Shri Rajeev Shrivastava, Standing Counsel With Ms v. O^rder

ln~' •.^fi{»:. ^.5-/0 HIGH COURT OF CHHATTISGARH :_BILA_SPUR Tax Case No. 19 of 2009 ofIncomeTax,Raipur Appellant(Revenue) CommissionerofIncomeTax,Raipur(Chhattisgarh)VersusHi-Tech Abrasives Ltd., MIG-21, IndrawatiColony, Raipur (C.G.) Respondent(Assessee) Order for consideration. Sd/-. Satish K. AgnihotriJudge HON'BLE MR. JUSTICE MANINDRA MOHAN .SHRIVASTAVA Sd/-ManindraMohanShrivastavaJudge Post for ORDER on^^Febmary. 2010 Sd/-Satish K. AgnihotriJudge '^^ HIGH COURT OP CHHATTISGARH : BILASPUR APPEAL UNDER SECTION 260-A OF THE INCOME TAX ACT. 1961 DB: Hon'ble Shri Satish K. Agnihotri 8sHon'ble Shri Manindra Mohan Shrivastava, JJ Shri Rajeev Shrivastava, Standing Counsel with Ms V. Shradha Rao,Advocate for the appellant. Shri Shashank Dubey, Senior Advocate with Shri Ajay Shrivastava, ,Advocate for the respondent. O^RDER (Passed[on][ fh.is]^f'day[ofFebruary,][ 2010)] Per Satish K. Agnihotri, J. The instant appeal arises from the order dated 28th November,2008, passed by the Income Tax Appellate Tribunal, BilaspurBench (Camp at Raipur) in Appeal I.T.A. No. 358/Nag/2008 for theAssessment Year 2005-2006. On15.5.2009,this appeal was admittedfor hearing on 'thefollowing substantial question of law: " Whether on the facts and circumstances of the case, the Whether on the facts and circumstances of the case, theHon'ble ITAT was justified in holding and placing reliance on theevidence in respect of installation of moulds and sale of thefinished products, which was produced before the CIT(A) for thefirst time, and was admitted by him without complying rule 46Aevidence in respect of installation of moulds and sale of thefinished products, which was produced before the CIT(A) for thefirst time, and was admitted by him without complying rule 46A- of the I.T. Rules and without giving any opportunity to theAssessing Officer to rebut or^examine the same ?"Assessing Officer to rebut or^examine the same ?" Relevant facts, in nutshell, are that the respondent company isengaged in manufacture and sale of steel ingots, CI shots and grits,steel shots and grits, CI ingots, moulds and castings ete. For theAssessmentYear 2005-2006 the respondent submitted its return. •'•,v-sy '? 6. The Assessing Officer found that the respondent has claiineddepreciation on casting mould boxes worth Rs. 2,99,90,272/- bycapitalizingtheentireamountasplant6smachinery.Thedepreciation was claimed on the count that the mould boxes wereput in use for less than 180 days. It was found by the Assessing Officer that the respondent/companyhas not produced any evidence regarding arrival of the mould boxesat Raipur, which were claimed to have been purchased before theclosing of the accounting year. Except the transportation andinstallationbills,nootherevidencewassubmittedbytherespondent/companyduringthecourseoftheassessmentproceeding. After close scrutiny, the Assessing Officer by orderdated 12.12.2007 (Annexure A/l), passed under Section 143(3)of the Income Tax Act, 1961 ( for short the Acf, 1961'), declined toallow depreciation ofRs. 37,48,748/-on the mould boxes. Being aggrieved by the assessment order dated 12.12.2007, therespondent/company filed an appeal, beingAppeal No.0516/07-08beforetheCommissionerofIncome-Tax(Appeals),Raipur(hereinafter referred to "CIT (A)") on the ground that the AssessingOfficer erred in making ad hoc addition/disallowance withoutassigning any reason. The Assessing Officer made ad hoc addition,Which is unreasonable and unwarranted and the addition ondisallowanceof depreciationwasmadeontheground thattransportation bill was not produced and the' machine was notreached before March,'which is unreasonable and unwarranted.The appeal preferred by the respondent/company was allowed bythe CIT(A) by order dated 11.3.2008 (Annexure A/2), holding thatthe respondent/company had bilties (invoices or luggage tickets) of .'••"y'135-'^/^as!s* \'^."isiif^. ^y U8- ^. y .'