M/s. J.J. Group of Mills, Ahmedabad V. The ACIT., Circle-2, Surat

ITA 3698/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 8748 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 15-03-2010
• Assessment Year: 1996-1997
• Appeal Filed On: 18-09-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEETA SHAH
• Assessee Lawyers: KETAN H SHAHAR
• Keywords: Additional evidence; Accommodation entries; Notional interest; Set aside
• Section: 271(1)(c); 143(3); 143(1); 250; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'B' (BEFORE S/SHERI MAHAVIR SINGH,JM AND A N PAHUJA,AM) ITA NO.2619/AHD/2007 (ASSESSMENT YEAR:- 1996-97) M/S J J GROUP OF MILLS, 135, J J AC MARKET, RING ROAD, SURAT [PAN:AACFJ3770G] ] V/S THE ASSISTANT COMMISSIONER OF INCOME- TAX, CIRCLE-2, SURAT [APPELLANT] [RESPONDENT] ITA NO.3698/AHD/2007 (ASSESSMENT YEAR:- 1996-97) M/S J J GROUP OF MILLS, 135, J J AC MARKET, RING ROAD, SURAT V/S THE ASSISTANT COMMISSIONER OF INCOME- TAX, CIRCLE-2, SURAT [APPELLANT] [RESPONDENT] ASSESSEE BY :- SHRI KETAN H SHAH,AR REVENUE BY:- SMT. NEETA SHAH, DR O R D E R A N PAHUJA : THESE TWO APPEALS FILED BY THE ASSESSEE AGAINST TWO SEPARATE ORDERS DATED 21-05-2007 & DATED 23.7.2007O F THE LD. CIT(A)-1,SURAT, RAISE THE FOLLOWING GROUNDS: ITA NO.2619/AHD/2007 THE LEARNED CIT(A) HAS ERRED I) IN NOT APPRECIATING THE FACTS THAT, THE ASSESSE E HAS DISCHARGED THE ONUS FOR TOTAL CASH CREDIT ADDED BY THE AO WORTH OF RS.9 ,66,950/- AND AS SUCH, BOTH LOWER AUTHORITIES HAS ERRED IN NOT BELIEVING T HE CONTENTION OF THE ASSESSEE. II) IN NOT APPRECIATING THE FACTS THAT, HONBLE CIT (A) HAS NO POWER TO GO INTO THE CORRECTNESS AND/OR JURISDICTIO N OF THE HONBLE ITAT WHO HAS AFTER HEARING THE LD. DR HAS G IVEN A FINDING WHICH IS BASED ON THE FACTUAL ASPECT ARGUED BY BOTH THE COUNSEL. THUS, IT IS PRAYED THAT THE ADDITION O F CASH CREDIT IS REQUIRED TO BE DELETED IN TOTAL ALONG WITH INTER EST. ITA NO.2619& 3698/AHD/2007 2 III) IT IS PRAYED THAT NECESSARY COST MAY PLEASE BE AWARDED TO THE APPELLANT IN TERMS OF SECTION 254(2B)) ITA NO.3698/AHD/2007 THE LEARNED AO / CIT(A) HAS ERRED IN PASSING PENAL TY ORDER U/S 271(1)(C) OF THE ACT, INTER ALIA, ERRED IN LEVYING PENALTY. IT IS SUBMITTED THAT BOTH THE LOWER AUTHORITIES HAVE NOT APPLIED MIND / FACTS AND / OR LAW TO THE SUBMISSION MADE BEFORE THEM AND AS SUCH, IT IS PRAY ED THAT THE PENALTY ORDER PASSED IS ITSELF BAD IN LAW, VOID AB INITIO, AND ILLEGAL. IT IS FURTHER SUBMITTED THAT THE CIT(A) HAS ALSO ERRED IN NOT APP LYING HIS MIND FOR THE PROPER CONSIDERING THE WRITTEN SUBMISSION DATED 13- 7-07, WHEREIN, THE ASSESSEE HAS ALSO APPENDED PAPER BOOK PAGE 1 UP TO 72. IT IS PRAYED THAT THE PENALTY LEVIED MAY PLEASE BE CANCELLED. 