IN THE ITAT KOLKATA BENCH ‘B’
Income-tax Officer, Ward-10(4), Kolkata
Electrical Mfg. Co. Ltd.
IT APPEAL NO. 638 (KOL.) OF 2012
ASSESSMENT YEAR 2008-09
Date of Pronouncement- 25.09.2012
Sanjay Arora, Accountant Member – This is an Appeal by the Revenue arising out of the Order by the Commissioner of Income-tax (Appeals)-XII, Kolkata (‘CIT(A)’ for short) dated 12-01-2012, partly allowing the assessee’s appeal contesting its assessment u/s. 143(3) of the Income-tax Act, 1961 (‘the Act’ hereinafter) for the assessment year (A.Y) 2008-09 vide order dated 28-12-2010.
2. The Revenue’s appeal raises as many as six (6) grounds; the seventh being only by way of a prayer for modification or substitution or fresh addition to the grounds raised per the Memo of Appeal. The same read as under:-
“1. Whether on the facts and in the circumstances of the case, Ld. CIT(A) is justified in deleting the addition of Rs. 74,41,82,254/- made on account of unexplained creditors and advances reflected in the books of account of the assessee despite the failure on the part of the assessee to furnish necessary details and documentary evidences before the assessing officer.
2. Whether on the facts and in the circumstances of the case, Ld. CIT(A) is justified in deleting the addition of Rs. 1,13,15,560/- being the unreconciled difference in bank balances shown by the assessee in the books of account, accepting the submission of the assessee made during the course of appellate proceedings, which was not submitted at the time of assessment.
3. Whether on the facts and in the circumstances of the case, Ld. CIT(A) is justified in deleting the addition of Rs. 1,46,52,888/- on account of notional interest on loans and advances, ignoring the fact that the assessee has diverted interest bearing funds towards interest free loans and advances and accepting the submission of the assessee which was not produced before the Assessing Officer.
4. Whether on the facts and in the circumstances of the case, Ld. CIT(A) is justified in deleting the addition of Rs. 18,03,214/- made on account of unexplained addition to fixed assets, accepting the submission of the assessee which was not produced before the Assessing Officer.
5. Whether on the facts and in the circumstances of the case, Ld. CIT(A) is justified in deleting the addition of Rs. 45,19,550/- made on account of pro-rata interest relating to work-in-progress without controverting the findings of the assessing officer.
6. Whether on the facts and in the circumstances of the case, Ld. CIT(A) is justified in deleting the addition of Rs. 11,80,86,100/- made on account of unexplained fresh share application money credited to the books of account of the assessee in spite of the failure on the part of the assessee to prove the identity, creditworthiness of the share applicants and genuineness of the transactions before the assessing officer.
7. That it is prayed that additional/fresh grounds of appeal and/or modification/substitution in the above grounds of appeal may be allowed before or at the time of hearing.”
3.1 At the very outset, the ld. AR, the assessee’s counsel, submitted that he wishes to raise a preliminary objection, filing a note titled ‘Facts in brief and the Respondent’s submissions’ dated 27-08-2012. It would be apparent, he urged, that the Revenue’s grounds do not challenge the impugned order on its merits but only on the basis that there had been a failure on the part of the assessee to furnish the necessary details and documentary evidence/s before the Assessing Officer (AO) at the time of assessment. The ld. CIT(A) had called for a ‘remand report’ on the basis of the said material from the AO on 01/4/2011, and who failed to respond thereto, despite reminders, even up to 10-01-2012, when the appeal was finally heard. There was also no representation whatsoever by the AO before the first appellate authority, i.e., even for extension of time or toward the reasons for the said delay. The assessee’s appeal was, as would again be apparent, a high demand case and, therefore, had to be decided on a priority basis; it facing continuous pressure from the administrative CIT for an early disposal of the appeal. It was under these circumstances that the ld. CIT(A) proceeded to decided the assessee’s appeal, and which he has done by him on merits, which are not being questioned by the Revenue. The AO failing to represent, as well as to complete and present the remand report, before the first appellate authority despite being afforded proper opportunity toward the same, it does not now lie in the mouth of the Revenue to assail the acceptance of the assesse’s case by the first appellate authority, including the materials furnished by it before him. The Revenue’s appeal, therefore, deserves to be dismissed in limine, he averred. On being queried by the Bench to exhibit that the remand report stood in fact called for by the ld. CIT(A) from the AO as far back as on 01-04-2011, the ld. AR drew our attention to the copy of the letter of even date, which stands annexed to his written submissions dated 27-08-2012.