••"y'135-'^/^as!s* \'^."isiif^. ^y U8- ^. y ti-ansportation, which were produced for verification. Those biltiesshow that the machinery reached the business premises and themouldboxeswerein'readytouse'conditionandtherespondent/company had sufficient time to install and use thesame. Being aggrieved by the order dated11.3.2008 the appellant/department filed an appeal, being I.T.A.No. 358/Nag/2008:Assessment Year 2005-06 before the Income Tax Appellate Tribunal(for short 'the Tribunal'), on the grounds, referred in para 2 of theorder dated 28.11.2008 (Annexure A/3), which reads as under : " 1.On the facts and in the circumstances of the case, the Id.CIT(A) erred in deleting the addition of Rs. 2,00,000/- made forlow margin of profit. The order of Ld. CIT(A) is erroneous both inlaw as well as on facts. 2.On the facts and in the circumstances of the case, the Id.CIT(A)erredindeletingthedisallowancemadeoutofdepreciation on casting moulds boxes at Rs. 37,48,784/-.3 .On the facts and in the circumstances of the case, the Id.CIT(A) erred in deleting the addition of Rs. 46,780/- on accountof depreciation on car and Rs. 1,79,OOO/- on account of misc.expenses (i.e. conveyance exp. Mobile exp. Telephone Exp andVehicle running exp) made by the Assessing Officer. 4.The order of the Id. CIT(A) is erroneous both in law as wellas on facts. "as on facts. " The above appeal filed by the appellant/department was dismissedby the impugned order dated 28th November, 2008 (Annexure A/3)and the order dated 11.3.2008 was affirmed. 8. Being aggrieved by the impugned order dated 28.11.2008, passedby the Tribunal, the appellant/department has filed this appealunder Section 260-A ofthe Act, 1961, on the ground that the CIT(A)had admitted additional evidence in the form of transportationbilties, in contravention of Rule 46 A of the Income Tax Rules, 1962(for short 'the Rules, 1962') without recording the re@.sons in writingforsuchadraissionandgrantedtherelieftothe '^^^^^^asss^s^^^^i^^^ -<<a ^A-«?<^ respondent/company. The Tribunal has affirmed the order passedby the CIT (A) holding that the same was based on facts anddocumentary evidence, whereas during the assessment proceedingthe respondent/coinpany had expressed its inability to furnish anyevidence in support of their claim of arrival of inould boxes atRaipur. The order passed by the Assessing Officer, disallowingdepreciation was proper and legal, based on facts and documents.The Tribunal has failed to appreciate the admitted facts on recordthat the mould boxes did not reach at the respondent/company atRaipur. The Tribunal has erred in affirming the order passed by theCIT(A) because the CIT(A) had admitted the additional evidence incontravention of fhe provisions of Rule 46-A of the Rules, 1962,without assigning reasons for such admission in writing andwithout affording an opportunity to the Assessing Officer.Learned counsel appearing for the appellant/deparfanent assailsthe order dated 11.3.2008, passed by the CIT(A) and the orderdated 28.11.2008, passed by the Tribunal on the afore-statedgrounds. In support of his submission, the counsel relies on adecision of High Court of F>unjab 8s Haryana (dated 26th Pebruary,2009 in IT Appeal No. 171 of 2002) in Commissioner of Income• Tax Vs. Oscar Laboratories (P) Ltd.1; that of the High Court ofDelhi (dated 23rd April, 2007 in IT Appeal 1000 of 2006) inConiniissioner of Incoine Tax Vs. United Towers I.P. Ltd.2; andfurther a decision by the High Court of Allahabad (dated 20thJanuary, 2005 in I.T Ref. No. 96 of1987) in Haji Lal Mohd. BiriWorks Vs. Coinmissioner oflncome Tax3 10. '(2009) 179TAXMAN 176 2 (2008) 172 TAXMAN 267 (2008) 172 TAXMAN 267 3 (2005) 145 TAXMAN 578 (A11) (2005) 145 TAXMAN 578 (A11) .i '>.- x 11. 12. 13. Ontheotherhand,learnedcounselappearingfortherespondent/company supports the order passed by the CIT (A) andthe order passed by the Tribunal. We have heard learned counsel appearing for the parties andperused the pleadings and documents appended thereto. 10. '(2009) 179TAXMAN 176 2 (2008) 172 TAXMAN 267 (2008) 172 TAXMAN 267 3 (2005) 145 TAXMAN 578 (A11) (2005) 145 TAXMAN 578 (A11) .i '>.- x 11. 12. 