COMMISSIONER OF INCOME TAX VI V. PRADYUMAN M PATEL

TAXAP/264/2013

AI Insights

The case involves the Commissioner of Income Tax VI as the appellant and Pradyuman M Patel as the respondent, concerning a block assessment period from April 1, 1988, to July 29, 1998. The primary legal issue was the deletion of additions made by the Assessing Officer, which included unexplained capital and peak credits, based on statements from 24 investors. These statements were recorded by the CIT(A) without providing the Assessing Officer an opportunity to cross-examine the witnesses, leading to a breach of Rule 46A of the Income Tax Rules, 1962. The ITAT had earlier dismissed the revenue's appeal, which led to the present Tax Appeal by the Commissioner of Income Tax.

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 744910 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 10-09-2013
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax, U.P. Versus Kanpur Coal Syndicate, Silver and Art Palace Vs. Commissioner of Income Tax
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: R K PATEL
• Assessee Lawyers: MANISH BHATT; MAUNA BHATT
• Keywords: Additional evidence; Block assessment; Unexplained capital; Violation of Rule 46A; Peak credits
• Section: 158BC; 46A; 250(4); 158BE

Judgement Text

"O/TAXAP/264/2013 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 264 of 2013 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE M.R. SHAH Sd/- and HONOURABLE MS JUSTICE SONIA GOKANI Sd/- =========================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? NO 2 To be referred to the Reporter or not ? NO 3 Whether their Lordships wish to see the fair copy of the judgment ? NO 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? NO 5 Whether it is to be circulated to the civil judge ? NO ================================================================ COMMISSIONER OF INCOME TAX VI....Appellant(s) Versus PRADYUMAN M PATEL....Opponent(s) ================================================================ Appearance: MR MANISH BHATT FOR MS MAUNA M BHATT, ADVOCATE for the Appellant(s) No. 1 MR RK PATEL, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE M.R. SHAH and HONOURABLE MS JUSTICE SONIA GOKANI Date : 10/09/2013 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE M.R. SHAH) Page 1 of 27 O/TAXAP/264/2013 JUDGMENT 1.00. As by order dtd. 4/4/2013, Notice has been issued for final disposal and with the consent of the learned advocates appearing on behalf of the respective parties, present appeal is taken up for final hearing today. 2.00. Present Tax Appeal has been preferred by the appellant – revenue challenging the judgement and order dtd. 14/9/2012 passed by the learned Income Tax Appellate Tribunal in Appeal No.2 of 2003 with respect to Block period from 1/4/1988 to 29/7/1998, on the following proposed substantial questions of law : “(I) Whether on facts and circumstances of the case, appellate tribunal was right in deleting the addition of Rs.67 lakhs as unexplained capital and peak credits amounting to Rs.1,25,94,803/- :- (i) by accepting the claim of the assessee regarding the booking amount received from 24 farmers without examining the fact whether any of the farmers finally brought the flats/plots from Prithvi Builders; (ii)By holding that there is no need to give any copies of the statement of the 24 farmers to the assessing officer particularly where the statement were recorded by the CIT (A) himself without confirming then to the AO? (II) Whether the Appellate Tribunal is right in law and on facts in confirming the order passed by CIT (Appeals), who Page 2 of 27 O/TAXAP/264/2013 JUDGMENT had deleted the additions relying upon the statements recorded by him, without giving an opportunity to the Assessing Officer as mandated under Rule 46A of the Income Tax Rules, 1962? (III) Whether the Appellate Tribunal is right in law and on facts in confirming the deletion of addition of Rs.56 lacs made in respect of unexplained capital of an amount of Rs.1,25,94,803/- made on account of peak credits? 3.00. As for the reasons stated hereinafter, the matter is to be remanded to the CIT(A) as there is violation of Rule 46A of the Income Tax Rules, 1962, we are not entering into the merits of other substantial question of law. 4.00. Facts leading to the present appeal, in nutshell, are as under :- 4.01. A search and seizure action was carried out by the Income Tax Department at the premises of the assessee and its other group concerns on 29/7/1998. Thereafter, a notice under section 158BC of the Income Tax Act was served upon the assessee on 18/1/1999. The assessee filed his return of income on 3/3/1999 declaring total income of Rs.Nil for the block period. The assessment was completed under section 158BE of the Act determining the total income at Rs.1,93,94,403/-. It appears that during the assessment proceedings and to verify the authenticity of the assessee’s claim with respect foreign depositors, the Assessing Officer issued Summons for verification of the depositors through the assessee’s authorised representative. However, the Summons Page 3 of 27 O/TAXAP/264/2013 JUDGMENT could not be served upon the authorised representative and thereafter by passing the assessment order, the AO included the said amount in the income of the assessee treating it as undisclosed income. 