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Income Tax Appellate Tribunal, DELHI BENCH: ‘F’ NEW DELHI
Before: SH. I.C. SUDHIR & SH. O.P. KANT
ORDER PER O.P. KANT, A.M.: This appeal by the Revenue is directed against order dated 23/03/2011 of learned Commissioner of Income-tax (Appeals)-XVIII, New Delhi [in short , ‘CIT(A)’] for assessment year 2008-09 raising following grounds: i. That on the facts and circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) has erred in deleting the disallowance of Rs.30,58,653/- made by the Assessing Officer under the head repair & maintenance building & other. ii. That on the facts and circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) has erred in Rs.16,01,796/- made by the Assessing Officer under the head ‘miscellaneous expenses’ out of Rs.16,08,806/-. iii. That on the facts and circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) has erred in admitting the additional evidences without giving any opportunity to the Assessing Officer to examine the same. During the course of assessment proceedings the assessee did not provide any detail/explanation on the above two issues, in spite of many opportunities offered to the Authorized Representative of the assessee company. iv. The appellant craves to be allowed to add any fresh grounds of appeal and/or delete or amend any of the grounds of appeal.
Facts in brief of the case are that during the relevant period, assessee was an authorized dealer of ‘Maruti ‘ brand of vehicles and was engaged in the business of trading of vehicles, spare parts and repair and maintenance of vehicles. The assessee filed return of income on 30/09/2008 declaring total income of Rs.5,62,99,623/-. The case was selected for scrutiny and notice under section 143(2) of the Income-tax Act, 1961 (in short “the Act”) was issued and complied with. The assessment under section 143(3) of the Act was completed on 28/12/2010 assessing total income at Rs.6,17,36,278/-. Aggrieved, the assessee filed appeal before the Ld. CIT(A), he allowed part relief to the assessee. Aggrieved, with the order of the learned Commissioner of Income-tax (Appeals), the Revenue is in appeal before the Tribunal raising the grounds as reproduced above.
3. In ground No. 1, the Revenue has challenged deleting of disallowance of Rs.30,58,653/-under the head ‘repair and maintenance on building and others’ . In ground No. 2, the deletion of disallowance of Rs.16,01,796/- out of the miscellaneous expenses of Rs.16,08,806/- has been challenged by the Revenue. 3.1 The Assessing Officer observed from the accounts of the assessee the expenses debited under the head ‘repair and maintenance on building’ and ‘repair and maintenance on others’ as under:
S.No. Account Head Description Date Amount (in rupees) 1. Repair & Charges for Civil work 22.01.2008 4,00,000/- Maintenance (boundary was sec-67 Building noida) 2. Repair & Charges for 31.03.2008 26,58,653/- Maintenance- construction of Others foundation, beam, lenital beam, plinth beam, brick work, plaster work etc.
3.2 The Assessing Officer asked the assessee as why the said expenses might not be capitalized, however, no submission was filed by the assessee and accordingly, the Assessing Officer held the said expenses as capital in nature and allowed the depreciation at the rates applicable under the Act. Before Ld. CIT(A), the assessee produced copy of bills in respect of the repair expenses and submitted that the repair work was carried out in normal course of business and as per the requirements of the principal i.e. Maruti Suzuki Ltd., which in effect did not result in any creation of new asset of enduring nature and therefore the amount spent was revenue in nature. The assessee further submitted that in the case of CIT Vs. Delhi press Sanachar Patra(p) Ltd (2010) 191 taxmann 71/322 ITR 590 (Delhi), the Hon’ble Delhi High Court held that where expenses were incurred on normal repairs, replacement of dilapidated beacons, pillars walls etc, of an existing business premises and the assessee did not bring into existence any new asset over and above the existing building, is an allowable expenditure under current repairs. 3.3 In view of the submission of the assessee and following the decision cited by the assessee, the Ld. CIT(A) deleted the addition. 3.4 In ground No. 2, the Revenue has challenged relief of Rs.16,01,796/- out of the amount of Rs.16,08,806/- under the head ‘ ‘miscellaneous expenses’. The Assessing Officer observed following expenses under the head ‘miscellaneous expenses’:
S. No. Particulars Amount 1. Trade Tax Additional Demand 16,01,796/- 2 Penalty – Sale Tax 4,200/- .
Penalty – TDS 810/- 4. Penalty Expenses 2,000/- Total 16,08,806/- 3.5 According to the Assessing Officer, these expenses were not allowable under section 37 of the Act and accordingly called upon the assessee as the why the said expenses might not be disallowed, however, no submissions were filed by the assessee company before the Assessing Officer and accordingly, the Assessing Officer disallowed the said sum of Rs.16,08,806/-. Before the learned Commissioner of Income- tax (Appeals), the assessee submitted that out of the sum of Rs.16,08,806/- amount of Rs.16,01,796/- was paid in respect of additional demand of trade tax raised by the trade tax authorities. Further, it was submitted that liability of the additional trade tax was crystallized/finalized during the year under consideration, the assessee charged the same to the profit and loss account and claimed the same as revenue expenditure. The Ld. CIT(A) after verification of the order of Rs.7,010/- and deleted the balance amount of Rs.16,01,796/-, holding the same as paid on account of additional demand of Trade Tax.
Before us, the Ld. Senior Departmental Representative supporting the ground No. 3 submitted that while allowing the relief on the issue of disallowance of Rs.30,58,653/- for repair and maintenance of building (ground No. 1) and disallowance of Rs.16,08,806/- under the head’ miscellaneous expenses’ (Ground No. 2), the Ld. CIT(A) relied on following documents produced during appellate proceedings before him:
1. 1. Bills in respect of claim of repair work of Rs. 4 lakh and Rs.21,58,653/-.
2. Orders of the Trade Tax Authorities with regard to Trade Tax additional demand of Rs. 16, 01, 796 and penalty of Rs. 4, 200/-.
5. The Ld. senior departmental representative submitted that above documents were in the nature of additional evidences and the Assessing Officer was not provided opportunity to examine those documernts, which is violation of rule 46A of income tax rules, 1962 (in short the’ rules’). He accordingly requested that grounds No. 1 and 2 of the appeal might be restored to the Assessing Officer for deciding afresh after taking into consideration of above documents.
6. Ld. counsel of the assessee, filed a paper book containing pages 1 to 6 and submitted that documents mentioned by the Ld. Senior Departmental Representative were already available with Assessing Officer and no new documents were submitted before the Ld. CIT(A). Regarding the bills for repair and maintenance of buildings, the learned counsel referred to the submission of the assessee, reproduced by the Ld. CIT(A) on page 4 of the impugned order, wherein it is mentioned that necessary bills in respect of repair work carried out were filed during the course of assessment proceedings. He also submitted that copy of the order of the trade tax authorities were also produced before the Assessing Officer.
He further referred to page one of the paper book and submitted that the assessee has claimed building repair and maintenance expenses from assessment year 2004-05 to assessment year 2010-11, which have been allowed by the Department in scrutiny proceedings, except in the assessment year under consideration and thus as a rule of consistency, the said expenses in the year under consideration should also have been allowed. He further submitted that the Revenue has failed to prove that said expenses were capital in nature, whereas the assessee has demonstrated that the said expenses were in the nature of revenue expenses. The Ld. counsel also relied on the decision of the Tribunal in the case of DCIT versus M/s Hotel diplomat in ITA No. 4994/Del/2012.
In support of ground No. 2 the Ld. counsel submitted that the liability in respect of trade tax is allowed on paid basis in terms of section 43B of the Act and accordingly the learned Commissioner of Income-tax (Appeals) has correctly allowed the said expenditure and accordingly order of the Ld. CIT(A) on the issue in dispute need to be upheld.
