Itta/260/2003 Of Commissioner Of Income Tax Iii v. Modern

*THE HON’BLE SRI JUSTICE L.NARASIMHA REDDYAND*THE HON’BLE SRI JUSTICE CHALLA KODANDA RAM+I.T.T.A.No.260 of 2003 % Dated 05.11.2014 Commissioner of Income Tax-III, Hyderabad ….Appellant $ Unique Plastics Pvt. Ltd. ….Respondent ! Counsel for the appellant : Sri S.R.Ashok ^ Counsel for respondent : ---- < GIST: > HEAD NOTE: ? Cases referred:1. (2011) 335 ITR 105(Delhi)2. (2010) 327 ITR 577 (Madras) THE HON’BLE SRI JUSTICE L.NARASIMHA REDDYANDTHE HON’BLE SRI JUSTICE CHALLA KODANDA RAMI.T.T.A.No.260 of 2003 JUDGMENT: (Per LNR,J) In this appeal preferred by the Revenue, the scope andambit of Rule 46-A of the Income Tax Rules (for short ‘the Rules)falls for consideration: The respondent is an assessee under the Income Tax Act (for short ‘the Act’). For the assessment year 1998-99, therespondent posted loss of Rs.66,32,239/-. The AssessingOfficer passed an order dated 29.03.2001 disbelieving theversion as to loss and recording a finding to the effect that therespondent has income of Rs.79,50,262/- and levied taxthereon. Aggrieved by that, the respondent filed an appealbefore the Commissioner of Income Tax (Appeals)-IV,Hyderabad. In support of its contention, it placed someadditional material/evidence before the Commissioner. Takingthe same into account, the Commissioner partly allowed theappeal and permitted certain deductions. The Departmentcarried the matter in appeal by filing I.T.A.No.660/Hyd/2002before the Hyderabad Bench of the Income Tax AppellateTribunal (for short ‘the Tribunal’). One of the contentions urgedbefore the Tribunal was as to alleged violation of Rule 46-A ofthe Rules by the Commissioner (Appeals). The Tribunaldismissed the appeal through order, dated 24.01.2003. Hence,this further appeal under Section 260-A of the Act. Sri S.R.Ashok, learned senior Standing Counsel for theDepartment submits that the receiving of evidence by anappellate Commissioner is not a matter of course and it is onlywhen the conditions stipulated under Rule 46-A of the Rules arecomplied with, that such evidence can be received andconsidered. He submits that no opportunity was given to theAssessing Officer, before the documents were admitted andeven after the documents were admitted in evidence, theconsideration thereof was almost unilateral. Reliance is placedupon the judgment of the Delhi High Court in DIT vs. Modern Charitable Foundation[[1]]and that of the Madras High Court in Commissioner of Income-Tax vs. Subbu Shashank[[2]]. Hecontends that the Tribunal did not take into account the seriousviolation of Rule 46-A of the Rules, which would have the effectof vitiating the very adjudication undertaken by theCommissioner. None appeared for the respondent. The controversy is more about the procedure adopted bythe Appellate Commissioner, than on merits of the matter. Underthe Act, adjudication takes place, firstly before the authority of theDepartment or quasi-judicial agency, which in turn is handledmostly by the officials of the Department, before the matterreaches High Court. Certain traits of ordinary adjudication by theCourts, are stipulated for the departmental appeals also. It isimportant to note that an order of assessment is the outcome ofan exercise undertaken by the Department and an aggrievedparty, if at all, can be only the assessee. Obviously for thisreason, no appeal is provided to the Commissioner against anorder of assessment, at the instance of the Department. Theprinciple that an appeal is continuation of original proceedingsgets attracted with added vigor as regards appeals before theCommissioner. In a given case, the assessee may be able to prove hiscontention in the appeal, on the basis of the material, that formedpart of the record of the Assessing Officer. In certain cases, hemay feel like taking the aid of other material just as it is done inthe civil appeals, to buttress the contention. In a given case, the assessee may be able to prove hiscontention in the appeal, on the basis of the material, that formedpart of the record of the Assessing Officer. In certain cases, hemay feel like taking the aid of other material just as it is done inthe civil appeals, to buttress the contention. Receiving of additional evidence by an appellate authorityfor the first