ITO, NEW DELHI vs. M/S KALRA PAPERS PVT. LTD.,, NEW DELHI

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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(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 Page 2 of 21

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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 Page 4 of 21

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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:

(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 Page 11 of 21

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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 Page 14 of 21

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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 Page 15 of 21

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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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