In the rejoinder, the Ld. Senior Departmental Representative submitted that no evidence has been produced by the assessee before the Tribunal in support of the contention that above documents were filed before the Assessing Officer during assessment proceedings. He further submitted that narration of the expenses incurred under the head repair and maintenance included charges for construction of foundation, beam, lenital, plinth beam etc. which clearly showed that those expenses were either for expansion of the existing building or construction of the new building.
We have heard the rival submissions and perused the relevant material on record. From the perusal of the order of Assessing Officer on the issue of disallowance of repair and maintenance expenses as well as disallowance of miscellaneous expenses, it is evident that during assessment proceeding no submissions explaining the allowability of the expenses were filed before the Assessing Officer and it is only in first appellate proceeding, the assessee has filed copy of bills of repair and maintenance expenses and copy of order of the Trade Tax Authorities and relying on which the learned Commissioner of Income-tax( Appeals) has allowed relief to the assessee. The Ld. counsel has contended that said documents were already produced before the Assessing Officer in assessment proceeding, however, on being asked by the Bench to produce necessary evidence in support of the said contention, no documentary evidences as to prove that copy of bills of repair and maintenance and copy of the Trade Tax Authorities filed before the AO, were produced before the Bench. In absence of any such evidences to that effect, it is clear that Ld. CIT(A) has admitted those documents, which are clearly in the nature of additional evidence. Since the Ld. CIT(A) has not followed the procedure laid down in rule 46A of the Income Tax Rules, 1962 (for short “the Rules”), the Assessing Officer has been deprived of the opportunity to rebut those documents. As regard to violation of rule 46A of the Rules, the Hon’ble Delhi High Court in the case of CIT Vs. Manish Buildwell (P.) Ltd reported in 245 CTR 397 has observed as under:
“22. As we have with the consent of the learned counsel, heard them on merits, we proceed to decide the aforesaid substantial questions of law. Since the CIT(A) himself refers to r. 46A and has also admitted that the confirmation letters adduced by the assessee before him were technically fresh evidence, it is not possible to accept the plea of the learned counsel for the assessee that the CIT(A), in examining the confirmation letters, was exercising his independent powers of enquiry under sub-s. (4) of s. 250 of the IT Act. It is true CIT(A) as first appellate authority has coterminous powers 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 AO, and can do what the AO can do and can direct the AO to do what he has failed to do, as held by the Supreme Court in the case of CIT vs. Kanpur Coal Syndicate (1964) 53 ITR 225 (SC) but in this case, the CIT(A) did not exercise this right. This power, which is recognized in sub-s. (4) of s. 250, has to be exercised by the CIT(A) and 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 is a provision in the IT 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 r. 46A and prays for admission of additional evidence before the CIT(A), then the procedure prescribed in the said rule has to be scrupulously followed. The fact that sub-s. (4) of s. 250 confers powers on the CIT(A) to conduct an enquiry as he thinks fit, while disposing of the appeal, cannot be relied upon to contend that the procedural requirements of r. 46A need not be complied with. If such a plea of the assessee is accepted, it would reduce r. 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-s. (4) of s.
This would mean in turn that the requirement of recording reasons for admitting the additional evidence, the requirement of examining whether the conditions for admitting the additional evidence are satisfied, the requirement that the AO should be allowed a reasonable opportunity of examining the evidence etc. can be thrown to the winds, a position which is wholly unacceptable and may result in unacceptable and unjust consequences. The fundamental rule which is valid in all branches of law, including IT 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. A seven-Judge Bench of the Supreme Court in Keshav Mills Co. Ltd. vs. CIT (1965) 56 ITR 365 (SC) had observed as under : "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 ITO."
