S. 250(4), R. 46A, S. 260B(4)

[rajul5234]

Guj. H.C. Tax Appeal 264/2013. Dt. 10/9/13. Praduman Patel.
Held, Opportunity to assessing officer to be given by CIT(A) for cross examination even when s.250(4) & R. 46A(4) is suo motu invoked by CIT(A). Further, S. 260B(2) not resorted to though on one aspect of the case judges have not expressed concurring view. I personally feel  ratio reflects gross  misinterpretation of concerned sections and rule , specially read with ratioo of S.C. decision of Kanpur Coal. Readers views invited.
R.K.Patel

[vsaiyar]

to express an opinion one need to go through the judgement of the Gij High Court  Please forward the same

[shobha nagrani]

HERE YOU ARE SIR. THE PDF IS IN THE ATTACHMENT (YOU HAVE TO BE LOGGED IN TO SEE THE PDF)

O/TAXAP/264/2013 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL NO. 264 of 2013
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE M.R. SHAH Sd/-
and
HONOURABLE MS JUSTICE SONIA GOKANI Sd/-
===========================================================
1 Whether Reporters of Local Papers may be allowed to
see the judgment ?
NO
2 To be referred to the Reporter or not ? NO
3 Whether their Lordships wish to see the fair copy of
the judgment ?
NO
4 Whether this case involves a substantial question of
law as to the interpretation of the Constitution of
India, 1950 or any order made thereunder ?
NO
5 Whether it is to be circulated to the civil judge ? NO
================================================================
COMMISSIONER OF INCOME TAX VI....Appellant(s)
Versus
PRADYUMAN M PATEL....Opponent(s)
================================================================
Appearance:
MR MANISH BHATT FOR MS MAUNA M BHATT, ADVOCATE for the
Appellant(s) No. 1
MR RK PATEL, ADVOCATE for the Opponent(s) No. 1
================================================================
CORAM: HONOURABLE MR.JUSTICE M.R. SHAH
and
HONOURABLE MS JUSTICE SONIA GOKANI
Date : 10/09/2013
ORAL JUDGMENT
(PER : HONOURABLE MR.JUSTICE M.R. SHAH)
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1.00. As by order dtd. 4/4/2013, Notice has been issued
for final disposal and with the consent of the learned
advocates appearing on behalf of the respective parties,
present appeal is taken up for final hearing today.
2.00. Present Tax Appeal has been preferred by the
appellant – revenue challenging the judgement and order dtd.
14/9/2012 passed by the learned Income Tax Appellate
Tribunal in Appeal No.2 of 2003 with respect to Block period
from 1/4/1988 to 29/7/1998, on the following proposed
substantial questions of law :
"(I) Whether on facts and circumstances of the case,
appellate tribunal was right in deleting the addition of Rs.67
lakhs as unexplained capital and peak credits amounting to
Rs.1,25,94,803/- :-
(i) by accepting the claim of the assessee regarding
the booking amount received from 24 farmers
without examining the fact whether any of the
farmers finally brought the flats/plots from Prithvi
Builders;
(ii)By holding that there is no need to give any
copies of the statement of the 24 farmers to the
assessing officer particularly where the
statement were recorded by the CIT (A) himself
without confirming then to the AO?
(II) Whether the Appellate Tribunal is right in law and on
facts in confirming the order passed by CIT (Appeals), who
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had deleted the additions relying upon the statements
recorded by him, without giving an opportunity to the
Assessing Officer as mandated under Rule 46A of the Income
Tax Rules, 1962?
(III) Whether the Appellate Tribunal is right in law and on
facts in confirming the deletion of addition of Rs.56 lacs
made in respect of unexplained capital of an amount of
Rs.1,25,94,803/- made on account of peak credits?
3.00. As for the reasons stated hereinafter, the matter is
to be remanded to the CIT(A) as there is violation of Rule 46A
of the Income Tax Rules, 1962, we are not entering into the
merits of other substantial question of law.
