Order dated 30.03.2013 before the Learned
Commissioner of Income Tax (Appeals). The issues raised by the Assessee in the appeal
before the Ld. CIT(A) have been summarized in tabular form at pages 2 and 3 of the
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appellate order dated 24.04.2015 of the Ld. CIT(A) and is reproduced below for the ease
of reference:
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(C) During the appellate proceedings before the Ld. CIT(A) the assessee filed certain
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Additional Evidences / Materials before the Ld. CIT(A). The Ld. CIT(A) considered these
Additional Evidences / Materials and passed the impugned appellate order dated
24.04.2015 in which substantial relief was allowed to the Assessee. This present appeal
has been filed by Revenue against the aforesaid impugned appellate order dated
24.04.2015 of Ld. CIT(A). In the course of appellate proceedings in Income Tax Appellate
Tribunal ("ITAT", for short), a Paper Book was filed from the assessee's side containing
the following particulars:
1. Copy of Computation of Income and
profit & Loss A/c for the year ended 31.03.2010. (Pages 1-8)
2. Copy of Submissions and additional documents (Pages 9-73)
as required filed before CIT(A)
(C.1) On perusal of the aforesaid Paper Book, it is found that admittedly from the
assessee's side, the assessee filed Additional Documents during appellate proceedings
before Ld. CIT(A).
(C.2) Written submissions, in addition to a tabular chart, were also filed from the
assessee's side, during the appellate proceedings in ITAT, on merits of the quantum
additions deleted by the Ld. CIT(A) in aforesaid impugned appellate order dated
24.04.2015 and raised by Revenue in the present appeal.
(D) At the time of hearing before us, the Ld. Departmental Representative ("Ld. DR",
for short) submitted in connection with the first ground of appeal, that the Ld. CIT(A)
erred in admitting Additional Evidences; having regard to the fact that the assessee had
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failed to avail of numerous opportunities, spanning over a prolonged period of time,
provided by the AO to the Assessee during the assessment proceedings. The Ld.
Authorized Representative ("Ld. AR", for short) for the assessee, however, contended
that the Additional Evidences / Materials were submitted to the Ld. CIT(A) under the
directions of the Ld. CIT(A) and not under Rule 46A(1) of Income Tax Rules, 1962 ("I.T.
Rules, " for short) . He drew attention to Rule 46A(4) of I.T. Rules, and submitted that
restrictions on production of Additional Evidences under Rule 46A(1) are not applicable
in a situation when the Additional Evidences / Materials are submitted to the Ld. CIT(A)
under direction of Ld. CIT(A) under Rule 46A(4) of I.T. Rules. We have given anxious
consideration to the rival contentions. On careful perusal of the aforesaid impugned
appellate order dated 24.04.2015 of the Ld. CIT(A), we find that nowhere he has stated
whether the Additional Evidences / Materials were produced by the assessee suo-moto
[and were admitted under rule 46A(1) of I.T. Rules] or in pursuance of direction of the
Ld. CIT(A) under Rule 46A(4) of I.T. Rules. Moreover, we find that Ld. CIT(A) has not
discussed in any detail anywhere in his impugned appellate order, as to which specific
Additional Evidences / Materials [submitted or produced by the Assessee during the
appellate proceedings before the Ld. CIT(A)] were relevant for granting which particular
ground(s) of appeal before the Ld. CIT(A). To that extent, therefore, the order of the
Ld. CIT(A) is not compliant with the norm to pass speaking order. In fact, the Ld. CIT(A)
has omitted to even mention that Additional Evidences or Materials were admitted or
accepted at all; whether under Rule 46A(1) or under Rule 46A(4) of I.T. Rules; although,
as we have observed in foregoing paragraph (C.1) of this order; admittedly from the
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assessee's side, the assessee filed Additional Documents during appellate proceedings
before Ld. CIT(A). Ld. CIT(A) also omitted to mention which specific item(s) of
Additional Evidences / Materials were relevant for which specific ground(s) of appeal and
which specific item(s) weighed in the mind of the Ld. CIT(A) for granting various specific
reliefs to the assessee in the aforesaid impugned appellate order dated 24.04.2015 of
Ld. CIT(A). We further find that in either case, whether the Additional Evidences /
Materials were filed by the assessee suo-moto and admitted under Rule 46A(1) of I.T.