time, is not something new. However, it is not a matterof course and it is circumscribed by certain conditions. Thegeneral principle is that it is only when (i) a party, who intends toadduce additional evidence at the appellate stage, made aneffort to place that very material before the original authority, butdid not succeed; or (ii) such material was not available during thecourse of adjudication before the original authority, that theadditional evidence can be received or admitted. Rule 46-A ofthe Rules deals with this aspect, and it reads: Production of additional evidence before theDeputy Commissioner (Appeals) andCommissioner (Appeals). 46A.(1) The appellant shall not be entitled to producebefore the Deputy Commissioner (Appeals) or, as the casemay be, the Commissioner (Appeals), any evidence, whetheroral or documentary, other than the evidence produced by himduring the course of proceedings before the Assessing Officer except in the following circumstances, namely:- (a) Where the Assessing Officer has refused toadmit evidence which ought to have beenadmitted; or (b)Where the appellant was prevented bysufficient cause from producing the evidencewhich he was called upon to produce by theAssessing Officer; pr (c)Where the appellant was prevented bysufficient cause from producing before theAssessing Officer any evidence which is relevantto any ground of appeal; or (d)Where the Assessing Officer has made theorder appealed against without giving sufficientopportunity to the appellant to adduce evidencerelevant to any ground of appeal. (2) No evidence shall be admitted under sub-rule (1)unless the Deputy Commissioner (Appeals) or, as the casemay be, the Commissioner (Appeals) records in writing thereasons fro its admission. (3) The Deputy Commissioner (Appeals) or, as thecase may be, the Commissioner (Appeals) shall not take intoaccount any evidence produced under sub-rule (1) unless theAssessing Officer has been allowed a reasonable opportunity- (a)to examine the evidence or document or tocross-examine the witness produced by theappellant, or (b)to produce any evidence or document or anywitness in rebuttal of the additional evidenceproduced by the appellant. From a perusal of this Rule, it becomes clear that the rulemaking authority maintained a clear distinction between the twoconcepts viz., admission and consideration. While ‘admission’ issubject to the conditions stipulated in clauses (a) to (d) of Sub-rule (1), ‘consideration’ or taking into account of the evidence soreceived, is dealt with under Sub-rule (3). Broadly, the procedureprescribed under this Rule is comparable to the one under Rule27 of Order 41 C.P.C. The only difference is that under Rule 27of Order 41 C.P.C., separate application is required to be madeseeking permission to adduce additional evidence at the stage ofappeal and it is only on the consideration of the objections thatmay be raised by the opposite party, that the additional evidencecan be admitted. In the case of appeals under the Act, such a procedure is not stipulated. Under Rule 46-A, all depends uponthe satisfaction of the Commissioner as to the admissibility of thedocuments and no adversarial exercise needs to be undertakenat that stage. procedure is not stipulated. Under Rule 46-A, all depends uponthe satisfaction of the Commissioner as to the admissibility of thedocuments and no adversarial exercise needs to be undertakenat that stage. Once the document is admitted as additional evidence, forthe first time at the stage of appeal, the Department is entitled toput forward its own contention or objection vis-a-vis the same. Here again, two aspects become relevant. If the additionalevidence is in the form of any document, the Department shall beentitled to examine or to make its own scrutiny of the same. Onthe other hand, if the evidence is in the form of deposition of anywitness, it shall be entitled to cross-examine him. The first isprovided for under Clause (a) and the second, under Clause (b)of Sub-Rule 3. Independently the Department can adduce itsown oral or documentary evidence to contradict or rebut theadditional evidence that was adduced by a party, for the firsttime, at the stage of appeal. The record in the instant case does not disclose that theDepartment has raised any