Case Law Details
Haji Lal Mohd. Biri Vs CIT (Allahabad High Court)
The Allahabad High Court considered a reference made by the Income Tax Appellate Tribunal (ITAT) under Section 256(1) of the Income-tax Act, 1961, on whether the Tribunal was justified in setting aside the order of the Commissioner of Income Tax (Appeals) [CIT(A)] on the ground that the mandatory requirements of Rule 46A of the Income-tax Rules, 1962 had not been followed while admitting additional evidence.
Background of the case: The dispute related to Assessment Year 1974-75. The assessee, an individual, had disclosed income from salary, house property, business, and beneficial interest in a waqf. During assessment, the Inspecting Assistant Commissioner made additions of Rs. 1,93,183 in the biri account, Rs. 5,16,279 towards wrapper, label and labelling expenses, Rs. 2,00,850 towards alleged excess tobacco consumption, and Rs. 1,50,000 as unexplained cash credit in the name of one individual.
Proceedings before the CIT(A): During the appellate proceedings, the assessee produced additional evidence. Relying upon this fresh evidence, the CIT(A) deleted all the disputed additions. The Revenue challenged the order before the Tribunal. The Tribunal found that the CIT(A) had admitted additional evidence, including a certificate from Hind Tobacco Company, without recording reasons in writing as required by Rule 46A(2) and without providing the Assessing Officer a reasonable opportunity to examine or rebut the additional evidence. Consequently, it set aside the CIT(A)’s order on these issues and remanded the matter for fresh adjudication in accordance with Rule 46A.
Assessee’s submissions: The assessee argued that the Assessing Officer was present during the appellate proceedings when the additional evidence was produced and had raised no objection to its admission. It was submitted that Rule 46A was merely procedural and that the Department had suffered no prejudice. Reliance was placed on the Supreme Court decision in K. Venkataramiah v. A. Seetarama Reddy to contend that admission of additional evidence without objection should not invalidate the proceedings.
Revenue’s submissions: The Revenue contended that the mere presence of the Assessing Officer did not amount to compliance with Rule 46A. It argued that additional evidence could be admitted only in the circumstances specified in Rule 46A and only after recording reasons and granting the Assessing Officer an opportunity to examine the evidence and produce rebuttal material. It further submitted that the Supreme Court decision relied upon by the assessee was rendered under a different statutory provision and was not applicable to the present case.
Findings of the High Court: The Court examined Rule 46A and observed that an appellant has no absolute right to produce additional evidence before the appellate authority. Such evidence may be admitted only in the circumstances specified under Rule 46A(1). The Court emphasised that Rule 46A(2) makes it mandatory for the appellate authority to record reasons in writing before admitting additional evidence, while Rule 46A(3) requires that the Assessing Officer be given a reasonable opportunity to examine the evidence, cross-examine witnesses where necessary, or produce rebuttal evidence. These requirements are intended to ensure fairness, avoid arbitrariness, and uphold the principles of natural justice.
The High Court noted that the Tribunal had recorded a finding that the Assessing Officer was not given an opportunity to examine or rebut the additional evidence, and this finding had not been challenged. It held that the mere presence of the Assessing Officer during the hearing could not be presumed to amount to consent for admission of additional evidence or dispense with the statutory requirement of recording reasons in writing. The Court further observed that the Supreme Court judgment relied upon by the assessee dealt with Order XLI Rule 27 of the Code of Civil Procedure and not Rule 46A of the Income-tax Rules, and therefore did not govern the present issue. Since there was nothing on record to show that the additional evidence had been admitted after proper application of mind or with the consent of both parties, the Tribunal was justified in setting aside the CIT(A)’s order. The Court also noted that the matter had merely been remanded to the CIT(A), leaving it open to admit additional evidence after complying with Rule 46A.
Final decision: The High Court answered the reference in favour of the Revenue and against the assessee, holding that the Tribunal had correctly set aside the CIT(A)’s order because the additional evidence had been admitted without complying with the mandatory requirements of Rule 46A. There was no order as to costs.