Rules ; or the same were submitted in pursuance of the direction of the Ld. CIT(A)
under Rule 46A(4) of I.T. Rules, the Ld. CIT(A) failed to confront the AO with such
Additional Evidences / Materials and the Ld. CIT(A) further failed to provide an
opportunity to the AO to examine the Additional Evidences / Materials and to provide
Evidences / Materials in rebuttal of the Additional Evidences / Materials submitted by the
Assessee before the Ld. CIT(A). In view of the foregoing, we find that the aforesaid
impugned appellate order of the Ld. CIT(A) suffers from multiple infirmities. Firstly, due
to failure of the Ld. CIT(A) to state whether the Additional Evidences / Materials were
admitted under Rule 46A(1) of I.T. Rules or accepted under Rule 46A(4) of I.T. Rules;
the admissibility or otherwise of the Additional Evidences / Materials has been rendered
uncertain. This uncertainty has arisen because restrictions on production of
Additional Evidences as prescribed under Rule 46A(1) of I.T. Rules are not
applicable when Ld. CIT(A) invokes Rules 46A(4) of I.T. Rules. Therefore,
whether Rule 46A(4) of I.T. Rules was invoked is a critical factor in deciding
admissibility of Additional Evidences during appellate proceedings before Ld.
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CIT(A). The second infirmity is, that impugned appellate order dated 24.04.2015 of Ld.
CIT(A) is also not fully compliant with the norm to pass speaking order, as observed
earlier in this paragraph. Thirdly, failure at the end of the Ld. CIT(A) to confront the AO
with aforesaid Additional Evidences / Materials, and his further failure to provide
reasonable opportunity to the Assessing Officer to examine the Additional Evidences /
Materials and to provide Evidences / Materials in rebuttal of the Additional Evidences /
Materials submitted by the Assessee before the Ld. CIT(A); has caused further infirmity
in the aforesaid order, having been passed, as it was, without following the well
established principle of natural justice. This is so, because AO is an interested party
in the appellate proceedings before the Ld. CIT(A) and in accordance with
well settled principles of natural justice, Ld. CIT(A) was required to confront
the AO, if any Additional Evidences / Materials submitted or produced by
assessee were going to be used by Ld. CIT(A) for granting relief to the
assessee. If any Additional Evidences or Materials are gathered by the Ld.
CIT(A) at the back of the AO, and used by the Ld. CIT(A) to grant relief to the
Assessee, this is violative of the principle of natural justice. The Assessing
Officer is, it goes without saying, an interested party in the appellate proceedings before
Ld. CIT(A). The role of the Assessing Officer as an interested party in appellate
proceedings before the Ld. CIT(A) is, moreover, specifically recognized in Sections 250
of I.T. Act, with particular reference to sub sections 1, 2 and 4 of Section 250 of I.T.
Act. Further, this is also recognized in Rule 46A of I.T. Rules, with particular reference
to Rule 46A(3) of I.T. Rules. For ease of reference, Section 250 of I.T. Act and Rule
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46A of I.T. Rules are reproduced as under:
Section 250 of Income Tax Act, 1961
"Procedure in appeal.
250. (1) The [Commissioner (Appeals)] shall fix a day and place for the
hearing of the appeal, and shall give notice of the same to the appellant and to
the [Assessing] Officer against whose order the appeal is preferred.
(2) The following shall have the right to be heard at the hearing of the
appeal--
(a) the appellant, either in person or by an authorized representative ;
(b) the [Assessing] Officer, either in person or by a representative.
(3) The [Commissioner (Appeals)] shall have the power to adjourn the hearing
of the appeal from time to time.
(4) The [Commissioner (Appeals)] may, before disposing of any appeal, make
such further inquiry as he thinks fit, or may direct the [Assessing] Officer to
make further inquiry and report the result of the same to the [Commissioner
(Appeals)].
(5) The [Commissioner (Appeals)] may, at the hearing of an appeal, allow the
appellant to go into any ground of appeal not specified in the grounds of
appeal, if the [Commissioner (Appeals)] is satisfied that the omission of that
ground from the form of appeal was not wilful or unreasonable.
(6) The order of the [Commissioner (Appeals)] disposing of the appeal shall be
in writing and shall state the points for determination, the decision thereon and
the reason for the decision.
[(6A) In every appeal, the Commissioner (Appeals), where it is possible, may
hear and decide such appeal within a period of one year from the end of the
financial year in which such appeal is filed before him under sub-section (1) of
section 246A.]