3.2 The ld. DR, on the other hand, would, in response to the said preliminary objection by the ld. AR, submit that the ld. CIT(A) had failed to observe the procedure as laid down under Rule 46A of the Income Tax Rules, 1962 (‘the Rules’ hereinafter), and which are mandatory, so that it was incumbent on him to follow the procedure as prescribed thereby. The said rule contemplates three (3) separate steps. Firstly, there has to be, in terms of rule 46A(2), a recording of reason/s for the admission of the additional evidence/s, which could only be in and under any of the circumstances as enumerated under rule 46A(1) (vide clauses (a) to (d) thereof). The matter has then to travel to the AO, who has to be allowed reasonable opportunity to examine the said evidence/s, as well as, where deemed fit, cross-examine the witness(es) produced by the appellant, as also to produce any evidence or document or witness in rebuttal of the additional evidence/s as admitted by the first appellate authority. It is only then that any reliance could be placed by the first appellate authority on the said evidence/s; the observations and findings by the assessing authority forming part of his adjudication in the matter, so that the first appellate authority deciding the assessee’s appeal would be required to consider and meet the same. Clearly, none of the steps as enumerated u/r. 46A of the Rules stood followed in the instant case.
3.3 In rejoinder, the ld. AR would submit that the Revenue, per its several grounds of appeal, has not challenged or assailed the impugned order for non-observance of the procedure u/r. 46A of the Rules. As such, the argument/s advanced by the ld. DR qua the same is outside the scope of the Revenue’s appeal. The only grievance projected by the Revenue per its several grounds is the failure of the assessee to furnish the necessary evidence/s before the AO. In fact, all such material is only supportive in nature, and not in the nature of additional evidence. The assessee, in any case, could not be prejudiced for want of observance of the required procedure by the first appellate authority.
4. We have heard the parties and perused the material on record.
4.1 It would be necessary for us to deal with the assessee’s preliminary objection, which in fact touches the core of the present appeal by the Revenue, first. Its prime grievance, as discerned – on the basis of the material on record and the arguments advanced before us during hearing, is the non-examination by the AO of the material adduced before the ld. CIT(A) for the first time. However, the question that arises is: Could it really lie in the mouth of the Revenue to so contend when it has failed to furnish a remand report, called for by the first appellate authority as early as on 01-04-2011, despite reminders, even by 10-01-2012; the assessee having furnished the said material on the first day of the hearing before the ld. CIT(A) (09-03-2011) itself ? At the same time, there has been, without doubt, a clear violation of rule 46A of the Rules. The question of consideration of the additional evidence/s by the ld. CIT(A) comes only subsequent to it’s first qualifying for admission in terms of rule 46A, which is mandatory in nature. In fact, the impugned order is dated 12-01-2012, while the last date of hearing before the ld. CIT(A) was on 10-01-2012. There has, thus, been a consideration of the material furnished by the assessee before him even prior to 10-01-2012, as it would otherwise be unfeasible to do so and deliver his order within two days of hearing.
4.2 Further, the scope of examination under rule 46A(3) of the Rules is much vaster than that envisaged under a remand report called for by the first appellate authority u/s. 250(4). There is no merit in the assessee’s contention that it did not furnish any additional evidence before ld. CIT(A), even as pointed out to it by the Bench during hearing with reference to the letter dated 01-04-2011 by the ld. CIT(A) to the AO calling for the remand report, which itself states so. The said letter, in fact, leaves one in no manner of any doubt that additional materials and evidences were furnished by the assessee for the first time before the first appellate authority.
