Full Judgment Text
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* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on: 12.07.2018
% Pronounced on: 26.11.2018
+ ITA No.90/2004
M/S MATHUR MARKETING PVT. LTD. ..... Appellant
Through : Ms. Shashi M. Kapila, Mr. Pravesh
Sharma, Mr. Siddarath Kapila and Mr.
Sushil Kumar, Advs.
versus
COMMISSIONER OF INCOME
TAX DELHI & ANR. ..... Respondents
Through : Mr. Ruchir Bhatia, Sr. Standing Counsel.
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE A.K.CHAWLA
S. RAVINDRA BHAT, J.
1. By this judgment, we propose to dispose of an appeal under Section
260A of the Income Tax Act, 1961 (hereafter “the Act”). The original
order, disposing of the appeal, was of 17 January, 2006. That order was
carried in appeal by special leave, to the Supreme Court, which disposed of
the petition, in the following terms:
"We have heard learned counsel for the parties and perused the
impugned order. Vide order dated 10.08.2017, this Court had
permitted the appellant to examine as to whether the oral
arguments were advanced on substantial question No.3 raised in
the Memo of Appeal filed before the High Court under Section
260A of the Income Tax Act, 1961. An affidavit· has been filed on
behalf of the appellant in which it has been stated that the issue
of powers of Commissioner (Appeals) had come in appeal under
Rule 46A and were specifically raised before the High Court.
ITA No.90/2004 Page 1 of 18
'In that view of the matter, in our considered opinion, if indeed
such issue was raised specifically before the High Court and it
has not been taken into consideration by the High Court by
passing the impugned order dated 17.01.2006, the appropriate
remedy for the appellant would be to file an application for
review of the said order.
Accordingly, we permit the appellant to file a review application
before the High Court within two weeks from today. If such an
application is filed, the same shall be considered in accordance
with law without raising the question of limitation.”
All the questions raised in this appeal are left open to be raised
again, if occasion so arises. The Civil Appeal is disposed of with
aforesaid observations.''
2. In the appeal, under Section 260A, several questions of law were
urged. The one relating to additional evidence, read as follows:
“Whether in the absence of any ground against admission of
additional evidence, the Tribunal was right in law in holding that
the CIT(A) was not entitled to consider the evidence of payment
to the commission agent;”
3. The original order of this court, dismissing the appeal, reads as
follows:
“Sub-Section (3) of Section 145 of the Income Tax Act, 1961
empowers an assessing officer to proceed to make assessment of
the total income or loss to the best of his judgment and determine
the sum payable by the assessee, as envisaged under Section 144,
in a case where he is not satisfied about the correctness or
completeness of the accounts of the assessee or where the method
of accounting provided in sub-Section (1) or accounting
standards as notified under sub-Section (2) have not been
regularly followed by the assessee. In the present case, we are
not concerned with latter situation. Clearly, it is only in the
eventuality of the assessing officer not being satisfied about the
correctness or completeness of the accounts of the assessee that
he can exercise his discretion of making the assessment based on
best of his judgment. Conversely, therefore, where the assessing
officer is satisfied about the correctness of entries relating to
profit-making transactions, he cannot proceed to make
ITA No.90/2004 Page 2 of 18
assessment based on best of his judgment. In the circumstances,
the argument advanced on behalf of the assessee that while
ignoring the two loss-making entries in its books of account, the
assessing officer could not have proceeded to accept the entries
relating to profit-making transactions, cannot be appreciated.
Since the assessee had in its return voluntarily made mention of
the two profit-making transactions which came to be accepted by
the assessing officer, it could not turn around to question the
correctness of disclosure regarding profit-making transactions in
its return and that of related entries in respect thereto in its
books of account simply because the assessing officer doubted
the correctness of the two entries pertaining to loss-making
transactions and, consequently, proceeded to make the
assessment to the best of his judgment. The books of account or
any other material produced before the assessing officer by the
assessee were simply meant to support the disclosure of profit or
loss set out in its return and it was always open to the assessing
officer to scrutinize such material or entries in the books of
account before accepting the same for the purpose of assessment.