(7) On the disposal of the appeal, the [Commissioner (Appeals)] shall
communicate the order passed by him to the assessee and to the [Principal
Chief Commissioner or] Chief Commissioner or [Principal Commissioner or]
Commissioner].
Rule 46A of Income Tax Rules, 1962
"46(A). (1) the appellant shall not be entitled to produce before the [Deputy
Commissioner of (Appeals) [or, as the case may be 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
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in the following circumstances, namely:-
(a) whether the [Assessing Officer] has refused to admit evidence
which ought to have been admitted; or
(b) where the appellant was prevented by sufficient cause from
producing the evidence which he was called upon to produce by the
[Assessing Officer]; or
(c)whether the appellant was prevented by sufficient cause from
producing before the [Assessing Officer]any evidence which is
relevant to any ground of appeal; or
(d) whether the [Assessing Officer ] has made the order appealed
against without giving sufficient opportunity to the appellant to
adduce evidence relevant to any ground of appeal.
(2) No evidence shall be admitted under sub-rule (1) unless the [Deputy
Commissioner (Appeals)] [or, as the case may be, the Commissioner
(Appeals)] records in writing the reasons for its admission.
(3) The [Deputy Commissioner (Appeals)] [or, as the case may be, the
Commissioner (Appeals) shall not take into account any evidence
produced under sub-rule(1) unless the [Assessing Officer] has been
allowed a reasonable opportunity-
(a) to examine the evidence or document or to cross-examine
the witness produced by the appellant, or
(b) to produce any evidence or document or any witness in
rebuttal of the additional evidence produced by the
appellant.
(4) Nothing contained in this rule shall affect the power of the [Deputy
Commissioner (Appeals)] [or, as the case may be, the
Commissioner (Appeals) to direct the production of any document,
or the examination of any witness, to enable him to dispose of the
appeal, or for any other substantial cause including the
enhancement of the assessment of penalty (whether on his own
motion or on the request of the [Assessing Officer]) under clause
(a) of sub-section (1) of section 251 or the imposition of penalty
under section 271.]"
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(D) Besides the aforesaid statutory provisions under Section 250 of I.T. Act and Rule 46A
of I.T. Rules, the role and the rights of the Assessing Officer during appellate proceedings
before Ld. CIT(A) have also found expression and recognition in numerous judicial
precedents and decided cases. We may highlight the order of Hon'ble Jurisdictional High
Court in the case of CIT vs. Manish Build Well (P.) Ltd. [2011] 16 taxmann.com 27(Delhi);
which was considered by Co-ordinate Bench of ITAT in ITO vs. Pardeepa Rani [2016] 73
taxmann.com 392 (Delhi-Trib.). Relevant portions of these orders are reproduced as under:
CIT vs. Manish Build Well (P.) Ltd. 16 taxmann.com 27(Delhi)
"21. In our opinion, substantial questions of law do arise out of the order of the
Tribunal in respect of its decision regarding the addition of Rs. 1,61,67,600/- made
under Section 68. We, accordingly, re-frame the following substantial questions of
law:-
"1. Whether on the facts and in the circumstances of the case and on a
proper interpretation of Rule 46A of the Income Tax Rules, 1962, the
Tribunal was right in law in taking a decision on the merits of the
addition made under Section 68 without affording an opportunity to
the assessing officer of being heard as envisaged in sub-Rule (3) of
Rule 46A?"
2. Whether on the facts and in the circumstances of the case the
Tribunal was right in law in holding that since the CIT (A) possesses
co-terminus powers over the assessment apart from appellate powers,
there was no violation of Rule 46A committed by him ?"
