SRI. GEORGE MATHEW,COCHIN vs. THE ITO, COCHIN

Per: L.P. Sahu, A.M.

These are cross appeals filed by the Revenue and the assessee respectively against the order of the CIT, Kochi - II dated 15.02.2016 for AY 2012-13 on the following grounds of appeal: - ITA No. 220/Coch/2016 “l. The Order of the Commissioner of Income tax (Appeals-II), Kochi, in appeal No.-ITA 27 /R-1/E/CIT(A)-II/ 15-16 dated 15/02/2016 is opposed to law, weight of evidence, facts and circumstances of the case. 2. The learned Commissioner of Income Tax (A) erred in deleting

ITA No. 250/Coch/2016 2 Shri George Mathew the disallowance of Rs.1,73,32,803/ - made by the Assessing Officer u/s 40(a)(ia) of the Income Tax Act, 1961, for not effecting TDS from the expenses under the head -'Design & CAS expenses', Salary & allowances, Godown rent and professional charges. 3. The learned CIT(A) erred in considering the issue on the basis of details provided by the assessee, as the break-up of expenses furnished by the assessee at the appellate stage only shows break-up of various expenses to bring the same below the TDS liability limit. 4. The learned CIT(A) erred in not affording a reasonable opportunity to the Assessing Officer to examine the evidence or documents produced by the appellant before the CIT(A), as per the provision of Rule 46A(3) of the Income Tax Rules, 1962. 4. The learned CIT(A) erred in not affording an opportunity to the A.O to verify whether the appellant has issued composite bills for various payments or separate bills for each expense. The learned CIT(A) erred in not considering that TDS liability may arise if composite bills have been issued.” ITA No. 251/Coch/2016 “1. The learned Commissioner of Income Tax (Appeals) has erred in sustaining the addition of Rs. 25,00,000/- made by the assessing officer treating Agricultural Income as Business Income. 2. The learned Commissioner of Income Tax (Appeals) has erred in sustaining the addition of 10% of expenses amounting to Rs. 24,50,000/- alleging non-availability of vouchers. 3. The learned Commissioner of Income Tax (Appeals) has erred in treating the credits in IDBI Bank amounting to Rs. 9,98,000/- as unexplained cash credit. 4. The learned Commissioner of Income Tax (Appeals) has erred in treating credits in Central Bank of India amounting to Rs. 3,00,000/- as unexplained cash credit. 5. For the above grounds and such other grounds as may be raised at the time of hearing, it is prayed to set aside the additions made by the assessing officer.” ITA 520/Coch/2016 2. The learned D.R. submitted that the learned CIT(A) has accepted the additional evidence violating Rule 46A(3) of the Income Tax Rules, 1962. He has not given any opportunity to the AO before accepting the additional evidence. Even he did not call any remand report before deleting the additions made by the AO, which is in violation of the principles of natural

ITA No. 250/Coch/2016 3 Shri George Mathew justice. Accordingly he requested that the AO should be given an opportunity to verify the additional evidence filed by the assessee before the CIT(A). He also submitted that during the course of hearing the AO had given ample opportunity to the assessee in spite of the fact that the assessee did not file the requisite details, which was filed before the CIT(A). 3. On the other hand the learned A.R. relied on the order of the learned CIT(A). 4. After hearing the rival submissions and going through the record we find substance in the argument of the learned D.R. that the learned CIT(A) has not given opportunity to the Assessing Officer to verify the additional evidence. The learned CIT(A) has decided the issue on the basis of the documents filed by the assessee which is in violation of the principles of natural justice. Similar issue has come up before the Hon'ble jurisdictional High Court ion the case of CIT, Trichur vs. E.D. Benny reported in (2015) 62 taxmann.com 302 (Kerala) wherein it was held as under: - “11. We have considered the submissions made. It is evident from paragraph 3 of Annexure B order passed by the First Appellate Authority itself that when the authorised representative of the assessee appeared in response to the notice of hearing, he filed paper books containing detailed written submissions on various issues raised in the appeal, cashflow statements filed before the Assessing Officer, reply filed in response to various notices issued by the Assessing Officer and evidences/working in support of various claims made in the appeal. On production of these materials, admittedly, the First Appellate Authority forwarded the paper books to the Assessing Officer and required the Assessing Officer to examine the new evidences/details/submissions and to give his report. 12. It was in response to that letter of the First Appellate Authority that the Assessing Officer submitted Annexure C Remand Report. Reading of this Report shows that in paragraphs 1 to 19, the Assessing Officer has justified his conclusions in the assessment order. Thereafter, from paragraph 20 onwards, extracted above, he dealt with the additional materials that were produced by the assessee before the First Appellate Authority. This report shows that insofar as the agricultural income earned by the assessee, after stating that the bills/vouchers produced by the assessee were found genuine, all that the Assessing Officer has stated is that the period pertains to the assessment year 2010-2011 and not the period under the search assessment. Insofar as the remaining issues are concerned, although each one of them were