There is, thus, no merit in the contention on behalf of the
assessee that the assessing officer could not have disregarded the
two entries pertaining to loss-making transaction while accepting
the other two entries in the books of account relating to profit-
making transactions. The tribunal was, in the circumstances,
justified in repelling the contention so raised.”
4. By the order of 17 January, 2017, this court had admitted the appeal
and clarified that it was confined to the question pertaining to Rule 46A –
i.e. whether the ITAT was correct in holding that the Appellate
Commissioner was not entitled to consider the evidence of payment to the
commission agent. Thus, the present appeal is confined to that question of
law.
5. The facts are that the assessee traded in rice. In relation to some of its
transactions, the assessee claimed loss. All the transactions of purchase and
sale were carried by the assessee through M/s Ramkishan Dass Narender
Prakash who acted as commission agent on the assessee’s behalf. The
ITA No.90/2004 Page 3 of 18
Assessing Officer (AO) summoned Shri Ramkishan Dass of the above
concern under Section 131 of I.T. Act and recorded his statement. The AO
obtained information about parties who had purchased and sold rice and
basmati to M/s Ramkishan Dass Narender Prakash, who acted as the
assessee’s agent. The transactions of rice shown to have been purchased
from M/s Vijay Kumar Anil Kumar and M/s Ramkishan Aggarwal and
Company were doubted. Similarly, the transaction with Shri Dinesh
Trading company was doubted and the party was summoned under Section
131 of I.T. Act. From the statement made by that party, the AO concluded
that M/s Ramkishan Dass Narender Prakash sold basmati to the party and
statement of Shri Ramkishan Dass that no quality of rice was specified in
the bills, was incorrect. The Assessing Officer also relied upon enquiries
made through the Assessing Officers at Karnal, Kirkshetra and Jind to
conclude that transactions shown in the accounts of several concerns were
bonus as those concerns denied the disclosed sales. It was discerned that
some parties did not even exist.
6. The AO sent enquiries to Kaithal about purchases and sales without
success; his opinion was that the result of investigations carried on by
ACIT, Company Circle 2(1) regarding the purchase of rice by M/s Indian
Biotechnical (P) Ltd., was not genuine as it did not show any purchase in its
accounts. M/s Ramkishan Dass Narender Prakash also did not account for
expenditure on transportation or rice. The trucks in which rice was claimed
to have been transported too were non-existent. There were also other
observations about purchases and sales claimed in different accounts.
Furthermore, the rates disclosed by the assessee too did not match with
rates of basmati and parmal rice as reported in Financial Express, New
Delhi of relevant period.
ITA No.90/2004 Page 4 of 18
7. Based on this information, the AO issued notice dated 6.3.1992
under sec. 142(1) of Act calling upon the assessee to show cause why on
the basis of information gathered from M/s Ramkishan Dass Narender
Prakash and some other parties, the loss claimed on rice on specified
transactions be allowed. The case was fixed for 12-03-1992 and was
adjourned. Later, the assessee filed a written reply, which contained its
version and explanation. It inter alia is as follows:
"Now coming to your order sheet entry dated 18-2-92 it is
seen that it has been alleged that three out of seven parties who
had supplied the rice has allegedly denied that any rice was sold
by them to M/s BKAJK and the remaining four have been
claimed by you are non-existing. From this alleged fact you have
proposed to conclude that no rice was purchased by M/s BKAK
nor the same was sold by them to M/s RDNP. It is submitted that
this allegation is totally baseless. In fact to establish that the
purchase of rice were not made by BKAK form the various
parties as claimed by them you are requested to please summon
M/s BKAK and also M/s RDNP along with their books of
accounts. The assessee further requests that the assessee be
supplied with the copies of the alleged inquiry report along with
the statement of M/s Bhagwati Rice Mills, M/s Amar Rice Mills
and Aggarwal Rice Mills to establish that their alleged
statements are totally incorrect. In any case it is submitted that it
can never be within the exclusive knowledge of the assessee that
its commission agent purchased the rice from which source and
as to who was the suppliers of the commodity sold.
