ITO, NEW DELHI vs. M/S. PARDEEPA RANI, DELHI

Date of Hearing 09.06.2016 Date of Pronouncement 19 .08.2016 ORDER

PER DIVA SINGH, JM

1. “On the facts and circumstances of the case, the ld.CIT(A has erred in admitting the additional evidences at the appellate stage.

before or during the course of hearing of the appeal.”

2. At the time of hearing, an adjournment petition was moved by the Revenue.

However, considering the ground raised and the material available on record, the Ld. Sr.DR withdrew the same. The relevant facts of the case are that the return of the assessee declaring an income of Rs.2,00,970/- was selected for scrutiny assessment through CASS.

The facts in the specific AIR information which triggered the scrutiny assessment are as under:-

I.T.A .No.-132/Del/2014

“AIR information available on ITS system reflects that assessee has purchased a property in Plot No.12/480, Friends Sehkari Awas Samit, Vasundra, Ghaziabad, UP. The information & documents of purchase were called for u/s 133(6) of the I.T.Act from the sub-Registrar-IV for total consideration of Rs.33,66,000/-. In absence of any documents in support of the purchase of the property by the assessee, the cost of acquisition of the property is taken as unexplained investment of the assessee as per provisions of section 69. Addition of Rs.33,66,000/-.”

2.1. Since the assessee remained unrepresented addition of Rs.33,66,000/- was made by the Assessing Officer by an order passed under section 144 of the Income Tax Act 1961.

The issue travelled in appeal before the CIT(A).

Accordingly fresh evidences were filed in support of the claim made that the addition on facts was not warranted. The CIT(A) considering these evidences forwarded the same to the Assessing Officer for obtaining a Remand Report. In response thereto, the Assessing Officer objected to the admission of the additional evidences. However, over-ruling the objections and considering the fresh evidences, the CIT(A) granted part relief and sustained the addition only to the extent of Rs.2,50,000/-. The Revenue is aggrieved by the same.

I.T.A .No.-132/Del/2014

Considering the facts as set out herein above in the light of the specific provision i.e. Rule 46A which has been invoked by the Revenue in the present appeal. We find that though filing of fresh evidences at the First Appellate Stage is not a matter of Right however, if circumstances addressed in clause (a), (b), (c) or (d) on facts can be pleaded then sub- Rule (1) of Rule 46A permits that these evidences can be admitted provided the reasons for admission of fresh evidence are set out in writing by the Ld.CIT(A) thus fulfilling the requirements of sub-Rule (2) of Rule 46A. However, the following extract of the relevant provision would show that sub-Rule (3) of Rule 46A necessitates that the evidence shall be taken into account by the Commissioner (Appeals) only if it has been confronted to the AO and a reasonable opportunity to examine the evidence or cross-examine the witness or to produce any evidence or witness in rebuttal is provided to the AO. The relevant extract is reproduced hereunder:-

Rule 46 A. (1)…………………….. (2)………………………....... (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— Page 3 of 10

I.T.A .No.-132/Del/2014

(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.”

6.1. Sub-Rule (4) makes it clear that Rule 46A does not impinge on the powers of the CIT(A) to direct production of evidence or witness so as to enable him to dispose the appeal or for any other substantial course including enhancement etc.

6.2. Considering the facts as set out herein above in the light of the specific provision invoked, 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 fresh evidences to the AO.

We find that though before admitting the fresh evidences the CIT(A) remanded these to the AO. The AO as per record objected to its admissibility. Thereafter over-ruling the objection the CIT(A) considering the reasons for filing fresh evidences and the fact that the “Agreement to Sell” “Possession letter” and “Power of Attorney in favour of the seller” were crucial and material evidences required to be considered for adjudicating upon the issue admitted the evidences. The decision to admit the evidences is upheld as facts justifying admission of fresh evidences namely the assessee remaining unavailable at her address for reasons beyond her control i.e. health reasons and thus did not receive the notices which may have been sent have been duly noted and thus we find fulfill the requirements of sub- Rules (2) of Rule 46A. However, having so concluded, we find it was incumbent upon the CIT(A) thereafter, in terms of 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 which opportunity admittedly has not been provided.

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 Page 4 of 10

I.T.A .No.-132/Del/2014 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 vs Manish Buildwell Pvt. Ltd. [2012] 204 taxman 106 (Delhi). 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 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 I.T.A .No.-132/Del/2014 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 I.T.A .No.-132/Del/2014 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 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

I.T.A .No.-132/Del/2014 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 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 I.T.A .No.-132/Del/2014 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.”

6.5. Applying the principle laid down by the Jurisdictional High Court, 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.

Accordingly, considering the submission of the parties before the Bench 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 I.T.A .No.-132/Del/2014 speaking order in accordance with law after giving the assessee a reasonable opportunity of being heard.