TMI Blog2014 (3) TMI 764X X X X Extracts X X X X X X X X Extracts X X X X ..... ate upon the matter on the basis of evidence and material thus gathered - 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). But no such requirement in law is present that the first appellate authority should invariably consult or confront the assessing officer every time additional evidence that was not 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 - There may be cases where additional evidence is admitted by the first appellate authority on a request or application being made by the assessee - In such cases Sub-rule (2) of rule 46A requires the first appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e adjudicating the issue. 3. Brief facts of the case are that the assessee has filed the original return of income for the A.Y. 2010-11 on 18-09-2010 disclosing the total income of Rs. 12,68,065/- after claiming deduction u/s 10A of Rs. 80,49,071/- from the profits and gains of business of development of software. Subsequently, the assessee has filed a revised return on 31-03-2012 disclosing the total income of Rs. 12,68,065/-. Thus, there is no change in the income returned by the assessee but the assessee claimed Rs. 8,38,14,524/- as deduction u/s 10A of the Income-tax Act, 1961. The AO completed the assessment u/s 144 by determining the total income at Rs. 8,80,83,834 by making the following disallowances: a) Disallowance of expenses Rs. 20,00,000 b) Disallowance of deduction u/s. 10A Rs. 8,38,14,524 c) Addition of dividend income Rs. 9,01,245 4. The assessee is in the business of development of software registered with STPI in Hyderabad and Goa. The assessee company commenced manufacture or productio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sued by the AO, the AO ought not to have ignored the relevant material available on record and more particularly when the same AO who has completed the previous assessment and allowed deduction u/s 10A with minor alterations to export turnover, according to the assessee is contestable as to the adjustment of the same against the total turnover also. Before the CIT(A), the assessee submitted that when the officer makes assessment to the best of his judgment, though some degree of guess work is involved, the assessing authority while making the best judgment assessment, no doubt, should arrive at his conclusion without any bias and on a rational basis. The authority should not be vindictive or capricious as held in the case of CST V. Esufali (H.M) (1973) 90 ITR 271 (SC). 7. Before the CIT(A) the assessee also explained the reasons for non-appearance before the AO on some dates, the entire business of the company was thrown into a tailspin and by the end of 2012, the company was in dire straits and had to let go off 100 of its employees because of the nonrenewal of contract for services by its major customer. The company was forced to pay three months' severance pay to all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the course of first appellate proceedings, the assessee submitted that before the AO they have filed original and revised returns, annual report along with Audit report, Original Tax Audit report in 3CA and 3CD, original and revised, report in Form 3CEB, original report in Form 56F and Form 29B. The assessee in support of the claim of exemption u/s 10A , also filed copies of certificate of registration with STPI, Hyderabad and Goa, Softex forms submitted to STPI, reconciliation of export proceeds with invoices raised, FIRCs and bank statements. The assessee submitted before the CIT(A) that since most of the information called for was made available before the AO, he could have considered their claim. 10. It was also submitted before the CIT(A) that in the revised return of income, they have increased their sales based on increased invoices to one of their customer, and accordingly furnished revised 56F. It was also the claim of the assessee that since the increased value of invoices was accepted by their client, and the same were duly submitted and approved by STPI, their claim of deduction be allowed. As regards the issue of foreign remittances by the increased value of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee cannot be doubted. As the income/profits earned out of business by the assessee is prima-facie eligible for deduction u/s 10A, there was no need for the assessee to claim expenses other than that were really incurred. Therefore, going by the above position, no disallowance of expenditure is called for in the case of the assessee. Accordingly, he directed the Assessing Officer to delete the disallowance of Rs. 20,00,000/-. 14. Regarding the addition of dividend income of Rs. 9,01,245/-, during the course of first appellate proceedings, the assessee submitted that the dividend income was received by the assessee from Mutual Fund investments into bank accounts with HDFC and HSBC, and accordingly submitted the relevant evidence. The assessee also submitted before the CIT(A) that the same is a dividend from the units of the mutual fund and the same is not to be included in the gross total income u/s 10(3g) of the Act. The CIT(A) held that the addition made by the AO on account of dividend exemption is unwarranted. 