ITA No. 250/Coch/2016 4 Shri George Mathew separately dealt with, all that he has stated is that the claim of the assessee may be rejected for the reason that the materials mentioned were not produced at the time of assessment. 13. It was considering this report submitted by the Assessing Officer that the First Appellate Authority passed Annexure B order. In this order, the First Appellate Authority considered the circumstances pleaded by the assessee and held that the assessee was prevented by reasonable and sufficient causes from furnishing the details/ evidences at the assessment stage. Based on that finding, the First Appellate Authority admitted the evidence produced and adjudicated the appeal. It is this order passed by the First Appellate Authority which was confirmed by the Tribunal. 14. Rule 46A of the Income Tax Rules read thus: “(1) The appellant shall not be entitled to produce before the [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 t 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-rule (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-rule (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 additional 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,

ITA No. 250/Coch/2016 5 Shri George Mathew 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 clause (a) of sub-section (1) of section 251 or the imposition of penalty under section 271.]” 15. Reading of this provision shows except on establishing the circumstances enumerated in clauses (a) to (d) under sub rule 1, an appellant shall not be entitled to produce the Commissioner (Appeals) any evidence whether oral or documentary. Sub rule 2 mandates that the Commissioner (Appeals) shall not admit any evidence, unless he records in writing the reasons for its admission. Once the documents are so admitted, sub rule 3 comes into operation, which further mandates that 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 to examine the evidence or document or to cross examine the witnesses produced by the appellant or to produce any evidence in rebuttal of the additional evidence. Insofar as this sub rule is concerned, as we have already seen, on admission of the additional evidence, the Commissioner (Appeals) forwarded the paper books itself to the Assessing Officer calling for his report. It was in response to the letter calling for remand report that the Assessing Officer submitted Annexure C report. 16. Therefore, this is a case where the Commissioner (Appeals) has allowed the Assessing Officer adequate opportunity as provided under sub rule 3 to examine the evidence produced by the appellant. In the remand report that he has furnished apart from requesting for its rejection, the Assessing Officer did not, either dispute the genuineness of the documents nor did he ask for cross examination of the witness, or to adduce any evidence in rebuttal of the documents produced by the appellant. In other words, sub rule 3 has been fully complied with. It was thereafter, that the First Appellate Authority proceeded to adjudicate the appeal, duly taking into account the additional evidence produced by the appellant. 17. One of the contentions raised in these appeals is that having admitted the additional evidence, the Commissioner (Appeals) should have remanded the case to the Assessing Officer for his consideration. In our view, this contention cannot be accepted in the light of sub rule 4, a reading of which shows that it was open to the Commissioner (Appeals) to dispose of the appeal by himself or even to remit the matter to the Assessing Officer. This power of the Appellate Authority is also evident from Section 250 of the Act, which reads thus: “250. Procedure in appeal: (1) The [Commissioner (Appeals)] shall fix a day and place for the hearing of the appeal, and shall give notice of the same to the

ITA No. 250/Coch/2016 6 Shri George Mathew appellant and to the [Assessing] Officer against whose order the appeal is preferred. (2) The following shall have the right to be heard at the hearing of the appeal— (a) the appellant, either in person or by an authorised representative; (b)the [Assessing] Officer, either in person or by a representative. (3) The [Commissioner (Appeals)] shall have the power to adjourn the hearing of the appeal from time to time. (4) The [Commissioner (Appeals)] may, before disposing of any appeal, make such further inquiry as he thinks fit, or may direct the [Assessing] Officer to make further inquiry and report the result of the same to the [Commissioner (Appeals)] (5) The [Commissioner (Appeals)] may, at the hearing of an appeal, allow the appellant to go into any ground of appeal not specified in the grounds of appeal, if the [Commissioner (Appeals)] is satisfied that the omission of that ground from the form of appeal was not wilful or unreasonable. (6) The order of the [Commissioner (Appeals] disposing of the appeal shall be in writing and shall state the points for determination, the decision thereon and the reason for the decision. [(6A) In every appeal, the Commissioner (Appeals), where it is possible, may hear and decide such appeal within a period of one year from the end of the financial year in which such appeal is filed before him under sub-section (1) of section 246A.] (7) On the disposal of the appeal, the [Commissioner (Appeals)] shall communicate the order passed by him to the assessee and to the [Principal Chief Commissioner or] [Chief Commissioner or [Principal Commissioner or Commissioner]” 18. Reading of sub section 4 shows that the Commissioner (Appeals) may, before disposing of any appeal, make such further inquiry as he thinks fit, or may direct the Assessing Officer to make further inquiry and report the result of the same to the Commissioner (Appeals). From the above provision, it is clear that neither the admission of the additional materials nor the decision of the Commissioner (Appeals) to adjudicate the appeals himself rather than remanding the same to the Assessing Officer can be faulted. 19. Learned Senior Counsel for the Revenue relied on the Supreme Court judgment in Commissioner of Income Tax v. McMillan & Co. [1958] 33 ITR 182 to support his contention that when documents are produced before the First Appellate Authority, the matter should have been remanded to the Assessing Officer. In our view, this judgment does not support the proposition canvassed by the learned Senior Counsel. This judgment was rendered by the Apex

