Commissioner of Income Tax vs Essence Commodities Ltd.

They are heard. The controversy involved in these appeals are identical and they have been heard together analogously with the consent of the parties and are being disposed of by this common order.

By order dt. 26th Aug., 2014, notices were issued to the respondents. On 14th Oct., 2014, learned counsel for the respondent in all these appeals have filed their Vakalatnama on behalf of the respondent.

Learned senior counsel for the appellant submits that no sufficient and reasonable opportunity to the AO for admission and acceptance of additional evidence filed for the first time before the CIT(A) as required under the r. 46A of the IT Rules, 1962 have been granted. He submitted that the assessment order was passed on 29th Dec, 2010. Against the assessment order, the respondent assessee filed an appeal, before the CIT(A) under s. 246A(1)(b)(a) of IT Act, 1961 (in short IT Act''). For the first time on 9th Dec., 2011, the documents were sent to the AO for comments and remand report. On 16th Jan., 2012 AO vide application prayed for further time of more than one month to offer comments on the admissibility of the appellant''s additional evidence forwarded to his office. The appellate authority without granting any further time admitted the aforesaid documents and set aside the assessment made by the AO and allowed the appeal by order dt. 31st Jan., 2012. The order of the appellate authority has been affirmed by the Tribunal by impugned order dt. 23rd Aug., 2013. He submitted that all these appeals pertaining to the seven assessment years (asst. yrs. 2003-04 to 2009-10).

Now the question is whether CIT(A) granted reasonable opportunity to the AO as required under the sub-r. (3) of r. 46A of IT Rules, 1962. The learned senior counsel to substantiate his claim is raising the following substantial questions of law which arise in all the appeals:

"(i) Whether under the facts and circumstances of the case order allowing the application for additional evidence without according proper opportunity to (sic) submit its comments as required under r. 46A of the IT Rules is contrary to law.

(ii) Whether the explanation offered by Dy. CIT for not submitting the comments due to being busy in deciding limitation cases totaling 150 cases and further due to election duty assigned by Election Commission, tantamounted to sufficient cause for not submitting the report?"

For the sake of convenience the facts are borrowed from IT Appeal No. 6 of 2014.

Brief facts of the case are that search under s. 132 was carried out to the assessee''s premises on 2nd May, 2008. The respondent assessee is a broker in commodity exchange, it derives profit through transactions with various commodity exchanges such as Multi Commodity Exchanges of India Ltd. (MCX) and National Board of Trade (NBOT) on its own behalf and also on behalf of its client. It was found that clients name did not appear in the records of the exchange, and the entire trade through exchange was made in the name of assessee. The profit derived through such transactions, however, was apportioned between the assessee and the clients. The AO asked the assessee to prove the genuineness of the transactions recorded in their own books of accounts in the name of various clients and thereby the transfer of profits to them. After examining the issue the AO did not accept the assessee''s version and added the profit, which was transferred to various clients, to the total Income of the assessee.

The assessee challenged the aforesaid order of the AO by filing an appeal before the CIT(A).

During the proceedings, the assessee further collected information or IT return of some of the clients in support, but all its claim of all its clients were genuine and the profit passed on to them were also reflected by them in their IT return. It has been also submitted that inspite of their best efforts, they could not collect the ITRs of all its clients for the reasons that most of the persons are hesitant to provide such documents. The assessee made a request to admit all those documents as additional evidence under r. 46A of the Rules, 1962.

The applications of the assessee together with the additional evidences were sent to the AO by office letter dt. 18th July, 2011 and 8th Nov., 2011, respectively for his comments. In some of the cases, no comments have been received nor any written submissions on the admissibility of additional evidences under r. 46A was filed. In some of the cases, an application dt. 16th Jan., 2012 was filed by the Dy. CIT stating therein that the additional evidence, which was filed by the assessee along with the application could not be verified as the under signed has engaged in the limitation cases involving more than 150 block assessments. Moreover, taking into account the assessee''s voluminous submission forwarded to the office and also to the fact that Dy. CIT, who is looking to the matter on behalf of the Revenue has been assigned the duties of expenditure in the U.P. State Election in Ghaziabad Constituency by the Election Commission of India. It would be practically not feasible to offer comments on the aforesaid additional evidences immediately after the due verification of the same and requested time to offer comments on the admissibility of the assessee''s additional evidences.

In the application the assessee had taken a plea that during the assessment proceedings those confirmations ITRs could not receive from the concerned clients inspite of its repeated request and as such, the assessee was prevented by sufficient cause to furnish those documents before the AO. The learned CIT(A) found that these documents in the form of additional evidences were not in the possession of the assessee, rather they had to collect it from its client; assessee could collect these documents with lot of difficulties, but after completion of assessment. The learned CIT(A) agreed with the assessee''s plea that it was prevented by sufficient cause to furnish those documents to AO and accordingly admitted those documents as additional evidences, but refused to grant further time and decided the matter finally. In an appeal before the Tribunal the contention of the Revenue was that sufficient opportunity was not granted to the AO, to verify those additional documents. Relevant part of the reasoning assigned by the CIT(A) reads as under:

"42.3 During the appeal proceedings, detailed submissions have been made which have been reproduced in para 3 above. It has been pleaded that all the claims are genuine and funds were transferred between the assessee and those clients through banking channels only; and that merely on account of failure for having registered those clients in the record of NBOT, the income of those clients cannot be added to its income it is explained that assessee had also taken part in the speculative business through the order exchange namely, MCX and NCDX and in accordance with the rules and regulations of those exchanges, it had got its clients (those who had done trading through the assessee broker in MCX and NCDX) registered in those exchanges; and no adverse view was taken as regards to the profits transferred to those clients. The assessee also accepted that as per the rules and regulations of NBOT, it was required to get its clients registered in that exchange also, but this was not done so by and large by all the brokers because the exchange (NBOT) did not enforce the registration; and the result was that though the name of clients (for whom the assessee had transacted i.e. sauda was effected in NBOT) did appear in its books of accounts but the same was not recorded in NBOT records. For this reason, entire pay-in and pay-out in the NBOT was recorded in the name of the assessee only, whereas, the financial records of the assessee did reflect the corresponding transactions and the ledger accounts of all those clients. It was pleaded that brokerage was duly charged on such transactions. During the proceedings, nevertheless, the assessee further collected the confirmations and/or ITRs of some of the clients in support of its claim that all its clients were genuine and the profit passed on to them were also reflected by them in their ITRs. It has been also submitted that inspite of their best effort, they could not collect the ITRs of all its clients for the reasons that most of the persons are hesitant to prove such documents. The assessee made a request to admit all those documents as additional evidence under r. 46A. The application of the assessee together with the enclosures (additional evidences) in this regard was sent to the AO vide this office letter dt. 18th July, 2011 and 8th Nov., 2011 for his comments. A copy of the written submissions was separately sent to the AO vide this office letter dt. 18th July, 2011 for his comments. However so far no comments has been received either on the written submission or on the issue of admissibility of additional evidences under r. 46A. In its application, the assessee had taken plea that during the assessment proceedings, those confirmations, ITRs could not be received from the concerned clients inspite of its repeated request and as such the assessee was prevented by sufficient cause to furnish those documents before the AO. I have considered the application so made by the assessee for admission of additional evidences. I find that these documents in the form of additional evidences were not in the possession of the assessee, rather they had to collect it from its clients; the assessee could collect these documents with lot of difficulty but after the completion of assessment. In view thereof, I agree with the assessee''s plea that it was prevented by sufficient cause to furnish those documents before the AO. Accordingly, I admit these documents as additional evidences."

The learned Tribunal affirmed the aforesaid reasoning and stated sufficient opportunity was granted to the AO and observed that the learned CIT(A) was not expected to wait for indefinite period and upheld the finding of the CIT(A).

Learned senior counsel for the appellants submits that r. 46A casts an obligation to the appellate authority to grant a proper and sufficient opportunity to the AO to examine the admissibility of the additional evidences. He further submits that r. 46A prescribes a mandatory condition to be religiously followed and report from the AO with regard to admissibility and merit of additional evidence is must. He placed reliance on the decision of the Commissioner of Income Tax Vs. Subbu Shashank, and submitted that impugned orders be set aside and matter be remitted to the CIT(A) with a direction to grant reasonable opportunity to verify the additional evidences and submit a report and thereafter, decide the appeal on merit.

On the other hand, Shri Veer Kumar Jain and Shri Sumit Nima, learned counsel for the respondents drew our attention to the findings recorded by the CIT(A) as well as by the learned Tribunal and submitted that before admitting the additional evidences, the CIT(A) had obtained a remand report from the AO. The AO inspite of sufficient opportunities granted to him failed to submit the same. They further submit that r. 46A of the Rules permits the CIT(A) to admit the additional evidences, if he finds that the same is crucial for disposal of the appeal. The learned CIT(A) after considering the application gave a finding that the additional evidence is crucial for disposal of the appeal and therefore, allowed the application and decided the appeal on merits. With the aforesaid, they prayed for dismissal of the appeal.

Rule 46A of the IT Rules of 1962 is relevant which reads as under:

"Rule 46A. Production of additional evidence before the Dy. CIT(A) and CIT(A).--(1) The appellant shall not be entitled to produce before the Dy. CIT(A) or, as the case may be, the CIT(A) 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 AO 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 AO: or

(c) where the appellant was prevented by sufficient cause from producing before the AO any evidence which is relevant to any ground of appeal; or

(d) where the AO 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-r. (1) unless the Dy. CIT(A) or, as the case may be, the CIT(A) records in writing the reasons for its admission.