4.02. Feeling aggrieved by and dissatisfied with the block assessment order, the assessee preferred an appeal before the CIT(A). During the course of the appellate proceedings, CIT(A) remanded the case to the AO along with the copy of the submissions made by the assessee and the AO sent remand report to the CIT(A). It appears that the learned CIT(A) was not satisfied with the remand report submitted by the AO and the CIT(A) was of the opinion that in the remand report the AO has neither brought any material to substantiate his claim nor brought on record any positive evidence for sustaining addition made by him and in fact, in the reassessment report, AO has merely repeated the reasons given in the assessment order. That the learned CIT(A) thought it fit to hold an inquiry under section 250(4) of the Act and asked the assessee to produce the investors (24 in number who filed Affidavits before the AO) at the Income Tax Office at Bhavnagar on 27/9/2002 and on that day, the CIT(A) personally camp at Bhavnagar on the said date and statements of all 24 investors came to be recorded by the Inspectors of Income Tax in his presence and relying upon those statements of the investors and without giving an opportunity to cross-examine those investors by the AO the learned CIT(A) has deleted addition made by the AO of Rs.1,93,94,403/- by holding that in the statements of the investors recorded by the Inspectors, the investors have confirmed the fact of making investment in the project of M/s.Prithvi Builders through the assessee. The learned CIT(A) Page 4 of 27 O/TAXAP/264/2013 JUDGMENT also observed that the statements of various investors recorded by the Inspectors substantiate the submission made by the assessee and therefore, he found the same to be correct. Consequently, the learned CIT(A) by the order dtd. 18/10/2002 has allowed the said appeal and deleted addition Rs.1,93,94,403/- made by the the AO while assessing the block assessment year. 4.03. Feeling aggrieved by and dissatisfied with the order passed by the CIT(A) dtd. 18/10/2002 in allowing the appeal preferred by the assessee and deleting the addition made by the AO, the revenue preferred appeal before the ITAT. It appears that there was delay of 2 days in preferring appeal and for that the revenue submitted an application for condonation of delay which came to be allowed and the delay came to be condoned by the learned tribunal. During the appeal before the tribunal, the revenue raised additional ground for violation of Rule 46A of the Income Tax Rules, 1962 by the CIT(A) and the requested to permit to raise the following additional ground : “The Learned Commissioner of Income-Tax (Appeals) has erred in deleting the additions made by the Assessing Officer on the basis of statements recorded by his office without giving the Assessing Officer an opportunity to examine the statements thereby violating Rule 46A of the Income Tax Rules, 1962.” 4.04. It appears that by order dtd. 7/2/2012 and by observing that as per Sub Rule (2) of Rule 46A, the learned CIT(A) is within his powers to examine any witness and Page 5 of 27 O/TAXAP/264/2013 JUDGMENT therefore, there is no infringement of Rule 46A and by observing so, the learned tribunal did not admit the additional ground and proceeded further with the hearing of the appeal and by the impugned judgement and order, the learned tribunal has dismissed the said appeal preferred by the revenue confirming the order passed by the CIT(A) deleting the addition of Rs.1,93,94,403/- made by the AO. 4.05. Feeling aggrieved by and dissatisfied with the impugned order passed by the learned tribunal, the revenue has preferred the present Tax Appeal with the aforesaid proposed substantial questions of law. 5.00. Having heard Mr.Manish Bhatt, learned counsel appearing on behalf of the appellant – revenue and Mr.R.K. Patel, learned counsel appearing on behalf of the assessee and considering the order passed by the CIT(A) as well as the impugned judgement and order passed by the learned tribunal, it appears that there is violation of Rule 46A of Income Tax Rules, 1962. It is not in dispute that during the appellate proceedings, initially CIT(A) remanded the matter to the AO along with the copy of the submission made by the assessee more particularly with respect to case on behalf of the assessee with respect to 24 investors / depositors and the AO submitted remand report. It also appears from the order passed by the CIT(A) that the