2 ADVERTING FIRST TO THE GROUNDS RAISED IN QUANTUM APPEAL, FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT IN PURSUANCE TO RETURN DECLAING INCOME OF RS.21,17,850/- FILED ON 30.10.19 96,THE ORIGINAL ASSESSMENT IN THIS CASE WAS COMPLETED U/S. 143(3) O F THE INCOME- TAX ACT, 1961 [HEREINAFTER REFERRED TO AS THE ACT ] VIDE ORDER DATED 16/3/1999.INTER ALIA, AN AMOUNT OF RS.9,66,950 WAS ADDED U/S 68 OF THE ACT ON ACCOUNT OF UNEXPLAINED CASH-CREDITS BESI DES DISALLOWANCE OF INTEREST EXPENSES TO THE EXTENT OF RS.12,30,785. THE ASSESSEE'S APPEAL WAS DISMISSED BY THE CIT(A). ON FURTHER APPE AL BEFORE THE ITAT, THE ASSESSEE CONTENDED THAT SUFFICIENT OPPORT UNITY WAS NOT PROVIDED BY THE CIT(A). THE ITAT, TAKING NOTE OF TH E FACT THAT THE APPELLATE ORDER WAS PASSED WITHIN A MONTH FROM THE DATE OF ISSUE OF THE FIRST NOTICE, FIXING THE HEARING, SET ASIDE THE ISSUE INVOLVING THE DISALLOWANCE OF NOTIONAL INTEREST AND RESTORED THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR FRESH CONSIDERATION, V IDE THEIR ORDER DATED 3.12.2004. WHILE DOING SO, THE ITAT FOLLOWED ITS DECISION IN THE ASSESSEE'S OWN CASE ON THE SAME ISSUE FOR THE A .Y. 1993-94. HOWEVER, SINCE THE ITAT DID NOT ADJUDICATE THE MAT TER RELATING TO UNEXPLAINED CASH-CREDITS, ON A MISCELLANEOUS APPLIC ATION MOVED BY THE ASSESSEE ON 28.4.2005, THE ITAT VIDE ORDER DATE D 28/4/2006, RESTORED THE MATTER BACK TO THE FILE OF TE LD.CIT(A ). WHILE DOING SO, THE ITAT TOOK NOTE THAT CONFIRMATIONS FROM THE CRED ITORS ETC. HAD ITA NO.2619& 3698/AHD/2007 3 BEEN FURNISHED BEFORE THE AO ON 17/3/1999, A DAY AF TER THE ASSESSMENT WAS COMPLETED ON 16/3/1999. 3 IN COMPLIANCE WITH THE DIRECTIONS OF THE ITAT, TH E LD. CIT(A) AFTER HAVING A REMAND REPORT FROM THE AO AND COMMEN TS OF THE ASSESSEE THEREON , OBSERVED THAT THERE WERE 11 CASH CREDITORS FROM WHOM THE ASSESSEE HAD SHOWN TO HAVE TAKEN LOANS TOT ALING RS.9,66,950/-. THE LD.CIT(A) FURTHER NOTED IN HIS ORDER THAT IN AT LEAST TWO CASES NO EVIDENCE HAD BEEN FILED ON 17/3/ 1999. IN EIGHT CASES, ONLY CONFIRMATION LETTER HAD BEEN FILED, AND IN ONLY TWO CASES, APART FROM CONFIRMATION LETTERS, COPIES OF IT RETUR N AND INTIMATION U/S. 143(1) HAD BEEN FILED. IN APPELLATE PROCEEDING S, NO FURTHER EVIDENCE HAD BEEN FILED IN TWO CASES I.E. IN THE CA SE OF KUM. EKTA MAHESHKUMAR-RS.10,000 AND TALREJA ENTERPRISES- RS.8 ,854, EXCEPT THEIR CONFIRMATION LETTERS. AFTER CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LD. CIT(A) OBSERVED THAT WHAT WAS STATED BY THE ASSESSEE BEFORE THE HON. ITAT, WAS FA CTUALLY INCORRECT. WHAT HAS BEEN FILED BEFORE THE CIT(A) CL EARLY CONSTITUTED ADDITIONAL EVIDENCE, WHICH HAD NOT BEEN FILED BEFOR E THE AO ON 17/3/1999. THE LD. CIT(A) ACCORDINGLY, HELD AS UNDE R:- 1.4 SINCE, THE HON. ITAT SET ASIDE THE ASSESSEE'S APPEAL ON THE GROUND THAT MY LD. PREDECESSOR HAD NOT FOLLOWED THE RIGOURS OF RULE 46A WHILE REJECTING THE EVIDENCE FURNISHED BY THE ASSES SEE, IN REMAND PROCEEDINGS THE AO PROVIDED FURTHER OPPORTUNITY TO THE ASSESSEE TO EXPLAIN HIS POSITION REGARDING THE ADMISSION OF SUC H EVIDENCE BEFORE THE CIT(A). QUITE INTERESTINGLY THE ASSESSEE ONLY REITE RATED THAT WHAT WAS FURNISHED BEFORE MY ID. PREDECESSOR WAS NOT ADDITIO NAL EVIDENCE SINCE THE SAME HAD BEEN FURNISHED BEFORE THE AO ON 17/3/1999. IN HIS WRITTEN REPLY TO THE REMAND REPORT, IT HAS BEEN CONTENDED BY THE AR THAT U/S. 250 OF THE I. T. ACT, THE CIT(A) IS EMPOWERED TO ADMIT ADDITIO NAL EVIDENCE IN APPROPRIATE CASES AND THIS POWER HAS BEEN PRESERVED UNDER SUB-RULE (4) OF RULE 46A AS WELL. THUS, IF THE PROVISIONS OF RUL E 46A ARE HELD TO BE MANDATORY, THEN IT WOULD GO AGAINST THE PROVISIONS OF SECTION 250 OF THE I.T. ACT AND RULE 46A WITHOUT SUB-RULE(4) WOULD BE ULTRA-VIRES OF SECTION 250. 2. I DO NOT ACCEPT THE ARGUMENTS OF THE AR. EVEN T HOUGH SECTIONS 250 AND 251 CONFER JURISDICTION ON THE CIT(A) TO MAKE F URTHER INQUIRIES AND CALL FOR EVIDENCE YET, SUCH POWER IS REGULATED BY THE PR OVISIONS OF RULE 46A SO ITA NO.2619& 3698/AHD/2007 4 THAT, ADDITIONAL EVIDENCE CAN BE ADMITTED ONLY IN C ERTAIN CIRCUMSTANCES. THE REASONS FOR ADMITTING SUCH EVIDENCE HAVE TO BE RECORDED IN WRITING AND THE AO HAS TO BE GIVEN AN OPPORTUNITY TO COUNTE R THE SAME. THIS WAS THE VIEW TAKEN BY THE GUWAHATI BENCH OF THE ITAT(TM ) IN THE CASE OF DCIT V. NEW MANAS TEA ESTATE POT. LID. (2000) 73 IT D 157. WHILE TAKING THIS VIEW, THE HON. IT AT PLACED RELIANCE ON THE FO LLOWING CASES: I) KESHAO MILLS CO. LTD. V.CIT (1965) 56 FTR 365 (S C) II) TARN DEVIGOENKA V.CIT (1980) 122 ITR 14 (CAL) III)CIT V. VALIMOHMED AHMEDBHAI (1982) 134ITR 214 (GUJ) 2.1 IN THE CASE OF THE ASSESSEE, NONE OF THE EXCEPT IONS UNDER RULE 46A COULD BE INVOKED SINCE, THE AO HAD PROVIDED MORE TH AN SUFFICIENT OPPORTUNITIES TO THE BOTH DURING THE ASSESSMENT PRO CEEDINGS AS WELL AS DURING THE REMAND PROCEEDINGS, TO FURNISH THE RELEV ANT EVIDENCE IN SUPPORT OF THE CASH-CREDITS. THE ASSESSEE FAILED TO NOT ONL Y FURNISH THE SAME, BUT ALSO