13. Ontheotherhand,learnedcounselappearingfortherespondent/company supports the order passed by the CIT (A) andthe order passed by the Tribunal. We have heard learned counsel appearing for the parties andperused the pleadings and documents appended thereto. The main liinb of the argument of learned counsel appearing for theappellant/department is non-compliance of the statutory provisions of Rule 46A of the Income Tax Rules, 1962, which reads as under : " 46A.(1)The appellant shall not be entitled to produce beforethe {Deputy (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 ofproceedings before the {Assessing officer}, except in the followingcircumstances, namely :— (a).where the {Assessing Officer} has refused to admitevidence which ought to have been admitted; orevidence which ought to have been admitted; or(b)where the appellant was prevented by sufficientcause from producing the evidence which he wascalled upon to produce by the {Assessing Officer};orcause from producing the evidence which he wascalled upon to produce by the {Assessing Officer};or (c)where the appellant was prevented by sufficientcause from producing before the {Assessing Officer}any evidence which is relevant to any ground ofappeal; orcause from producing before the {Assessing Officer}any evidence which is relevant to any ground ofappeal; or (d)where the {Assessing Officer} has made the orderappealedagainstwithoutgivingsufficientopportunity to the appellant to adduce evidencerelevant to any ground of appeal.appealedagainstwithoutgivingsufficientopportunity to the appellant to adduce evidencerelevant to any ground of appeal. (2)No evidence shall be admitted 'under sub-rule (1) unlessthe {Deputy Commissioner (Appeals)} {or, as the case may be, theCommissioner (Appeals)} records in writing the reasons for itsadmission. (3) The {Deputy Commissioner (Appeals)} {or, as the case may be,the Commissioner (Appeals)} shall not take into account any •y'.9' I.i"ses'esiiS1 i'%tel-<f'',..'»'.-<?•.9' I.i"ses'esiiS1 i'%tel-<f'',..'»'.-<?• 14. evidence produced under sub-rule (l) unless the {AssessingOfficer} 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 witnessin rebuttal of the additional evidence produced bythe appellant. (4)nothing contained in this rule shall affect the power of the{Deputy Commissioner (Appeals)} {or, as the case may be, theCommissioner(Appeals)}todirecttheproductionofanydocument, or the examination of any witness, to enable him todispose of the appeal,or for any other substantial causeincludingtheenhancementof theassessment or penalty(whether on his own motion or on fhe request of the {Assessingofficer} under clause (a) of sub-section (1) of section 251 or theimposition of penalty under section 271.}. It is evident froin the assessment order 12.12.2007 (Annexure A/l)that the assesse continued to derive income from manufacture andsale of steel items namely steel ingots, C.I. shots and grits, steelshots and grits, C.I. ingot, mould and castings etc. The assesse hadmaintained complete quantitative details of the raw materials andfmished goods. Para 3 of the order reads as under : It is evident froin the assessment order 12.12.2007 (Annexure A/l)that the assesse continued to derive income from manufacture andsale of steel items namely steel ingots, C.I. shots and grits, steelshots and grits, C.I. ingot, mould and castings etc. The assesse hadmaintained complete quantitative details of the raw materials andfmished goods. Para 3 of the order reads as under : " 3.During the year assesse has made extensive expansion ofits unit. It has shown purchases of casting mould boxes fmishedworthRs.2,99,90,272/-fromShreeMahavirDyeing andPrinting Mills Pvt. Ltd., Mumbai and the entire amount has beencapitalized in plant and machinery and also claimed the same tohave been put to use for less than 180 days. Verification of thebills revealed that the entire purchases have been made towardsthe end of the financial year. Assesse was, therefore, required toproduce the transportation bills vide order-sheet entry dated06-12-2007. On the next date of hearing on 11-12-2007, ShriSunil Johri, CA and Shri Rajeev Shukla, FCA attended andadmitted that the transportation bills are not available. They 15. 