Aggrieved By The Order Passed By The Cit (A), The Revenue Carriedthe Matter In Appeal To The Itat Which, In The Order Impugned In The Appealbefore Us, Referred v. Central Government[[1]];Cit V.k.ravindranathan Nair[[2]]; The Calcutta High Court In Rajkumar Srimal

THE HON’BLE SRI JUSTICE RAMESH RANGANATHANAndTHE HON’BLE SRIJUSTICE M.SATYANARAYANA MURTHYI.T.T.A.No.119 of 2015 ORDER: (per Hon’ble Sri Justice Ramesh Ranganathan) Heard Sri J.V.Prasad, learned Senior Standing Counsel for theIncome Tax Department, and Sri V.Ramakrishna Reddy, learned counselfor the respondent-assessee. This appeal, under Section 260-A of the Income Tax Act, 1961 (forbrevity, ‘the Act’), is preferred against the order passed by the Income TaxAppellate Tribunal (for brevity, ‘ITAT’) in I.T.A.No.1081 of 2013 dated21.03.2014. A best judgment assessment was passed under Section 144of the Act by the assessing authority on 21.01.2013 disallowing deductionsunder Section 10-A of the Act. Aggrieved thereby, the assessee carried thematter in appeal to the CIT (A) who, in his order dated 29.04.2013,observed that the appellant had explained the reasons for non-appearanceon some dates, on the ground that the company was in dire straits; theyhad also stated that the information, sought for by the assessing officer,was fully available; and, on the ground of exceptional circumstances, theassessee had prayed that an opportunity be given to them to submit alldetails requested for by the assessing officer. The CIT (A) also noted thatthe appellant had furnished the information that was called for by theassessing officer. After considering the documents so furnished, and theevidence placed on record by the appellant, he set aside the assessmentorder to the extent the appellant’s claim for deduction, under Section 10-Aof the Act, had been disallowed. Aggrieved by the order passed by the CIT (A), the Revenue carriedthe matter in appeal to the ITAT which, in the order impugned in the appealbefore us, referred to the judgments of the Allahabad High Court inSmt.Mohinder Kaur v. Central Government[[1]];CIT v.K.Ravindranathan Nair[[2]]; the Calcutta High Court in Rajkumar Srimal Aggrieved by the order passed by the CIT (A), the Revenue carriedthe matter in appeal to the ITAT which, in the order impugned in the appealbefore us, referred to the judgments of the Allahabad High Court inSmt.Mohinder Kaur v. Central Government[[1]];CIT v.K.Ravindranathan Nair[[2]]; the Calcutta High Court in Rajkumar Srimal v. CIT[[3]]; the Gujarat High Court in CIT v. Vali Mohamed Ahmedbhai[[4]];the Madhya Pradesh High Court in CIT v. Babulal Jain[[5]]; the KeralaHigh Court in C.Unnikrishnan v. CIT[[6]];the Allahabad High Court inRamprasad Sharma v. CIT[[7]]; and the Bombay High Court inSmt.Prabhavati Shah v. CIT[[8]];and held that the first appellate authorityhad wide powers over orders of assessment; in the exercise of suchpower, the first appellate authority could direct the assessee to produceany evidence, information or material that was not produced before orconsidered by the assessing officer; the purpose of Rule 46-A of theIncome Tax Rules (for brevity, ‘the Rules’) is to place fetters on the rights ofan appellant to produce additional evidence before the first appellateauthority, and not on the right of the first appellate authority to call forproduction of any fresh evidence or information; this aspect is clear fromsub-rule (4) of Rule 46-A itself; the entire additional evidence came onrecord before the first appellate authority as he decided to examine thefacts of the case in depth, and adjudicate upon the matter on the basis ofthe evidence and the material thus gathered; the CIT(A) was empoweredto do so under Section 250(4) of the Act; the result of the enquiry,conducted by him, could cement the case made out by the assessingofficer or to help the assessee against the findings of the assessing officer;the mere fact that the result of the enquiry, thus conducted, supported thecase of the assessee had no bearing on the jurisdiction and powers of theCIT (A); the CIT(A) could have confronted the assessing officer with theevidence received and the material gathered; he could have allowed theassessing officer to have his say in the matter; if he had done so, nodispute would have arisen; there was, however, no requirement in law thatthe first appellate authority should invariably consult or confront theassessing officer every time additional evidence, that was not before theassessing officer, is obtained by the first appellate authority on its ownmotion; there is no requirement in law to consult/confront the assessingofficer 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 Rule 46-A (2) ofthe Rules requires the first appellate authority to allow the assessingofficer a further opportunity to rebut the fresh evidence; even thatrequirement cannot be said to be a rule of universal application; if theadditional evidence, furnished by the assessee before the first appellateauthority, is in the nature of clinching