15. Against this the main contention of the Revenue is that the CIT(A) admitted fresh evidence. Being so, the CIT(A) committed a grave error in adjudicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt the result of the same. The provisions of Section 250(4) are the provisions of long standing that existed under 1922 Act also in Section 31 of that Act. In the case of CIT v. Kanpur Coal Syndicate 53 ITR 225 (SC) the Hon'ble 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 187 ITR 688 (SC) and in the case of CIT v. Nirbheram Daluram 224 ITR 610 (SC) the Hon'ble 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. Reference in this regard may be made to the judgments reported in 107 ITR 808 (Ker); 204 ITR 580 (Cal); 231 ITR 1 (Bom) and 36 Taxman 353 (Del). It therefore follows that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f rule 46A particularly Subrule (4) thereof and the provisions of Section 250(1) of the Income-tax Act conferring power on the Commissioner of Income-tax (Appeals), we are also of the view that in spite of the provisions of rule 46A(1), the provisions of Section 250 enable the Commissioner of Income-tax (Appeals) to accept additional evidence in appropriate cases which power has been preserved by Sub-rule (4) of rule 46A also. If the provisions of rule 46A, Sub-rule (4) thereof, are held to be mandatory that will go against the provisions of Section 250 of the Act conferring power on the first appellate authority to enquire into the matter and pass appropriate orders. In other words, rule 46A without Sub-rule (4) will be open to challenge as ultra vires Section 250 of the Act. 22. There are of course several judgments where it has clearly been laid down that the assessee on his own cannot produce any additional evidence not furnished before the assessing officer without meeting he various conditions provided under rule 46A for which satisfaction is to be recorded by the appellate authority in writing and with which the appellate authority is further required to confront the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exercised by the Appellate Assistant Commissioner. Reliance in this connection may be placed on the observations in the case of Ramgopal Ganpatrai Sons Ltd. v. Commissioner of Excess Profits Tax, in the case of Byramji Co. v. Commissioner of Income tax and in the case of Karamchand v. Commissioner of Income tax. 23. In the case of CIT v. Vali Mohamed Ahmedbhai 134 ITR 214 (Guj) Hon'ble Gujarat High Court have held that if any additional evidence submitted by an assessee is accepted behind the back of the assessing officer and the assessing officer is not given proper opportunity to rebut the same, it would amount to the violation of the principles of natural justice. Hon'ble Gujarat High Court observed: It is clear from the above quoted provision that the AAC should not have taken into account any evidence produced under Subrule (1) unless the ITO had been allowed a reasonable opportunity to examine the evidence or to cross examine the witness whose evidence was taken on record or to produce any evidence in rebuttal of the additional evidence produced by the assessee. It is, therefore, obvious that the AAC could not have relied on the additional evidence without giving ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to anticipate that additional evidence might be produced by the assessee in his appeal. It is for this reason that it is necessary to give him an opportunity to meet the additional evidence. The Tribunal has, therefore, fallen into an error in rejecting the plea of the revenue that the AAC ought to have given an opportunity to the ITO to examine the additional evidence or to cross examine the witnesses whose evidence was taken on record or to rebut the additional evidence. We, therefore, answer the question referred to us in the negative and against the assessee. 24. The proposition that the first appellate authority can admit additional evidence sought to be filed by an assessee only for good reasons and after allowing the assessing officer reasonable opportunity to have his say in the matter is supported by some more judgments such as CIT v. Babulal Jain 176 ITR 411 (MP); C. Unnikrishnan v. CIT 233 ITR 485 (Ker); and Ramprasad Sharma v. CIT 119 ITR 867 (All). 25. In the case of Smt. Prabhavati Shah v. CIT 231 ITR 1 (Bom) Hon'ble jurisdictional High Court dealt with a case where the assessee sought to produce fresh evidence before the first appellate authority for no good ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judicial power, it is incumbent on him to exercise the same if the facts and circumstances justify. If the Appellate Assistant Commissioner fails to exercise his discretion judicially, and arbitrarily refuses to make enquiry in a case where the facts and circumstances so demand, his action would be open for correction by a higher authority . Thereafter the Hon'ble High Court again observed at page 8 in the following words: On a conjoint reading of Section 250 of the Act and rule 46A of the rules, it is clear that the restrictions placed on the appellant to produce evidence do not affect the powers of the Appellate Assistant Commissioner under Sub-section (4) of Section 250 of the Act. The purpose of rule 46A appears to be to ensure that evidence is primarily led before the Income-tax Officer. 26. From the various authorities cited by us (supra) in this order we find that the legal position is that the first appellate authority has wide powers over the order of assessment appealed against before him. In the course of exercise of such power the first appellate authority can direct the assessee to produce any evidence, information or material that was not produced befor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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