By TIOL News Service

KOCHI, JAN 27, 2015: THE issue before the Bench is - Whether documents suo motto called for by the first appellate authority for disposing of appeal can be termed as additional evidence in terms of rule 46A. NO is the answer.

Facts of the case

Assessee is a partnership firm doing the business of chitty. The assessee filed its original return of income along with audit report u/s 44AB. A serach was conducted at the business premises as well as the residences of its partners and no search was conducted in the business premises of the assessee's sister concerns i.e. M/s Edassery Ceramics, ET Decvassy & Sons Edassery Jewellers, St Francis Clay Works, St Francis Clay Décor Tiles and St Francis Tile Industries on the same date. The AO discovered that the funds of the assessee firm were intermingled and thus, issued notice of section 153A. During assessment proceedings, the AO made certain additions on account of investment in chitty purely on the basis of estimate.

On appeal, the CIT(A) after calling for certain documents held that the additions were made on the basis of estimate without referring to any seized document was not permissible. Before the Tribunal, the DR pointed out that CIT(A) had exceeded his jurisdiction by accepting additional evidences from the assessee.

On appeal, the Tribunal held that,

++ having regard to the provisions relating to the appeals before the first appellate authority, a distinction has to be made between the evidence and material voluntarily furnished by an assessee in support of his appeal and the evidence / material requisitioned from an assessee by the first appellate authority with a view to proper disposal of proceedings before him. In our opinion while the provisions of rule 46A apply to the former, the same have no application to the latter;

++ provision of rule 46A enjoins upon the first appellate authority not to admit any fresh evidence unless he records in writing his reasons for its admission. Further rule 46A enjoins upon him to provide the assessing officer a reasonable opportunity to examine the fresh evidence or to cross examine the witness produced by the assessee or to produce any evidence or document or any witness in rebuttal of the additional evidence produced by the assessee;

++ in the case of CIT v. Kanpur Coal Syndicate, the Supreme Court have held that the first appellate authority can do what the assessing officer could do and can also direct the latter to do what the latter has failed to do. In the case of Jute Corporation of India Ltd v. CIT and in the case of CIT v. Nirbheram Daluram the Supreme Court have held that the powers of the first appellate authority over an assessment are all pervasive and they are not confined to the matters considered by the assessing officer;

++ there are many judgments to the effect that in view of the provisions of Section 250(4), the first appellate authority is duty bound to make an enquiry even if such enquiry was not made by the assessing officer if the facts and circumstances of the case warrant such an enquiry to be made;

++ provisions of Rule 46A promulgated with effect from 01-04-1973 were challenged as being ultra vires to the provisions of Sections 250 and 251 of the Act in the case of Smt. Mohinder Kaur v. Central Government. After consideration of the provisions of Sections 250 and 251 of the Act as well as Rule 46A of I.T. Rules the High Court arrived at the conclusion in the following words: Sub-rule (1) of the said rule lays down the circumstances in which alone the assessee is entitled to produce additional evidence. Sub-section (4) preserves the power of the Appellate Assistant Commissioner to make further inquiry as contemplated by Section 250 of the Act. Thus, it is clear that no part of rule 46A whittles down or impairs the power to make further inquiry conferred upon the Appellate Assistant Commissioner by Section 250 of the Act. Similarly, Sub-section (5) of the said section confers a power on the Appellate Assistant Commissioner to permit the assessee to raise a fresh point. This power has not been even touched by rule46A. The Appellate Assistant Commissioner could permit the production of additional evidence if he thought it was necessary to enable him to dispose of the appeal, or if he thought it fit to make further inquiry; but under Sub-rule (1) of rule 46A the assessee had a right to produce additional evidence in the circumstances mentioned in its various clauses. The rule does not affect the power of the Appellate Assistant Commissioner conferred upon him by that rule and in addition it gives a right to the assessee in the matter of production of additional evidence;

++ in the instant case the entire additional evidence has come on the record of the first appellate authority because the first appellate authority decided to examine the facts of the case in depth and adjudicate upon the matter on the basis of evidence and material thus gathered. The CIT(A) was empowered to do so under the provisions of Section 250(4). The results of enquiry conducted by him could either go to further cement the case made out by the assessing officer or to help out the assessee against the findings of the assessing officer. The mere fact that the results of the enquiries thus conducted supported the case of the assessee and not that of Revenue has no bearing on the jurisdiction and powers of the CIT(A). The CIT(A) has confronted the assessing officer with the evidence thus received and the material thus gathered and allow the assessing officer to have his say in the matter vide remand report dated 29.4.2013 and being done so this dispute have no merits. We do not see any requirement in law that the first appellate authority should invariably consult or confront the assessing officer every time an additional evidence that was not filed before the assessing officer comes on the record of the first appellate authority. Where the additional evidence is obtained by the first appellate authority on its own motion, there is no requirement in law to consult / confront the assessing officer with such additional evidence;

++ if the additional evidence furnished by the assessee before the appellate authority is in the nature of clinching evidence leaving no further room for any doubt or controversy in such a case no useful purpose served on performing the ritual of forwarding the evidence / material to the assessing officer and obtain his report. In such exceptional circumstances the requirement of Sub-rule (3) may be dispensed with;

++ after considering the submissions made by the assessee the CIT(A) observed that for the AY 2002-03, the addition on account of profit from own chitty investments was made purely on estimate basis and there is no evidence to suggest the addition. The CIT(A) placed reliance on the decision of the Special Bench of the Tribunal in the case of All Cargo Logistics Ltd; Therefore, in our opinion, the deletion of addition is justified as there was no incriminating material found or seized during the course of search to suggest the addition.

(See 2015-TIOL-86-ITAT-COCHIN)