The assessee has filed the present appeal under section 260A of the Income Tax Act, 1961 against the order dated 18th December, 2009 passed by the Income Tax Appellate Tribunal 'C' Bench in ITA No. 579 of 2006. 1.1 Having heard learned Senior Counsel Mr. S.N.Soparkar assisted by Mr. Bandish Soparkar, learned counsel for the appellant and Mr. K.M.Parikh, learned counsel appearing for the respondent, the appeal is herewith admitted. With the consent of learned counsels for both the parties, it is taken up for final hearing today itself.
2. In the facts of the case, the following substantial question of law is formulated for consideration and determination :
“ Whether in the facts and circumstances of the case, the Income Tax Appellate Tribunal committed a substantial error in upholding the order of the Commissioner of Income Tax (Appeals) in not permitting the assessee to produce the additional evidence?”
2.1. The relevant facts may be gathered first. The assesse-company was engaged in manufacturing of note-books, exercise books, books, calenders and such other stationery items on off-set printing press as also in the business of printing on flexible films. The Assessee company filed its return of income for the assessment year 2002-2003 declaring loss of Rs. 16,56,478/-. The return of income was initially processed under section 143(1) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act' for sake of brevity). It was taken up for scrutiny and notice under section 143(2) was issued. The Assessing Officer passed assessment order dated 7.1.2005 in which he made total additions of Rs. 70,50,000 in the income of the assessee.
2.2 The said additions were in respect of two unsecured loans. The one was for Rs. 40,50,000/- from one Mrs. Neenakshi Y. Patel, whereas the other was for Rs. 30,00,000 from one Shri Kaushik C. Patel. According to Assessing Officer, the assesse had failed to furnish the requisite confirmations in respect of the said two loan transactions from said two parties. The assessee furnished the letters of conformation, which were not accepted by the Assessing Officer on the ground that the same were signed by the Managing Director of the assessee-company..
2.3 The aggrieved assessee preferred appeal before the Commissioner of Income Tax (Appeals). It came to be dismissed on 2.1.2006. In course of hearing before the CIT(A), the assessee filed the confirmation letters dated 16.03.2005 & 15.03.2005 which were signed by the said named two parties themselves. The CIT(A) did not accept those letters and dismissed the appeal confirming the order of the Assessing Officer. The appellate Commissioner took a view that since the parties were not close relatives of the appellant and that the amount of loan being substantial, they ought to have signed an agreement. According to him, in absence of such supporting document, the creditworthiness of the said two parties was not proved.
2.4 The production of additional evidence-the confirmation letters was permissible in terms of Rule 46A of the Income Tax Rules, 1962 (hereinafter referred to as 'the Rules'). But the CIT(A) rejected the request by making one line observation in his order that "Moreover, since these additional documentary evidences in the form of confirmations etc. were not filed before the Assessing Officer in spite of due opportunity given by him, are not admitted in view of rule 46A.
2.5 The assessee approached the Tribunal. The Tribunal negatived the case of the assessee on the ground that assessee's counsel had raised additional ground in the appeal about not admitting the additional evidence under Rule 46A of the rules by the CIT(A). However, the Tribunal made an observation that assessee's counsel did not argue on the said additional ground. According to the Tribunal, opportunity was available to the assessee before the CIT(A), but no application under Rule 46A was filed. It was also observed that conditions of Rule 46A were not satisfied.
3. Learned Senior counsel for the appellant submitted that as such confirmation letters were already before the Assessing Officer and the only reason why the same were not accepted at the initial stage by the Assessing Officer was that they were signed by the Managing Director of the Assessee Company, and not by the creditors. He further submitted that the Tribunal erred in concluding that the assessee did not discharge its burden to prove the genuineness of creditors. According to him, the burden was discharged, but the CIT(A) did not accept the additional evidence. He submitted that the error committed by the CIT(A) in not accepting the confirmations letters as additional evidence was repeated by the Tribunal. He submitted that the conditions of Rule 46-A of the Rules for producing the additional evidence were satisfied and the CIT(A) ought to have permitted the assessee to produce the said additional evidence.