4.00. Facts leading to the present appeal, in nutshell, are
as under :-
4.01. A search and seizure action was carried out by the
Income Tax Department at the premises of the assessee and
its other group concerns on 29/7/1998. Thereafter, a notice
under section 158BC of the Income Tax Act was served upon
the assessee on 18/1/1999. The assessee filed his return of
income on 3/3/1999 declaring total income of Rs.Nil for the
block period. The assessment was completed under section
158BE of the Act determining the total income at
Rs.1,93,94,403/-. It appears that during the assessment
proceedings and to verify the authenticity of the assessee's
claim with respect foreign depositors, the Assessing Officer
issued Summons for verification of the depositors through the
assessee's authorised representative. However, the Summons
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could not be served upon the authorised representative and
thereafter by passing the assessment order, the AO included
the said amount in the income of the assessee treating it as
undisclosed income.
4.02. Feeling aggrieved by and dissatisfied with the block
assessment order, the assessee preferred an appeal before the
CIT(A). During the course of the appellate proceedings, CIT(A)
remanded the case to the AO along with the copy of the
submissions made by the assessee and the AO sent remand
report to the CIT(A). It appears that the learned CIT(A) was not
satisfied with the remand report submitted by the AO and the
CIT(A) was of the opinion that in the remand report the AO has
neither brought any material to substantiate his claim nor
brought on record any positive evidence for sustaining addition
made by him and in fact, in the reassessment report, AO has
merely repeated the reasons given in the assessment order.
That the learned CIT(A) thought it fit to hold an inquiry under
section 250(4) of the Act and asked the assessee to produce
the investors (24 in number who filed Affidavits before the AO)
at the Income Tax Office at Bhavnagar on 27/9/2002 and on
that day, the CIT(A) personally camp at Bhavnagar on the said
date and statements of all 24 investors came to be recorded
by the Inspectors of Income Tax in his presence and relying
upon those statements of the investors and without giving an
opportunity to cross-examine those investors by the AO the
learned CIT(A) has deleted addition made by the AO of
Rs.1,93,94,403/- by holding that in the statements of the
investors recorded by the Inspectors, the investors have
confirmed the fact of making investment in the project of
M/s.Prithvi Builders through the assessee. The learned CIT(A)
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also observed that the statements of various investors
recorded by the Inspectors substantiate the submission made
by the assessee and therefore, he found the same to be
correct. Consequently, the learned CIT(A) by the order dtd.
18/10/2002 has allowed the said appeal and deleted addition
Rs.1,93,94,403/- made by the the AO while assessing the
block assessment year.
4.03. Feeling aggrieved by and dissatisfied with the order
passed by the CIT(A) dtd. 18/10/2002 in allowing the appeal
preferred by the assessee and deleting the addition made by
the AO, the revenue preferred appeal before the ITAT. It
appears that there was delay of 2 days in preferring appeal
and for that the revenue submitted an application for
condonation of delay which came to be allowed and the delay
came to be condoned by the learned tribunal. During the
appeal before the tribunal, the revenue raised additional
ground for violation of Rule 46A of the Income Tax Rules, 1962
by the CIT(A) and the requested to permit to raise the following
additional ground :
"The Learned Commissioner of Income-Tax (Appeals)
has erred in deleting the additions made by the
Assessing Officer on the basis of statements recorded
by his office without giving the Assessing Officer an
opportunity to examine the statements thereby
violating Rule 46A of the Income Tax Rules, 1962."
4.04. It appears that by order dtd. 7/2/2012 and by
observing that as per Sub Rule (2) of Rule 46A, the learned
CIT(A) is within his powers to examine any witness and
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therefore, there is no infringement of Rule 46A and by
observing so, the learned tribunal did not admit the additional
ground and proceeded further with the hearing of the appeal
and by the impugned judgement and order, the learned
tribunal has dismissed the said appeal preferred by the
revenue confirming the order passed by the CIT(A) deleting the
addition of Rs.1,93,94,403/- made by the AO.
4.05. Feeling aggrieved by and dissatisfied with the
impugned order passed by the learned tribunal, the revenue
has preferred the present Tax Appeal with the aforesaid
proposed substantial questions of law.
5.00. Having heard Mr.Manish Bhatt, learned counsel
appearing on behalf of the appellant – revenue and Mr.R.K.