Your reliance on the market rate quoted in the Financial
Express is totally misleading. It is submitted that the allegation
that the rate of the rice has not fallen in the month of the sale
when compared with the price at the time of purchase is also
unjustified.
It is submitted that it was specially for this purpose that
the assessee had requested you to examine M/s RDNP. On
inquiry had been made by you in this behalf. It is further
submitted that through you have recorded the statement of on 12-
2-1991, however, the same is being confronted by you in March,
1992 when the assessment is getting barred by limitation, thus
providing no time to the assessee to meet any of your allegations.
ITA No.90/2004 Page 5 of 18
In this view of the matter it is submitted that the proposed
disallowance of loss of Rs.79,91,056 be dropped and the loss
claimed be held allowed.”
8. The assessee’s objections were rejected with observation that all the
parties suggested by the assessee in the reply were examined and the results
confronted. The A.O. decided that sales and purchases shown by the
assessee were bogus. Accordingly, loss to the tune of ` 86,11,467 was
disallowed. The assessee challenged these additions upon appeal before
CIT(A) and urged a number of grounds including that fair and proper
opportunities were not granted to the assessee company before rejecting its
claim of loss. In the ground of appeal (i.e. No. 6) it was claimed that the AO
ought to have summoned the suppliers and also supplied copies of the
alleged inquiry report along with the statement of the various parties’
particulars when request to do so was specifically made. The CIT(A)
examined reasons given by the AO in detail affirmed it, holding that loss
claimed remained unsubstantiated and was rightly disallowed.
9. The assessee appealed to the ITAT, which disposed of the appeal,
holding that reasonable opportunity had to be given to the assessee. After
remand, the assessee sought the following information from the assessee, in
a communication:
“(a) Neither seller nor purchaser of the rice have debited
transportation charges in their books. You are required to
produce documentary evidence to prove that who borne the
transportation charges in the rice trading.
(b) You have done rice trading through your commission agent
M/s RKNDP. M/s RKNDP purchased rice from M/s Vijay Kumar
Anil Kumar of Bhagwan Das Nagar. M/s Vijay Kumar Anil
Kumar have shown purchases from 7 different parties. Most of
these parties were found to be non-existent or denied having sold
rice to M/s Vijay Kumar Anil Kumar. This way of your purchases
are bogus and your books of accounts are proposed to be
rejected.
ITA No.90/2004 Page 6 of 18
(c) You have shown purchase and sale of rice which is not in
confirmation with the rates quoted in Financial Express.
Complete details of rates quoted in Financial Express was given
to the assessed. Since the rates quoted by you is not in
confirmation with the rates quoted in Financial Express, your
transactions are proposed to be treated as bogus.
(d) You have shown sundry creditors of Rs.74,790, 526/-. In the
AY 1991-92 also you were required to file confirmations from
these creditors and you have failed to produce/file the same. You
are once again requested to file confirmations from these
creditors.
(e) Please intimate the amounts paid by you to your commission
agent M/s. RKDNP till date if any.”
10. After considering the explanations given by the assessee, and noting
the fact that on several occasions, it did not appear or could not produce the
requisite information, the AO added the amounts and brought them to tax.
The AO’s findings indicated that the purchases said to have been made
were at unrealistic prices; the sale too was likewise undervalued. The
payments due to the commission agents, were disbelieved. The findings of
the AO were appealed against to the CIT (A) who allowed the assessee’s
request to consider additional evidence and thereafter proceeded to delete
the amounts brought to tax during the assessment. The revenue appealed to
the ITAT, which set aside the CIT (A)’s order. The findings of the ITAT
are, inter alia, as follows:
“11. We have considered the rival submissions at length in the
light of material placed before us. From the factual position
noted above it is obvious that M/s RKDNP, who acted as the
agent of the SSD for sale and purchase of rice, had shown to
have made purchases from the parties noted above. When the ld.
