Decoded Rule 46A- The Shreds of Evidence

CA Amresh Vashisht, Meerut

Rule 46 A of the Income Tax Act is the rule related to production of additional evidence before the first appellate authority after an assessment being made by the Assessing officer.

1. The Appellant Is Entitled To Produce Additional Evidences under rule 46A

Surprisingly the rule starts with negativity about the production of evidences before the first appellate authority. Rule 46 A reads:-

(1) The rule prescribe that the appellant shall not be entitled to produce before the first appellate authority that may be Deputy Commissioner (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 of proceedings before the Assessing Officer. After making such a general statement, which is in consonance with the principle stated in the above judgment, exceptions have been carved out that in certain circumstances it would be open to the CIT (A) to admit additional evidence. Therefore, additional evidence can be produced at the first appellate stage when conditions stipulate in the Rule 46A are satisfied and a finding is recorded.

a. where the Assessing Officer has refused to admit evidence which ought to have been admitted ; or

b. where the 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 appellate authority records in writing the reasons for its admission.

(3) The first appellate authority shall not take into account any evidence produced under sub-rule (1) unless the first appellate authority 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 first appellate authority 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.

Thus CIT(A) powers are unaffected by any move of rule 46A application for admission of additional evidences by the appellant.

2. Rule 46 A To Be Fully & Strictly Complied

The conditions prescribed in Rule 46A must be shown to exist before additional evidence is admitted and every procedural requirement mentioned in the Rule has to be strictly complied with so that the Rule is meaningfully exercised and not exercised in a routine or cursory manner. A distinction should be recognized and maintained between a case where the assessee invokes Rule 46A to adduce additional evidence before the CIT (A) and a case where the CIT (A), without being prompted by the assessee, while dealing with the appeal, considers it fit to cause or make a further enquiry by virtue of the powers vested in him under sub-Section (4) of Section 250. It is only when he exercises his statutory suo-moto power under the above sub-section that the requirements of Rule 46A need not be followed. On the other hand, whenever the assessee who is in appeal before him invokes Rule 46A, it is incumbent upon the CIT (A) to comply with the requirements of the Rule strictly.

However on receiving an application with additional evidences, CIT (A) is not free to act on his choice, his actions are well defined in the law and in the various judicious pronouncements. If the additional evidences are crucial and its consideration and appraisal would render the substantial justice to the appellant. The same deserve to be address. The Hon’ble Delhi High Court’s judgment in the case of CIT v. Virgin Securities and Credits P. Ltd (2011) 332 ITR 396 (Del) wherein the Hon’ble Court held that the CIT(A) should admit the additional evidence if he finds that the same is crucial for the disposal of the appeal. Further Hon’ble Delhi High Court’s judgment in the case of Chandrakant Chanu Bhai Patel 202 Taxman 262 wherein it has been held that if additional evidence is without any blemish and in order to advance the cause of justice, the same ought to be admitted.

3. Circumstances that can lead to disposal of additional evidences under rule 46A

There are many circumstances that can lead to disposal of the additional evidences as moved under rule 46A. Such as:-

A. CIT(A) Can Admit Additional Evidence Or Documents Only After Applying Rule 46A

CIT (A) is the first stage where additional evidences could be moved under rule 46A.There is a proper mechanism to deal with such application. On receiving the application under rule 46A , the CIT (A) is required to remanded it to the assessing officer to verify the evidences moved by the appellant. CIT (A) admission of evidences without remanding it to assessing officer were not found substance in the eye of law and the cases have been set aside by the higher appellant authorities.

Hon’ble High Court of Delhi in the case of Commissioner of Income Tax vs. Manish Build Well (P) Ltd. in ITA No.928/2011 dated 15.11.2011 reported as (2011) 63 DTR Judgements 369 wherein their lordships held that after admission of additional evidence, it is mandatory to follow Rule 46A(3) of the Rule. It was found that the Assessing Officer only objected the admissibility of additional evidence and restricted himself to comment on the merits of the evidence. Therefore, the Hon’ble court observes that the ld. Commissioner of Income Tax (A) did not follow the mandatory procedure for consideration of additional evidence at the first appellate stage.

ITAT Delhi in the case of ITO Vs. Kuber Chand Sharma- ITA No. 3982/Del/2009 – In our considered view, CIT (A) has admitted the additional evidence without fulfilling the categorical conditions laid down in Rule 46A, as explained by Hon’ble Delhi High Court in the case of Manish Build Well Pvt. Ltd.(supra). Consequently, his order on this issue is not tenable; however, the issue of merits remains. Besides, from the record it emerges that the assessee wanted to file only government records and revenue record about crops. In the entirety of facts and circumstances, the interest of justice will be served if the matter is set aside, restored back to the file of AO to decide the same afresh after affording the assessee sufficient opportunity of being heard.

B. Powers Of CIT (Appeal) To Admit Additional Evidence U/S 250(4) / Rule 46A And Requirement To Give A.O. An Opportunity

The additional evidence should be admitted in case the assessee was prevented by sufficient cause from producing the evidence before the assessing officer. This observation takes care of clause (c) of sub-rule (1) of Rule 46A. The observation of the CIT (A) also takes care of sub-rule (2) under which he is required to record his reasons for admitting the additional evidence. Thus, the requirement of sub-rules (1) and (2) of Rule 46A should be complied with.

Hon’ble High Court of Delhi in the case of Commissioner of Income Tax vs. Manish Build Well (P) Ltd. in ITA No.928/2011 dated 15.11.2011 reported as (2011) 63 DTR Judgements 369 wherein their lordships held that after admission of additional evidence, it is mandatory to follow Rule 46A(3) of the Rule. However, sub-rule (3) which interdict the CIT (A) from taking into account any evidence produced for the first time before him unless the Assessing Officer has had a reasonable opportunity of examining the evidence and rebut the same, has not been complied with. There is nothing in the order of the CIT (A) to show that the Assessing Officer was confronted with the confirmation letters received by the assessee from the customers who paid the amounts by cheques and asked for comments. Thus, the end result has been that additional evidence was admitted and accepted as genuine without the Assessing Officer furnishing his comments and without verification. Since this is an indispensable requirement, we are of the view that the Tribunal ought to have restored the matter to the CIT (A) with the direction to him to comply with sub-rule (3) of Rule 46A.

In our opinion and with respect, the error committed by the Tribunal is that it proceeded to mix up the powers of the CIT (A) under sub‑section (4) of Section 250 with the powers vested in him under Rule 46A. The Tribunal seems to have overlooked sub-rule(4) of Rule 46A which itself takes note of the distinction between the powers conferred by the CIT (A) under the statute while disposing of the assessee’s appeal and the powers conferred upon him under Rule 46A. The Tribunal erred in its interpretation of the provisions of Rule 46A vis-à-vis Section 250(4). Its view that since in any case the CIT (A), by virtue of his conterminous powers over the assessment order, was empowered to call for any document or make any further enquiry as he thinks fit, there was no violation of Rule 46A is erroneous. The Tribunal appears to have not appreciated the distinction between the two provisions. If the view of the Tribunal is accepted, it would make Rule 46A otiose and it would open up the possibility of the assessees’ contending that any additional evidence sought to be introduced by them before the CIT (A) cannot be subjected to the conditions prescribed in Rule 46A because in any case the CIT (A) is vested with conterminous powers over the assessment orders or powers of independent enquiry under sub-section (4) of Section 250. That is a consequence which cannot at all be countenanced.

C. Additional Evidences Cannot Be Accepted Without Allowing AO A Reasonable Opportunity To Examine And Rebut The Said Evidences

It is mandatory for the CIT (A) to remand the additional evidences to the assessing officer. CIT (A) cannot proceed with the additional evidences by its own without giving an opportunity to assessing officer to verify the additional evidences.

ITAT Delhi Income Tax Officer Vs Mrs. Anvita Abbi ITA No. 3707/Del/2011 admittedly, learned CIT (A) admitted the fresh evidences but did not allow any opportunity to the Assessing Officer for examining those evidences or furnishing any evidence in rebuttal as required by sub-rule (3) of Rule 46A. Therefore, the order of learned CIT (A) is in violation of Rule 46A. In view of the above, we set aside the orders of authorities below and restore the matter to the file of the Assessing Officer. We direct the assessee to produce all the evidences before the Assessing Officer. The Assessing Officer is also directed to allow adequate opportunity to the assessee to produce all these evidences before him. The Assessing Officer will re-adjudicate the issue afresh after considering all the evidences as may be furnished by the assessee before him.

D. CIT (A) Cannot Admit Additional Evidence Without Complying With Rule 46A

The appellant must move an application under rule 46A seeking allowing the additional evidences to adjudicate upon. There is no provision in the law that without receiving any application for admission of additional evidences, CIT (A) can decide the appeal considering the additional evidences.

ITAT Amritsar, Deputy Commissioner of Income-tax Vs Gurdaspur Central Co-op. Bank Ltd IT Appeal No. 99 (Asr.) of 2011The Ld. CIT (A), without application under Rule 46A and without recording any reason for admitting the documents and explanation filed before him and without affording reasonable opportunity to examine such evidence or documents filed before him by the AO had decided the issue in favour of the assessee, which is clear violation of principle of natural justice. It is not a case under Rule 46A (4) that the ld. CIT(A) had directed the assessee for production of any document to enable him to dispose of the appeal. Therefore, the decision of the ld. CIT (A) is in clear violation of principle of natural justice and bad in law. But in the interest of justice, since the details submitted by the ld. CIT(A) remained to be examined by the AO, though the same were not submitted before the AO in spite of number of opportunities given. Therefore, the issues involved in ground Nos. 1 & 2 are set aside to the file of the AO who will decide the issue DE novo but by providing opportunity of being heard to the assessee and after considering the documents submitted before the Ld. CIT (A). Accordingly, the appeal of the Revenue is allowed for statistical purposes.

E. To Render Justice CIT (Appeal) Can Admit New Evidence

If the assessing officer has refused to admit the additional evidences against making his remand report, the CIT (A) can admit the additional evidences by his own to render the justice. The powers of the CIT (A) are ineffective after receiving the remand report and observing that the assessing officer has adduce to receive the additional evidences while framing the remand report. It is mandatory ain nature that assessing officer should receive the additional evidences while disposing off the remand report. In case, he refused or decline, It’s the power of the CIT ( A) to receive and consider the same.

ITAT Chandigarh, Income-tax Officer Vs Bhagwan Dass, Contractor IT Appeal No. 383 (Chd.) of 2011. It is further mentioned that the AO was given due opportunities and he submitted remand report. Therefore, the CIT(A) has given due opportunity to the AO, within the meaning of Rule 46A. On plain reading of Rule 46A, it is clear that this Rule is introduced to place fetters on the right of the appellant, to produce before First Appellate Authority, any evidence, whether oral or documentary, other than the evidence produced by him, during the course of proceedings before the AO, except in the circumstances set out therein. It does not deal with the power of the first appellate authority, to make further enquiry. In the present case, the assessee has already filed requisite details before the AO and further detail was to be filed before the AO. and the AO refused to accept the same. Therefore, the assessee was compelled to file details by way of Speed Post. Further, new evidence filed by the assessee from the government agency and the same are essential for disposal of the appeal. Ld. CIT (A) has considered the new evidence and the facts and circumstances of the case in entirety and validly, after recording reasons, admitted the new evidences. In view of this, we do not find any infirmity in the admission of the new evidence by the CIT (A), as the interest of the quasi-judicial proceedings is to render justice and not to deny justice by declining to admit new evidence. The circumstances of the case, duly justify admission of the new evidence by the CIT (A), hence, these two grounds raised by the revenue are dismissed.

F. Acceptance Of Additional Evidence When AO Has Given Sufficient Opportunity To Assessee

ITAT Delhi ,DCIT Vs E-4 Entertainment (P) Ltd. ITA No. 4491/Del/2010 We have perused form no. 35 i.e. memo of appeal filed by the assessee before ld. CIT(Appeals). In the grounds raised, there is neither any ground nor whisper about not providing sufficient opportunity by AO while framing the assessment. It is further evidenced from the fact that the assessment proceedings commenced on 26- 9-2008 and assessment order has been passed on 10-11-2009 indicating that sufficient time was given to assessee for compliance. Therefore, there is no justification in the averment of assessee before ld. CIT (Appeals) that sufficient opportunity was not given by AO, therefore additional evidence should be admitted. We are constrained to observe that ld. CIT (Appeals) has admitted the additional evidence in a perfunctory manner without appreciating the role of rule 46A and its requirements and verifying assessee’s averments.

G. If AO Objects To Admission Of Additional Evidence, Then CIT (A) Should Give Categorical Finding In Terms Of Rule 46A For Admission Thereof

ITAT Delhi , ITO Vs. Kuber Chand Sharma (ITA No. 3982/Del/2009)- In our considered view, CIT(A) has admitted the additional evidence without fulfilling the categorical conditions laid down in Rule 46A, as explained by Hon’ble Delhi High Court in the case of Manish Build Well Pvt. Ltd.(supra). Consequently, his order on this issue is not tenable; however, the issue of merits remains. Besides, from the record it emerges that the assessee wanted to file only government records and revenue record about crops. In the entirety of facts and circumstances, the interest of justice will be served if the matter is set aside, restored back to the file of AO to decide the same afresh after affording the assessee sufficient opportunity of being heard.

H. Additional Evidence Must Be Allowed For Reasonable Cause

A question of law was decided by the tribunal, Whether CIT (A) was justified in completing the Assessment U/s 144 without admitting the additional evidences produced under Rule 46A of the Income Tax Act, 1961 when there was reasonable cause for non-production of the same? The revenue contended that the despite giving repeated reminders to the assessee, the assessee failed to produce the evidences in support of the additions made to the total income. Therefore, as per Rule 46A of the Income Tax Act the CIT (A) is not bound to accept the additional evidences produced before him. The assessee contended that the Ld. CIT (A) has erred in not admitting the additional evidences filed by the assessee under Rule 46A of the Act despite fact that there was a reasonable cause for the assessee for not filling the same before the AO. Further, the assessee also contended that the Assessment order was passed without giving an opportunity of being heard to the assessee and no notice was ever served upon the assessee, therefore there was no occasion for the assessee to appear before the AO.

ITAT Delhi ONS Creations Private Limited Vs ITO ITA No. 6250/Del/2013In the case of M/s ONS Creations Private Limited Vs. ITO, it was held by ITAT Delhi that if additional evidence cannot be produced before AO for a reasonable cause by assessee, the CIT (A) must admit the additional evidences and assessee must be given an afresh opportunity of being heard.

The assessment in assessee’s case was completed U/s 144 of the Income tax Act, 1961 by AO. On appeal being filed by assessee, the CIT (A) passed an order U/s 263 and directed the AO to make an addition on account of unexplained loans along with any interest claimed on those loans and a further addition on account of unexplained share capital as the assessee failed to establish before the CIT (A) during the proceedings U/s 263 the identity and creditworthiness of the persons from whom the aforesaid loans and share capitals shown to have been received. AO proceeded with the case and confirmed the additions made by the CIT (A) u/s 263 ex-parte.

The hon’ble tribunal found that the matter was earlier restored back to the AO for providing a opportunity of being heard, however, the order was passed ex parte. The Tribunal contended that the CIT (A) himself have recorded that the evidences filed by the assessee goes to the root of the issues but no evidences have been admitted by the CIT (A). Therefore, the Tribunal has set aside the orders of the authorities below and restored the matter back to the file of the AO to decide afresh after providing an opportunity of being heard to the assessee. In result, the appeal of the assessee is allowed for statistical purposes.

I. Rule 46A Cannot Over Ride Principles Of Natural Justice

In case the evidences surfaced after the assessment orders and appellant moved with such evidences and produce before the CIT (A) which are the vital evidences and touch the roots of the case, the admissibility of such evidences cannot be denied over riding the principles of natural justice.

In the case of Jute Corporation of India Ltd. v. CIT 1991 AIR 241, 1990 SCR Supl. (1) 340 the Hon’able Supreme Court, while dealing with the powers of the Appellate Assistant Commissioner observed that an appellate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. There is no good reason to justify curtailment of the power of the Appellate Assistant Commissioner in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the Income Tax Officer. This Court further observed that there may be several factors justifying the raising of a new plea in an appeal and each case has to be considered on its own facts. The Appellate Assistant Commissioner must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons. The Appellate Assistant Commissioner should exercise his discretion in permitting or not permitting the assessee to raise an additional ground in accordance with law and reason. The same observations would apply to appeals before the Tribunal also.

ITAT Mumbai Avan Gidwani Vs ACIT I.T.A..No. 5138/Mum/2015From the facts narrated above, we notice that the assessee could collect various evidences only after passing of the assessment order. According to the assessee, these additional evidences are vital documents which are required to be considered in order to adjudicate the issue in a judicious manner. The principle “Audi alteram partem”, i.e. no man should be condemned unheard is the basic canon principles of natural justice and accordingly we find merit in the contentions of the assessee that Rule 46A of the Income Tax Rules cannot be override the principles of natural justice. Hence we are of the view that the learned CIT (A) was not justified in refusing to admit the various additional evidences furnished by the assessee. Since the assessee was not given opportunity to contradict the findings given by the AO by not admitting the additional evidences, we are of the view that the Ld. CIT (A) should re-adjudicate all the issues afresh by admitting the additional evidences. Accordingly, we set aside the order of learned CIT (A) and restore all the issues to the file of the learned CIT (A) with the direction to admit the additional evidences that may be furnished by the assessee. After admitting the same, the learned CIT (A) may call for the remand report from the Assessing Officer, if he found the same necessary. After confronting with the remand report, if any, which may be furnished by the AO with the assessee, the learned CIT (A) my take appropriate decision in accordance with law?

J. No Contravention Of Rule 46A If CIT (A) Sends Document Submitted By Assessee For Remand Report

ITAT Delhi , Bhavya Lakhani Traders & Suppliers (P) Ltd. I.T.A. No. 5409/Del/2010 , There is no cogency in the ground raised by the Revenue that Ld. Commissioner of Income Tax (A) has not duly afforded adequate opportunity to the Assessing Officer to consider the submissions and evidences filed before him at the appellate stage. The Ld. Commissioner of Income Tax (A) has duly sent the documents furnished by the assessee at the appellate stage to the Assessing Officer for a remand report. Under the circumstances, there cannot be any issue that Assessing Officer was not provided adequate opportunity in this regard. Ld. Departmental Representative in this regard fairly agreed that the contravention of Rule 46A does not arise in this case, as the Assessing Officer has been provided with adequate opportunity and the remand report obtained from him. In this view of the matter, we do not find any infirmity in the order of the Ld. Commissioner of Income Tax (A). Accordingly, we uphold the same.

