DEPUTY COMMISSIONER OF INCOME TAX, RAIPUR vs. VIRENDRA KUMAR AGRAWAL, RAIPUR

"Whether on the facts and in the circumstances of the case the Id. CIT(A) was justified in deciding the appeal in favour of the appellant ignoring the ratio of judgment of the Hon'ble Supreme Court of India in the case of Sudarshan Silk and Sarees 300 ITR 205 (SC) wherein the Hon'ble Supreme Court, has laid down the attributes of perversity by holding that an order or finding is perverse on facts, if the finding is without any evidence and when an authority draws a conclusion which can't be drawn by any reasonable person or authority on the material and facts placed before it?"

Any other ground which may be adduced at the time of hearing.”

Succinctly stated, the assessee had filed his return of income for A.Y.2018-19 on 30.10.2018 declaring an income of Rs.1,31,17,250/-. The return of income filed by the assessee was processed as such u/s. 143(1) of the Act. Subsequently, the case of the assessee was selected for scrutiny assessment u/s. 143(2) of the Act.

The A.O, thereafter, framed the assessment vide his order passed u/s. 143(3) r.w.s. 144B of the Act, dated 11.05.2021 wherein the income of the assessee was determined at Rs.15,66,68,438/-, after inter alia, making the following additions:

Aggrieved the assessee carried the matter in appeal before the CIT(Appeals). Apropos the addition of unsecured loans of Rs.8.15 crore that raised from 20 parties, the CIT(Appeals) based on his exhaustive deliberations and after taking cognizance of the loan confirmations, copies of the returns of income, bank account statements which the assessee had in the course of the assessment proceedings failed to file before the A.O, vacated the same.

Apropos the disallowance of the assessee’s claim for deduction u/s.57 of the Act of interest of Rs.59,42,862/- paid on unsecured loans, the CIT(Appeals) observed that now when the unsecured loans were utilized by the assessee for his business purposes, thus, deduction of interest paid on the said loans was allowable as an expenditure.

The Revenue being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us.

We have heard the Ld. Authorized Representatives of both the parties, perused the orders of the lower authorities and the material available on record.

Shri S.L Anuragi, Ld. Departmental Representative (for short ‘CIT- DR”), at the threshold of hearing, submitted that as the CIT(Appeals) had vacated the additions/disallowances that were made by the A.O by admitting the “additional documentary evidences” that were produced by the assessee appellant in the course of the proceedings before him without confronting the same to the A.O and calling for his remand report, therefore, the same was in violation of Rule 46A of the Income Tax Rules, 1962. Elaborating further on his contention, the Ld. CIT-DR submitted that as the CIT(Appeals) had admitted the fresh additional evidence without affording any opportunity to the A.O to rebut the same as is statutorily required per the mandate of Rule 46A, therefore, the order so passed by him cannot be sustained and is liable to be set-aside. The Ld. CIT-DR to buttress his aforesaid claim had taken us through the order passed by the CIT(Appeals), which revealed that the latter had based on multi-facet additional documentary evidence that was filed by the assessee which, however, was never confronted to the A.O, vacated the impugned additions/disallowances.

Shri R.B. Doshi, Ld. Authorized Representative (for short ‘AR’) for the assessee relied on the order of the CIT(Appeals). On being confronted as to whether or not the CIT(Appeals) had admitted the additional documentary evidence without confronting the same to the A.O, the Ld. AR in all fairness answered in the affirmative.

Controversy involved in the present appeal boils down to the adjudication of solitary issue, i.e. as to whether or not the CIT(Appeals) is right in law and facts of the case in vacating the disallowances/additions made by the A.O based on fresh documentary evidences that were filed by the assessee before him without confronting the same to the A.O?

Before proceeding any further, we deem it fit to cull out Rule 46A of the Income Tax Rules, 1962 which entitles the assessee appellant to produce additional evidence in the course of the proceedings before the CIT(Appeals), as under:

Apart from that, as per sub-rule (3) of 46A, the Commissioner (Appeals) shall not take into account any evidence produced before him under sub-rule (1) (supra) unless the A.O has been allowed reasonable opportunity, viz. (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.

At this stage, we may herein observe that the aforesaid set of pre- conditions/obligation cast upon the CIT(Appeals) while admitting additional evidence is subject to the exception carved out under sub-rule (4), which vests plenary powers with 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 A.O).

Be that as it may, we are principally in agreement with the Ld. CIT- DR that the CIT(Appeals) before admission of the additional documentary evidence that was produced by the assessee in the present case, remained under a statutory obligation to have allowed a reasonable opportunity to the A.O, viz. (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.

We shall now in the backdrop of the aforesaid mandate of law look into the aspect, i.e. as to whether or not the CIT(Appeals) while vacating the additions/disallowances in the present case, had failed to comply with the statutory obligation as was cast upon him while admitting the additional documentary evidence as per the mandate of Rule 46A of the Income Tax Rules, 1962.

As is discernible from the CIT(Appeals)’s order, we find that the assessee appellant in the course of the proceedings before him had filed copies of the bank account statements of the lenders, confirmations of the lenders; and copies of the returns of income of the lenders to substantiate the authenticity of the unsecured loans of Rs.8.15 crore and Rs.4.25 crores. As the aforementioned documents were not filed by the assessee in the course of the assessment proceedings, therefore, the same were in the nature of additional documentary evidence. Although, the CIT(Appeals) had admitted the aforesaid additional documentary evidences, but he had neither confronted the same to the A.O for necessary examination; nor rebuttal, as required per the mandate of Rule 46A of the Income Tax Rules, 1962. Accordingly, we are of a firm conviction that the admission of the aforementioned additional documentary evidence that was filed by the assessee before the CIT(Appeals) is in clear violation of the statutory procedure contemplated in Rule 46A of the Income Tax Rules, 1962.

Apropos the disallowance of the assessee’s claim for deduction of interest on unsecured loans, we are of the view that as the same is inextricably interwoven with the aforesaid loans that were raised by the assessee during the year under consideration, therefore, it can safely be concluded that the vacating of the said addition being consequential to treating the unsecured loans, based on the admission of additional documentary evidence at back of the A.O, as authentic, is also not as per the mandate of Rule 46A of the Income Tax Rules, 1962. Accordingly, we herein taking cognizance of the fact that the CIT(Appeals) had vacated the additions/disallowances made by the A.O based on additional documentary evidence that were filed by the assessee appellant before him, which, however, were never confronted to the A.O for necessary examination and rebuttal, restore the matter to his file with a direction to re-decide the same after confronting the said documentary evidence that had been admitted by him at the back of the A.O as required per the mandate of Rule 46A of the Income Tax Rules, 1962. Needless to say, the CIT(Appeals) shall in the course of the set-aside proceedings afford a reasonable opportunity of being heard to the assessee. Thus, the Grounds of appeal Nos. 1 to 5 raised by the revenue are allowed for statistical purposes.

In the result, appeal filed by the revenue is allowed for statistical purposes in terms of our aforesaid observations.