22. As we have with the consent of the learned counsel, heard them on merits, we
proceed to decide the aforesaid substantial questions of law. Since the CIT (A) himself
refers to Rule 46A and has also admitted that the confirmation letters adduced by the
assessee before him were technically fresh evidence, it is not possible to accept the plea
of the learned counsel for the assessee that the CIT (A), in examining the confirmation
letters, was exercising his independent powers of enquiry under sub-Section (4) of
Section 250 of the Income tax Act. It is true that the CIT (A) as first appellate authority
has conterminous powers over the sources of income constituting the subject matter of
the assessment, except the power to tackle new sources of income not considered by the
Assessing Officer, and can do what the Assessing Officer can do and can direct the
Assessing Officer to do what he has failed to do, as held by the Supreme Court in the
case of CIT v. Kanpur Coal Syndicate , [1964] 53 ITR 225 , but in this case, the CIT (A)
did not exercise this right. This power, which is recognized in sub-Section (4) of section
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250, has to be exercised by the CIT (A) and there should be material on record to show
that he, while disposing of the appeal, had directed further enquiry and called for the
confirmation letters from the assessee even in respect of receipt of monies from
customers by way of cheques. Rule 46A is a provision in the Income Tax Rules, 1962
which is invoked, on the other hand, by the assessee who is in an appeal before the CIT
(A). Once the assessee invokes Rule 46A and prays for admission of additional evidence
before the CIT (A), then the procedure prescribed in the said rule has to be scrupulously
followed. The fact that sub-Section (4) of Section 250 confers powers on the CIT (A) to
conduct an enquiry as he thinks fit, while disposing of the appeal, cannot be relied upon
to contend that the procedural requirements of Rule 46A need not be complied with. If
such a plea of the assessee is accepted, it would reduce Rule 46A to a dead letter because
it would then be open to every assessee to furnish additional evidence before the CIT (A)
and thereafter contend that the evidence should be accepted and taken on record by the
CIT (A) by virtue of his powers of enquiry under sub-Section (4) of Section 250. This
would mean in turn that the requirement of recording reasons for admitting the additional
evidence, the requirement of examining whether the conditions for admitting the
additional evidence are satisfied, the requirement that the assessing officer should be
allowed a reasonable opportunity of examining the evidence etc. can be thrown to the
winds, a position which is wholly unacceptable and may result in unacceptable and unjust
consequences. The fundamental rule which is valid in all branches of law, including
Income Tax Law, is that the assessee should adduce the entire evidence in his possession
at the earliest point of time. This ensures full, fair and detailed enquiry and verification. A
7-Judge Bench of the Supreme Court in Keshav Mills Co. Ltd. v. CIT [1965] 56 ITR
365 had observed as under:-
"Proceedings taken for the recovery of tax under the provisions of the Act are naturally
intended to be over without unnecessary delay, and so, it is the duty of the parties, both
the department and the assessee, to lead all their evidence at the stage when the matter is
in charge of the Income-tax Officer."
23. It is for the aforesaid reason that Rule 46A starts in a negative manner by saying that
an appellant before the CIT (A) shall not be entitled to produce before him any evidence,
whether oral or documentary, other than the evidence adduced by him before the
assessing officer. After making such a general statement, which is in consonance with the
principle stated in the above judgment, exceptions have been carved out that in certain
circumstances it would be open to the CIT (A) to admit additional evidence. Therefore,
additional evidence can be produced at the first appellate stage when conditions stipulate
in the Rule 46A are satisfied and a finding is recorded. Rule 46 A reads:-
"Production of additional evidence before the [Deputy Commissioner (Appeals)] [and
Commissioner (Appeals)].
46A. (1) The appellant shall not be entitled to produce before the [Deputy 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 :
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(a) where the [Assessing Officer] has refused to admit evidence which ought
to have been admitted ; or
(b) where the appellant was prevented by sufficient cause from producing the
evidence which he was called upon to produce by the [Assessing Officer] ;
or
(c) where the appellant was prevented by sufficient cause from producing
before the [Assessing Officer] any evidence which is relevant to any
ground of appeal ; or
(d) where the [Assessing Officer] has made the order appealed against without
giving sufficient opportunity to the appellant to adduce evidence relevant
to any ground of appeal.
(2) No evidence shall be admitted under sub-rule (1) unless the [Deputy Commissioner
(Appeals)] [or, as the case may be, the Commissioner (Appeals)] records in writing the
reasons for its admission.
(3) The [Deputy Commissioner (Appeals)] [or, as the case may be, the Commissioner
(Appeals)] shall not take into account any evidence produced under sub-rule (1) unless
the [Assessing Officer] has been allowed a reasonable opportunity
(a) to examine the evidence or document or to cross-examine the witness
produced by the appellant, or
(b) to produce any evidence or document or any witness in rebuttal of the
additional evidence produced by the appellant.
(4) Nothing contained in this rule shall affect the power of the [Deputy Commissioner
(Appeals)] [or, as the case may be, the Commissioner (Appeals)] to direct the production
of any document, or the examination of any witness, to enable him to dispose of the
appeal, or for any other substantial cause including the enhancement of the assessment or
penalty (whether on his own motion or on the request of the [Assessing Officer]) under
clause (a) of sub-section (1) of section 251 or the imposition of penalty under section
271.]