CIT(A) was not satisfied with the remand report submitted by the AO and therefore, during the appellate proceedings, the CIT(A) decided to hold inquiry under section 250(4) of the Act and asked the assessee to produce investors at the Income Tax Office at Bhavnagar on 27/9/2002. It appears that the learned CIT(A) personally camp Page 6 of 27 O/TAXAP/264/2013 JUDGMENT at Bhavnagar on 27/9/2002 and on that day, the assessee produced 24 investors and statements of all those 24 investors came to be recorded by the Inspectors of the Income Tax Department in presence of the CIT(A) and relying upon the statements of all those 24 investors recorded by the inspectors, CIT(A) has deleted addition of Rs.1,93,94,403/- made by the AO by observing that in the statements of the investors recorded by the Inspectors the investors have confirmed the fact of making investment in the project of M/s.Prithvi Builders through the assessee and the said statements substantiate the submission made by the assessee. It is an admitted position that the CIT(A) has not given any opportunity to the AO to cross-examine those witnesses / investors whose statements came to be recorded during the inquiry ordered by the CIT(A) held during the appellate proceedings and the CIT(A) has relied upon the statements of those 24 investors without giving any opportunity to the AO to cross-examine them. 5.01. It is required to be noted that though before the learned Tribunal, the revenue submitted application requesting to permit the revenue to raise additional ground of violation of Rule 46A of the Income Tax Rules, 1962, the learned tribunal by order dtd. 7/2/2012 did not permit the revenue to raise the aforesaid ground by observing that as per Sub Rule (4) of Rule 46A, CIT(A) is within his powers to examine any witness. 6.00. Mr.R.K. Patel, learned counsel appearing on behalf of the assessee has heavily relied upon the decision of the Hon'ble Supreme Court in the case of Commissioner of Income Tax, U.P. Versus Kanpur Coal Syndicate, reported Page 7 of 27 O/TAXAP/264/2013 JUDGMENT in 53 ITR 225 in support of his submission on the exercise of power by the appellate tribunal. Relying upon the aforesaid decision, Mr.Patel, learned counsel appearing on behalf of the assessee has submitted that while exercising power, the appellate authority has plenary power to dispose of the appeal and the scope of his power is conterminous with that of the Income Tax Officer and he can do what the Income Tax Officer can do and can also direct him to do what he has failed to do. 6.01. Mr.R.K. Patel, learned counsel appearing on behalf of the assessee has also relied upon the decision of the Rajasthan High Court in the case of Silver and Art Palace Vs. Commissioner of Income Tax, reported in 1994 (206) ITR 501 in support of his submission that while keeping an appeal pending under section 250(4) and before disposing of it, power is conferred on the CIT(A) to make such further inquiry as he may deem fit or direct AO to make further inquiry. 6.02. It is required to be noted that power of the Commissioner (Appeals) to hold inquiry during the pendency of the appeal under section 250(4) of the Act cannot be disputed and is not disputed. The learned counsel appearing on behalf of the revenue is also not disputing the power of the CIT(A) to hold inquiry in a proper case pending the appeal, under section 250(4) of the Act. However, grievance which is voiced is with respect to violation of Rule 46A of the Income Tax Rules, 1964 i.e. not giving opportunity to the AO to cross-examine those investors whose statements came to be recorded by the Inspectors during the course of inquiry held in exercise of powers under section 250(4) of the Act and whose statements Page 8 of 27 O/TAXAP/264/2013 JUDGMENT are relied upon by the learned CIT(A) while deleting addition of Rs.1,93,94,403/- made by the AO. Sub-section (4) of Section 250 permits the Commissioner (Appeals) to make such further inquiry as he thinks fit or may direct AO to make further inquiry and report the result of the same to him before disposing of any appeal before him. Rule 46A of the Income Tax Rules, 1962 is with respect to production of additional evidence before the CIT(A). Rule 46A of the Rules reads as under : 46A. Production of additional evidence before the Deputy Commissioner (Appeals) and Commissioner (Appeals) : (1). The appellant shall not be entitled to produce before the 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, 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 the appellant was prevented by sufficient cause from producing the evidence which he was called upon to produce by the Assessing Officer; or Page 9 of 27 O/TAXAP/264/2013 JUDGMENT (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 adduce evidence relevant to any ground of appeal. (2) No evidence shall be admitted under sub-rule (1) unless the