K. ITAT Restores Matter To AO For Consideration Of Additional Evidence Filed Before CIT(A)

ITAT Delhi Income Tax officer Vs Bhai Manjit Singh ITA No. 1807/Del/2010 During the argument, the ld. DR submitted that the case should be restored to the file of the Assessing Officer for compliance of Rule 46A(3) of the Rules and the AR contended that if we reach to the conclusion that the matter needs to be considered by the authorities below, then the matter should be restored to the file of the ld. Commissioner of Income Tax(A). After careful consideration of above submissions and facts and circumstances of the case, we note that the ld. Commissioner of Income Tax(A) considered additional evidence violating Rule 46A(3) of the Rules but at the same time, we also observe that the appellant filed a Paper Book containing 99 pages before the Commissioner of Income Tax(A) which he could not submit before the Assessing Officer during the assessment and the Assessing Officer concluded the assessment u/s 144 of the Act on the basis of material available on record before him. Therefore, we find it appropriate to restore the matter back to the file of the Assessing Officer for adjudication afresh after due consideration of additional evidence and affording a due opportunity of being heard to the assessee. In view of above, the appeal of the Revenue is disposed of and accordingly, it is treated as allowed for statistical purposes.

L. Admitting Additional Evidence Without Calling For Remand Report Violates Rule 46A

ITAT Delhi ACIT Vs Late Avtar Singh Bahl ITA No.1831/Del./2012, We find that certain fresh documents have been produced before CIT(A) and CIT(A) without calling for remand report or confronting such material to the Assessing Officer has passed the impugned order in a very precise manner to delete the impugned addition which is not justified. So, action of the CIT(A) is not only violate of Rule 46A of the I.T. Rules, but also against the natural justice because sufficient and cogent reasons have not been given in this case. Therefore, considering the entirety of facts, circumstances and material on record, we set aside the order of the CIT(A) and restore the matter back on his file with the direction to re-decide the appeal afresh after giving due opportunity to the assessee as well as to the Assessing Officer by passing a speaking order giving cogent reasons in support thereof

M. Proper Reasons Must Be Given For Non-Acceptance Of Additional Evidence Under Rule 46A

ITAT,MUMBAI, Khemabhai Patel, Vs Income-tax Officer I.T.A. No.2131/Mum/2009 , the case of the assessee is that the additional evidence produced before the CIT(A) ought to have been admitted under Rule 46A. If additional evidence is not admitted, the ld. CIT(A) ought to have furnished reasons for non-admission so that the assessee could explain properly as to whether the reasons for non-admission of additional evidence are in accordance with law or not. In the instant case, the ld. CIT (A) completely ignored to take notice of the additional evidence. Under these circumstances, we are of the view that in the interests of substantial justice the matter requires to be sent back to the CIT (A), who is directed to give the assessee a reasonable opportunity of heard. Suffice to say that the ld. CIT (A) should consider the additional evidence in accordance with law. If there are no justifiable reasons for admission of the additional evidence, the ld. CIT (A) has to pass a speaking order so that a superior forum can consider the correctness of the reasons mentioned therein.

The conclusion of the issue about admissibility of the additional evidences is that the judicial authorities must passed orders effectively and the objective is to unfold the actual controversy and appraise the correct facts so that there is no miscarriage of justice. Therefore, if the documents sought to be produced are of such a nature that they render assistance to the authorities in passing order or are required to be admitted for any other substantial cause, it would be the duty of the appellate authority to admit them. This proposition was law upheld by the Hon’ble Tribunal in the case of Abhay Kumar Shroff V/s. Income-tax Officer 63 ITD 144(Pat) where in, the Tribunal admitted additional evidence even when not even a whisper of the same was made before the first appellate authority. d) The Hon’ble Mumbai High Court in the case of Smt. Prabhavati S. Shah V/s. CIT, 231 ITR 278 held that if the assessee had been informed by the ITO in the course of the assessment proceedings that he was not inclined to accept the loans as genuine because of the non-availability of the creditors, the assessee could have tried to satisfy him about the genuineness of the loan by producing other evidence. Therefore, the additional evidence sought to be filed under Rule 46 A was admissible. The Hon’ble Supreme Court in the case of Collector Land Katji, 167 ITR 471 (SC) have held that when technical considerations are pitted against the cause of substantial justice it is the cause of substantial justice that must prevail. Hence, additional evidences be admitted at any stage of proceedings with a motive to provide justice.