We are highlighting these aspects only to press home the point that the conditions
prescribed in Rule 46A must be shown to exist before additional evidence is admitted and
every procedural requirement mentioned in the Rule has to be strictly complied with so
that the Rule is meaningfully exercised and not exercised in a routine or cursory manner.
A distinction should be recognized and maintained between a case where the assessee
invokes Rule 46A to adduce additional evidence before the CIT (A) and a case where the
CIT (A), without being prompted by the assessee, while dealing with the appeal,
considers it fit to cause or make a further enquiry by virtue of the powers vested in him
under sub-Section (4) of Section 250. It is only when he exercises his statutory suo moto
power under the above sub-section that the requirements of Rule 46A need not be
followed. On the other hand, whenever the assessee who is in appeal before him invokes
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Rule 46A, it is incumbent upon the CIT (A) to comply with the requirements of the Rule
strictly.
24. In the present case, the CIT (A) has observed that the additional evidence should be
admitted because the assessee was prevented by adducing them before the assessing
officer. This observation takes care of clause (c) of sub-rule (1) of Rule 46A. The
observation of the CIT (A) also takes care of sub-rule (2) under which he is required to
record his reasons for admitting the additional evidence. Thus, the requirement of sub-
rules (1) and (2) of Rule 46A have been complied with. However, sub-rule (3) which
interdicts the CIT (A) from taking into account any evidence produced for the first time
before him unless the Assessing Officer has had a reasonable opportunity of examining
the evidence and rebut the same, has not been complied with. There is nothing in the
order of the CIT (A) to show that the Assessing Officer was confronted with the
confirmation letters received by the assessee from the customers who paid the amounts
by cheques and asked for comments. Thus, the end result has been that additional
evidence was admitted and accepted as genuine without the Assessing Officer furnishing
his comments and without verification. Since this is an indispensable requirement, we are
of the view that the Tribunal ought to have restored the matter to the CIT (A) with the
direction to him to comply with sub-rule (3) of Rule 46A. In our opinion and with
respect, the error committed by the Tribunal is that it proceeded to mix up the powers of
the CIT (A) under sub-section (4) of Section 250 with the powers vested in him under
Rule 46A. The Tribunal seems to have overlooked sub-rule (4) of Rule 46A which itself
takes note of the distinction between the powers conferred by the CIT (A) under the
statute while disposing of the assessee's appeal and the powers conferred upon him under
Rule 46A. The Tribunal erred in its interpretation of the provisions of Rule 46A vis-Ã-vis
Section 250(4). Its view that since in any case the CIT (A), by virtue of his conterminous
powers over the assessment order, was empowered to call for any document or make any
further enquiry as he thinks fit, there was no violation of Rule 46A is erroneous. The
Tribunal appears to have not appreciated the distinction between the two provisions. If
the view of the Tribunal is accepted, it would make Rule 46A otiose and it would open
up the possibility of the assessees' contending that any additional evidence sought to be
introduced by them before the CIT (A) cannot be subjected to the conditions prescribed
in Rule 46A because in any case the CIT (A) is vested with conterminous powers over
the assessment orders or powers of independent enquiry under sub-section (4) of Section
250. That is a consequence which cannot at all be countenanced."
ITO vs Pardeepa Rani 73 taxmann.com 392 (Delhi-Trib.)
"6.3 We are of the view that the CIT(A) after over-ruling the objection of the AO
on the admissibility of the fresh evidences was required to communicate the
decision to admit the evidence to the AO and provide him a reasonable opportunity
to rebut the same. In the absence of any such exercises the order is in violation of
the Statutory Rules and is open to the challenge of being perverse. Support is drawn
from the decision of Jurisdictional High Court in the case of CIT v. Manish
Buildwell (P.) Ltd.[2012]204 Taxman106/[2011]16 taxmann.com 27 (Delhi). A
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perusal of the said decision shows that considering the non-fulfillment of the
requirements set out in sub-Rule (3) of Rule 46A the Hon'ble Court was pleased to
restore the issue back to the CIT(A) directing the said Authority to address the
shortcomings. The Hon'ble Court took into consideration the off repeated argument
in such cases by noting that it is true that the powers of CIT(A) as First Appellate
Authority are co-terminous with that of the AO by drawing attention to the
distinction that the powers of the CIT(A) as First Appellate Authority are co-
terminous power over the sources of income constituting the subject matter of the
assessment, except the power to touch new sources of income not considered by the
Assessing Officer. The Jurisdictional High Court has held that the CIT(A) can also
do and can direct the Assessing Officer to do what he has failed to do, as held by
the Supreme Court in the case of CIT v. Kanpur Coal Syndicate[1964] 53 ITR 225.
