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Income Tax Appellate Tribunal, DELHI
Before: SH. R.K.PANDA & SH. ANUBHAV SHARMA
The appeal has been filed by the assessee against order dated 27.02.2018 in appeal no. 54/2016-17 passed by Commissioner of Income Tax (Appeals)-2, Gurugaon (hereinafter referred as the Ld. First Appellate Authority or in short Ld. F.A.A.) in appeal pending before him against order dated 18.03.2016 for assessment year 2013-14 passed by Income Tax Officer, Ward 1(4), Gurgaon passed u/s 143 of the Income Tax Act (hereinafter referred to as ‘the Act’).
./2018 Dataserv Global Pvt. Ltd.
The facts in brief are return declaring loss of Rs. 33,28,334/- was filed by the assessee which was taken up for scrutiny and notice u/s 142(1) of the Act along with questionnaire was issued on 06.08.2015. On the basis of reply it was found that assessee has borrowed unsecured loan from others of Rs. 43,85,655/. Thus to verify the unsecured loans assessee was sent questionnaire on 27.07.2015. Thereafter Ld. AO observed that genuineness of unsecured loan is not established and the loan shown from Smt. Asha Dewan, Smt. KAjal Jai Singh and Sh. Siddharth Jai Singh being unexplained they were added to the income of assessee as unexplained cash credit u/s 68 of the Act. Apart from this addition of Rs. 37,30,000/- interest credit in their accounts was also denied and further addition of Rs. 23,908/- was made. In appeal apart from raising grounds on merits, assessee had also filed an application for leading additional evidences under Rule 46(A)(1)(c) of the Income Tax Rules, 1962 on which after taking report of the Ld. Assessing Officer the Ld. F.A.A. dismissed the same and further dismissed the appeal on merit.
Now before the Tribunal assessee has raised following grounds of appeal :- (a) That the order of Ld. AO is 1. bad in law and on facts and circumstances of the case. That the Ld. AO has not raised a show cause (b) notice before making such addition.
That the Ld. CIT(A) has erred on facts & law by (c) not admitting the additional evidence filed by the appellant under Rule 46A of the Income Tax Rules 1962 which is bad in law and which is not as per the details, facts and circumstances of the case. Hence, the additions made and upheld are liable to be deleted. That the Ld. CIT(A) has erred on facts & law by 2. upholding the Assessment Order in which addition of Rs.37,53,908/- was made by Ld.AO on account of unsecured loans despite all the information being ./2018 Dataserv Global Pvt. Ltd. furnished . This is bad in law and not as per the details, facts and circumstances of the case and hence the addition made is liable to be deleted. That the Ld. CIT(A) has erred on facts & law by 3. upholding the Assessment Order in which addition of Rs. 15,95,532/- on account of disallowance of expenditure was made by Ld.AO. This is bad in law and not as per the details, facts and circumstances of the case and hence the addition made is liable to be deleted.”
Heard and perused the record. Ld. Representative of the assessee submitted that the additional evidences of the assessee was dismissed without considering its merits and the facts and circumstances of the matter and arguments on merits were restricted accordingly. Ld. DR however, supported the findings of Ld. F.A.A.
Giving thoughtful consideration to the matter on record it can be observed from the paper book that assessee intended to place on record following in the form of additional evidences :- “1. Bank Statement of Ms Asha Dewan Showing the amount paid by her, Copy of Passport as ID Proof, copy of PAN card and copy of ITR (Page No. 1 to 4) 2. Bank Statement of Ms Kajal Singh showing the amount paid by her and Copy of Passport as ID Proof. (Page no. 5 to 8) 3. Confirmation, Bank Statement of mr. Siddharth Jai Singh showing the amount paid by him, copy of Voter ID as ID proof, and copy of ITR (Page no. 9 to 16) 4. Letter of Bank regarding Loan processing Charges paid (Page No. 17 to 22) 6. It can be seen from this application for additional evidences which is on page no. 7 to 10 of the paper book that assessee claimed in para no. 5- 6 :-
“5. The assessee tried hard to get the confirmation etc. from the lenders, but the lenders did not cooperate in time. Moreover the Ld assessing officer always insisted on the submission of the bank statements of the respective unsecured loan providers, whereas the assessee has no authority or judicial power to call for these ./2018 Dataserv Global Pvt. Ltd. documents from these unsecured loan providers. The assessee also submitted the bank-account of the company showing the amounts received from the lenders.