(3) The Dy. CIT(A) or as the case may be, the CIT(A) shall not take into account any evidence produced under sub-r. (1) unless the AO 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 Dy. CIT(A), or, as the case may be, the CIT(A) 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 AO under cl. (a) of sub-s. (1) of s. 251 or the imposition of penalty under s. 271."

As per sub-r. (1) of r. of 46A, the appellant shall not be entitled to produce any evidence except where the AO has refused the additional evidence, which ought to have been admitted or where the appellant was prevented by sufficient cause from producing evidence which he was called upon to produce by the AO. It is not the case of the assessee that he was prevented by the sufficient cause from producing the additional evidence before the AO. As per sub-r. (2) of r. 46A, no evidence shall be admitted unless reasons in writing is recorded for its admission. As per sub-r. (3) unless the AO has been allowed a reasonable opportunity to examine the evidence or documents, the appellate authority shall not take into account any evidence produced before him under sub-r. (1).

Rule 46A merely provides an opportunity to the assessee to produce documentary evidence or witnesses, as the case may be. In other words, a duty is cast upon the assessee to produce all evidence both oral and documentary before the AO.

When the assessee was not able to produce the said evidence or witnesses before the AO, the CIT(A) has to convince himself about the reasonable cause shown by the assessee for not producing them before the AO and for placing it before the appellate authority for the first time.

In the case where the CIT(A) is convinced about reasonable cause then, he has to follow a procedure contemplated under r. 46A(3) by providing sufficient opportunity to the AO to examine the evidence or document or to cross-examine the witnesses, as the case may be.

The CIT(A) should not ordinarily allow the new evidence to be adduced in order to enable the party to raise a new point in appeal. Similarly, where a party on whom the onus of proving a certain point lies fails to discharge the onus, he is not entitled to a fresh opportunity to produce evidence, as the Court can, in such a case, pronounce judgment against him and does not require any additional evidence to enable it.

It is not in dispute that additional evidence filed by the assessee could not be verified by the AO because, he was engaged in the time bound matters involving more than 140 block assessments and also to the fact that he had been assigned the duties of expenditure in the U.P. State Election in Ghaziabad Constituency by the Election Commission of India and, therefore, it was practically impossible for him to offer the comments on the aforesaid additional evidence and, therefore, he sought one month further time for due verification of the same. The aforesaid facts are not disputed by the learned authorities nor by the assessees.

The decision of Delhi High Court cited by the learned counsel for the respondent in the case of Commissioner of Income Tax Vs. Virgin Securities and Credits Pvt. Ltd., will not be applicable in the present facts and circumstances of the case, because in the case of Virgin Securities & Credits (P) Ltd. (supra) the CIT(A) had obtained a remand report from the AO. The AO while submitting his report has not objected to the admission of the additional evidence but had merely reiterated contentions in the assessment orders.

In the case in hand, the reasons assigned by the AO for asking for further time to verify the documents filed by the assessee was bona fide as he was on election duty and number of cases of assessment in which limitation was going to expire was pending and, therefore, AO was busy and thus, the reason assigned by him for asking more time was sufficient. He was prevented by sufficient cause from submitting the report. The learned CIT(A) as well as learned Tribunal have not been able to consider these relevant facts in their correct perspective before passing the impugned order. The discretion exercised by the CIT(A) while refusing to grant further time to admit the additional evidence has not been based on sound judicial principles. The assessing authority had given satisfactory explanation and sufficient cause for not verifying the additional evidence filed before the appellate authority. The authorities ought to have granted some reasonable time to the AO to verify the additional evidence.

On due consideration of the aforesaid, we are of the view that learned CIT(A) as well as learned Tribunal erred in proceeding with the matter and admitting the additional evidence filed by the assessee without granting further time to verify the same and submit a report. Thus, we set aside the impugned orders dt. 23rd Aug., 2013, 29th July, 2013, 23rd Aug., 2013 passed by the Tribunal, by answering the question of law in favour of the appellant/Department and remit the matter back to the learned CIT(A) with a direction that sufficient time be granted to the Department to verify the documents and rebut that evidence and thereafter decide the controversy afresh in accordance with law, as early as possible, and endeavour shall be made to conclude it within a period of six months from the date of receipt of certified copy of the order.

The substantial questions of law raised in all these batch of appeals are answered in favour of the Revenue and all the appeals are allowed.

We make it clear that the order passed will not stand in the way of the ClT(A)/AO to comply with the other direction of the Tribunal insofar as in consideration of the materials produced by the assessee is concerned. In the result, IT Appeal No. 6 of 2014 and other connected appeals (IT Appeal Nos. 7 of 2014. 8 of 2014, 9 of 2014, 10 of 2014, 11 of 2014, 12 of 2014, 13 of 2014, 14 of 2014, 15 of 2014, 16 of 2014, 17 of 2014, 18 of 2014 and 19 of 2014) are allowed on the same terms. No costs.