The Hon'ble Court found that the CIT (A) in the facts before the Court which fact is
evident from the facts of the present case also that the CIT(A) did not exercise the
powers recognized in sub-Section (4) of section 250 and has to be exercised by the
CIT (A). The Hon'ble Court has held that in order to show that the power under
Sub-section (4) to section 250 is being exercised there should be material on record
to show that while disposing of the appeal, the CIT(A) had directed further enquiry
and called for the confirmation letters from the assessee even in respect of receipt of
monies from customers by way of cheques. Rule 46A, it was observed was a
provision in the Income Tax Rules, 1962 which is invoked, on the other hand, by
the assessee who is in an appeal before the CIT (A). Once the assessee invokes Rule
46A and prays for admission of additional evidence before the CIT (A), then the
procedure prescribed in the said rule it has been held has to be scrupulously
followed. The fact that sub-Section (4) of Section 250 confers powers on the CIT
(A) to conduct an enquiry as he thinks fit, while disposing of the appeal the Hon'ble
Court held cannot be relied upon to contend that the procedural requirements of
Rule 46A need not be complied with. Their Lordships have held that if such a plea
of the assessee is accepted then it would reduce Rule 46A to a dead letter because it
would then be open to every assessee to furnish additional evidence before the CIT
(A) and thereafter contend that the evidence should be accepted and taken on record
by the CIT (A) by virtue of his powers of enquiry under sub-Section (4) of Section
250. The Court held that this would mean in turn that: (i) the requirement of
recording reasons for admitting the additional evidence; (ii) the requirement of
examining whether the conditions for admitting the additional evidence are
satisfied; and (iii) the requirement that the assessing officer should be allowed a
reasonable opportunity of examining the evidence etc. can all be thrown to the
winds, a position which the Hon'ble Court held was wholly unacceptable and may
result in unacceptable and unjust consequences. The Hon'ble Court held that the
procedural requirements mentioned in the Rule must be strictly complied with so
that the Rule is meaningfully exercised and not exercised in a routine or cursory
manner. The Tribunal in view thereof in the facts before the Court was faulted with
for over-looking the requirements of sub-Rule (3) of Rule 46A and confusing it
with sub-Rule (4) of Rule 46A. Addressing the rationale for the Rule the Hon'ble
Court observed that the fundamental rule which is valid in all branches of law,
including Income Tax Law is that the assessee should adduce the entire evidence in
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his possession at the earliest point of time. This ensures full, fair and detailed
enquiry and verification. Referring to the decision in Keshav Mills Co.
Ltd. v. CIT [1965] 56 ITR 365 (SC), 7-Judge Bench judgement of the Supreme
Court, it was observed that the Court held that "Proceedings taken for the recovery
of tax under the provisions of the Act are naturally intended to be over without
unnecessary delay, and so, it is the duty of the parties, both the department and the
assessee, to lead all their evidence at the stage when the matter is in charge of the
Income-tax Officer." It was held by the Jurisdictional High Court that it is for the
said reason that Rule 46A starts in a negative manner by saying that an appellant
before the CIT (A) shall not be entitled to produce before him any evidence,
whether oral or documentary, other than the evidence placed by him before the
assessing officer. Their Lordships held that after making the said general statement,
which was found to be in consonance with the principle stated in the aforesaid
judgment of the Apex Court, exceptions have been carved out setting out under
what circumstances it would be open to the CIT (A) to admit additional evidence.