evidence, leaving no further room forany doubt or controversy, in such a case no useful purpose would beserved in performing the ritual or forwarding the evidence/material to theassessing officer and in obtaining his report; and, in such exceptionalcircumstances, the requirement of sub-rule (3) may be dispensed with. Theappeal preferred by Revenue was dismissed. In support of their claim for exemption under Section 10-A, the assessee had filed, before the CIT (A), copies of thecertificate of registration with STPI, Hyderabad and Goa, Softex formssubmitted to STPI, reconciliation of export proceeds with invoices raised,FIRCs and bank statements. The fact that the documents, furnished by theappellant before the CIT (A), were not brought to the notice of theassessing authority is not in dispute. In support of their claim for exemption under Section 10-A, the assessee had filed, before the CIT (A), copies of thecertificate of registration with STPI, Hyderabad and Goa, Softex formssubmitted to STPI, reconciliation of export proceeds with invoices raised,FIRCs and bank statements. The fact that the documents, furnished by theappellant before the CIT (A), were not brought to the notice of theassessing authority is not in dispute. Section 250 of the Act prescribes the procedure in appeal. Section250 (1) of the Act enables the CIT (A) to fix a day and place for the hearingof the appeal, and to give notice of the same to the appellant, and to theassessing officer against whose order the appeal is preferred. Section 250(2) of the Act stipulates that the appellant, and the assessing officer, shallhave a right to be heard at the hearing of the appeal. Section 250 (4) of theAct stipulates that the Commissioner may, before disposing of any appeal,make such further enquiry as he thinks fit or direct the assessing officer tomake further enquiry and report the result of the same to him. Rule 46-A of the Rules reads as under: (1) The appellant shall not be entitled to produce before theDeputy Commissioner (Appeals)] [or, as the case may be,the Commissioner (Appeals)], any evidence, whether oral ordocumentary, other than the evidence produced by himduring the course of proceedings before the [AssessingOfficer], except in the following circumstances, namely :- (a) where the [Assessing Officer] has refused to admitevidence which ought to have been admitted ; or (b) where the appellant was prevented by sufficient causefrom producing the evidence which he was called upon toproduce by the Assessing Officer]; or (c) where the appellant was prevented by sufficient causefrom producing before the [Assessing Officer] any evidencewhich is relevant to any ground of appeal; or (d) where the [Assessing Officer] has made the orderappealed against without giving sufficient opportunity to theappellant to adduce evidence relevant to any ground ofappeal. (2) No evidence shall be admitted under sub-rule (1) unlessthe [Deputy Commissioner (Appeals)] or, as the case maybe, the Commissioner (Appeals)] records in writing thereasons for its admission. (3) The [Deputy Commissioner (Appeals)] or, as the casemay be, the Commissioner (Appeals)] shall not take intoaccount any evidence produced under sub-rule (1) unless the[Assessing Officer] has been allowed a reasonableopportunity-- (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 inrebuttal 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 anydocument, or the examination of any witness, to enable himto dispose of the appeal, or for any other substantial causeincluding 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) ofsection 251 or the imposition of penalty under section 271.] While clause (1) of Rule 46-A of the Rules enables the appellant toproduce, before the first appellate authority, any evidence, other than theevidence produced by him before the course of proceedings before theassessing authority, sub-rule (2) stipulates that no evidence shall beadmitted, under sub-rule (1), unless the appellate authority records, inwriting, reasons for its admission. Under sub-rule (3) the first appellateauthority shall not take into account any evidence, produced under sub-rule (1), unless the assessing officer has been allowed a reasonableopportunity to examine the evidence or documents, or to examine theevidence. While it is no doubt true that nothing contained in sub-rules (1) to (3) While clause (1) of Rule 46-A of the Rules enables the appellant toproduce, before the first appellate authority, any evidence, other than theevidence produced by him before the course of proceedings before theassessing authority, sub-rule (2) stipulates that no evidence shall beadmitted, under sub-rule (1), unless the appellate authority records, inwriting, reasons for its admission. Under sub-rule (3) the first appellateauthority shall not take into account any evidence, produced under sub-rule (1), unless the assessing officer has been allowed a reasonableopportunity to examine the evidence or documents, or to examine theevidence. While it is no