ITO, NEW DELHI vs. SH. RAJENDER KUMAR DIWAN, NEW DELHI

Date of Hearing 07.06.2016 Date of Pronouncement 10.08.2016 ORDER

PER DIVA SINGH, JM

1. “On the facts and circumstances of the case, the Ld.CIT(A) erred in deleting the disallowance of Rs.70,03,145/- on account of compensation received on account of compulsory acquisition of land as the CIT(A) has merely on the basis of copy of khasra girdawar submitted by the assessee, held the land to be agricultural and exempt from capital gain.

2. ON the facts and circumstances of the case, the CIT(A) erred in accepting self serving document not corroborated by cross examination.

3. On the facts and circumstances of the case, the CIT(A) erred in not allowing the AO to examine the additional evidence admitted by him as per provision u/s 40A(3) of the I. T. Act Rules.

4. Set aside the order of the CIT(A) and restore the matter back to the AO to re-examine fresh evidences in a holistic manner. The appellant craves that right to add, delete, alter or amend any ground of appeal.”

2. Inviting attention to Ground No.3 raised by the Revenue, the Ld. Sr.DR submitted that the AO has filed a petition dated 18.03.2015 stating that in the grounds raised there

I.T.A .No.-4575/Del/2011 is a typographical error in mentioning “u/s 40A(3)” and which may be read as “under Rule 46A”. The substitution on considering the material on record is permitted.

2.1. The record shows that on the last date of hearing i.e.12.02.2016 the appeal was adjourned on the oral request of the assessee and the date has been noted as per signatures on the order sheet. It is further seen that on two consecutive occasions prior to the oral request the appeal was adjourned both on 04.08.2015 and 13.11.2015 on the written request of the assessee. Accordingly, as the date stood noted on behalf of the assessee, the appeal on the date of hearing was initially passed over. Since in the second round also there was no adjournment nor representation and the assessee as per record had adequate notice having chosen to remain unrepresented for reasons best known to it the Revenue was required to argue their appeal.

The assessee was show-caused why the amount of Rs.20 lacs should not be added as undisclosed investment and the assessee was required to file copies of all bank statements. The assessee as per record sought an adjournment on 27.11.2009 which was granted. However, thereafter the assessee chose to remain unrepresented. In these circumstances, the AO passed the order u/s 144 assessing the income at Rs.93,36,920/- by making an addition of Rs.91.26 lacs odd in respect of the following investments:-

(1) Investment in UTI Mutual Fund Rs. 5,00,000/- (2) Investment in Post Office Rs.15,00,000/- (3) Interest on Senior Citizen Scheme from Post office Rs. 1,23,503/- (4) Compensation Rs.70,03,145/- Total:- Rs.91,26,648/-

I.T.A .No.-4575/Del/2011 4. The facts relatable to Ground No.1 of the Revenue’s appeal are found discussed in para 4 of the assessment order and are reproduced hereunder for the sake of completeness:-

4. “Compensation received by the assessee:- It was also observed that the assessee that the assessee has received compensation of Rs.70,03,145/- on which TDS of Rs.7,85,753/- was deducted by ADM/LAC Distt. West, Old Middle School Building, Rampura, Lawrence Road, Delhi-110035. Assessee has claimed credit and refund of TDS of Rs.7,85,753/- in his return of income. However, no details has been filed by the assessee about the nature of receipt of the above said amount and its taxability in his hand and whether the same has been declared & offered for taxation by him in his return of income. Since no details about the income has been filed about the source of income and amount declared by the assessee in his return filed. I treat the compensation received of Rs.70,03,145/- was not declared by the assessee in his return of income and added to the assessee’s income. Since the assessee has furnished inaccurate particulars of his income on this ground, penalty proceedings u/s 271(1)(c) of the income Tax Act, 1961 has been initiated separately.” (Addition Rs.70,03,145.00)

5.1. The fresh evidences filed by the assessee was admitted by the CIT(A) holding as under:-

4.1. “I have carefully considered the facts of the case, remand report of the AO and submissions and rejoinder of the authorized representative. The first and foremost issue which requires to be decided is whether additional evidences submitted by the appellant are admissible or not. It is seen from the details that additional evidences filed before the undersigned have been produced for the purpose of deciding this appeal. These evidences Page 3 of 10

I.T.A .No.-4575/Del/2011 enable the undersigned to pass an order on this issue, one way or the other. For an appellate authority, it is implicit, in order to come to a proper conclusion that such crucial evidences which help in arriving at a decision, should be considered. It is for this very reason, that the rules require new evidences to be admitted, more so where there is sufficient cause for the appellant for not being able to present such evidence before the AO. Nevertheless, it is considered not only fair but also justified, where the appellate authority itself considers such evidence as necessary.