objection whatever, for the additionalevidence that was produced by the respondent. On the otherhand, arguments were advanced with reference to adduceadditional evidence also, and the Commissioner dealt with thesame. In other words, the Commissioner took into account, theadditional evidence duly taking into account, the plea of theDepartment. At any rate, it was not even urged that theCommissioner did not take into account any objection, if any,raised by the Department, for the additional evidence. The nature of objection raised by the appellant is evidentfrom Ground No.5 of the Memorandum of Grounds filed inI.T.A.No.666/Hyd/2002, which reads: “5. The CIT(A) ought to have afforded an opportunity to theAssessing Officer as per rule 47A(3) of I.T.Rules beforeadmitting fresh evidence.” They wanted opportunity to be given, before admitting thefresh evidence. This plea does not derive any support from Rule46-A of the Rules. The opportunity to be given to the Department is only in the context of “taking into account theadditional evidence’ but not “admitting the additional evidence”. At the cost of repetition, we observe that the admission ofadditional evidence is the prerogative of the Commissioner andthat in turn is circumscribed by Clauses (a) to (d) of Rule 46-A(1)of the Rules. Learned senior counsel is not able to point out as towhich of the conditions have been violated in the process ofadjudication by the Commissioner. The Tribunal dealt with thecontention in detail and did not find any merit in the plea of theappellant. In Modern Charitable Foundation’s case (1 supra) reliedupon by the learned counsel for the appellant, the Delhi HighCourt dealt with an objection raised by the Department about thereceiving of additional evidence for the first time at the stage ofappeal. A perusal of the judgment discloses that after theadditional evidence was admitted, the Assessing Officer wasgiven an opportunity and he made written submissions pointingout that the document ought not to have been filed at all. TheDelhi High Court took the view that there is nothing wrong inreceiving the evidence and that the Commissioner did not godeep into the document but simply relied upon it, and grantedrelief to the assessee. It is difficult to discern any principle of lawor ratio from the said judgment. It was a typical observationmade in the facts of the case. That is evident from the followingsentence “Therefore, in order to balance the equities, we are ofthe opinion that on the one hand, the assessee be permittedto rely upon the additional evidence produced before theCommissioner of Income-tax (Appeals) and at the same time,the Assessing Officer also be given an opportunity to verifythese documents” “Therefore, in order to balance the equities, we are ofthe opinion that on the one hand, the assessee be permittedto rely upon the additional evidence produced before theCommissioner of Income-tax (Appeals) and at the same time,the Assessing Officer also be given an opportunity to verifythese documents” In Subbu Shashank’s case (2 supra), the Madras highCourt was dealing with the case, in which the assesseeexamined a witness for the first time before the Commissioner(Appeals) but the Department was not given opportunity to cross-examine the witness. Obviously for that reason, the adjudicationundertaken by the Commissioner was held to be in contravention of Rule 46-A of the Rules. The relevant portion reads: “Admittedly, in the present case on hand, the AssessingOfficer has not been given an opportunity to cross-examinethe witnesses produced by the assessee. That is the reasonwhy the Tribunal has observed that rule 46A of the Income-tax Rules has been violated.” Naturally the violation is of Rule 46-A(3)(a) of the Rules. The facts of the case on hand are substantially different. Therefore, the appeal is dismissed. The miscellaneous petition filed in this appeal shall alsostand disposed of. There shall be no order as to costs. ____________________ L.NARASIMHA REDDY, J ________________________ CHALLA KODANDA RAM, J Date: 05.11.2014Note: L.R.Copy to be marked.JSU THE HON’BLE SRI JUSTICE L.NARASIMHA REDDYAND THE HON’BLE SRI JUSTICE CHALLA KODANDA RAM I.T.T.A.No.260 of 2003 JSU Date: 05.11.2014 [1](2011) 335 ITR 105(Delhi) [2](2010) 327 ITR 577 (Madras)