FULL TEXT OF THE JUDGMENT/ORDER OF ALLAHABAD HIGH COURT
The Income Tax Appellate Tribunal, Allahabad has referred the following question of law for opinion to this Court under section 256 (1) of the Income Tax Act ,1961 (here in after referred to as the Act) for opinion to this Court:
“Whether upon the facts and circumstances of the case. the Income tax Appellate Tribunal was legally right in setting aside the order of the CIT ( Appeals) in respect of (1) Rs.193183/- in Biri account (ii) Rs,516279/- in wrapper, level and labbellng account, Rs. 200850/- in Tobacco account and Rs.150000/- cash credit in name of Vishwanath Singh on the ground that the CIT ( Appeals) failed to follow the mandatory provision regarding recording of reasons before admitting new evidence at the appellate stage and also on the ground that no opportunity was afforded to the ITO to rebut the evidence.”
Briefly, stated the facts in the present case are as follows:
The matter relates to the assessment year 1974- 75. The assessee is individual and disclosed income from the salary, house property, business and from the beneficial interest in the waqf, M/s Haji Lal Mohd. Biri Works, Allahabad.
The Inspecting Assistant Commissioner of Income tax Range-II, Allahabad made following additions in the income of the assessee:
(i) Rs.193183/- in Biri account for alleged sale of Biri in excess of the Biri available in the books out of opening stock and purchases
(ii) Rs.516279/- for excessive expenses incurred in wrapper lable and labelling accounts
(iii) Rs.200850/- for alleged excessive claim for tobacco consumption.
(iv) Rs.1,50,000/- alleged unexplained credit in the name of one Sri Vishwanath Singh
The said order was challenged in appeal before the CIT (Appeals). During the course of argument of the appeal the assessee produced certain evidences by way of additional evidence. Taking into consideration the additional evidence produced by the assessee before the CIT (Appeals), he deleted the additions made in the biri account, in wrapper label and labelling accounts, in tobacco account and cash credit in the name of Sri Vishwanath Singh. The department challenged the order before the Appellate Tribunal. The appellate authority found that the additional evidence in the shape of certificate from Hind Tobacco Company was admitted in evidence by CIT (Appeals) without recording reasons in writing. It was found that the CIT (Appeals) contravened the provision of the Rule 46A (2) of the Income Tax Rules. The further finding was that no reasonable opportunity to the assessing authority to examine new evidence produced in evidence and rebuttal, was given. On the above issue order of the CIT (Appeals) was set aside and was restored to his file for deciding the same afresh, according to law after observing the provisions of Rule 46-A of the Rules.
We have heard Sri Shakil Ahmad learned counsel for the assessee and Sri A.N.Mahajan , learned counsel for the Revenue. Learned counsel for the assessee submitted that the assessing authority was present before CIT (Appeals) and the said certificate was filed in his presence. He, did not raise any objection for admission of the said certificate as additional evidence on record. Rule 46 is only procedural and thus will not vitiate the order, the department has not suffered, in any manner, and, as such, the order of the Tribunal is liable to be set aside. Strong reliance was placed by him on the judgment of Apex Court in the case of K.Venkataramiah Vs. A. Seetarama Reddy and others (A.I.R. 1963 SC 1526).
In contra, learned counsel for the Revenue submitted that the mere presence of the assessing authority at the time of hearing of appeal before the CIT (appeals) is not sufficient compliance of Rule 46-A of the Rules. Additional evidence/ fresh evidence can be admitted in appeal under the circumstances specified under Rule 46A of the Rules and after complying with the procedure laid down therein. In the present case, he submitted that not only no opportunity was afforded to the department but to file evidence, if any, in rebuttal, no attempt was made by the CIT ( Appeals) to verify the genuineness, correctness and relevancy of the documents in question. Elaborating his argument it was submitted that the aforesaid ruling of Apex Court in the case of K.Venkataramiah (supra) was given under different circumstances and also under different Statute and has no relevancy to the issue in hand.