TO APPEAR ON THE FINAL DATE OF HEARING WHICH W AS FIXED ACCORDING TO ASSESSEE'S CONVENIENCE. THIS WAS DURING THE ASSESSM ENT PROCEEDINGS. EVEN THOUGH THE ASSESSEE MAY HAVE DISPLAYED SOME EA RNESTNESS AS OBSERVED BY THE ITAT IN FILING THE DETAILS A DAY AF TER THE COMPLETION OF THE ASSESSMENT, A DETAILED EXAMINATION BY THE AO WHICH WAS UNDERTAKEN IN COURSE OF THE REMAND PROCEEDINGS, CLEARLY EXPOSED T HE FACT THAT THE DETAILS WERE NOT COMPLETE AND THE ASSESSEE SOUGHT TO FURNIS H ADDITIONAL EVIDENCE BEFORE THE CIT(A) WHICH WAS RIGHTLY REJECTED. THERE FORE, NOT ONLY WAS MY PREDECESSOR JUSTIFIED IN REJECTING THE EVIDENCE FIL ED VIDE LETTER DATED 17/3/1999, EVEN-I DO NOT FIND ANY REASON TO ADMIT THE ADDITIONAL EVIDENCE FILED BY THE ASSESSEE VIDE LETTER DATED 26/5/2005 E VEN THOUGH IT WAS CATEGORICALLY SUBMITTED BEFORE THE ITAT THAT COMPLE TE EVIDENCE HAD BEEN FILED. THEREFORE, NOT ONLY THE EVIDENCE FURNISHED V IDE LETTER DATED 17/3/1999, BUT ALSO THE EVIDENCE NOW FURNISHED, CAN NOT BE ADMITTED IN VIEW OF THE CLEAR PROVISIONS OF RULE 46A OF THE I. T. RULES. 2.2 WITHOUT PREJUDICE TO THE REJECTION OF THE EVIDE NCE SO FURNISHED, AN EXAMINATION OF THE SAME SHOWS THAT ONLY IN FOUR CAS ES, I.E. IN THE CASE OF ANOKHI MAHESHKUMAR, POOJA MAHESHKUMAR, EKTA MAHESHK UMAR AND JETIBEN NEBHUBHAI, COPIES OF BANK PASS-BOOKS HAVE B EEN FURNISHED. AN EXAMINATION OF THE BANK ACCOUNT, CLEARLY SHOWS THAT AMOUNTS WHICH WERE GIVEN OUT AS LOANS TO THE ASSESSEE WERE DEPOSITED I N CASH IN THE BANK ACCOUNTS ON THE SAME DATE, I.E. 26/6/1995. THIS WAS DONE IN ALL THE FOUR BANK ACCOUNTS. THE LOANS WERE GIVEN BY THESE INDIVI DUALS ALSO ON THE SAME DATE I.E. ON 27/3/1996. THIS WAS TOO MUCH OF A COINCIDENCE TO ACCEPT THE GENUINENESS OF SUCH TRANSACTIONS. THE MAIN CONT ENTION OF THE AR IS THAT, ALL THE ALLEGED CREDITORS WERE TAX PAYERS. IN THE CASE OF K. NANDLAL, HIMMATULLA DALCHAND, SADHNA ASHOKKUMAR, J. J. BROTH ERS AND ANILKUMAR KEMCHAND I.E. 5 OUT OF THE 11 CREDITORS, EITHER COP IES OF IT RETURNS OR COPIES OF INTIMATION U/S. 143(1) HAVE BEEN FILED AS ADDITIONAL EVIDENCE. A FURTHER EXAMINATION SHOWS THAT ONLY THE ACKNOWLEDGE MENTS ARE FILED IN SOME CASES OR THE FIRST PAGES OF THE I. T. RETURN. SUCH EVIDENCE IS NOT ITA NO.2619& 3698/AHD/2007 5 SUFFICIENT TO ESTABLISH THE CREDITWORTHINESS OF THE SES PARTIES. THE RECENT SURVEY OF SHRI PANKAJ DANAWALA, A CHARTERED ACCOUNT ANT REVEALED HOW LARGE NUMBER OF BOGUS CAPITAL ACCOUNTS WERE CREATED AND INCOME-TAX RETURNS FILED. THESE BOGUS ACCOUNTS WERE UTILIZED T O PROVIDE ACCOMMODATION