AO verified the transactions of purchases made by M/s Vijay
Kumar, and M/s Ram Kumar Agarwal and Company who in turn
sold the rice to M/s RKDMP for the assessee. On verification it
had come to light that most of the sellers to these parties were
either not existing, or they denied having made any transactions
with. This put the very fact of purchases into doubt. When the AO
ITA No.90/2004 Page 7 of 18
proceeded further to examine the transportation of rice from
Haryana to Delhi, it came to light that there was no evidence as
to who made the payment of transportation charges. Despite
giving numerous opportunities, including the one vide
questionnaire dated 15.7.94 the assessee miserably failed to give
any satisfactory reply on this regard. In so far as purchases by
M/s Ram Kishen Das Narinder Prasad and M/s Ram Kumar
Agarwal and company, the results of the investigation by the
ACIT revealed that the purchase of rice M/s Indian Biotech
Company Pvt. Ltd. through M/s Ramkumar Agarwal and
Company was not genuine because the part was not found to
have purchased any rice from various parties recorded in books
of accounts and even no transportation charges were paid by
that party. Even some of the trucks in which transportation of
rice was claimed to have been made were found to be non-
existent. This shows that the assessee could not lead any evidence
with regard to the actual movement of rice from Haryana to
Delhi despite the specific query raised by the AO. The ld. CIT (A)
while allowing the appeal of the assessee on this ground has not
at all touched the aspect of transportation as raised by the AO
elaborately in the assessment order. The ld. CIT (A) relied on the
submissions of the assessee with regard to making the payment
by it to M/s RKDNP. From the statement of Shri Ram Kishen,
partner of M/s RKDNP placed at, page numbers 271 to 275 of
the paper book, it is noted that during the assessment year 1988-
89 M/s RKDNP had stated on oath to have got total commission
of Rs. 373781/ out of which ₹ 3 .50 lakh was obtained from the
assessee and M/s Mathur Import Export private limited, sister
concern of the assessee. Vide reply to the first question it was
stated by Shri Rama Kishen Partner of M/s RKDNP that during
the year two companies i.e. the assessee and its sister concern
neither paid any price of rice no they issued any cheque and no
money was received or paid by cash or by cheque or by draft.
When the AO called upon the assessee to furnish details of
payment, if any, having been made to M/s RKDNP, the copy of
the account was filed by the assessee, which divulged that after
the opening balance the debit and credit entries were only in
respect of sale and purchase of rice and no payment whatsoever
had been shown to have been made or received. Even during the
original assessment proceedings assessee could not lead any
evidence as to whether the whether any payment was made
ITA No.90/2004 Page 8 of 18
towards advance or commission. Despite this factual position
learning CIT (A) entertained the submissions of the assessee that
it had actually made the payment to M/s RKDNP. When the
statement of Shri Rama Krishna partner of RKDNP is categoric
that no payment is made throughout the year by the assessee and
no further evidence was produced either before or the during the
original proceeding or in second round it is not known as to how
the Ld CIT (A) entertained the contention of the assessee with
regard payments. Rule 46A of the IT rules, 1962, clearly provides
that the assessee shall not be entitled to produce before the first
appellate authority any evidence, whether oral or documentary,
other than the evidence produced by him during the course of the
assessment proceedings. Few exceptions have been carved out
this rule, and we find that the case of the assessee does not fall in
any of them. In view of this fact we hold that the CIT (A) was not
entitled to consider any additional evidence during the course of
the first appellate proceedings. When the AO specifically
required the assessee to produce certain in evidence and despite
several opportunities granted by him there is no compliance on
behalf of the assessee and natural corollary that follows is that
the AO is entitled to draw adverse inference against assessee on
this aspect. Our view is fortified by the recent decision of the
Hon’ble Delhi High Court case of CIT v Motor General
Traders(2002 254 ITR 450) in which it was held so after taking
into consideration the provisions of Section 114 Evidence Act
1870. It is further noted that the Ld. AO had pointed out
infirmities with regard to the rate at which the transactions were
said to have been actually entered into by the assessee and the
rates prevailing on the dates, as quoted in the Financial Express.
