ACIT, NEW DELHI vs. SH. PRADEEP KUMAR THAKUR, NEW DELHI

ORDER PER DIVA SINGH, JM The present appeal has been filed by the Revenue assailing the correctness of the order dated 26.12.2012 of CIT(A)-XXVI, Delhi pertaining to 2008-09 assessment year on the following grounds:-

1. “The CIT(A) has erred in deleting addition of Rs.15,05,000/- out of total additions of Rs.21,26,000/- by admitting additional evidences which were not produced before the AO during the assessment proceedings despite providing three opportunities on 07.12.2010, 14.12.2010 & 16.12.2010.

2. The CIT(A) has erred in deleting addition of Rs.18,13,000/- made by the AO on account of unexplained cash deposits in bank. 3. The CIT(A) has erred in deleting addition of Rs.6,62,108/- made by the AO on account of bogus sundry creditors despite the facts that the assessee could not submit confirmation of these creditors during the assessment proceedings as well as during the appellate proceedings.”

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Since the assessee failed to explain despite opportunities the assessment was concluded at Rs.1,65,63,826/- as opposed to the returned income of Rs.14,77,863/-.

2.1. In appeal before the CIT(A), it was submitted the assessee filed fresh evidences.

The AO objected to the admission of the evidences. This was over-ruled by the CIT(A) who admitted these. However, after admitting the same, the CIT(A) did not provide any opportunity to the AO to rebut the same. The relief granted on the basis of the evidence not confronted on merit to the AO it was stated is in violation of Rule 46A of the Act and settled legal position. Accordingly it was his submission that the issue may be restored to the CIT(A). The fact that no opportunity after admitting the fresh evidence sit was submitted is evident from the following extract of the impugned order:-

“5.………………………Hence, I admit the additional evidence furnished by the appellant as sufficient opportunity was not provide by the Assessing Officer to substantiate and explain the issues pertaining to the appellant. 6. After admitting the additional evidence, I now proceed to adjudicate the issues raised in the grounds of appeal in the following paragraphs.”

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3.1. 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. 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 Commissioner of Income-Tax, U.P. v. Kanpur Coal Syndicate, (1964) 53 ITR 225. The Hon’ble Court found that the CIT (A) in the facts Page 3 of 8

I.T.A .No.-1487/Del/2013 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 Page 4 of 8

I.T.A .No.-1487/Del/2013 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 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 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 Page 5 of 8

I.T.A .No.-1487/Del/2013 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.

3.2. 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 Page 6 of 8

I.T.A .No.-1487/Del/2013 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 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.” Page 7 of 8

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Accordingly, considering the submission and the precedent relied upon the impugned order is set aside and 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.