ENTRIES. THEREFORE, EVEN THOUGH IN TH E AFORESAID FIVE CASES, COPIES OF I. T. RETURNS / ACKNOWLEDGEMENTS E TC., HAVE BEEN FILED YET, THESE DOCUMENTS DO NOT CLEARLY INDICATE THAT THESE PARTIES INDEED HAD THE CREDITWORTHINESS TO GIVE THE ALLEGED LOANS TO THE A SSESSEE. APART FROM THESE FIVE PARTIES, THE FOUR CREDITORS DISCUSSED AB OVE ALSO DID NOT HAVE THE CREDITWORTHINESS TO DO SO. THEY NEVER HAD SUFFICIEN T BANK BALANCE UNTIL CASH WAS DEPOSITED IN THEIR ACCOUNTS AND THE SAME A MOUNTS, THOUGH AFTER A CONSIDERABLE LAPSE OF TIME, WERE GIVEN OUT AS LOA NS TO THE ASSESSEE. IN THE CASE OF CIT V. UNITED COMMERCIAL & INDUSTRIAL C O. PVT. LTD. (1991) 187 ITR 596, THE HON. CALCUTTA HIGH COURT TOOK THE VIEW THAT, THE ONUS WHICH LIES ON THE ASSESSEE TO PROVE THE GENUINENESS OF CA SH CREDITS, DOES NOT GET DISCHARGED MERELY BY THE FURNISHING OF CONFIRMA TORY LETTERS. THE FACT THAT THE LOANS ARE RECEIVED BY ACCOUNT-PAYEE CHEQUE S DOES NOT MAKE THE TRANSACTION SACROSANCT, AS POINTED OUT IN CIT V. PR ECISION FINANCE PVT. LTD.(1994) 208 ITR 465 (COL). EVEN INCOME-TAX FILE PARTICULARS SHOWING THAT THE CREDITOR IS ASSESSED TO TAX, MAY NOT BE SU FFICIENT TO PROVE THE GENUINENESS OF THE LOANS, AS WAS FOUND IN CIT VS. K ORLAY TRADING CO. LTD. (1998) 232 ITR S20 (CAL). ALL THAT MATTERS IS THAT THE EXPLANATION OF THE ASSESSEE SHOULD BE PRIMA-FACIE REASONABLE, AS HELD IN CIT V. BEDI & CO. PVT. LTD. (1998) 230 ITR 580 (B.C.). IN THE CASE OF THE ASSESSEE THEREFORE, THE FILING OF THE CONFIRMATION LETTERS FROM THE ALL EGED CREDITORS AS WELL AS THE EVIDENCE OF SOME OF THEM HAVING FILED THEIR \ RETUR NS OF INCOME, AND THE FACT THAT SOME OF THE LOANS WERE GIVEN THROUGH ACCO UNT-PAYEE CHEQUES, WERE NOT SUFFICIENT TO ESTABLISH THE GENUINENESS OF SUCH LOANS. 2.2 TAKING INTO CONSIDERATION, THE FACTS AND CIRCUM STANCE OF THE CASE AS DETAILED IN THE DISCUSSION ABOVE, IT IS HELD THAT C OMPLETE DETAILS HAD NOT BEEN FILED BEFORE THE AO ON 17/3/1999, CONTRARY TO WHAT WAS STATED BEFORE THE IT AT BY THE ASSESSEE. THE DOCUMENTARY EVIDENCE INCLUDE SEVERAL ADDITIONAL EVIDENCE WHICH HAD NOT BEEN FILED BEFORE THE AO PRIOR TO THE PASSING OF THE ASSESSMENT ORDER ON 16/3/1999. THI S IS INSPITE OF THE AR'S CLAIM THAT THESE WERE THE SAME EVIDENCE WHICH HAD B EEN FILED BEFORE THE AO. SINCE, THE ASSESSEE'S CASE WAS NOT COVERED BY A NY OF THE EXCEPTIONS PROVIDED UNDER RULE 46A OF THE IT RULES, AND SINCE, THE AR HAS NOT EXPLAINED AS TO HOW AND WHY SUCH EVIDENCE SHOULD BE ADMITTED IN APPELLATE PROCEEDINGS, THE SAME ARE REJECTED. WITHO UT PREJUDICE TO SUCH A FINDING