ITA No. 250/Coch/2016 7 Shri George Mathew Court in the background of the Income Tax Act,1922 and Income Tax Rules, 1922. The facts of this case show that assessment was completed and appeal was filed by the assessee. The Appellate Authority, after issuing notice to the assessee, fixed the income of the assessee enhancing the tax liability, presumably relying on the proviso to Section 13 of the Act and Rule 33 of the Rules. This was confirmed by the Tribunal and the High Court. In the judgment, while interpreting the provisions of Section 13 of the Act, the Apex Court has highlighted the requirement of satisfaction by the Income Tax Officer. In our view, that finding of the Apex Court does not suggest that in every case where additional materials are produced before the First Appellate Authority, the Appellate Authority is bound to remit the case to the Income Tax Officer for fresh consideration. Therefore, this judgment does not support the contention raised by the learned Senior Counsel for the Revenue. 20. Insofar as the Bombay High Court judgment in Smt.Prabhavati Shah v. CIT [1998] 231 ITR 1 (Bom.) is concerned that was a case where the provisions contained in Section 250 of the Act and Rule 46A of the Rules were dealt with. The relevant paragraphs of the judgment reads thus: “On a plain reading of rule 46A, it is clear that this rule is intended to put fetters on the right of the appellant to produce before the Appellate Assistant Commissioner every evidence, whether oral or documentary, other than the evidence produced by him during the course of the proceedings before the Income-tax Officer, except in the circumstances set out therein. It does not deal with the powers of the Appellate Assistant Commissioner to make further enquiry or to direct the Income tax officer to make further enquiry and to report the result of the same to him. This position has been made clear by sub rule (4) which specifically provides that the restrictions placed on the production of additional evidence by the appellant would not affect the powers of the Appellate Assistant Commissioner to call for the production of any document or the examination of any witness to enable him to dispose of the appeal. Under sub-section (4) of section 250 of the Act, the Appellate Assistant Commissioner is empowered to make such further inquiry as he thinks fit or to direct the Income tax officer to make further inquiry and to report the result of the same to him. Sub- section (5) of section 250 of the Act empowers the Appellate Assistant Commissioner to allow the appellant, at the hearing of the appeal, to go into any ground of appeal not specified in the grounds of appeal, on his being satisfied that the omission of the ground from the form of appeal was not wilful. It is clear from the above provisions that the powers of the Appellate Assistant Commissioner are much wider than the powers of an ordinary court of appeal. The scope of his powers is coterminous with that of the Income-tax Officer. He can do what the Income-tax Officer can do. He can also direct the Income tax Officer to do what he failed to do. The power conferred on the Appellate Assistant Commissioner