It is beyond our comprehension as to when a particular item is
available in the market at a price of Rs. 100/-why a any prudent
businessman would go to purchase the same item at Rs.120 and
the same manner when an item is available in the market and Rs.
100/-why should a businessman then sell the same for Rs. 80 or
Rs. 90. This is what has been shown to have actually happened in
the present case. Rice is a standard item easily tradable the
market. No specific circumstances were brought to the notice of
the authorities below showing as to why the assessee made costly
purchases and/or sold cheaper. It was contended before the first
appellate authority that the rates for basmati were even quoted in
the Hindustan Times on a number times during the relevant dates
ITA No.90/2004 Page 9 of 18
of sale which are different from the rates quoted by the Financial
Express and the assessee 's transactions were within those range.
The learned CIT (A) admitted this fact, while allowing relief by
clearly recording the relevant cuttings from the newspapers were
not furnished before him but he was inclined to agree with the
contention of the assessee with regard to the rates quoted in the
newspapers. We are at a loss to understand how the CIT (A)
could have admitted any such contention which was not
substantiated with any evidence disregarding the AO’s
observations which was on based on specific reports. It is further
noted, that the AO had held that no commission or advance was
paid by the assessee to RKDNP, whereas the CIT (A) held that it
was duly shown in the account and the findings of the AO were
incorrect. From the perusal of the assessment order will find
what the AO had stated in his order is the factum of non-payment
of any advance of commission by the assessee to M/s RKDN
Pand not the fact that no commission was shown to have become
due to them. It becomes more apparent from the assessment
order and the statement of Shri Ram Krishna recorded by the AO
in which it was stated in reply to the last question whether total
commission on by the assessee to M/s RKDNP was Rs. 3.77 lakhs
out of which a sum of Rs. 3.50 lakhs was obtained from the
assessee and its sister concern. It is further noted that the
opening and closing balance of M/s RKDNP in the books of the
assessee was exceeding Rs. 55 lakhs on which no interest was
charged by them. Even if we go by the ordinary rate of interest
charged by the bank at the rate of 15% on the advances made by
them to the borrowers the cost on account of interest along
comes to Rs. 8.25 lakhs (on Rs. 55 lakhs) whereas M/s RKDNP
had shown to have commission of ₹ 3.5 Lacs only from the
assessee and its sister concern. It is not understandable as to
how any businessmen can survive with this kind of practice. That
apart, it is very difficult to believe that any commission agent
would enter into transactions of crores on behalf of the customer
without receiving any advance at all. The above discussion
shows the fact of the actual purchases having been made by M/s
RKDNP on behalf of the assessee stands falsified with the
enquiry made by the AO and the further fact that even the
movement of goods and payment of transportation cost could not
be established beyond any iota of doubt. Once it is proved that
the purchases were not genuinely made further consequences of
ITA No.90/2004 Page 10 of 18
the transactions itself stands disproved because the cycle of trade
begins with the purchase and ends with the sale. If the beginning
itself stands disproved the further transactions cannot be
conceived to be genuine. The factual position showing the in
genuineness of the transactions has been clearly proved by the
AO and the tribunal cannot act as a mute spectator by simply
relying on the observations made by the first appellate authority,
which does not have any legs to stand on. When genuineness of
the entire transactions is visible to the naked we cannot resist
ourselves overturning the decision of the CIT (A). All the above
noted facts clearly leads to the conclusion that the transactions
of purchase and sale, which resulted in the loss of Rs. 86.11
lakhs were sham, motivated and reducing the income of the
assessee.”
12. Before parting with this appeal, we could like to deal with
certain other issues raised by the assessee's counsel. The first
contention in this regard was that the Id. AO had not allowed
opportunity to the assessee to cross examine the parties whose
statements were recorded and were used against the assessee.