Patel, learned counsel appearing on behalf of the assessee
and considering the order passed by the CIT(A) as well as the
impugned judgement and order passed by the learned
tribunal, it appears that there is violation of Rule 46A of
Income Tax Rules, 1962. It is not in dispute that during the
appellate proceedings, initially CIT(A) remanded the matter to
the AO along with the copy of the submission made by the
assessee more particularly with respect to case on behalf of
the assessee with respect to 24 investors / depositors and the
AO submitted remand report. It also appears from the order
passed by the CIT(A) that the CIT(A) was not satisfied with the
remand report submitted by the AO and therefore, during the
appellate proceedings, the CIT(A) decided to hold inquiry
under section 250(4) of the Act and asked the assessee to
produce investors at the Income Tax Office at Bhavnagar on
27/9/2002. It appears that the learned CIT(A) personally camp
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at Bhavnagar on 27/9/2002 and on that day, the assessee
produced 24 investors and statements of all those 24 investors
came to be recorded by the Inspectors of the Income Tax
Department in presence of the CIT(A) and relying upon the
statements of all those 24 investors recorded by the
inspectors, CIT(A) has deleted addition of Rs.1,93,94,403/-
made by the AO by observing that in the statements of the
investors recorded by the Inspectors the investors have
confirmed the fact of making investment in the project of
M/s.Prithvi Builders through the assessee and the said
statements substantiate the submission made by the
assessee. It is an admitted position that the CIT(A) has not
given any opportunity to the AO to cross-examine those
witnesses / investors whose statements came to be recorded
during the inquiry ordered by the CIT(A) held during the
appellate proceedings and the CIT(A) has relied upon the
statements of those 24 investors without giving any
opportunity to the AO to cross-examine them.
5.01. It is required to be noted that though before the
learned Tribunal, the revenue submitted application requesting
to permit the revenue to raise additional ground of violation of
Rule 46A of the Income Tax Rules, 1962, the learned tribunal
by order dtd. 7/2/2012 did not permit the revenue to raise the
aforesaid ground by observing that as per Sub Rule (4) of Rule
46A, CIT(A) is within his powers to examine any witness.
6.00. Mr.R.K. Patel, learned counsel appearing on behalf
of the assessee has heavily relied upon the decision of the
Hon'ble Supreme Court in the case of Commissioner of
Income Tax, U.P. Versus Kanpur Coal Syndicate, reported
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in 53 ITR 225 in support of his submission on the exercise of
power by the appellate tribunal. Relying upon the aforesaid
decision, Mr.Patel, learned counsel appearing on behalf of the
assessee has submitted that while exercising power, the
appellate authority has plenary power to dispose of the appeal
and the scope of his power is conterminous with that of the
Income Tax Officer and he can do what the Income Tax Officer
can do and can also direct him to do what he has failed to do.
6.01. Mr.R.K. Patel, learned counsel appearing on
behalf of the assessee has also relied upon the decision of the
Rajasthan High Court in the case of Silver and Art Palace
Vs. Commissioner of Income Tax, reported in 1994 (206)
ITR 501 in support of his submission that while keeping an
appeal pending under section 250(4) and before disposing of
it, power is conferred on the CIT(A) to make such further
inquiry as he may deem fit or direct AO to make further
inquiry.
6.02. It is required to be noted that power of the
Commissioner (Appeals) to hold inquiry during the pendency of
the appeal under section 250(4) of the Act cannot be disputed
and is not disputed. The learned counsel appearing on behalf
of the revenue is also not disputing the power of the CIT(A) to
hold inquiry in a proper case pending the appeal, under section
250(4) of the Act. However, grievance which is voiced is with
respect to violation of Rule 46A of the Income Tax Rules, 1964
i.e. not giving opportunity to the AO to cross-examine those
investors whose statements came to be recorded by the
Inspectors during the course of inquiry held in exercise of
powers under section 250(4) of the Act and whose statements
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are relied upon by the learned CIT(A) while deleting addition
of Rs.1,93,94,403/- made by the AO. Sub-section (4) of Section
250 permits the Commissioner (Appeals) to make such further
inquiry as he thinks fit or may direct AO to make further
inquiry and report the result of the same to him before
disposing of any appeal before him. Rule 46A of the Income
Tax Rules, 1962 is with respect to production of additional
evidence before the CIT(A). Rule 46A of the Rules reads as
under :
46A. Production of additional evidence before
the Deputy Commissioner (Appeals) and Commissioner
(Appeals) :
(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 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
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(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 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
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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 case 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 215 or the
imposition of penalty under section 271."