The Ld Assessing officer failed to recognize that the assesses had applied for term loan for purchase of machinery and loan processing fees was paid to ICICI Bank to the'tune of Rs 15,95,532/- and that was the requirement of the sanction to pay the prosessing fees upfront starting the process of sanctioning of loan. Due to certain reasons, no loan was sanctioned by bank to the assessee, whereas the bank had charged Rs 15,95,532/- as loan processing fees from the assessee. The Ld AO made the addition on the basis that no loan is reflected in the balance sheet hence no expense will be allowed, even though such expenditure was Incurred for the business purpose.”
The Bench is of the considered opinion that Ld. CIT(A) has given to narrow interpretation to the scope of Rule 46A of the Rules of 1961. The nature of evidences sought to be produced in additional evidence was such which could not have been available with the assessee independently of the help from concerned bank or the creditors. Therefore, the case of assessee was squarely covered with clause (ii) of Rule 46A of the Rules of 1961. The ld. F.A.A. merely observed that “the appellant has not been able to justify as to how and why the documents could not be obtained by him, to explain his contentions, during the course of assessment proceedings. The appellant has not been able to justify as to what prevented him from producing these evidences inspite of repeated opportunities.” Thus Ld. CIT(A) has failed to take into consideration circumstances actually cited and disclosed in the application. Substantially justice requires a liberal interpretation to phrase “sufficient cause” which Ld. CIT(A) failed to appreciate from the reasons cited. Reliance can be placed on Pr. CIT v. Daljit Singh Sra [2017] 80 taxmann.com 271 (P&H) where Hon’ble Punjab and Haryana High court has gone to hold that: “In view of the above facts and circumstances, there is no doubt assessee did not co-operate with the Assessing Officer in completion of assessment proceedings but 5 ITA No. 3226/Del./2018 Dataserv Global Pvt. Ltd. the fact remains that in the delivery of justice the real income of assessee has to be assessed and that too after hearing the assessee. The Commissioner (Appeals) has not commented upon the nature of evidence filed under rule 46A. Such evidence might have been relevant for the calculation of real income of the assessee, therefore, in view of the substantial justice”. So Commissioner (Appeals) was directed to admit additional evidence and decide the case afresh after affording a reasonable opportunity to the assessee of being heard.
Apart from that the settled legal proposition is that the powers of the first appellate authority are very wide and co-terminus with those of the AO and what AO can do, he can do and what AO fail to do, that also he can do. Reference can be made to judgement in Kanpur Coal Syndicate 53. ITR 225 (SC).
8.1 Further, Section 250(4) empowers the CIT(A) to make further inquiries on its own or to direct the AO to make further inquiry and to report him. The embargo put on his power u/r 46A (1) & (2) has also been loosened by sub-rule 4, which also empower the CIT(A) to direct the production of any document/the examination of witness, to enable him to dispose of the appeal. Thus, the legislative intent is quite clear that the Ld. CIT(A) should not straight away reject, evidence/s filed before him under rule 46A(1). The powers of CIT(A), as discussed above are also to be interpreted in the context of the amended law, wherein, he is no more empowered to set aside to the AO which was available earlier u/s 251 (1) (a), necessitating admission of the evidence before him in the larger interest of justice.
8.2 This matter has been dealt with elaborately in CIT vs. K. Ravindranathan Nayyar (2003) 184 CTR 46 (Ker.), where it was held that the CIT (A) was not justified in rejecting the admission of confirmatory letter straight away on the plea that the case of the appellant does not fall under any of the circumstances 6 ITA No. 3226/Del./2018 Dataserv Global Pvt. Ltd. given under clause (a) to (b) of Rule 46A (1). In this judgment Bombay High Court judgement in Smt. Prabhavati S. Shah vs Commissioner Of Income-Tax 1998 231 ITR 1 Bom was considered and it will appropriate to reproduce the relevant part of the judgement of Hon’ble Bombay High Court where in para 4 to 8 it was held; “4. We have heard Mr. A. Jasani, learned counsel for the assessee. The main controversy in this case is about the scope and ambit of Rule 46A of the Rules. Rule 46A reads as follows : "46A. Production of additional evidence before the Appellate Assistant Commissioner.--(1) The appellant shall not be entitled to produce before the Appellate Assistant Commissioner any evidence, whether oral or documentary, other than the evidence produced by him during the course of proceedings before the Income-tax Officer, except in the following circumstances, namely :- (a) where the Income-tax 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 Income-tax Officer ; or (c) where the appellant was prevented by sufficient cause from producing before the Income-tax Officer any evidence which is relevant to any ground of appeal
; or (d) where the Income-tax 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 Appellate Assistant Commissioner records in writing the reasons for its admission. (3) The Appellate Assistant Commissioner shall not take into account any evidence produced under Sub-rule (1) unless the Income-tax 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 Appellate Assistant Commissioner to direct the production of any document, or the ./2018 Dataserv Global Pvt. Ltd. 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 Income- tax Officer) under Clause (a) of Sub-section (1) of Section 251 or the imposition of penalty under Section 271."
