Tax-payers have rarely understood the need for producing necessary documents and relevant evidence during the course of assessment proceedings. Failure to do so may cost them dearly because the opportunity may subsequently not be available once the assessment order is passed.

Generally, the appellate authorities consider only the evidence on record with the Assessing Officer. Additional evidence can be admitted by the Commissioner of Income-Tax (Appeals) only if the conditions laid down in Rule 46-A are satisfied.

This Rule clearly bars the production of any additional evidence. It would go to show that the production of additional evidence is not a matter of right. However, in exceptional cases, on the basis of any one of the grounds manifestly and apparently set out in Rule 46-A(1) itself, the appellant is permitted to produce additional evidence subject to approval/admission of the same by the appellate authority.

The exceptions

This provision enumerates four circumstances allowing the appellant/assessee to produce additional evidence: (i) if the Assessing Officer refuses to admit the evidence which ought to have been admitted; (ii) when the appellant was prevented by sufficient cause from producing such evidence which he was called upon to produce by the Assessing Officer; (iii) in case where the appellant was prevented by sufficient cause from producing before the Assessing Officer any evidence which is relevant to any ground of appeal and, lastly, (iv) when no sufficient/reasonable opportunity of hearing to the appellant was given to adduce any relevant evidence by the Assessing Officer at the time of passing the order impugned.

Therefore, it is clear that only in case of availability of any one of those four grounds mentioned in Rule 46-A(1), it is obligatory for the appellate authority to record the reasons in writing for allowing/admitting the production of such additional evidence and that has been clearly provided under Rule 46-A(2).

Rule 46-A(3) provides for affording the reasonable opportunity to the Revenue to examine the evidence or document and/or to cross-examine the witness so produced by the appellant and also to allow the Revenue to produce any other such evidence or document or witness in rebuttal of such additional evidence.

There is no doubt that the procedure of Rule 46-A(1) as regards the production of additional evidence needs to be guided and controlled by sub-rules (2) and (3) of that Rule. In other words, if additional evidence is permitted to be produced, then, first, there must be reasons to be recorded in writing and, second, reasonable opportunity has to be given to the assessing authority to refute and reject such production.

Under Rule 46-A(4), power can be exercised by the Commissioner (Appeals) suo motu when there is no such available documents placed before the appellate authority for purposeful and effective adjudication of the appeal.

Independent Exercise

On that occasion only by exercising the power bestowed upon him by Rule 46-A(4) read with Section 250(4) of the Income-Tax Act, which empowers him to make further inquiry as he thinks fit, the Commissioner (Appeals) shall direct for production of any document or 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.

Sub-rule (4) would operate only when no such additional evidence had been adduced before the appellate authority and this power, given to the appellate authority under Rule 46-A(4), can be exercised of his own, if he is of the opinion that it is necessary for disposal of the appeal to direct the production of any document or the examination of any witness.

It is to be noted that Rule 46-A(4) does not permit doing away with the procedural law prescribed under sub-rules (1), (2) and (3) of that Rule, once additional evidence is produced. It is pertinent to refer herein to Order 41, Rule 27, Civil Procedure Code, which is almost in pari materia with Rule 46-A(1).

It also does not allow the appellant to adduce any additional evidence until and unless such exceptional circumstances, as provided therein, are set out before the appellate authority. The language of Rule 46-A is clear and loud to the effect that no additional evidence is permitted save and except in exceptional cases in terms of Rule 46-A(1) and that too only after compliance of sub-rules (2) and (3) thereto.

In Prabhavati S. Shah v. C.I.T. (231 I.T.R. 1), the Bombay High Court held that the restrictions placed on the production of additional evidence by the appellant under Rule 46-A shall not affect the powers of the appellate authority to call for the production of any document or the examination of any witness to enable him to dispose of the appeal. It was also categorically held that the powers conferred upon the appellate authority under Section 250(4) of the Act, being a quasi-judicial power, it was incumbent upon him to exercise the same, if the facts and circumstances justify and the purpose of Rule 46-A of the Rules was to ensure that evidence was primarily led before the Assessing Officer.

No whimsical action

In Haji Lal Mohd. Biri Works' case (275 I.T.R. 496), the Allahabad High Court held that under Rule 46-A the authority is not permitted to act whimsically while exercising the jurisdiction under it and the additional/fresh evidence taken by the Commissioner of Income-tax (Appeals) outside Rule 46-A should be quashed.

In C.I.T. v. Ranjit Kumar Choudhury (288 I.T.R. 179), an addition of Rs 6,38,000 was made to the income of the assessee in the assessment year 1998-99. No evidence oral or documentary was placed explaining the receipt of the sale proceeds of the disputed amount before the Assessing Officer.

On appeal, the Guwahati High Court held that it was admitted that the assessee produced the photo-copies of the sale bills and receipts only before the Commissioner (Appeals). Without recording any valid or plausible reason, the Commissioner allowed the assessee to produce the additional evidence. Moreover, no opportunity of hearing was given to the Revenue. The order passed by the Tribunal was not valid.

The aforesaid decision clearly emphasises the need for evidence to be produced at the stage of assessment proceedings. Once that stage has passed, it may be difficult to have additional evidence admitted before the appellate authority unless the conditions of Rule 46-A are strictly complied with.

H. P. Ranina
(The author, a Mumbai-based advocate specialising in tax laws)