On a specific query raised from the Bench it was stated that the
assessee did ask for cross examination of the parties. Reliance
was placed on the letter dated 18.3.1992 placed at pages 197
and198 of the paper book. We have pursued the orders of the
authorities below and this letter as well. It is seen that the
grievance of the assessee even before the tribunal at the first
round of proceedings was that the material used against the
assessee was not supplied to it for rebuttal. It is obvious from the
assessment order in the second round that the assessee made
inspection of the file and also obtained photocopies of all
relevant documents which are listed as item nos. 1 to 11 on page
11 of the assessment order. After going through the aforesaid
letter dated 18.3.92 in entirety we could not find even a single
work requesting the AO to allow cross examination of the
th
concerned parties. Even the 4 line of page 15 of the assessment
order clearly reveals that the consequence of the enquiries were
confronted to the assessee and the photocopies were copies given
on 24.8.94. This shows that the assessee was not interested at
any stage to make cross examination of the parties. It is too late
in the day to come out with such a contention, after the gap of
around 15 years from the relevant time.
ITA No.90/2004 Page 11 of 18
13. The next alternate contention raised by the assessee's counsel
was that in the absence of any purchase and sale of rice it should
be treated as speculative transactions and the profits should be
adjusted against the speculation loss of the other two sets of
transactions. Having considered this contention we find that the
same is without any merit for the clear reason that the
speculative transaction pre-supposes its genuineness. When a
transaction is held to be bogus, there is no point in holding it
speculative or otherwise.
14. Another contention raised on belief of the assessee was that
since the AO has applied the provisions of sec. 145, it was
therefore not permissible to assess the profit in respect of the
other two transactions offered by the assessee itself. On the
perusal of the assessment order it is found that the AO found
specific detects with regard to these sets of transaction leaving
the other part of accounts undisturbed. What the AO has
disregarded is only two sets of transactions in which there was a
loss. The provisions of sec. 145 (1) were applied only with
respect to those two sets transactions and after detailed
verification it was held that those two sets of transactions were
bogus. The reliability of the books of accounts for the other two
sets of transactions which resulted into profit was not disputed by
the AO. Naturally the assessee can't have dispute about the other
two sets of transactions which resulted into profit for the
palpable reason that income was voluntarily offered by the
assessee and there was no reason for the AO to ignore the same.
In view of the factual and legal position discussed above, we are
of the considered opinion that the Id. CIT(A) was not justified in
deleting the addition of Rs. 86.11 lakhs which was rightly made
by the AO on appreciation of the entire factual position. We
therefore reverse his finding and sustain the addition.
11. The appellant’s counsel, Ms. Shashi Kapila, argues that the CIT (A)
acted within its jurisdiction, in considering the additional documents in
question. She urged that the CIT(A) obtained a copy of the account of the
assessee in the books of the commission agent RKDNP for preceding &
subsequent years. He noted that in the period from 1.7.86 to 30.6.87
preceding the relevant assessment year 1988-89, the assessee had done
ITA No.90/2004 Page 12 of 18
extensive trading in rice through the same broker. Thereafter there were
purchase and sale in the subsequent year as well. The accounts revealed that
all purchases and sales were being adjusted inter se by the agent, and there
was an actual payment of ` 8.25 lacs on 27.8.87 by cheque. The commission
agent would credit the account of the appellant with the sale proceeds less
their commission and debit the account with purchases plus commission.
Ultimately, the net outstanding balance was paid by the assessee to the
commission agent through twelve cheques between 22-10-1990 and 29-01-
1991. These clarified that the assessee was a trusted client of the
commission agent. If the AO thought that transactions were false on this
ground the A.O should have cross examined both, the commission agent
and the petitioner, to draw any possible adverse inference. This was not
done by the AO.
12. Learned counsel also argued that the CIT(A) noted that the
transactions have been accepted by the revenue in the earlier assessment
year under Section 143(3). For the subsequent year the return had been
accepted u/s 143(1) and there is no indication that the case has been
selected for scrutiny. All payments had been much later than the dates of
transactions.