As per Sub-Rule (4) of Rule 46A not withstanding
anything contained in Rule 46A, Commissioner (Appeals) may
direct production of any document or examination of any
witness, to enable him to dispose of the appeal. Therefore,
considering Sub-Rule (4) of Rule 46A, it is always open for the
Commissioner (Appeals) to direct production of any document
or examination of any witness to enable him to dispose of the
appeal. However, while exercising such powers and examining
any witness, who are permitted to be examined in exercise of
the powers under Sub-Rule (4) of Rule 46A, AO is required to
be given an opportunity to cross-examine such witness. Unless
and until the AO is given an opportunity to cross-examine such
witness/es who are examined during the pendency of the
appeal in exercise of the powers under Sub-Rule (4) of Rule
46A, Commissioner (Appeals) cannot rely upon the statements
/ depositions of such witnesses, as it would be in violation of
the principles of natural justice.
6.03. It is required to be noted that in the present case,
though Summonses were issued by the AO to be served
through the authorised representative of the assessee, they
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could not be served and even the assessee did not produce
those 24 investors before the AO and all those investors came
to be produced for the first time before the CIT(A) during the
pendency of the appeal and while holding inquiry by the CIT(A)
in exercise of the power under section 250(4) of the Act. As
stated above, the learned CIT(A) has relied upon the
statements of those 24 investors recorded by the Inspectors
recorded during the pendency of the appeal and while holding
inquiry in exercise of powers under section 250(4) of the Act
and has deleted addition of Rs.1,93,94,403/- made by the AO,
without giving any opportunity of being heard to the AO to
cross-examine those 24 investors and therefore, the same is in
violation of Rule 46A of the Income Tax Rules, 1962, and
therefore, the order passed by the CIT(A) cannot be sustained
and therefore, the learned tribunal has materially erred in
dismissing the appeal preferred by the revenue and confirming
the order passed by the CIT(A) and not permitting the revenue
to raise additional ground of violation of Rule 46A.
7.00. In view of the above and for the reasons stated
above and without further entering into the merits of the case
and solely on the ground that the order passed by the CIT(A) is
in breach of violation of Rule 46A of the Income Tax Rules,
1962, the order passed by the CIT(A) as well as the impugned
judgement and order passed by the ITAT deserve to be
quashed and set aside and are accordingly quashed and set
aside on the aforesaid ground alone and the matter is
remanded to the CIT(A) to decide and dispose of the appeal
afresh in accordance with law and on merits and after giving
an opportunity to the AO to cross-examine those investors /
witnesses whose statements were recorded on 27/9/2002 in
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presence of the CIT(A) at the Income Tax Office at Bhavnagar
and relied upon by the learned CIT(A) while deleting addition
of Rs.1,93,94,403/- made by the AO. The aforesaid exercise
shall be completed by the CIT(A) at the earliest but not later
than six months from the date of the present order. However,
it is made clear that this Court has not expressed any opinion
in favour of either of the parties and the impugned orders are
set aside solely on the ground of violation of Rule 46A of the
Income Tax Rules, 1962. Present appeal is allowed to the
aforesaid extent. In the facts and circumstances of the case,
there shall be no order as to costs.
Sd/-
(M.R.SHAH, J.)
Per : SONIA GOKANI, J. (Concurring)
8.00. I had a privilege to peruse the order of the learned
Brother Judge (Justice Mr.M.R. Shah), although while agreeing
on conclusion of remand with the learned Brother Judge,
separate reasonings are given hereinafter in this order.
9.00. This Tax Appeal is preferred by the Revenue under
section 260A of the Income-Tax Act, 1961 (hereinafter referred
to as 'the Act') being aggrieved by the order dated September
14, 2012 passed by the Income-tax Appellate Tribunal
(hereinafter referred to as 'the Tribunal') for block period from
April 01, 1998 to July 29, 1998.