It is, we may clarify, not an either/or situation for the first appellate authority, so that he could, at his option, choose to go for either, i.e., call for a remand report from the AO, or record reasons for admission of the additional evidence/s u/r. 46A and remit the matter back to the file of the assessing authority for his verification and examination. When additional evidence/s is sought to be adduced before him by the assessee, he is bound to adopt the procedure as laid down u/r. 46A, and this is what is implied and meant when it is, as in the foregoing paragraph (# 4.1), stated that the said rule is mandatory in nature. It is only under circumstances other than where the additional evidence/s adduced by the assessee is admitted and sought to be relied upon by him, that the mandate of r. 46A shall have no application, so that where it is found by him, for instance, that there has been an omission on the part of the AO to consider some aspect of the assessee’s case, and which is necessary for the proper adjudication of the issue arising, he may call for a remand report from him in the matter. It is difficult and, rather, not necessary to enumerate all such circumstances. In a given circumstance the assessee may furnish an argument for the first time before the first appellate authority, so that the fairness of procedure would require a consideration of the Revenue’s viewpoint thereon and, thus, a remand report from the AO, and which may (or may not), in turn, require an examination and/or verification by him. Why, where some material is called for by the first appellate authority from the assessee in support of its claim/s, i.e., as supporting material, and on which power of the said appellate authority there is no restriction, the same itself affords an example of materials not before the AO, which, nevertheless, would not be subject to the rigour of r. 46A, but only necessitate a remand report from the assessing authority. Suffice to say that the two, i.e., the pre-requisites and ingredients for a remand report from the assessing authority, and that warranting observance of r. 46A, do not overlap, and operate in different fields.
4.3 Finally, we are not moved by the assessee’s argument that the Revenue’s challenge is not qua rule 46A of the Rules; in our view that being the substance of the Revenue’s grievance, which in any case could be supported by the argument centering around non-observance of the procedure as prescribed u/r. 46A, as was indeed done by the Revenue through the ld. DR. Also, the assessee’s claim that the Revenue does not question the order by the ld. CIT(A) on merits is also without merit. Where is the question, one may ask, of a challenge on merits when there has been no examination of the relevant material by the AO and, consequently, no expression of opinion by him in the matter? For all we know, the AO, after considering the said materials, may not be inclined to follow his earlier view. That is, a challenge on merits would be speculative or at best premature under such circumstances, and shall have to necessarily await the findings on the said examination and consequent adjudication – the cart cannot be put before the horse. The only merit or fallout of the assessee’s this argument, so however, is that there being no specific challenge by the Revenue to the non-observance of the procedure u/r. 46A, it cannot call into question the non-recording of the reasons by the ld. CIT(A), which represents the first of the three mandatory steps to be observed by him where he wishes to place reliance on any material not before the AO, but is nevertheless sought to be relied upon by the assessee before him. This aspect of the matter, therefore, cannot be agitated by the Revenue, nor indeed was. We, nonetheless, record this only for the purpose of completeness of the discussion on the subject. As such, despite the said non recording of reasons for admission by the ld. CIT(A), the material under reference shall have to be taken as admitted.
5. Under the circumstances, and in view of the foregoing, we only consider it fit and proper under the circumstances to restore the matter back to the file of the AO for the consideration of the evidences/materials furnished by the assessee before the ld. CIT(A) for the first time. The scope of the examination by the AO would be the same as that defined under rule 46A of the Rules. The AO shall, further, adjudicate the relevant issues, i.e., as raised by the Revenue per its grounds before us, afresh, in light thereof as well as the material already on record, in accordance with law and after granting proper opportunity of hearing to the assessee. In other words, we place no fetters or restriction on either party in the ensuing proceedings. We are, in arriving at this decision, also guided and supported by the decision by the hon’ble apex court in the case of Tin Box Co. v. CIT  249 ITR 216. We decide accordingly.
6. In the result, the Revenue’s appeal is allowed for statistical purposes.