13. Learned counsel submitted that the decision in Commissioner of
Income Tax UP v. Kanpur Coal Syndicate [53 ITR 225 (SC)] of the
Supreme Court has held that :
"The Appellate Assistant Commissioner has plenary powers in
disposing of an appeal. The scope of his powers is conterminous
with that of the Income-tax Officer. He can do what the Income-
tax Officer can do and can also direct him to do what he has
failed to do. "
14. Reliance was also placed on Smt Mohindar Kaur v Central
Government (1976) (104 ITR 120). It was argued that the Court analyzed
ITA No.90/2004 Page 13 of 18
the provisions of section 250(4) and section250(5) of the Act and observed
that no part of Rule46A whittles down or impairs the power of CIT( A) to
make further inquiry, conferred upon the first appellate authority by section
250(4). Similarly, section 250(5) confers powers upon CIT(A) to permit the
appellant to raise a fresh point which has not been even touched by
Rule 46A.
15. Ms. Kapila urges that the Courts have also held that clarificatory
nature of materials is not additional evidence. This issue arose before the
Karnataka High Court in Sri Shankar Khandasari Sugar Mills vs.
Commissioner of Income Tax (1992) 193ITR 669. Before the CIT(A), the
assessee produced sales tax assessment order for the first time who refused
to look into the same on the pretext of additional evidence. Holding the
action of the CIT(A) to be unjustified, the court observed-
"The appellate authority should have accepted the material
produced by the assessee as clarificatory in nature and
considered the same to test the fairness and propriety of the
estimate of income made by the Income-tax Officer. Though it
was belated production of very relevant material, no prejudice
(in its legal sense) would have resulted to the Revenue by
considering the material produced by the assessee. In the
absence of any prejudice to the Revenue, and the basis of the tax
under the Act being to levy tax, as far as possible, on the real
income, the approach should be liberal in applying the
procedural provisions of the Act. An appeal is but a continuation
of the original proceeding and what the Income-tax Officer could
have done, the appellate authority also could do. "
16. Counsel argued that Section 250(4) gives wide discretion to the
CIT(A) to make such further inquiry as he thinks fit or to direct the AO. to
make further inquiry and report the result to him. Rule 46A( 4) enshrines
the power when providing that nothing contained in Rule 46A affect the
CIT(A)'s power to direct the production of any document or the
ITA No.90/2004 Page 14 of 18
examination of any witness to enable him to dispose of the appeal. Even
Circular no.108 dated 20.3.1973 explaining the amendment pertaining to
introduction of Rule 46A echoes the same view.
17. It is argued that the additional evidence produced before the CIT(A)
pursuant to his direction stand on a different footing than the new evidences
produced before him by the assessee. In the former case, the restriction
contained in sub-clause (1) of Rule 46A shall not be applicable and there
shall not be any necessity on the part of the CIT(A) to get them subjected to
scrutiny by the AO. Counsel also relied on the Bombay High Court decision
in Smt. Prabhavati Shah 's (1998) 231 ITR 1 which explained the
provisions relating to admission of new evidence before the CIT( A) under
Rule 46A of the Income tax Rules 1962. The Court held that
“It does not deal with the powers of the Appellate Assistant
Commissioner to make further enquiry or to direct the Income-
tax officer to make further enquiry and to report the result of the
same to him. This position has been made clear by sub-rule (4)
which specifically provides that the restrictions placed on the
production of additional evidence by the appellant would not
affect the powers of the Appellate Assistant Commissioner to call
for the production of any document or the examination of any
witness to enable him to dispose of the appeal. Under subsection
(4) of section 250 of the Act, the Appellate Assistant
Commissioner is empowered to make such further inquiry as he
thinks fit or to direct the Income Tax Officer to make further
inquiry and to report the result of the same to him. Sub-section
(5) of section 250 of the Act empowers the Appellate Assistant
Commissioner to allow the appellant, at the hearing of the
appeal, to go into any ground of appeal not specified in the
grounds of appeal, on his being satisfied that the omission of the
ground from the form of appeal was not willful. It is clear from
the above provisions that the powers of the Appellate Assistant
Commissioner are much wider than the powers of an ordinary
court of appeal. The scope of his powers is coterminous with that
of the Income-tax Officer. He can do what the Income-tax Officer
can do. He can also direct the Income-tax Officer to do what he
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failed to do. The power conferred on the Appellate Assistant
Commissioner under sub-section (4) of section 250 being a
quasi-judicial power, it is incumbent on him to exercise the same
if the facts and circumstances justify.”