AN EXAMINATION OF THE EVIDENCE FILED CLEARL Y SHOWS THAT THE ALLEGED CREDITORS SIMPLY DID NOT HAVE THE REQUISITE CREDITW ORTHINESS TO GIVE THE LOANS / ADVANCES. CONSEQUENTLY, THE AO WAS FULLY JU STIFIED IN TREATING THE TOTAL LOANS / CREDITS OF RS.9,66,950/- AS UNEXPLAIN ED CASH-CREDITS UNDER THE PROVISIONS OF SECTION 68 OF THE I.T. ACT. THE ADDIT ION OF THE SUM OF RS.9,65,950/- IS THEREFORE, CONFIRMED. ITA NO.2619& 3698/AHD/2007 6 4. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LEARNED CIT(A). WHILE INVITING OUR ATTENTION TO PAPER BOOK, THE LEARNED AR ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE DOCUMENTS PLACED AT SR. NO.2 TO 42 OF THE PAPER BOOK WERE FILED BEFORE THE AO AND THE LD. CIT(A) .WHILE ADMITTING THAT THESE DOCUMENTS WERE FILED BEFORE THE AO ON 17.3.19 99 ONLY AFTER COMPLETION OF THE ASSESSMENT AND FEW OTHER DOCUMENTS HAD ALSO BEE N FILED BEFORE THE LEARNED CIT(A) FOR THE FIRST TIME, THE LD. AR ARGUED THAT T HE LD. CIT(A) SHOULD HAVE ADMITTED ADDITIONAL EVIDENCE IN THE INTEREST OF SUB STANTIAL CAUSE. HOWEVER, THE LEARNED CIT(A) DID NOT ADMIT THESE DOCUMENTS. THE L D. AR PLEADED THAT THE LD. CIT(A) MAY BE DIRECTED TO ADMIT THE ADDITIONAL EVID ENCE AND THEREAFTER, DECIDE THE APPEAL. ON THE OTHER HAND, THE LEARNED DR SUPPO RTED THE FINDINGS OF THE LEARNED CIT(A). 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. WE FIND MERIT IN THE CONTENTIONS OF THE LEARNED AR THAT THE LD. CIT(A) SHOULD HAVE ADMITTED ADDITIONAL EVIDENCE IN TERMS OF RULE 46A OF THE IT RULES. IN THIS CONNECTION RELEVANT RULE 46A OF THE IT RULES 1962, READS AS UNDER: (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 TH AN THE EVIDENCE PRODUCED BY HIM DURING THE COURSE OF PROCEEDINGS BEFORE THE ASS ESSING OFFICER, EXCEPT IN THE FOLLOWING CIRCUMSTANCES, NAMELY:-- (A) WHERE THE ASSESSING OFFICER HAS REFUSED TO ADMI T 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 RELEVAN T 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 A DDUCE 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 C OMMISSIONER (APPEALS) RECORDS IN WRITING THE REASONS FOR ITS ADMISSION. ITA NO.2619& 3698/AHD/2007 7 (3)THE DEPUTY COMMISSIONER(APPEALS) OR, AS THE CA SE MAY BE, THE COMMISSIONER (APPEALS) SHALL NOT TAKE INTO ACCOUNT ANY EVIDENCE PRODUCED UNDER SUB-RULE (1) UNLESS THE INCOME-TAX OFFICER HA S BEEN ALLOWED A REASONABLE OPPORTUNITY- (A) TO EXAMINE THE EVIDENCE OR DOCUMENT OR TO CROS S-EXAMINE THE WITNESS PRODUCED BY THE APPELLANT, OR (B) TO PRODUCE ANY EVIDENCE OR DOCUMENT OR ANY WITN ESS 