The Court held that additional evidence can only then be produced at the first
appellate stage when conditions stipulated in the Rule 46A are satisfied and a
finding is recorded to that extent which makes it clear in unambiguous language
that firstly the conditions prescribed in Rule 46A must be shown to exist before
additional evidence can be admitted and thereafter every procedural requirement
mentioned in the Rule has to be strictly complied with so that the Rule is
meaningfully exercised and not exercised in a routine or cursory manner. Their
Lordships have held that a distinction should be recognized and maintained between
a case where the assessee invokes Rule 46A to adduce additional evidence before
the CIT (A) and a case where the CIT (A), without being prompted by the assessee,
while dealing with the appeal, considers it fit to cause or make a further enquiry by
virtue of the powers vested in him under sub-Section (4) of Section 250. It is only
when the CIT(A) exercises his statutory power suo moto under the above sub-
section that the requirements of Rule 46A need not be followed. On the other hand,
whenever the assessee who is in appeal before him invokes Rule 46A, it is
incumbent upon the CIT (A) to comply with the requirements of the Rule strictly.
6.4 In the facts of the case before the Hon'ble High Court it was found that the
CIT(A) had recorded that the additional evidence should be admitted because the
assessee was prevented by adducing them before the assessing officer. The said
observation it was held would take care of clause (c) of sub-rule (1) of Rule 46A.
The observation of the CIT (A) it was held would also take care of sub-rule (2)
under which he is required to record his reasons for admitting the additional
evidence. Thus, the requirement of sub-rules (1) and (2) of Rule 46A it was held
had been complied with. However, the Hon'ble Court found that sub-rule (3) which
interdicts the CIT (A) from taking into account any evidence produced for the first
time before him unless the Assessing Officer has had a reasonable opportunity of
examining the evidence and rebut the same, had not been complied with. The Court
found that there was nothing in the order of the CIT (A) to show that the Assessing
Officer was confronted with the confirmation letters received by the assessee from
the customers who paid the amounts by cheques and asked for comments. Thus, the
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end result the Hon'ble Court held was that additional evidence were admitted and
accepted as genuine without the Assessing Officer furnishing his comments and
without verification. In these circumstances the Court held:--
"Since this is an indispensable requirement, we are of the view that the Tribunal
ought to have restored the matter to the CIT (A) with the direction to him to
comply with sub-rule (3) of Rule 46A. In our opinion and with respect, the error
committed by the Tribunal is that it proceeded to mix up the powers of the CIT
(A) under sub- section (4) of Section 250 with the powers vested in him under
Rule 46A." Commenting upon the order of the ITAT their Lordships further held
that "the Tribunal erred in its interpretation of the provisions of Rule 46A vis-à-
vis Section 250(4). Its view that since in any case the CIT (A), by virtue of his
conterminous powers over the assessment order, was empowered to call for any
document or make any further enquiry as he thinks fit, there was no violation of
Rule 46A is erroneous. The Tribunal appears to have not appreciated the
distinction between the two provisions. If the view of the Tribunal is accepted, it
would make Rule 46A otiose and it would open up the possibility of the
assessees' contending that any additional evidence sought to be introduced by
them before the CIT (A) cannot be subjected to the conditions prescribed in Rule
46A because in any case the CIT (A) is vested with conterminous powers over
the assessment orders or powers of independent enquiry under sub-section (4) of
Section 250. That is a consequence which cannot at all be countenanced."
(D.1) As we discussed earlier in paragraph (D) of this appellate order, the aforesaid
impugned appellate order dated 24.04.2015 of Ld. CIT(A) suffers from three infirmities.
To summarize, firstly, the admissibility or otherwise of Additional Evidences / Materials
relied on by the Ld. CIT(A) is rendered uncertain. Secondly, the order of the Ld. CIT(A)
is a non-speaking order. Thirdly, the conclusions arrived at by the Ld. CIT(A) lack
credibility on account of failure on the part of Ld. CIT(A) to observe the principles of
natural justice in so far as providing reasonable opportunities to the AO, an interested
party in appellate proceedings before CIT(A), is concerned. In view of these triple
infirmities, the aforesaid impugned appellate order dated 24.04.2015 of Ld. CIT(A) is
unsustainable. At the time of hearing before us, the Ld. DR submitted that the order of
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the Ld. CIT(A) should be set aside and the Ld. CIT(A) should be directed to pass a
fresh order. On the other hand, the Ld. AR of the assessee submitted that all the
disputed issues should be remanded to the file of the AO with the direction to pass
Assessment Order afresh. In this context, we have noted with concern that the
assessee had failed to avail of six opportunities spanning over a period of eight months
during the assessment proceedings. Thus, we are of the view that opportunities
provided by the AO during assessment proceedings were reasonable, and despite that,
the assessee had failed to avail of the opportunities. We are also mindful that
statutory provisions U/s 153(1) of I.T. Act prescribe tight time-line for
completion of assessment proceedings and a strict limitation period. The AO
is required to complete the assessment after necessary inquiries,
investigations and scrutiny, within this strict limitation period. Having regard
to constraints of limitation period in completion of assessment proceedings,
one cannot have unreasonable expectations for opportunity that can be
provided by the Assessing Officer. When the assessee failed to avail of
reasonable opportunities provided by the AO during assessment
proceedings, the assessee cannot claim as a matter of right, to go back to
the AO on the setting aside of the order of the Ld. CIT(A) thereby seeking to
avail of more opportunity from the Assessing Officer. We may refer to order of
Co-ordinate Bench of ITAT, Delhi in the case of Aradhana Foods & Juices Pvt. Ltd.