18. What can be seen from the above factual discussion is that the
original assessment was affirmed, in the first instance, by the CIT (A).
However, the ITAT remitted the matter for reconsideration after granting
appropriate hearing to the assessee. This time, the AO listed out several
queries; they were either not answered at all, or answered inadequately. The
AO therefore, proceeded to analyze the record. More importantly, in the
remanded assessment proceedings, the AO made inquiries into the amounts
said to have been payable to the commission agents, the other commercial
entities with which the assessee reported transactions and also looked into
the rates of rice procured and sold. The CIT (A), in the second round, set
aside those findings. There were two premises for the appellate order: first,
that the CIT (A) differed from the AO with regard to appreciation of
evidence: it was held, in the appellate order, that some discrepancies with
respect to the supplier’s books and the statements by them could not result
in such an adverse finding as to reject the assessee’s claims as bogus, and
two, that the previous years’ assessments had showed a consistent pattern
with regard to the Revenue’s behavior, accepting the assessee’s claims
regarding the same suppliers and agents.
19. This court is of the opinion that the ITAT’s reasoning is not entirely
based on the consideration of the fresh evidence under Rule 46-A. It is
based on its independent analysis and appreciation of the evidence on
record. The assessee’s counsel is correct in contending that the powers of
the CIT (A) are wide under Section 250 of the Act; that the authority can
adduce fresh findings.
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20. A close scrutiny of the ITAT’s findings – impugned in this case,
would reveal that the tribunal took note of the assessee’s lapses in replying
to the AO’s specific queries. It then considered the materials on record, in
the form of statements made on behalf of M/s RKDNP with regard to what
was actually paid. The other findings regarding improbability of such huge
amounts remaining outstanding, no interest payable to the commission
agent were to bolster the finding that the transactions reported were not
credible. Furthermore, the AO went to great lengths to find out whether and
if any genuine transactions were entered into by its suppliers; the CIT (A)
brushed aside those findings based on a solitary instance of export: of rice
by another party. However, the findings with respect to the seven supplies
and those involved in it- and the statements recorded of representatives of
those entities, were a matter of record.
21. In the opinion of this court, at the end of the day, what the ITAT did
was to analyze the CIT (A)’s findings. That it was entitled to do, clearly.
And while doing so, it frowned upon the CIT (A)’s order to the extent it
considered fresh material. However, those observations by no means are the
only basis for upsetting the Appellate Commissioner’s order; rather they are
only asides, so to speak. If those observations are ignored, what is apparent
is that the ITAT’s findings are based on an independent analysis of the
AO’s reasoning. What the CIT (A) clearly could not have done was to
prefer the past orders to ignore the detailed inquiry and the facts found by
the AO. While no doubt, the CIT (A) also drew inferences, and did not rest
his order on the fresh material he considered, that clearly was colored by the
previous orders of the revenue in relation to the assessee.
22. Upon an overall analysis of the facts, this court is of opinion that
while the CIT (A) could have considered the previous orders (of the
revenue relating to past assessments) they could not have been the main
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bases for reversing the AO’s order. The ITAT’s impugned order, it is
noticeable, is not based on the so called infirmity attached to the CIT (A)’s
order; it is based on its own overall analysis of the evidence. Those are
clearly findings of fact, which do not indicate any unreasonableness or other
infirmity, calling for interference.
23. In light of the foregoing discussion, the question framed is answered
against the appellant assessee and in favour of the revenue. The appeal is
therefore, dismissed without order on costs.
S. RAVINDRA BHAT
(JUDGE)
A.K.CHAWLA
(JUDGE)
NOVEMBER 26, 2018
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