Deputy Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals) records in writing the reasons for its admission. (3) The Deputy Commissioner (Appeals) or as the case may be, the 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 Deputy Commissioner (Appeals) or, as the Page 10 of 27 O/TAXAP/264/2013 JUDGMENT case may be, the 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 case 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 215 or the imposition of penalty under section 271.” As per Sub-Rule (4) of Rule 46A not withstanding anything contained in Rule 46A, Commissioner (Appeals) may direct production of any document or examination of any witness, to enable him to dispose of the appeal. Therefore, considering Sub-Rule (4) of Rule 46A, it is always open for the Commissioner (Appeals) to direct production of any document or examination of any witness to enable him to dispose of the appeal. However, while exercising such powers and examining any witness, who are permitted to be examined in exercise of the powers under Sub-Rule (4) of Rule 46A, AO is required to be given an opportunity to cross-examine such witness. Unless and until the AO is given an opportunity to cross-examine such witness/es who are examined during the pendency of the appeal in exercise of the powers under Sub-Rule (4) of Rule 46A, Commissioner (Appeals) cannot rely upon the statements / depositions of such witnesses, as it would be in violation of the principles of natural justice. 6.03. It is required to be noted that in the present case, though Summonses were issued by the AO to be served through the authorised representative of the assessee, they Page 11 of 27 O/TAXAP/264/2013 JUDGMENT could not be served and even the assessee did not produce those 24 investors before the AO and all those investors came to be produced for the first time before the CIT(A) during the pendency of the appeal and while holding inquiry by the CIT(A) in exercise of the power under section 250(4) of the Act. As stated above, the learned CIT(A) has relied upon the statements of those 24 investors recorded by the Inspectors recorded during the pendency of the appeal and while holding inquiry in exercise of powers under section 250(4) of the Act and has deleted addition of Rs.1,93,94,403/- made by the AO, without giving any opportunity of being heard to the AO to cross-examine those 24 investors and therefore, the same is in violation of Rule 46A of the Income Tax Rules, 1962, and therefore, the order passed by the CIT(A) cannot be sustained and therefore, the learned tribunal has materially erred in dismissing the appeal preferred by the revenue and confirming the order passed by the CIT(A) and not permitting the revenue to raise additional ground of violation of Rule 46A. 7.00. In view of the above and for the reasons stated above and without further entering into the merits of the case and solely on the ground that the order passed by the CIT(A) is in breach of violation of Rule 46A of the Income Tax Rules, 1962, the order passed by the CIT(A) as well as the impugned judgement and order passed by the ITAT deserve to be quashed and set aside and are accordingly quashed and set aside on the aforesaid ground alone and the matter is remanded to the CIT(A) to decide and dispose of the appeal afresh in accordance with law and on merits and after giving an opportunity to the AO to cross-examine those investors / witnesses whose statements were recorded on 27/9/2002 in Page 12 of 27 O/TAXAP/264/2013 JUDGMENT presence of the CIT(A) at the Income Tax Office at Bhavnagar and relied upon by the learned CIT(A) while deleting addition of Rs.1,93,94,403/- made by the AO. The aforesaid exercise shall be completed by the CIT(A) at the earliest but not later than six months from the date of the present order. However, it is made clear that this Court has not expressed any opinion in favour of either of the parties and the impugned orders are set aside solely on the ground of violation of Rule 46A of the Income Tax Rules, 1962. Present appeal is allowed to the aforesaid extent. In the facts and circumstances of the case, there shall be no order as to costs. Sd/- (M.R.SHAH, J.) Per : SONIA GOKANI, J. (Concurring) 8.00. I had a privilege to peruse the order of the learned Brother Judge (Justice Mr.M.R. Shah), although while agreeing on conclusion of remand with the learned Brother Judge, separate reasonings are given hereinafter in this order. 