We have given careful consideration to the respective submissions of the learned counsel for the parties. It is relevant to quote here Rule 46A of the Income Tax Rules. The said Rule 46-A reads as under:
“46-A (1)- The appellant shall not be entitled to produce before the Dy. 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 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 ( Dy. Commissioner ( Appeals) records in writing the reasons for its admission.
(3) The Dy. 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 Dy. 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.”
A bare perusal of the aforesaid rule clearly shows that the appellant is not entitled to produce fresh oral or documentary evidence, as a matter of right, in appeal. However, under certain circumstances as mentioned in clauses (a), (b), (c) and (d) of sub- rule (1) of Rule 46-A, additional evidence can be filed. Sub rule (2) of Rule 46-A provides that no evidence shall be admitted under sub rule (1) unless the authority admitting it records in writing the reasons for its admission. Provision for recording reasons has been made to enable the higher forums to examine the issue, if raised by an aggrieved party, before it, in further appeal etc., and to avoid the arbitrariness in the matter. The authority should not act whimsically while exercising the jurisdiction under Rule 46-A of the Rules. Sub rule (2) caste a duty on the authority concerned to record reasons in writing for admission of the additional evidence. Under sub- rule (3) the further requirement is that the appellate authority shall not take into account any evidence produced under sub rule (1) unless the assessing authority has been allowed a reasonable opportunity to examine evidence or the document or to cross examine witnesses produced by the appellant or to produce any evidence or document or any witness in rebuttal of the additional evidence produced by the appellant. The finding that has been recorded by the Tribunal, in the present case, is that no opportunity to examine new evidence or to produce any evidence in rebuttal was afforded to the assessing authority. This finding of the Tribunal is not under challenge. In view of this finding it is difficult to accept the contention of learned counsel for the assessee that requirements of Rule 46A have been fulfilled in the present case. Rule 46A contains principles of natural justice. No body should be condemned without giving opportunity of hearing. In the case in hand the appellate authority has taken into consideration fresh evidence produced before it without following the principles of natural justice. In view of this we find no legal infirmity in the order of the Tribunal. Apart from the above the Tribunal has restored back the above issue to the file of first appellate authority. It is still open to admit additional evidence sought to be filed by the assessee after complying with the requirement of Rule 46-A. Strong reliance was placed by the learned counsel on paragraphs 16 and 21 of the said judgment in the case of K.Venkataramiah (supra). The Apex Court took the view that from the order passed by the High Court for admission of additional evidence it is not possible to say that the same was passed by it without applying its mind. In view of this it was further held that when additional evidence was taken with the assent of both sides or without objection it was taken, it was not open to the party to complaint of it , later on. The Apex Court was considering the provision of Order 41 Rule 27 of the Code of Civil Procedure and made an observation in the light of the aforesaid provision. Rule 46-A of the Income tax Rules was not under consideration before the Apex Court. The observations made by the Apex Court should be taken in the context of the facts on that case and in the context interpretation of the statutory provision involved therein. Therefore no help can be drawn from the aforesaid ruling of Supreme Court.It has not been found as a fact that the additional evidence was taken by the first appellate authority after application of mind and in the absence of any reason on the record, it is not possible to come to such conclusion at this stage. Be that as it may there is nothing on record of the present case to show that the additional evidence was taken with the assent of both sides. The argument that the assessing authority was present during the course of hearing of appeal will not absolve the appellate authority not to pass order in writing with the reasons for admission of fresh evidence. Mere presence of the assessing authority will not give presumption that he assented for taking the additional evidence on record.
Thus the CIT (Appeals) took the additional/ fresh evidence dehors to Rule 46-A of the Rules and the Tribunal has rightly set aside that part of the order.
In view of the foregoing discussions, we answer the question referred to us in affirmative i.e. against the assessee and in favour of the department. However, there shall be no order as to costs.
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