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 CASE MAY BE, THE COMMISSIONER (APPEALS) TO DIRECT THE PRODUCTION OF ANY DOCUMENT, OR THE EXAMI NATION OF ANY WITNESS, TO ENABLE HIM TO DISPOSE OF THE APPEAL, OR FOR ANY OTH ER SUBSTANTIAL CAUSE INCLUDING THE ENHANCEMENT OF THE ASSESSMENT OR PENALTY (WHETH ER 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 SECT ION 271. ' 5.1 IT IS EVIDENT FROM THE AFORESAID PROVISIONS THAT TH E LD. CIT(A) CAN TAKE INTO ACCOUNT ANY EVIDENCE PRODUCED UNDER SUB-R. (1) OF R ULE 46A OF THE IT RULES, 1962 FOR ANY OTHER SUBSTANTIAL CAUSE IN TERMS OF SU B-RULE (4) OF THE SAID RULE .IN THE CASE UNDER CONSIDERATION, THE DOCUMENTS PLACED AT SR. NO.2 TO 42 OF THE PAPER BOOK WERE FILED ONLY AFTER COMPLETION OF THE ASSESS MENT AND HAD BEEN FILED BEFORE THE LEARNED CIT(A) FOR THE FIRST TIME. UNDIS PUTEDLY, THOUGH THE AO HAD PROVIDED SEVERAL OPPORTUNITIES TO THE ASSESSEE TO E STABLISH THE IDENTITY OF THE CREDITORS AND TO FURNISH THE EVIDENCE REGARDING THE IR CREDITWORTHINESS , THE ASSESSEE DID NOT CARE. ONLY AFTER COMPLETION OF ASS ESSMENT, THE ASSESSEE SUBMITTED CERTAIN DOCUMENTS TO THE AO AND THE LEAR NED CIT(A). WE ARE OF THE OPINION THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN D ECLINING TO ADMIT ADDITIONAL EVIDENCE, ESPECIALLY WHEN SUB-RULE(4) EMPOWERS HIM TO ADMIT THE ADDITIONAL EVIDENCE IN THE INTEREST OF SUBSTANTIAL CAUSE. THE POWERS OF THE CIT(A) IN TERMS OF RULE 46A TO ADMIT FRESH EVIDENCE, ENTAIL AN ELEMEN T OF DISCRETION WHICH IS REQUIRED TO BE EXERCISED IN A JUDICIOUS MANNER. THE POWERS OF THE CIT(A) TO ADMIT ADDITIONAL EVIDENCE ARE NOT ONLY IN SITUATION S WHERE THE EVIDENCE COULD NOT BE PRODUCED BEFORE LOWER AUTHORITIES OWING TO LACK OF ADEQUATE OPPORTUNITY BUT ALSO IN SITUATIONS WHERE THE FRESH EVIDENCE WOULD E NABLE THE CIT(A) TO DISPOSE OF THE APPEAL OR FOR ANY OTHER SUBSTANTIAL CAUSE. OF COURSE, THE POWER IS TO BE EXERCISED JUDICIOUSLY AND FOR REASONS TO BE RECORDE D. IN THE INSTANT CASE, WE FIND ITA NO.2619& 3698/AHD/2007 8 FROM THE SUBMISSIONS MADE BEFORE THE LD. CIT(A) THA T THE SAID FRESH EVIDENCE BEING PRODUCED SEEKS TO CLEAR THE OBSCURITY, THEREB Y LEADING TO CORRECT APPRECIATION OF FACTS AND, IN OUR VIEW, THE ADMISSI ON OF THE SAME IS VERY MUCH WITHIN THE REALM OF THE EXPRESSION 'FOR ANY OTHER S UBSTANTIAL CAUSE' MENTIONED IN RULE 46A OF THE I.T.RULES,1962. THEREFORE, THE SAID EVIDENCE DESERVES TO BE ADMITTED IN THE INTEREST OF SUBSTANTIAL JUSTICE SO AS TO REMOVE THE OBSCURITY IN THE ORDER OF THE LOWER AUTHORITIES ON THIS ISSUE. ACCOR DINGLY, IN THE INTEREST