9.00. This Tax Appeal is preferred by the Revenue under section 260A of the Income-Tax Act, 1961 (hereinafter referred to as ‘the Act’) being aggrieved by the order dated September 14, 2012 passed by the Income-tax Appellate Tribunal (hereinafter referred to as ‘the Tribunal’) for block period from April 01, 1998 to July 29, 1998. Page 13 of 27 O/TAXAP/264/2013 JUDGMENT 10.00. The following brief facts would be necessary for grasping the issues under adjudication : 10.01. On July 29, 1998 a search and seizure operation at the residential premises and other group concerns of the respondent-assessee was carried out under section 132 of the Act. In pursuance of the same, a notice under section 158BC of the Act was served upon the respondent-assessee on January 18, 1999. The return of income was filed with the total income of “NIL” for the concerned block period. The respondent- assessee is the partner/ director in various firms engaged mainly in construction and manufacturing activities. On completion of the assessment under section 158BC, the total income of the respondent-assessee was determined at Rs.1,93,94,403/-. 10.02. The respondent-assessee preferred an appeal before the Commissioner of Income-tax (Appeals) [hereinafter referred to as ‘the CIT(Appeals)’] raising various grounds challenging the additions made by the Assessing Officer. 10.03. The CIT (Appeals) noted that the grounds of appeal Nos.9 to 14 were considered together in view of similarity of nature of additions. In search and seizure action under section 132 of the Act, the computerised data of the unaccounted account of the said firm were found and seized. They were labelled as TEST data in the name of the respondent-assessee and his family members. The details of accounts in the name of the respondent-assessee and his family members were submitted by the respondent-assessee to the Assessing Officer. The respondent-assessee also submitted that various Page 14 of 27 O/TAXAP/264/2013 JUDGMENT debit and credit entries appearing in the accounts submitted by him were from the premises of M/s.Pruthvi Builders Ltd.. Qua the transaction of the respondent-assessee with M/s.Pruthvi Builders Ltd., when he was directed to prove the source of such credit entries appearing in the above account, he had given the explanation in respect of the source of the credit entries along with supporting documentary evidence. In support of the amount received, the respondent-assessee submitted affidavits of various investors who had made investment in M/s.Pruthvi Builders through the respondent- assessee. It was also noted by the CIT (Appeals) that the Assessing Officer disbelieved such submissions and made a total addition of Rs.1,92,94,803/-. 10.04. During the course of the appellate proceedings, therefore, along with the copy of submissions made by the respondent-assessee, the case of the assessee was remanded to the Assessing Officer by the CIT (Appeals), having jurisdiction over the respondent-assessee’s case. In the remand report submitted by the Assessing Officer, no material was brought to substantiate his claim as noted by the CIT (Appeals) and the Assessing Officer, as further recorded by the CIT (Appeals) merely repeated the reasons recorded in the assessment order. The submissions made by the respondent- assessee were not negatived by the Assessing Officer by bringing any substantiating evidence on record or by further inquiry. The CIT (Appeals), therefore, made an inquiry under section 250(4) of the Act directing the respondent-assessee to produce the investors at Income-tax Office at Bhavnagar on September 22, 2002 by camping at Bhavnagar and the statements of in all 24 investors were recorded by the Page 15 of 27 O/TAXAP/264/2013 JUDGMENT Inspector in his presence. The investors confirmed the facts of investment made through the respondent-assessee and the contents of the affidavit also were confirmed by these persons, thereby substantiating the submissions of the respondent- assessee. The CIT (Appeals), therefore, on extensively giving the reasons held vide its order dated October 18, 2002 that the respondent-assessee has discharged his onus of proving the genuineness of the transaction and his explanation and nothing has been brought on record by the Assessing Officer to show that explanation and various documents submitted by the respondent-assessee were not correct. Therefore, it held that the respondent-assessee succeeded in establishing the source of the credit entries appearing in his account and the accounts of his family members in the TEST ledger. He accordingly directed the Assessing Officer to delete the addition of Rs.1,92,94,803/-. 10.05. This was challenged by the Revenue before the Tribunal. The Revenue vehemently submitted before the Tribunal that no opportunity was given to the Assessing Officer while accepting the evidence collected by the CIT (Appeals) itself under section 250(4) of the Act, which was in clear violation of principles embodied in Rule 46A of the Rules. 10.06. It was argued by the other side before the Tribunal that it was incidental that the inquiry conducted by the CIT (Appeals) supported the case of the respondent-assessee and not the Revenue. However, there would be no requirement under the law that the First Appellate Authority should invariably permit the Assessing Officer an opportunity every time when the additional evidence, not otherwise adduced Page 16 of 27 O/TAXAP/264/2013 JUDGMENT before the Assessing Officer, came on record at the instance of the First Appellate Authority, even if the same is on its own motion. 