3.1 On the other hand, learned advocate for the respondent- department submitted that the CIT(A) was right in not permitting the additional evidence. It was submitted that the provision of Rule 46A can come to the aid of assessee, provided only the conditions thereof are satisfied.
4. Rule 46A of the Income Tax Rule, 1962 provides for production of additional evidence before the Dy. Commissioner (Appeals) and the Commissioner (Appeals). It is reproduced as under :
“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, 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, 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) 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 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.”
4.1 Under the above Rule, an appellant may produce oral or documentary evidence other than the evidence produced by him during the course of proceedings before the Assessing Officer under certain circumstances. The circumstances are (i) where the Assessing Officer has refused to admit evidence which ought to have been admitted; (ii) where the appellant was prevented by sufficient cause from producing the evidence which the assessment officer has called upon him to produce; (iii) where the appellant could not produce for sufficient cause before the Assessing Officer any evidence relevant to any ground of his appeal and lastly (iv) where the order of the Assessing Officer is made without giving sufficient opportunity to the appellant to adduce evidence relevant to any ground of appeal.
According to sub-rule (2), the appellate authority shall have to record reasons for admitting the evidence.
4.2 For not producing the confirmation letters signed by the parties before the Assessing Officer, the explanation of the assessee was that they were got signed by the Managing Director of the assessee- company, who was a relative of the creditors, because at that time the creditors were engaged elsewhere. It was also submitted that since the assessment was taken up at the fag end of the year, there was no sufficient time.
4.3 It is borne out from the orders of the authorities that in addition to the said letters, there were other material, such as the bank statement, details of addresses of the parties, copy of the passport and photographs produced before the Assessing Officer to show creditworthiness of the parties. The loans to the assessee were by way of bank drafts through NRO/NRE account of the parties with the City Bank.
5. Rule 46A permitting additional evidence at the appellate stage before the Commissioner is essentially a rule of procedure. The grant of permission to produce the additional evidence thereunder is on the conditions mentioned therein. The rule should receive a liberal interpretation with an object that the assessee is not deprived of opportunity to produce evidence in support of his case which he wanted to produce at the initial stage, but was prevented for good reason.
5.1 In the facts of the present case, the approach of CIT(A) as well as of the Tribunal with regard to applying Rule 46A was wooden. As noted above, the factum of confirmations was already there before the Assessing Officer, but the same was not accepted on the ground that the letters were signed by the Managing Director of the assessee-company. Therefore, when in the proceedings of appeal, the confirmation letters of the parties were produced with explanation for not producing the same, there was no reason for the assessing officer to reject the same.
5.2 Fresh confirmation letters were only in continuation of previous ones already produced. They were produced only in compliance of requirement on which the Assessing Officer based his rejection. They were, as such, not new evidence. The refusal to permit them was mechanical and suffered from non application of mind. The assessee's case for permission to produce such additional evidence clearly fell under clause (b) of sub Rule (1) of 46A that he was prevented by sufficient cause from producing the confirmation letters, which he was called upon to produce by the Assessing Officer. Those confirmation letters were in support of the ground of assessee's appeal, therefore, it was covered under sub-clause (c) also.
6. As a result of foregoing discussion, it is held that the Tribunal committed an error in upholding the order of the CIT(A). Question of law is accordingly answered in affirmative in favour of the assessee.
6.1 In the aforesaid premise, the matter is remanded to the Commissioner of Income Tax (Appeals). The assessee shall produce the confirmation letters dated 16.3.2005 and 15.3.2005 by filing an appropriate application under Rule 46A and the same shall be permitted as additional evidence by the CIT(A). The CIT(A) shall thereafter re-examine the entire matter afresh and shall pass an appropriate order within eight weeks from the date of receipt of certified copy of this order .
7. The appeal is allowed in the aforesaid terms.
[V.M.SAHAI, J.] [N.V.ANJARIA, J.] cmjoshi