16. have also submitted that they have nothing to say except thattransportation bills and installation bills cannot be produced. Inthe absence of the above documents it is not possible to verifywhether the mould boxes did reach Raipur and whether theywere put to use during the financial year itself. It is pertinent toput on record that although the purchase bills states thepurchases as F.0.R., it is imininent that a copy of the transportbill ought to be with the assesse. The assessee's denial, in otherwords, means and leads to the conclusion that the mould boxespurchaseddidnot reachRaipurbeforethecloseof theaccounting year and, therefore, the same could not have beenput to use during the year as claimed by the assessee.Depreciation thereon claimed by the assessee @ 12.5% {50% ofthe full rate} shall therefore be disallowed and added back to thetotal income of the assessee. The disallowance works out toRs. 37,48,784/-. " Accordingly,byorderdated12.12.2007thedepreciationofRs. 37,48,784/- was disallowed on casting mould boxes to therespondent/company. The Commissioner of Income-Tax (Appeals) Raipur in his orderdated 11.3.2008 (Annexure A/2) has held that from the facts andcircumstances of the case, it is found that the disallowance iswithout any basis and without pointing out any specific instance.The disallowance made by the AO is not corroborated with anyevidence.Thesaineisnotsustainable.Theappellanthadpurchased the complete new plant & machineries. The purchase oftheplantwasonFORbasisincludinginstallation.Intheassessment order, the AO had mentioned that the appellant madepurchases as FOR. It is a fact that when appellant had not incurredtransportation expenses then how it is possibleto have thetransportation bills.However, the company has bilties of the 17. 18. 19. transportation which were produced for verification, although theseare not part of the accounts. The bilties shows that the machineriesreached to the business premises of the appellant and the mouldboxes are ready to use condidon. There was sufficient time for theappellant to install and put to use the same. The appellant had alsostarted the production before 31/03/2005 of CI Ingot Mould byusing the newly purchased mould boxes which is also evident fromthe invoice produced in this regard. Accordingly, the CIT(A), Raipurallowed the appeal filed by the respondent/Company. By the impugned order dated 28.11.2008 (Annexure A/3) theTribunalhasdismissedtheappealfiledbytheappellant/departmentholdingthattheappellantcouldnotcontradict the findings of the CIT (A) and the observations of theCIT (A) are based on the facts and supported by the documentaryevidence filed by the assessee and also by the decision of theHon'ble Supreme Court in Dhakeshwari Cotton Mills Pvt. Ltd. Vs.CIT4. The substantial question of law for our consideration is in regard tothe reliance on the evidence in respect of installation of moulds andsale of the finished products. By the impugned order dated 28.11.2008 (Annexure A/3) theTribunalhasdismissedtheappealfiledbytheappellant/departmentholdingthattheappellantcouldnotcontradict the findings of the CIT (A) and the observations of theCIT (A) are based on the facts and supported by the documentaryevidence filed by the assessee and also by the decision of theHon'ble Supreme Court in Dhakeshwari Cotton Mills Pvt. Ltd. Vs.CIT4. The substantial question of law for our consideration is in regard tothe reliance on the evidence in respect of installation of moulds andsale of the finished products. It:isevidentfromtheassessmentorderthattherespondent/company had purchased the casting mould boxesfmished, worth Rs. 2,99,90,272/-, from Shree Mahavir Dyeing andPrinting MillsPvt.Ltd, Mumbai and the entire amount wascapitalizedin plant andinachinery.SincethearticleswerepurchasedfromacompanysituatedatMumbaitotherespondent/companyatRaipur,therefore,theassesseewas s required to produce the transportation bills.However, it wasadmitted by the respondent/company that the transportation billswere not available. Thus, there was no evidence produced beforethe Assessment Officer to seek depreciation on casting mouldboxes. In view of the aforesaid discussion, the fmding of the CIT(A) that thedisallowance is without any basis and without pointing out anyspecific instance and the disallowance is not corroborated with anyevidence appears to be contrary to record. The CIT (A) has appliedthe ratio laid down in Dhakeshwari Cotton Mills (supra) to theeffect that "the ITO is not entitled to make a pure guess and makean assessment without reference to any evidence or any material atall. There must be something more than bare suspicion to supportthe assessments." In our considered opinion, when no documentwas produced before the Assessment Officer, the rado of thedecision by Supreme Court in Dhakeshwari Cotton Mills (supra) isnot applicable to the facts and circumstances of the case on hand.When the articles were purchased from Mumbai to Raipur, thefinding of the CIT (A) that the purchase of the. plant was on FORbasis including installation, when the appellant had not incurredtransportation expenses then how it is possibleto have thetransportation bills; is also not sustainable. 22.The further observation of the CIT (A) that the company has biltiesof the transportation which were^produced for verification, althoughthesearenotpartoftheaccounts;showsthattherespondent/company had produced the oral and documentaryevidence before the CIT(A) and the same was relied upon by thex CIT(A), in contravention of the provisions of Section 46A of the ^^-^''^f^/^.~\.^fl"^Sii.^SSsssiifSi si,t^-syr^^/ 23. 24. 25. Rules, 1962. Because, even on asking, no evidence was producedby the respondent/company before the Assessing Officer and it isnot a case where the Assessing officer has refused to admitevidencewhichoughttohavebeenadmittedortherespondent/company was prevented from producing the evidence,which he was called upon to produce or the respondent/companywas prevented from producing any evidence which was relevant toany ground of assessment or the Assessing Officer has made theorder appealed against without giving sufficient opportunity to therespondent/company to adduce evidence relevant to any ground.The assessment order has been faulted without considering the factthat the new evidence and pleadings i.e. bilties were not producedbefore the Assessing Officer by the assessee. The evidence wasproduced for the first time before the CIT (A). A bare perusal of Rule46A of the Rules, 1962 cleariy provides that no additional evidencecan be admitted other than the evidence produced during thecourse of the proceedings before the Assessing Officer, except incertain circumstances, as enshrined in Rule 46 (1) (a) to (d) afterrecording the reasons in writing. The High Court of Punjab and Haryana, High Court of Delhi and" High Court of Allahabad in respective decisions (supra), held fhatbefore adinitting new evidence, recording of reasons in writing andaffording opportunity of hearing to the other side, by the CIT (A) oras the case may be, is mandatory and statutory requirement of theprovisions[ofRule][ 46A][ ofthe][ Rules,][ 1962.] In the case on hand, the CIT (A) has not recorded the reasons inwriting before admission of the addition'al evidence, as .provided in '<li'».,'&^ ^s^'x^'•'SSSfsS-Si^ft ^'''itfc.X-ti'""''x.. v":y 27. 28. Thakur sub-rule (2) of Rule 46A of the Rules, 1962. Thus, the substantialquestion of law posed before us is answered in the negative.In the result, the appeal is allowed. The irapugned order dated11.3.2008 (Annexure A/2), passed by the CIT (A) and the orderdated 28.11.2008 (Annexure A/3), passed by the Tribunal arequashed.[The][ matter][ is][ remanded][ back][ to][ the][ CIT](A)[to][ admit]additio.nal evidence after recording the reasons in writing andaffording an opportunity of hearing to the other side, as enshrinedunder the provisions of Rule 46A of the Act, 1962. The matter is being remanded back to the CIT (A), Raipur, as theadditional evidence was produced before fhe CIT (A), which withoutrecording the reasons in writing and affording an opportunity ofhearing to the other side (appellant/department) was admitted andaccepted as the additional evidence.Thesame wasaffirmedsubsequently by the Tribunal. No order asto costs. Sd/-ManindraMohanShrivastavaJudge Sd/-Satish K. AgnihotriJudge