10.07. The Tribunal confirmed the deletion of additions of Rs.1,93,94,403/- made by the Assessing Officer by not sustaining additional ground of violation of Rule 46A of the Rules. 10.08. Aggrieved by concurrent findings of the CIT (Appeals) and the Tribunal, the Revenue has approached this Court challenging these orders by proposing the following questions of law for our consideration : “(A) Whether the Appellate Tribunal is right in law and on facts in confirming the order passed by the CIT (Appeals), who had deleted the additions relying upon the statements recorded by him, without giving an opportunity to the Assessing Officer as mandated under Rule 46A of the Income Tax Rules, 1962 ? (B) Whether the Appellate Tribunal is right in law and on facts in confirming the deletion of addition of Rs.67 lacs made in respect of unexplained capital of an amount of Rs.1,25,94,803/- made on account of peak credits ?” 11.00. The learned Senior Counsel Mr.Manish Bhatt appearing with the learned advocate Mrs.Mauna Bhatt on behalf of the appellant-Revenue has forcefully submitted that Page 17 of 27 O/TAXAP/264/2013 JUDGMENT the opportunity was given to the respondent-assessee to produce the creditors during the course of assessment. However, the respondent-assessee chose not to avail such an opportunity and at an appellate stage, the CIT (Appeals) exercised suo motu powers to summon the creditors and recorded their statements. While admitting such additional evidence, no opportunity was given to the Assessing Officer to either cross-examine such witnesses or to rebut their evidence. This, according to him, is a clear breach of provision of section 46A of the Act and, therefore, it is urged that the matter may be remanded to the Tribunal by a specific direction of affording the opportunity to the Assessing Officer as well as to the respondent-assessee, if it so desires. 12.00. Per contra, the learned counsel Mr.R.K. Patel appearing for the respondent-assessee has urged that where the additional evidence is admitted by the First Appellate Authority on its own motion, there is no requirement under the law under sub-rule (2) of Rule 46A of the Rules to allow the Assessing Officer a fresh opportunity to rebut such evidence and again in absence of any explicit provision, such requirement cannot be said to be a part of the rule mandating the Appellate Authority to afford an opportunity of rebuttal to the Assessing Officer. It is not the case where the respondent- assessee has requested for further evidence, but the CIT (Appeals) itself felt requirement of calling for such evidence. Therefore, sub-rule (3) of Rule 46A needs not to be invoked. He sought to rely upon two authorities (i) in the case of Commissioner of Income-tax U.P. v. Kanpur Coal Syndicate, reported in (1964) 53 ITR 225 and (ii) the decision rendered by the Rajasthan High Court in the case Page 18 of 27 O/TAXAP/264/2013 JUDGMENT of Silver & Art Palace v. CIT, (1994) 206 ITR 501 (Raj.). The Apex Court in the case of Kanpur Coal (supra) has held that the Appellate Authority can exercise the powers which the Assessing Officer is empowered to exercise. In the case of Silver & Art Palace (supra), the Rajasthan High Court has held that the Appellate Authority has powers during the process of appeal under section 250(4) of the Act to make such further inquiry as he deems fit or direct the Assessing Officer to so do it. What has aggrieved the Revenue is non-availment of due opportunity while permitting such additional material which became determinative in effecting deletion of additions made by the Assessing Officer. 13.00. Upon thus hearing both the sides and considering the orders of the revenue authorities, before adverting to the facts of the present case, it can be said at the outset that the powers of Commissioner during the pendency of appeal to inquire or direct the inquiry and adducing evidence, are not under challenge. It would be profitable, therefore, to reproduce Rule 46A of the Income Tax Rules, 1962 (hereinafter referred to as 'the Rules') as under : “Production of additional evidence before the Deputy Commissioner (Appeals) and Commissioner (Appeals) 46A. (1) The appellant shall not be entitled to produce before the Deputy Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals), any evidence, Page 19 of 27 O/TAXAP/264/2013 JUDGMENT 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 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 Deputy Commissioner (Appeals), or the case may be, the Commissioner (Appeals) records in writing the reasons for its admission. (3) The Deputy Commissioner (Appeals) or, as the case may be, the 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 the 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. Page 20 of 27 O/TAXAP/264/2013 JUDGMENT (4) Nothing contained in this rule shall affect the power of the Deputy Commissioner (Appeals) or, as the case may be, the 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.” 