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10.00. The following brief facts would be necessary for
grasping the issues under adjudication :
10.01. On July 29, 1998 a search and seizure operation at
the residential premises and other group concerns of the
respondent-assessee was carried out under section 132 of the
Act. In pursuance of the same, a notice under section 158BC of
the Act was served upon the respondent-assessee on January
18, 1999. The return of income was filed with the total income
of "NIL" for the concerned block period. The respondentassessee
is the partner/ director in various firms engaged
mainly in construction and manufacturing activities. On
completion of the assessment under section 158BC, the total
income of the respondent-assessee was determined at
Rs.1,93,94,403/-.
10.02. The respondent-assessee preferred an appeal
before the Commissioner of Income-tax (Appeals) [hereinafter
referred to as 'the CIT(Appeals)'] raising various grounds
challenging the additions made by the Assessing Officer.
10.03. The CIT (Appeals) noted that the grounds of appeal
Nos.9 to 14 were considered together in view of similarity of
nature of additions. In search and seizure action under section
132 of the Act, the computerised data of the unaccounted
account of the said firm were found and seized. They were
labelled as TEST data in the name of the respondent-assessee
and his family members. The details of accounts in the name
of the respondent-assessee and his family members were
submitted by the respondent-assessee to the Assessing
Officer. The respondent-assessee also submitted that various
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debit and credit entries appearing in the accounts submitted
by him were from the premises of M/s.Pruthvi Builders Ltd..
Qua the transaction of the respondent-assessee with
M/s.Pruthvi Builders Ltd., when he was directed to prove the
source of such credit entries appearing in the above account,
he had given the explanation in respect of the source of the
credit entries along with supporting documentary evidence. In
support of the amount received, the respondent-assessee
submitted affidavits of various investors who had made
investment in M/s.Pruthvi Builders through the respondentassessee.
It was also noted by the CIT (Appeals) that the
Assessing Officer disbelieved such submissions and made a
total addition of Rs.1,92,94,803/-.
10.04. During the course of the appellate proceedings,
therefore, along with the copy of submissions made by the
respondent-assessee, the case of the assessee was remanded
to the Assessing Officer by the CIT (Appeals), having
jurisdiction over the respondent-assessee's case. In the
remand report submitted by the Assessing Officer, no material
was brought to substantiate his claim as noted by the CIT
(Appeals) and the Assessing Officer, as further recorded by the
CIT (Appeals) merely repeated the reasons recorded in the
assessment order. The submissions made by the respondentassessee
were not negatived by the Assessing Officer by
bringing any substantiating evidence on record or by further
inquiry. The CIT (Appeals), therefore, made an inquiry under
section 250(4) of the Act directing the respondent-assessee to
produce the investors at Income-tax Office at Bhavnagar on
September 22, 2002 by camping at Bhavnagar and the
statements of in all 24 investors were recorded by the
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Inspector in his presence. The investors confirmed the facts of
investment made through the respondent-assessee and the
contents of the affidavit also were confirmed by these persons,
thereby substantiating the submissions of the respondentassessee.
The CIT (Appeals), therefore, on extensively giving
the reasons held vide its order dated October 18, 2002 that the
respondent-assessee has discharged his onus of proving the
genuineness of the transaction and his explanation and
nothing has been brought on record by the Assessing Officer to
show that explanation and various documents submitted by
the respondent-assessee were not correct. Therefore, it held
that the respondent-assessee succeeded in establishing the
source of the credit entries appearing in his account and the
accounts of his family members in the TEST ledger. He
accordingly directed the Assessing Officer to delete the
addition of Rs.1,92,94,803/-.
10.05. This was challenged by the Revenue before the
Tribunal. The Revenue vehemently submitted before the
Tribunal that no opportunity was given to the Assessing Officer
while accepting the evidence collected by the CIT (Appeals)
itself under section 250(4) of the Act, which was in clear
violation of principles embodied in Rule 46A of the Rules.
10.06. It was argued by the other side before the Tribunal
that it was incidental that the inquiry conducted by the CIT
(Appeals) supported the case of the respondent-assessee and
not the Revenue. However, there would be no requirement
under the law that the First Appellate Authority should
invariably permit the Assessing Officer an opportunity every
time when the additional evidence, not otherwise adduced
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before the Assessing Officer, came on record at the instance of
the First Appellate Authority, even if the same is on its own
motion.
10.07. The Tribunal confirmed the deletion of additions of
Rs.1,93,94,403/- made by the Assessing Officer by not
sustaining additional ground of violation of Rule 46A of the
Rules.
10.08. Aggrieved by concurrent findings of the CIT
(Appeals) and the Tribunal, the Revenue has approached this
Court challenging these orders by proposing the following
questions of law for our consideration :
"(A) Whether the Appellate Tribunal is right in law
and on facts in confirming the order passed by the
CIT (Appeals), who had deleted the additions
relying upon the statements recorded by him,
without giving an opportunity to the Assessing
Officer as mandated under Rule 46A of the Income
Tax Rules, 1962 ?
(B) Whether the Appellate Tribunal is right in law
and on facts in confirming the deletion of addition
of Rs.67 lacs made in respect of unexplained capital
of an amount of Rs.1,25,94,803/- made on account
of peak credits ?"
11.00. The learned Senior Counsel Mr.Manish Bhatt
appearing with the learned advocate Mrs.Mauna Bhatt on
behalf of the appellant-Revenue has forcefully submitted that
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the opportunity was given to the respondent-assessee to
produce the creditors during the course of assessment.
However, the respondent-assessee chose not to avail such an
opportunity and at an appellate stage, the CIT (Appeals)
exercised suo motu powers to summon the creditors and
recorded their statements. While admitting such additional
evidence, no opportunity was given to the Assessing Officer to
either cross-examine such witnesses or to rebut their evidence.
This, according to him, is a clear breach of provision of section
46A of the Act and, therefore, it is urged that the matter may
be remanded to the Tribunal by a specific direction of affording
the opportunity to the Assessing Officer as well as to the
respondent-assessee, if it so desires.
12.00. Per contra, the learned counsel Mr.R.K. Patel
appearing for the respondent-assessee has urged that where
the additional evidence is admitted by the First Appellate
Authority on its own motion, there is no requirement under the
law under sub-rule (2) of Rule 46A of the Rules to allow the
Assessing Officer a fresh opportunity to rebut such evidence
and again in absence of any explicit provision, such
requirement cannot be said to be a part of the rule mandating
the Appellate Authority to afford an opportunity of rebuttal to
the Assessing Officer. It is not the case where the respondentassessee
has requested for further evidence, but the CIT
(Appeals) itself felt requirement of calling for such evidence.
Therefore, sub-rule (3) of Rule 46A needs not to be invoked. He
sought to rely upon two authorities (i) in the case of
Commissioner of Income-tax U.P. v. Kanpur Coal
Syndicate, reported in (1964) 53 ITR 225 and (ii) the
decision rendered by the Rajasthan High Court in the case
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of Silver & Art Palace v. CIT, (1994) 206 ITR 501 (Raj.).
The Apex Court in the case of Kanpur Coal (supra) has held
that the Appellate Authority can exercise the powers which the
Assessing Officer is empowered to exercise.
In the case of Silver & Art Palace (supra), the
Rajasthan High Court has held that the Appellate Authority has
powers during the process of appeal under section 250(4) of
the Act to make such further inquiry as he deems fit or direct
the Assessing Officer to so do it.
What has aggrieved the Revenue is non-availment of due
opportunity while permitting such additional material which
became determinative in effecting deletion of additions made
by the Assessing Officer.
13.00. Upon thus hearing both the sides and considering
the orders of the revenue authorities, before adverting to the
facts of the present case, it can be said at the outset that the
powers of Commissioner during the pendency of appeal to
inquire or direct the inquiry and adducing evidence, are not
under challenge. It would be profitable, therefore, to reproduce
Rule 46A of the Income Tax Rules, 1962 (hereinafter referred
to as 'the Rules') as under :
"Production of additional evidence
before the Deputy Commissioner
(Appeals) and Commissioner (Appeals)
46A. (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,
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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-rule (1) unless the Deputy Commissioner
(Appeals), or 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 the
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.
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(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 clause (a) of sub-section (1) of
section 251 or the imposition of penalty under
section 271."
13.01. Rule 46A provides for production of any additional
evidence, oral or documentary, before the Deputy
Commissioner (Appeals) and Commissioner (Appeals). This
Rule provides for two modes for adducement of additional
evidence at the First Appellate stage, either at the instance of
the appellant under sub-rules (1) to (3) or at the instance of
Appellate Authority under sub-rule (4) of Rule 46A of the Rules.
As far as discretion to be exercised by the Commissioner at the
instance of appellant is concerned, the Rule explicitly provides
for affording an opportunity, however, under sub-rule (4) no
such express provision is found. The appellant, except in the
circumstances mentioned in sub-rule (1), shall not be entitled
to produce oral or documentary evidence before the Deputy
Commissioner (Appeals) and Commissioner (Appeals), : (a)
where the Assessing Officer ought to have refused to admit the
evidence; or (b) where the appellant should have been
prevented by sufficient cause from producing the evidence
which otherwise he was called upon by the Assessing Officer;
or (c) where the appellant would have been prevented by
sufficient cause from producing before the Assessing Officer
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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. Recording
of reasons of such admission is also made explicit by way of
sub-rule (2) of Rule 46A of the Rules.
13.02. Sub-rule (3) of Rule 46A of the Rules provides that
the Commissioner unless provides a reasonable opportunity to
the Assessing Officer in respect of the evidence produced
under sub-rule (1), such evidence shall not be taken into
account. Where the Assessing Officer is not only to be
permitted to examine or cross-examine the evidence/
document or the witnesses, but also to be offered an
opportunity of rebuttal of evidence.
13.03. Thus, this Rule provides that whenever a prayer for
additional evidence is made by the appellant, it is independent
and substantive application seeking a new right. The Assessing
Officer is always afforded a reasonable opportunity to oppose
and test the additional evidence or counter effect thereof to
produce the evidence in rebuttal as held in the case of
Commissioner of Income-tax, Gujarat v. Vali Mohmed,
reported in 134 ITR 214.
The scheme of sub-rule (1) to (3) of Rule 46A
clearly, thus, requires offering a reasonable opportunity to the
Assessing Officer whenever the additional evidence is
permitted by the First Appellate Authority.
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13.04. As far as sub-rule (4) of Rule 46A of the Rules is
concerned, it speaks of the power of Commissioner (Appeals)
to direct production of any document or evidence or
examination of witness, (i) to enable him to dispose of the
appeal, (ii) for any other substantial cause including the
enhancement of the assessment, (iii) for imposition of penalty
under clause (a) of sub-section (1) of section 251 or (iv)
imposition of penalty under section 271. As far as sub-rule (4)
of Rule 46A is concerned, the powers are exercised by the
Deputy Commissioner (Appeals) or Commissioner (Appeals)
directing the appellant to produce any document or
examination of witness. These powers are needed to be
exercised for enabling the Commissioner to dispose of the
appeals or for any substantial cause or for the purpose of
imposition of penalty as provided under this Rule. Although
there is no explicit provision made for affording a reasonable
opportunity to the assessee when suo motu powers are
exercised, it will not be difficult to hold that the reasonable
opportunity of hearing to the parties, before the fresh evidence
is admitted, requires to be afforded. The Commissioner
(Appeals) would have ample power to call for any additional
evidence, oral or documentary, if it considers such production
necessary in the interest of justice for disposing of the appeal
or for any other substantial cause. It goes without saying that
while exercising such powers of admission of the additional
evidence, the powers are required to be exercised within the
limits imposed by the Rule and both sides are required to be
afforded due and reasonable opportunity in respect of such
evidences.
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13.05. Even in absence of any explicit provision, when suo
motu powers are exercised by the Deputy Commissioner
(Appeals) or Commissioner (Appeals), as the case may be, for
meeting the ends of justice as also for fair-play while adducing
the additional evidence in the appeal in exercise of powers
under sub-rule (4) of Rule 46A, the opportunity is required to
be given to both the sides to test the evidence or to counter
the effect of the evidence in rebuttal or otherwise.
13.06. It needs to be remembered at this juncture that this
Court in the case of Vali Mohmed (supra), while answering
the question in respect of sub-rule (3) of Rule 46A of the Rules
went to the extent of saying that :
".. .. .. When a prayer for additional evidence
was made, it was an independent and
substantive application seeking a new right.
Notice of such application was necessary to
the ITO and he ought to have been afforded
both an opportunity to oppose it and to test
the additional evidence or counter the effect
thereof or produce evidence in rebuttal. No
such order granting the request could have
been passed behind the back of the ITO in
violation of the principles of natural justice. At
the cost of repetition, it be stated that notice
of appeal cannot be equated with notice of a
future application to lead additional evidence
which no one could have anticipated or
reasonably foreseen. Ordinarily, the appeal
would be decided on the evidence recorded
in the course of assessment proceedings. The
ITO, therefore, may not, in a given case, think
it necessary to remain present at the hearing
of the appeal. He, however, cannot be
expected to anticipate that additional
evidence might be produced by the assessee
in his appeal. It is for this reason that it is
necessary to give him an opportunity to meet
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the additional evidence. The Tribunal has,
therefore, fallen into an error in rejecting the
plea of the revenue that the AAC ought to
have given an opportunity to the ITO to
examine the additional evidence or to crossexamine
the witnesses whose evidence was
taken on record or to rebut the additional
evidence. We, therefore, answer the question
referred to us in the negative and against the
assessee."
13.07. This Court is conscious of the fact that such findings
were rendered while answering the question in relation to subrule
(3) of Rule 46A of the Rules, where the Rule itself provides
for reasonable opportunity of examining the evidence as also
for rebuttal of evidence to the Assessing Officer, however, the
analogy employed by this Court in case of Vali Mohmed
(supra) would apply mutatis mutandis even in case of
exercise of suo motu powers. The Assessing Officer would have
no clue of possibility of exercise of such powers by
Commissioner. Any evidence adduced additionally would
surely require testing of its truthfulness and veracity at the
hands of otherside and availment of such opportunity thus is
must before the same is taken into account.
13.08. Even at the cost of reiteration, it is being stated that
the opportunity of hearing is to be read as interwoven while
exercising powers under sub-rule (4) of Rule 46A of the Rules
and, therefore, the Tribunal surely committed an error in not
allowing the opportunity of hearing to the Revenue, despite its
fervent request for affording opportunity in respect of
additional evidence.
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13.09. At this stage, the learned advocate Mr.R.K. Patel
appearing for the respondent-assessee has urged that such
opportunity should also be afforded to the respondentassessee,
who also had no say in the entire matter and it is a
sheer coincidence that such evidence resulted into favouring
the cause of the respondent-assessee. He also further urged
that the appeal relates to the block period of 1988-1999 and
the Tribunal has decided the matter after a decade nearly.
Such request from the Revenue also has come belatedly and,
therefore, after much lapse of time, when this Court is
remanding the matter to the Tribunal, the possibility cannot be
ruled out that all the witnesses who were examined by the
Commissioner (Appeals) may not be available for various
reasons and in such circumstances, adverse inference may not
be drawn against the assessee.
13.10. As extensively discussed hereinabove, while
interpreting sub-rule (4) of Rule 46A of the Rules and its
implication, affording an opportunity of hearing to the
respondent-assessee is also necessary in respect of the
additional evidence collected by the Commissioner (Appeals).
13.11. With regard to the second request of the
respondent-assessee of not drawing adverse inference in the
event of absence of any investors, particularly when
substantial period has elapsed in pursuing the legal remedies,
the respondent-assessee would be within its rights to raise all
the contentions, including this, before the revenue authorities
at an appropriate time, if such need so arises; and the
concerned authority may consider the same in accordance
with law having regard to all the facts and circumstances.
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14.00. For the foregoing reasons, the present appeal
succeeds and the same is, accordingly, partly allowed. The
impugned orders are quashed and set aside, remanding the
matter to the Commissioner (Appeals), for deciding the Appeal
afresh on affording reasonable opportunity to both the sides in
respect of the additional evidence collected by it in exercise of
powers under sub-rule (4) of Rule 46A. Needless to say that
nothing is opined on the merits of the case by this Court and
none of the observations made hereinabove shall, in any
manner, prejudice the right of either of the parties in deciding
the appeal afresh by the revenue authorities.
Sd/-
(MS SONIA GOKANI, J.)
Rafik/Aakar.
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