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

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: ‘F’ NEW DELHI

BEFORE SMT DIVA SINGH, JUDICIAL MEMBER AND SH.O.P.KANT, ACCOUNTANT MEMBER

I.T.A .No.-4575/Del/2011 (ASSESSMENT YEAR-2007-08) ITO, vs Rajendra Kumar Diwan, Ward-26(3), Room No.314-D, 12/2, Diwan Estate, Vikas Bhawan, New Delhi. Bhagwati Garden, Uttam Nagar, (APPPELLANT) New Delhi-110059. PAN-AFTPD9081Q (RESPONDENT)

Revenue by Sh.V.P.Mishra, Sr.DR Assessee by None

Date of Hearing 07.06.2016 Date of Pronouncement 10.08.2016 ORDER PER DIVA SINGH, JM The present appeal has been filed by the Revenue assailing the correctness of the order dated 24.08.2011 of CIT(A)-XXIV, New Delhi pertaining to 2007-08 assessment year on the following grounds:- 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.”

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.

Rs.2,10,274/-. The scrutiny proceedings were started on the basis of AIR information.

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/-

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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:-

have advanced the following arguments:-

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.”

advanced before the CIT(A) submitted that the CIT(A) after coming to the conclusion

that fresh evidence was required to be admitted failed to confront them for rebuttal to

the AO. The said exercise it was submitted has not been done. Accordingly it was his

prayer that the issue may be restored to the AO for considering and verifying the

evidences taken into consideration by the CIT(A).

noted that despite adequate notice of the date of hearing the assessee has chosen to

remain unrepresented. Considering the facts as set out herein above, we find that in the

peculiar facts and circumstances of the case, The CIT(A) has erred in deleting the

addition made without first confronting the evidences taken on record to the AO. No

doubt the fresh evidences were remanded to the AO who objected to its admissibility.

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

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I.T.A .No.-4575/Del/2011 Jurisdictional High Court dated 15.11.2011 in ITA No.928/2011 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.

Sd/- Sd/-

(O.P.KANT) (DIVA SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER *Amit Kumar* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI

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