doubt true that nothing contained in sub-rules (1) to (3) of Rule 46-A, affect the power of the first appellate authority to directproduction of any documents, or the examination of any evidence, in orderto dispose of the appeal, it is clear from sub-sections (1) and (2) of Section250 of the Act itself that the assessing officer has a right to be heard at thehearing of the appeal. Rule 46-A (3) of the Rules disables the CIT (A) from taking intoaccount any evidence produced before him unless the assessing officerhas been allowed a reasonable opportunity to examine the evidence ordocuments. In the present case, admittedly, no such opportunity has beenafforded to the assessing officer. The Tribunal has held that, if theevidence is clinching in nature and does not leave any further room fordoubt, no useful purpose would be served in performing the ritual. Whatthe Tribunal failed to note is that Rule 46-A (3) requires the assessingofficer to be given an opportunity to examine the documents produced bythe assessee for the first time before the first appellate authority. Thismandate of Rule 46-A (3) could not have been dispensed with, as it is astatutorily prescribed rule of natural justice. This mandate under Rule 46-A(3) is in tune with Section 250(2) of the Act which requires the assessingauthority, or his representative, to be given an opportunity of being heardbefore the appeal is decided. The Gujarat High Court in Vali Mohamed Ahmedbhai[4]rejectedthe view, similar to the one taken by the Tribunal, and held that the CIT (A)should not have taken into account any evidence produced under Rule 46-A(1) unless the Income-tax officer has been allowed a reasonableopportunity to examine the evidence or to cross-examine the witnesswhose evidence was taken on record or to produce any evidence inrebuttal of the additional evidence produced by the assessee; the CIT (A)could not have relied on the additional evidence without giving suchopportunity to the Income-tax officer; even if no such rule was in existence,ends of justice and fair play demand that, when the assessee producesadditional evidence in his appeal, an opportunity is given to the ITO to testthe evidence or to counter the effect of the evidence by producingevidence in rebuttal or otherwise; the ITO had the right to object to the production of additional evidence; since something adverse to the ITO wassought to be done in the course of the appeal, by way of augmenting therecord, the ITO ought to have been heard, and given an opportunity tomeet the additional material, by way of cross-examination, counter-evidence and urging submissions in the context of the augmented record;when a prayer for additional evidence is made, it is an independent andsubstantive application seeking a new right; notice of such application wasnecessary to the ITO; he should have been afforded the opportunity tooppose it; no order granting the request for additional evidence could havebeen passed behind the back of the ITO in violation of principles of naturaljustice; and notice of the appeal cannot be equated with the notice of afuture application to lead additional evidence. The statutory obligation which the CIT (A) was required todischarge, under Rule 46-A(3) of the Rules, cannot be whittled down, orbrushed aside as performing a ritual. While sub-rule (4) of Rule 46-A of theRules, no doubt, confers power on the first appellate authority to causeproduction of documents, justice and fair play would require the assessingauthority to be given the opportunity to examine such documents and putforth his objections, if any, thereto. The document which the assesseeintends to place before the appellate authority, cannot be entertained bythe CIT (A) except on fulfillment of the following conditions:- (1) recordingreasons in writing for receiving such evidence; and (2) giving theassessing authority an opportunity to examine the documents. The order under appeal must be, and is accordingly, set aside. Asthe CIT (A) has examined the documents, without giving the assessingofficer an opportunity of being heard, his order must also be set aside. TheCIT (A) shall make available copies of the documents, placed before himby the assessee, to the assessing officer and, after giving him anopportunity of being heard in this regard, pass orders afresh and inaccordance with law. As this dispute relates to the assessment year 2010-11, the CIT (A)shall dispose of the appeal, as directed hereinabove, with utmostexpedition; and, in any event, not later than three months from the date ofreceipt of a copy of this order. The appeal of the Revenue stands allowed. However, in the circumstances, without costs. Miscellaneous petitionspending, if any, shall stand disposed of. ______________________________ RAMESH RANGANATHAN, J 14[th] December, 2015.Tsy __________________________________M.SATYANARAYANA MURTHY, J [1]104 ITR 120 (All)[2]265 ITR 217 (Ker)[3]102 ITR 525[4]134 ITR 214 (Guj)[5]176 ITR 411 (MP)[6]233 ITR 485 (Ker)[7]119 ITR 867 (All)[8]231 ITR 1 (Bom)