ITA No. 250/Coch/2016 8 Shri George Mathew under sub-section (4) of Section 250 being a quasi-judicial power, it is incumbent on him to exercise the same if the facts and circumstances justify. If the Appellate Assistant Commissioner fails to exercise his discretion judicially, and arbitrarily refuses to make enquiry in a case where the facts and circumstances so demand, his action would be open for correction by a higher authority. On a conjoint reading of section 250 of the Act and rule 46A of the Rules, it is clear that the restrictions placed on the appellant to produce evidence do not affect the powers of the Appellate Assistant Commissioner under sub-section (4) of Section 250 of the Act. The purpose of rule 46A appears to be to ensure that evidence is primarily led before the Income tax officer.” 21. This judgment also does not lead to the conclusion that in every case where additional evidence are produced, the Appellate Authority is bound to remand the case to the Assessing Officer. 22. However, in paragraph 9 of the order passed by the Tribunal it has stated thus: “In the instant case the entire additional evidence has come on the record of the first appellate authority because the first appellate authority decided to examine the facts of the case in depth and adjudicate upon the matter on the basis of evidence and material thus gathered. The learned CIT(A) was empowered to do so under the provisions of Section 250(4). The results of enquiry conducted by him could either go to further cement the case made out by the assessing officer or to help out the assessee against the findings of the assessing officer. The mere fact that the results of the enquiries thus conducted supported the case of the assessee and not that of Revenue has no bearing on the jurisdiction and powers of the learned CIT(A). The learned CIT(A) has confronted the assessing officer with the evidence thus received and the material thus gathered and allow the assessing officer to have his say in the matter vide remand report dated 29.4.2013 and being done so this dispute have no merits. We do not see any requirement in law that the first appellate authority should invariably consult or confront the assessing officer every time an additional evidence that was not filed before the assessing officer comes on the record of the first appellate authority. Where the additional evidence is obtained by the first appellate authority on its own motion, there is no requirement in law to consult/confront the assessing officer with such additional evidence. There may be cases where additional evidence is admitted by the first appellate authority on a request or application being made by the assessee. In such cases sub rule (2) of rule 46A requires the first appellate authority to allow the assessing officer a further opportunity to rebut the fresh evidence filed by the assessee. Even that requirement cannot be said to be a rule of universal application. If the additional evidence furnished by the assessee before the appellate authority is in the nature of clinching evidence leaving no further room for any doubt or controversy in such a case no useful purpose served on performing

ITA No. 250/Coch/2016 9 Shri George Mathew the ritual of forwarding the evidence/material to the assessing officer and obtain his report. In such exceptional circumstances the requirement of sub-rule (3) may be dispensed with.” 23. Reading of the aforesaid finding of the Tribunal would suggest that according to it, if additional documents are summoned by the Commissioner (Appeals) and produced or if the additional evidence produced by the assessee are in the nature of clinching evidence leaving no further room for any doubt or controversy, it is not necessary to give an opportunity to the Assessing Officer to contradict the same. In other words, the finding of the Tribunal would suggest that in cases where documents are summoned by the Commissioner (Appeals) and in cases where the documents produced are conclusive, the principles of natural justice are excluded. We are unable to enclose these finding of the Tribunal. As held by Delhi High Court in Commissioner of Income Tax v. United Towers (I,) P. Ltd. [2008] 296 ITR 106 (Delhi), Rule 46A(4) of the Rules does not specifically exclude the principles of natural justice and, therefore, these principles are to be read into the Rules. Therefore, we disprove the finding of the Tribunal as contained in paragraph 9 of the order extracted above. 24. Having considered the sole contention urged, we do not find any merit in these appeals. Appeal, therefore, fail and is accordingly dismissed. 25. The issues involved in all other cases are similar. In view of the dismissal of the leading case ITA 84/2015, all other appeals are also dismissed. All pending interlocutory applications in these cases stand closed.” The case on hand before us is also similar as per the above judgement of the Hon'ble jurisdictional High Court. Respectfully following the same we remit back this issue to the file of the AO for adjudicating after verifying the additional evidence. ITA No. 251/Coch/2016 5. The learned A.R. submitted that during the course of assessment proceedings and appellate proceedings the assessee could not furnish requisite details. Therefore he requested that the matter may be sent back to the AO and she also undertook that the assessee shall produce the evidences which were not submitted before lower authorities to which the learned D.R. has no objection. 6. Considering the submissions of both parties we find it fit to send back the matter to the file of Assessing Officer for de novo adjudication on the issue raised before us and the assessee is at liberty to produce

ITA No. 250/Coch/2016 10 Shri George Mathew necessary documents for substantiating his grounds taken before us. Needless to say that adequate opportunity is being given to the assessee before deciding the case. The assessee is also directed not to seek unnecessary adjournments for early disposal of the case. 7. In the result, appeal of the Revenue as well as the assessee are allowed for statistical purposes. Dictated and pronounced in the open Court on 23rd June, 2022.

Sd/- Sd/- (George George K.) (Laxmi Prasad Sahu) Judicial Member Accountant Member

Cochin, Dated: 23rd June, 2022

Copy to: 1. The Appellant 2. The Respondent 3. The CIT - 2, Kochi 4. The DR, ITAT, Cochin 5. Guard File By Order

//True Copy// Assistant Registrar ITAT, Cochin n.p.