5. On a plain reading of Rule 46A, it is clear that this rule is intended to put fetters on the right of the appellant to produce before the Appellate Assistant Commissioner any evidence, whether oral or documentary, other than the evidence produced by him during the course of the proceedings before the Income-tax Officer, except in the circumstances set out therein. It does not deal with the powers of the Appellate Assistant Commissioner to make further enquiry or to direct the Income-tax officer to make further enquiry and to report the result of the same to him. This position has been made clear by Sub-rule (4) which specifically provides that the restrictions placed on the production of additional evidence by the appellant would not affect the powers of the Appellate Assistant Commissioner to call for the production of any document or the examination of any witness to enable him to dispose of the appeal. Under Sub-section (4) of Section 250 of the Act, the Appellate Assistant Commissioner is empowered to make such further inquiry as he thinks fit or to direct the Income-tax Officer to make further inquiry and to report the result of the same to him. Sub-section (5) of Section 250 of the Act empowers the Appellate Assistant Commissioner to allow the appellant, at the hearing of the appeal, to go into any ground of appeal not specified in the grounds of appeal, on his being satisfied that the omission of the ground from the form of appeal was not wilful. It is clear from the above provisions that the powers of the Appellate Assistant Commissioner are much wider than the powers of an ordinary court of appeal. The scope of his powers is coterminous with that of the Income- tax Officer. He can do what the Income-tax Officer can do. He can also direct the Income-tax Officer to do what he failed to do. The power conferred on the Appellate Assistant Commissioner under Sub-section (4) of Section 250 being a quasi-judicial power, it is incumbent on him to exercise the same if the facts and circumstances justify. If the Appellate Assistant Commissioner fails to exercise his discretion judicially, and arbitrarily refuses to make enquiry in a case where the facts and ./2018 Dataserv Global Pvt. Ltd. circumstances so demand, his action would be open for correction by a higher authority.
6. On a conjoint reading of Section 250 of the Act and Rule 46A of the Rules, it is clear that the restrictions placed on the appellant to produce evidence do not affect the powers of the Appellate Assistant Commissioner under Sub-section (4) of Section 250 of the Act. The purpose of Rule 46A appears to be to ensure that evidence is primarily led before the Income-tax Officer.
7. We are supported in our above conclusion by the decision of the Orissa High Court in B. L. Choudhury v. CIT [1976] 105 ITR 371 in which it was held (page 376) : "Wide provision has thus been made conferring jurisdiction on the first appellate authority to make such inquiry as he deems fit. The provision seems to have been based on the fact that before the Appellate Assistant Commissioner there is generally no opposite party. The appellate authority himself is the departmental authority representing the Revenue. Therefore, he has been invested with the power of making further inquiry. He does not exceed his jurisdiction if he asks or allows the assessee to produce or file additional papers or additional evidence in the manner he thinks fit."
8. It was further held that (page 376) : "In fact, receiving new material by the Appellate Assistant Commissioner cannot be equated with receipt of additional evidence as contemplated in Order 41, Rule 27 of the Code of Civil Procedure or even at the stage of second appeal by the Tribunal." 8.3 Therefore the nature of addition is also relevant to understand that in a case where the assessing tax authority places burden on the assessee to establish or explain something, and same can be also taken up by independent enquiry by the assessing tax authority, which is not done, then that all the more justifies giving opportunity to the assessee to lead additional evidence in appeal, unless there are exceptional circumstances which show that there is abuse of process of law by the assessee. ./2018 Dataserv Global Pvt. Ltd.
9. Accordingly the first ground of appeal is allowed and the case is restored to the files of ld. CIT(A) with the direction to allow the additional evidences of the assessee and after giving opportunity of hearing to the assessee to the assessee and also Ld. AO, if required, fresh order be passed.
Accordingly, the appeal is allowed.