OF JUSTICE AND FAIR PLAY, ESPECIALLY WHEN ASSESSMENT YEAR INVO LVED IS 1996-97, WE VACATE THE FINDINGS OF THE LD. CIT(A) AND RESTORE THE MATT ER TO THE FILE OF THE AO WITH THE DIRECTIONS TO EXAMINE THE VARIOUS DOCUMENTS PLACED BEFORE THE LD. CIT(A)/AO[ TABULATED IN PARA 1.2 OF THE IMPUGNED ORDER] AND TH EREAFTER, DISPOSE OF THE MATTER IN ACCORDANCE WITH LAW AFTER ALLOWING SUFFIC IENT OPPORTUNITY TO THE ASSSSSEE. THE AO IS ALSO FREE TO UNDERTAKE ANY IND EPENDENT ENQUIRIES, IF FOUND NECESSARY. WITH THESE DIRECTIONS, GROUNDS RAISED IN THE APPEAL ARE DISPOSED OF AS INDICATED HEREINBEFORE. 6. ADVERTING NOW TO APPEAL AGAINST ORDER DATE D 23.7.2007, UPHOLDING LEVY OF PENALTY AMOUNTING TO RS.4,06,470/- U/S 271(1)(C) OF THE ACT IN RELATION TO ADDITION OF RS. 9,66,950/- U/S 68 OF THE ACT, SINCE THE IS SUE RELATING TO ADDITION U/S 68 OF THE ACT HAS BEEN RESTORED BY US TO THE FILE OF THE AO IN I.T.A. NO.2619/AHD/2007, PENALTY LEVIED BY THE AO ON THE SAID AMOUNT DOES NO T SURVIVE. HONBLE SUPREME COURT IN THE CASE OF K.C.BUILDERS VS. ACIT,265 ITR 562(SC) HELD THAT ORDINARILY, PENALTY CANNOT STAND IF THE ASSESSMENT ITSELF IS SE T ASIDE. WHERE AN ORDER OF ASSESSMENT OR REASSESSMENT ON THE BASIS OF WHICH PE NALTY HAS BEEN LEVIED ON THE ASSESSEE, HAS ITSELF BEEN SET ASIDE BY THE TRI BUNAL , THE PENALTY CANNOT STAND BY ITSELF . UNTIL ASSESSMENT, DURING THE COURSE OF WHICH PENALTY PROCEEDINGS HAVE BEEN INITIATED, BECOMES FINAL, THE PENALTY IMPOSABL E TOO CANNOT BE DETERMINED WITH CERTAINTY WHICH IS REFERABLE TO TAX LIABILITY OF THE ASSESSEE. SINCE THE VERY BASIS UPON WHICH THE PENALTY HAS BEEN IMPOSED DOES NOT EXIST IN VIEW OF OUR AFORESAID ORDER IN I.T.A. NO.2619/AHD/2007 IN THE A SSESSEES CASE, WE HAVE NO ALTERNATIVE BUT TO SET ASIDE THE IMPUGNED ORDER AND QUASH THE LEVY OF PENALTY UPHELD BY THE LD. CIT(A). HOWEVER, THE AO IS FREE T O INITIATE THE PENALTY ITA NO.2619& 3698/AHD/2007 9 PROCEEDINGS U/S 271(1)(C) OF THE ACT WHILE COMPLETI NG THE ASSESSMENT IN TERMS OF OUR DIRECTIONS IN PARA 5.1 ABOVE IN I.T.A. NO.2619 /AHD/2007. 7. IN THE RESULT, APPEAL IN I.T.A. NO.2619/AHD/2007 IS ALLOWED FOR STATISTICAL PURPOSES WHILE IN I.T.A. NO. 3698/AHD/2009 IS ALLO WED . ORDER PRONOUNCED IN THE OPEN COURT ON 16 -03-2010 SD/- SD/- (MAHAVIR SINGH) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATE : 16-03-2010 COPY OF THE ORDER FORWARDED TO : 1. M/S J J GROUP OF MILLS, 135, J J AC MARKET, RING ROAD, SURAT 2. THE ACIT, CIRCLE-2, SURAT 3. CIT CONCERNED 4. CIT(A)-II, SURAT 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD