Commissioner of Income Tax vs Subbu Shashank

M.M. Sundresh, J.—The Revenue has come up on appeal challenging the order of the Tribunal whereby the order of the Commissioner of

Income (Appeals) was set aside and the matter was remitted back to the assessing authority with a direction to the assessee to produce the details

of the repayment of loan to substantiate his claim loan by raising the following substantial questions of law:

(1) Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in not holding that the Commissioner of

Income Tax (Appeals) was not correct, in admitting the additional evidence without recording satisfaction to the effect that the assessee was

prevented by sufficient cause from producing the evidence at the assessment stage?

(2) Without prejudice to the preceding question, whether the Income Tax Appellate Tribunal was right in not observing that the Commissioner of

Income Tax (Appeals) has acted upon the additional evidence without giving an opportunity to the Assessing Officer to verify such evidence, as

mandated by Rule 46A of the Income Tax Rules?

(3) Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in not restoring the entire issue of the

genuineness of the loans to the Assessing Officer for fresh examination, rather than remitting the matter or verification of repayment of loans only?

The facts in brief are as follows:

The assessee is a renowned flute artiste. The assessee filed his return for the year 2004-05 claiming residential status as non-resident. The

Deputy Commissioner of Income Tax noticed that the residential status as a ""nonresident"" claimed by the assessee was not correct and completed

the assessment u/s 144 of the Income Tax Act as best judgment assessment by treating the status of the assessee as resident. The Assessing

Officer also initiated proceedings u/s 147 of the Income Tax Act by issuing notice u/s 148 of the Income Tax Act for the assessment year 2004-

The Assessing Officer calculated the number of days of stay of the assessee for the assessment year 2004-05 as 192 days and held that the

assessee is the resident of India as per the provisions of Section 6(1) of the Income Tax Act. Aggrieved by the order of the Assessing Officer, the

assessee filed an appeal before the Commissioner of Income Tax (Appeals). Before the Commissioner of Income Tax (Appeals), the assessee

filed documentary evidence and produced two witnesses. The assessee also produced the statement obtained from one another person by name

M. J. Narasimha. The Commissioner of Income Tax (Appeals) after considering the evidence of the witnesses by name Ram Sethuraman and Ram

Ganesan, who have stated that they have given loan as well as the letter of confirmation given by Mr. M. J. Narasimha, has allowed the appeal.

The Revenue filed a further appeal to the Tribunal contending that the provisions contained in Rule 46A of the Income Tax Rules has teen

violated inasmuch as the Assessing Officer has not been given an opportunity to cross-examine the witnesses produced by the assessee. The

Tribunal after accepting the contention of the assessee that the witnesses cannot be produced, has remanded the matter to the Assessing Officer

for fresh consideration to consider the materials produced on records to substantiate the case of the assessee for repayment of loan. Challenging

the said findings of the Tribunal, which after holding that Rule 46A of the Income Tax Rules has been violated none the less, inasmuch as the

assessee is not able to produce the witnesses, no cross-examination is necessary, directed the assessee to produce the details of repayment of loan

to substantiate his claim of loan, by raising the abovementioned substantial questions of law.

We have heard Mr. K. Subramanian, learned senior standing counsel appearing for the Revenue and Mr. V. Jeyakumar appearing for the

assessee.

We find substantial force in the arguments of the learned senior standing counsel appearing for the Revenue. Rule 46A of the Income Tax Rules

clearly stipulates that the Commissioner of Income Tax (Appeals) for the reasons to be recorded, can admit the evidence produced by the

assessee in the appeal. However, a perusal of Rule 46A(3) clearly shows that the Commissioner of Income Tax (Appeals) cannot take into

account any evidence produced under Sub-rule (1), unless the Assessing Officer has been allowed a reasonable opportunity to cross-examine the

witnesses produced by the assessee. Therefore, the evidence produced by the assessee under Rule 46A(1) cannot be considered on the merits

unless the Assessing Officer is given an opportunity to cross-examine the witnesses. Admittedly, in the present case on hand, the Assessing Officer

has not been given an opportunity to cross-examine the witnesses produced by the assessee. That is the reason why the Tribunal has observed that

Rule 46A of the Income Tax Rules has been violated.

Once the Tribunal has come to the conclusion that Rule 46A has been violated inasmuch as the Commissioner of Income Tax (Appeals) has not

given an opportunity to the Assessing Officer to cross-examine the witnesses produced by the assessee then the directions issued thereafter stating

that as the assessee is not in a position to produce the witnesses, the same cannot be insisted so as to enable the Assessing Officer to cross-

examine them cannot be sustained. As observed earlier, Rule 46A merely provides an opportunity to the assessee to produce documentary

evidence or the 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 Assessing Officer.

When the assessee was not able to produce the said evidence or the witnesses before the Assessing Officer, the Commissioner of Income Tax

(Appeals) has to convince himself about the reasonable cause shown by the assessee for not producing them before the Assessing Officer and for

placing them before the appellate authority for the first time.

In a case where the Commissioner of Income Tax (Appeals) is convinced about the reasonable cause, then he has to follow the procedure

contemplated u/s 46A(3) by providing sufficient opportunity to the Assessing Officer to examine the evidence or document or to cross-examine the

witnesses, as the case may be. It is a well settled principle of law that an evidence of a party cannot be relied upon unless an opportunity is given to

cross-examine him. Therefore, we are of the opinion that inasmuch as Rule 46A(3) of the Income Tax Rules. has not been complied with by the

assessee, the order of the Tribunal by dispensing with the cross examination of the witnesses produced by the assessee cannot be sustained and

therefore, the same is set aside

The assessee is directed to produce the witnesses before the Assessing Officer and the Assessing Officer is permitted to cross-examine the

witnesses, who can depose in favour of the assessee. Mr. V. S. Jeyakumar, learned Counsel appearing for the assessee submitted that time may

be given to the assessee for the production of the witnesses till the end of December, 2010.

Considering the fact that the witnesses are residing abroad, the assessee is given a period of four months from the date of receipt of a copy of

this order to produce the witnesses in support of his contention before the Assessing Officer. The Assessing Officer is directed to pass appropriate

assessment order within a period of two months thereafter. The substantial questions of law raised in this appeal are answered in favour of the

Revenue and the appeal is allowed. No costs.

We make it clear that the order passed will not stand in the way of the Assessing Officer to comply with the other direction of the Tribunal in

so far as in consideration of the materials produced by the assessee is concerned.