reported at (2017) 50 CCH 0080 Del Trib wherein it was held: "Revenue has the
authority to make verifications / inquiries / investigations etc. in accordance with law
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and the assessee needs to comply with the lawful requirements prescribed in that
regard by the Revenue authorities. ....when an assessee does not fully honour the
lawful authority of Revenue, or when lawful requirements prescribed by Revenue
authorities are not fully complied with; the assessee cannot claim a lenient view as a
matter of right, and the assessee must face its consequences as per law." In our
view, When an assessee fails to avail of reasonable opportunities provided
by the Assessing Officer during assessment proceedings; the assessee must
pass the test of Rule 46A of I.T Rules, 1962 before the CIT(A) admits or
accepts Additional Evidences or Materials during appellate proceedings
before CIT(A). The crucial issue in the appeal before us is the admissibility of
Additional Evidences / Materials filed by the assessee during appellate proceedings
before the Ld. CIT(A); and this issue cannot be decided by Assessing Officer, an
authority below the CIT(A). When the issue of admissibility of Additional
Evidences / Materials filed by the assessee during appellate proceedings
before Ld. CIT(A) is crucial; it will be improper and inappropriate to remand
the matter to the Assessing Officer. We hereby set aside the aforesaid impugned
appellate order dated 29.06.2012 of Ld. CIT(A) and restore all disputed matters to the
file of the Ld. CIT(A), with the direction to pass fresh order. If the Ld. CIT(A)
decides to admit Additional Evidences, he should clearly state the specific
clause(s) of Rule 46A(1) of I.T. Rules that would apply; while recording the
reasons under Rule 46A(2) of I.T. Rules. Further, if the Ld. CIT(A) decides to
admit Additional Evidences, reasonable opportunity prescribed under Rule
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46A(3) of I.T. Rules must be provided by the Ld. CIT(A) to the AO. Even if
Ld. CIT(A) accepts the Additional Evidences / Materials under Rule 46A(4) of
I.T. Rules, even then reasonable opportunities must be provided by the Ld.
CIT(A) to the Assessing Officer to examine such Additional Evidences /
Materials and to produce any evidence or document in rebuttal of Additional
Evidences / Materials submitted or produced by the Assessee before the Ld.
CIT(A).
(D.2) By way of abundant caution, we expressly clarify that we have not expressed
any opinion on merits of the various quantum additions made by the Assessing Officer
in the Assessment Order [and deleted by the Ld. CIT(A) in aforesaid impugned
appellate order dated 24.04.2015] which are under dispute in the present appeal.
Submissions and contentions on merits are left open for both sides, Revenue as well as
Assessee, during the appellate proceedings before the Ld. Commissioner of Income tax
(Appeals).
(E) In the result, appeal filed by Revenue is partly allowed for statistical purposes.
Order pronounced in the Open Court on 27/09/2019.
Sd/- Sd/-
(H.S. SIDHU) (ANADEE NATH MISSHRA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 27/09/2019
Pooja/-
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Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR
ITAT NEW DELHI
Date of dictation
Date on which the typed draft is placed before the
dictating Member
Date on which the typed draft is placed before the
Other Member
Date on which the approved draft comes to the Sr.
PS/PS
Date on which the fair order is placed before the
Dictating Member for pronouncement
Date on which the fair order comes back to the Sr.
PS/PS
Date on which the final order is uploaded on the
website of ITAT
Date on which the file goes to the Bench Clerk
Date on which the file goes to the Head Clerk
The date on which the file goes to the Assistant
Registrar for signature on the order
Date of dispatch of the Order
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