13.01. Rule 46A provides for production of any additional evidence, oral or documentary, before the Deputy Commissioner (Appeals) and Commissioner (Appeals). This Rule provides for two modes for adducement of additional evidence at the First Appellate stage, either at the instance of the appellant under sub-rules (1) to (3) or at the instance of Appellate Authority under sub-rule (4) of Rule 46A of the Rules. As far as discretion to be exercised by the Commissioner at the instance of appellant is concerned, the Rule explicitly provides for affording an opportunity, however, under sub-rule (4) no such express provision is found. The appellant, except in the circumstances mentioned in sub-rule (1), shall not be entitled to produce oral or documentary evidence before the Deputy Commissioner (Appeals) and Commissioner (Appeals), : (a) where the Assessing Officer ought to have refused to admit the evidence; or (b) where the appellant should have been prevented by sufficient cause from producing the evidence which otherwise he was called upon by the Assessing Officer; or (c) where the appellant would have been prevented by sufficient cause from producing before the Assessing Officer Page 21 of 27 O/TAXAP/264/2013 JUDGMENT 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. Recording of reasons of such admission is also made explicit by way of sub-rule (2) of Rule 46A of the Rules. 13.02. Sub-rule (3) of Rule 46A of the Rules provides that the Commissioner unless provides a reasonable opportunity to the Assessing Officer in respect of the evidence produced under sub-rule (1), such evidence shall not be taken into account. Where the Assessing Officer is not only to be permitted to examine or cross-examine the evidence/ document or the witnesses, but also to be offered an opportunity of rebuttal of evidence. 13.03. Thus, this Rule provides that whenever a prayer for additional evidence is made by the appellant, it is independent and substantive application seeking a new right. The Assessing Officer is always afforded a reasonable opportunity to oppose and test the additional evidence or counter effect thereof to produce the evidence in rebuttal as held in the case of Commissioner of Income-tax, Gujarat v. Vali Mohmed, reported in 134 ITR 214. The scheme of sub-rule (1) to (3) of Rule 46A clearly, thus, requires offering a reasonable opportunity to the Assessing Officer whenever the additional evidence is permitted by the First Appellate Authority. Page 22 of 27 O/TAXAP/264/2013 JUDGMENT 13.04. As far as sub-rule (4) of Rule 46A of the Rules is concerned, it speaks of the power of Commissioner (Appeals) to direct production of any document or evidence or examination of witness, (i) to enable him to dispose of the appeal, (ii) for any other substantial cause including the enhancement of the assessment, (iii) for imposition of penalty under clause (a) of sub-section (1) of section 251 or (iv) imposition of penalty under section 271. As far as sub-rule (4) of Rule 46A is concerned, the powers are exercised by the Deputy Commissioner (Appeals) or Commissioner (Appeals) directing the appellant to produce any document or examination of witness. These powers are needed to be exercised for enabling the Commissioner to dispose of the appeals or for any substantial cause or for the purpose of imposition of penalty as provided under this Rule. Although there is no explicit provision made for affording a reasonable opportunity to the assessee when suo motu powers are exercised, it will not be difficult to hold that the reasonable opportunity of hearing to the parties, before the fresh evidence is admitted, requires to be afforded. The Commissioner (Appeals) would have ample power to call for any additional evidence, oral or documentary, if it considers such production necessary in the interest of justice for disposing of the appeal or for any other substantial cause. It goes without saying that while exercising such powers of admission of the additional evidence, the powers are required to be exercised within the limits imposed by the Rule and both sides are required to be afforded due and reasonable opportunity in respect of such evidences. Page 23 of 27 O/TAXAP/264/2013 JUDGMENT 13.05. Even in absence of any explicit provision, when suo motu powers are exercised by the Deputy Commissioner (Appeals) or Commissioner (Appeals), as the case may be, for meeting the ends of justice as also for fair-play while adducing the additional evidence in the appeal in exercise of powers under sub-rule (4) of Rule 46A, the opportunity is required to be given to both the sides to test the evidence or to counter the effect of the evidence in rebuttal or otherwise. 