4.2. The Hon'ble Courts have held that where there is omission to submit part of the documents as required by the AO, the appellate authority may not be justified merely by drawing an adverse inference against the appellant failing to furnish certain documentary evidences, as it would amount to a punitive measure. The appellate authority may well undertake to make good such omission. Hon'ble Delhi High Court, in a recent judgement in the case of CIT Vs. Virgin Securities and Credits Pvt. Ltd. (2011) 332 ITR 0396 has allowed the Commissioner of Income Tax (Appeals) to admit additional evidence and held that "The additional evidence was crucial to the disposal of the appeal and had a direct bearing on the quantum of the claim made by the assessee. Rule 46A of the Income Tax Rules, 1962, permits the Commissioner (Appeals) to admit additional evidence if he finds that the same is crucial for disposal of the appeal.

4..3. Therefore, on the basis of the above facts and circumstances of the case and the counsel's contention for admission of additional evidences, I am of the considered opinion that the documents submitted by the appellant are necessary and essential for deciding the appeal on merits and also in the interest of justice. Moreover, in my opinion, the appellant has sufficient cause by which he was prevented to produce such evidences before the AO during the course of assessment proceedings. The advanced age of the appellant is also one of the reasons why, in my considered opinion, it is essential to allow admission of additional evidence and condonation of delay in filing the appeal.

5.2. Having admitted the evidence the CIT(A) proceeded to delete the addition holding as under:-

4.4. “As regards the fourth ground of appeal, the appellant received an amount of Rs.70,03,1457- towards compensation on account of compulsory acquisition of his land. As regards the ownership of land, the appellant has submitted a copy of the will of his late father Sh. Nand Kumar Diwan which was duly registered and witnessed, who had bequeathed the land to the appellant. He has also submitted a copy of the award passed by Land Acquisition Collector, District West, Delhi, as per which the compensation awarded to him amounts to Rs.70,03,145/-. He has also presented the copy of the consolidated award no. 20/2005-06 for compulsory acquisition of land in village Nawada Majra, Hastsal (Dwarka More) for MRTS project. He has also submitted copy of his bank account as well as copy of Khasra Girdawari of the said land. All these documents conclusively prove that the amount of Rs.70,03,1457- was received by him on compulsory acquisition Page 4 of 10

I.T.A .No.-4575/Del/2011 of his land by the Government. Therefore, the addition of this amount in the income of the appellant is not justified and is therefore deleted.”

The objection was over-ruled by the CIT(A) holding that the evidences were relevant and crucial for determining the issues and accepting the arguments that the assessee was a senior citizen as such may not have been alert in placing the evidences on record being primarily an agriculturist suffering from backache and age-related problems. The said conclusion on facts may have been justified. However, having so concluded it was incumbent upon the CIT(A) under sub-Rule (3) of Rule 46A to confront the evidences to the AO so as to allow him an opportunity to rebut the evidences placed on record In the absence of any such exercises the order is in violation of the Statutory Rules and open to the challenge of being perverse. Accordingly, we set aside the impugned order and restore the issues back to the CIT(A). Support is drawn from the decision of the I.T.A .No.-4575/Del/2011 Jurisdictional High Court dated 15.11.2011 in in the case of CIT vs Manish Buildwell Pvt. Ltd. [2012] 204 taxman 106 (Delhi).

7.1. A 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. Holding that it is true that the powers of 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 tackle new sources of income not considered by the Assessing Officer, and 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 Commissioner of Income-Tax, U.P. v. Kanpur Coal Syndicate, (1964) 53 ITR 225. However, in the facts before the Hon’ble Court, the CIT (A) did not exercise this right. This power, the Court observed is recognized in sub-Section (4) of section 250 and has to be exercised by the CIT (A) and for this 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, it was observed held that 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 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 Page 6 of 10

I.T.A .No.-4575/Del/2011 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: (a) the requirement of recording reasons for admitting the additional evidence; (b) the requirement of examining whether the conditions for admitting the additional evidence are satisfied; and (c) 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 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 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.

Commissioner of Income-Tax, Bombay North, Ahmedabad (1965) 56 ITR SC 365, 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 Page 7 of 10

I.T.A .No.-4575/Del/2011 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 additional evidence can only then be produced at the first appellate stage when conditions stipulate 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.

7.2. In the facts of the case before the Hon’ble High Court it was found that the CIT (A) had observed 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 takes care of clause (c) of sub-rule (1) of Rule 46A. The observation of the CIT (A) Page 8 of 10

I.T.A .No.-4575/Del/2011 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, 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, has not been complied with. There is nothing in the order of the CIT (A) the Court found 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 the Hon’ble Court held has been that additional evidence was 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 Page 9 of 10

I.T.A .No.-4575/Del/2011 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.”

7.3. We find that in the facts of the present case also as have been addressed at length in the earlier part of this order the procedural lapse is patent and evident on the face of the record itself allowing the departmental ground, the issue is restored back to the file of the CIT(A) to address the procedural lapses and pass a speaking order in accordance with law after giving the assessee a reasonable opportunity of being heard.