It is for the aforesaid reason that r. 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 adduced by him before the AO. After making such a general statement, which is in consonance with the principle stated in the above judgment, exceptions have been carved out that in certain circumstances it would be open to the CIT(A) to admit additional evidence. Therefore, additional evidence can be produced at the first appellate stage when conditions stipulated in the r. 46A are satisfied and a finding is recorded. Rule 46A reads : "46A. Production of additional evidence before the Deputy Commissioner (Appeals) and Commissioner (Appeals).—(1) The appellant shall not be Deputy Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals), any evidence, whether oral or documentary, other than the evidence produced by him during the course of proceedings before the Assessing Officer, except in the following circumstances, namely : (a) where the Assessing Officer has refused to admit evidence which ought to have been admitted; or (b) where the appellant was prevented by sufficient cause from producing the evidence which he was called upon to produce by the Assessing Officer; or (c) where the appellant was prevented by sufficient cause from producing before the Assessing Officer any evidence which is relevant to any ground of appeal; or (d) where the Assessing Officer has made the order appealed against without giving sufficient opportunity to the appellant to adduce evidence relevant to any ground of appeal. (2) No evidence shall be admitted under sub-r. (1) unless the Deputy Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals) records in writing the reasons for its admission. (3) The Deputy Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals) shall not take into account any evidence produced under sub-r. (1) unless the Assessing Officer has been allowed a reasonable opportunity (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 additinal evidence produced by the appellant. (4) Nothing contained in this rule shall affect the power of the Deputy Commissioner (Appeals) or, as the case may be, 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 Assessing Officer under cl. (a) of sub-s. (1) of s. 251 or the imposition of penalty under s. 271." We are highlighting these aspects only to press home the point that the conditions prescribed in r. 46A must be shown to exist before additional evidence is admitted and 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. A distinction should be recognized and maintained between a case where the assessee invokes r. 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-s. (4) of s.
250. It is only when he exercises his statutory suo motu power under the above sub-section that the requirements of r. 46A need not be followed. On the other hand, whenever the assessee who is in appeal before him invokes r. 46A, it is incumbent upon the CIT(A) to comply with the requirements of the rule strictly.
24. In the present case, the CIT(A) has observed that the additional evidence should be admitted because the assessee was prevented by adducing them before the AO. This observation takes care of cl. (c) of sub-r. (1) of r. 46A. The observation of the CIT(A) also takes care of sub-r. (2) under which he is required to record his reasons for admitting the additional evidence. Thus, the requirement of sub-rs. (1) and (2) of r. 46A have been complied with. However, sub-r. (3) which interdicts the CIT(A) from taking into account any evidence produced for the first time before him unless the AO 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) to show that the AO 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 has been that additional evidence was admitted and accepted as genuine without the AO furnishing his comments and without verification. 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-r. (3) of r. 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- s. (4) of s. 250 with the powers vested in him under r. 46A. The Tribunal seems to have overlooked sub-r. (4) of r. 46A [sic-s. 250] which itself takes note of the distinction between the powers conferred by the CIT(A) under the statute while disposing of the assessee’s appeal and the powers conferred upon him under r. 46A. The Tribunal erred in its interpretation of the provisions of r. 46A vis-à-vis s. 250(4). Its view that since in any case the CIT(A), by virtue of his coterminous 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 r. 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 r. 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 r. 46A because in any case the CIT(A) is vested with coterminous powers over the assessment orders or powers of independent enquiry under sub-s. (4) of s.
250. That is a consequence which cannot at all be countenanced.
In view of above observation of the Hon’ble Delhi High Court, we are of the opinion that Ld. CIT(A) has not complied with the requirement 46A of the Rules. In the circumstances, we feel it appropriate to restore the issue involved in Grounds No. 1 and 2 of the appeal to the file of the Assessing Officer for deciding afresh after taking into account evidences produced before the learned Commissioner of Income Tax (Appeals) and carrying out inquires as deemed necessary in the facts of the case. The assessee shall be afforded sufficient opportunity of hearing. Accordingly, the ground no. 3 of the appeal is allowed and ground No. 1 and 2 of the appeal are allowed for statistical purpose 12. In the result, appeal of the Revenue is allowed for statistical purpose. The decision is pronounced in the open court on 17th March, 2017.