13.06. It needs to be remembered at this juncture that this Court in the case of Vali Mohmed (supra), while answering the question in respect of sub-rule (3) of Rule 46A of the Rules went to the extent of saying that : “.. .. .. When a prayer for additional evidence was made, it was an independent and substantive application seeking a new right. Notice of such application was necessary to the ITO and he ought to have been afforded both an opportunity to oppose it and to test the additional evidence or counter the effect thereof or produce evidence in rebuttal. No such order granting the request could have been passed behind the back of the ITO in violation of the principles of natural justice. At the cost of repetition, it be stated that notice of appeal cannot be equated with notice of a future application to lead additional evidence which no one could have anticipated or reasonably foreseen. Ordinarily, the appeal would be decided on the evidence recorded in the course of assessment proceedings. The ITO, therefore, may not, in a given case, think it necessary to remain present at the hearing of the appeal. He, however, cannot be expected 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 Page 24 of 27 O/TAXAP/264/2013 JUDGMENT 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.” 13.07. This Court is conscious of the fact that such findings were rendered while answering the question in relation to sub- rule (3) of Rule 46A of the Rules, where the Rule itself provides for reasonable opportunity of examining the evidence as also for rebuttal of evidence to the Assessing Officer, however, the analogy employed by this Court in case of Vali Mohmed (supra) would apply mutatis mutandis even in case of exercise of suo motu powers. The Assessing Officer would have no clue of possibility of exercise of such powers by Commissioner. Any evidence adduced additionally would surely require testing of its truthfulness and veracity at the hands of otherside and availment of such opportunity thus is must before the same is taken into account. 13.08. Even at the cost of reiteration, it is being stated that the opportunity of hearing is to be read as interwoven while exercising powers under sub-rule (4) of Rule 46A of the Rules and, therefore, the Tribunal surely committed an error in not allowing the opportunity of hearing to the Revenue, despite its fervent request for affording opportunity in respect of additional evidence. Page 25 of 27 O/TAXAP/264/2013 JUDGMENT 13.09. At this stage, the learned advocate Mr.R.K. Patel appearing for the respondent-assessee has urged that such opportunity should also be afforded to the respondent- assessee, who also had no say in the entire matter and it is a sheer coincidence that such evidence resulted into favouring the cause of the respondent-assessee. He also further urged that the appeal relates to the block period of 1988-1999 and the Tribunal has decided the matter after a decade nearly. Such request from the Revenue also has come belatedly and, therefore, after much lapse of time, when this Court is remanding the matter to the Tribunal, the possibility cannot be ruled out that all the witnesses who were examined by the Commissioner (Appeals) may not be available for various reasons and in such circumstances, adverse inference may not be drawn against the assessee. 13.10. As extensively discussed hereinabove, while interpreting sub-rule (4) of Rule 46A of the Rules and its implication, affording an opportunity of hearing to the respondent-assessee is also necessary in respect of the additional evidence collected by the Commissioner (Appeals). 13.11. With regard to the second request of the respondent-assessee of not drawing adverse inference in the event of absence of any investors, particularly when substantial period has elapsed in pursuing the legal remedies, the respondent-assessee would be within its rights to raise all the contentions, including this, before the revenue authorities at an appropriate time, if such need so arises; and the concerned authority may consider the same in accordance with law having regard to all the facts and circumstances. Page 26 of 27 O/TAXAP/264/2013 JUDGMENT 14.00. For the foregoing reasons, the present appeal succeeds and the same is, accordingly, partly allowed. The impugned orders are quashed and set aside, remanding the matter to the Commissioner (Appeals), for deciding the Appeal afresh on affording reasonable opportunity to both the sides in respect of the additional evidence collected by it in exercise of powers under sub-rule (4) of Rule 46A. Needless to say that nothing is opined on the merits of the case by this Court and none of the observations made hereinabove shall, in any manner, prejudice the right of either of the parties in deciding the appeal afresh by the revenue authorities. Sd/- (MS SONIA GOKANI, J.) Rafik/Aakar. Page 27 of 27 "