M/S. SKH Management Services Limited vs Deputy Commissioner Of Income Tax

The captioned appeal has been filed by the Assessee against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre [‘CIT(A)’ in short] dated 22.11.2021 arising from the assessment order dated 16.12.2019 passed by the Assessing Officer (AO) under Section 143(3) of the Income Tax Act, 1961 (the Act) concerning AY 2016-17.

The grounds of appeal raised by the assessee read as under:

“That on the facts and circumstances of the case and in law, the Learned CIT (Appeals) has erred while not accepting Additional Evidences filed by the appellant during the appellant proceedings on the ground that in the Form 35 the appellant had mentioned “No” in Column 12 which requires details of additional documents to be submitted without considering the fact that proper opportunity of being heard was not afforded during assessment proceedings and request to admit additional evidences can be raised at any point of time during appellate proceedings.

That on the facts and circumstances of the case and in law, the Learned CIT (Appeals) has erred while confirming the addition of Rs.7,00,00,000/- made by the Ld. AO under section 68 of the Act and had rejected additional evidences filed by the appellant on the aground that in the Form No. 35, the appellant had mentioned “No” in Column 12 which requires details of additional documents to be submitted at the time of filing appeal to CIT (Appeals).”

When the matter was called for hearing, the ld. counsel for the assessee submitted at the outset that substantial additions were made under Section 68 of the Act without giving any reasonable opportunity to the assessee to adduce the evidences to support the loan obtained by the assessee in this regard. It was pointed out that the assessee was asked to furnish the evidences vide notice dated 09.12.2019 and compliance thereof vide 11.12.2019. Since the notice period was very short, the assessee sought adjournment to fulfill the requirement of the notice. However, the Assessing Officer did not give any further opportunity and passed the assessment on 16.12.2019 arbitrarily in a hurriedly manner and in gross infringement of principles of natural justice.

3.1 The Ld. counsel further submitted that these facts were brought to the notice of the CIT(A) and the documents to support the bona fides of loan were filed by way of additional evidence before the CIT(A) a copy of which has been placed on record. The ld. counsel next submitted that despite the clear circumstances existing in the instant case for admission of the additional evidences owing to denial of any reasonable opportunity, the CIT(A) has declined to admit the additional evidence for the reasons stated in paragraph 4.3 of the appellate order. The ld. counsel submitted that the action of the CIT(A) in not admitting the additional evidence is in gross contravention of the statutory discretion provided to the CIT(A) under Section 250(4) of the Act and also in gross infringement of Rule 46A of the Income Tax Rules. The ld. counsel thus fairly submitted that the matter requires to be restored to the file of the CIT(A) or the Assessing Officer for admission of evidences and examination thereof as may be considered necessary in this regard.

The ld. DR for the Revenue on the other hand relied upon the action of the CIT(A).

We have carefully considered the rival submissions and perused the material placed on record. As pointed out on behalf of the assessee, it is self evident that no effective opportunity has been given to the assessee to comply with the requirements of show cause notice dated 11.12.2019. The assessment order was eventually passed hurriedly in less than 7 days. Thus, there is substantial merit in the plea of the assessee towards denial of reasonable opportunity leading to miscarriage of natural justice. Strangely, the CIT(A) has ignored such self evident violation of natural justice committed by the Assessing Officer. The CIT(A) has rather given precedence to shallow technicalities and that too, has trappings of misunderstanding on the position stated by the assessee. According to CIT(A), as per the column no.12 of the appeal memo, the assessee has declared that it had not filed any additional evidence. The CIT(A) has failed to appreciate that such declaration in the appeal memo has an all together different object, i.e., to prevent the assessee from filing additional evidence without bringing such factum to the knowledge of the CIT(A). Such declaration in the appeal memo does not operate as an estoppel against the assessee and does not bar the assessee to file the additional evidence when the conditions of Rule 46A has not been exceeded by the Assessee. Needless to say, Rule 46A is founded upon the principles of natural justice. In the instant case, a gross case of infringement of such sacrosanct principles is manifest from the record. This notwithstanding, the powers conferred upon CIT(A) under Section 250(4) of the Act is of a very wide amplitude, whereby the Appellate Commissioner may collect such evidences as may be considered necessary for proper disposal of the appeal.

5.1 It is well settled that strict rules of evidence do not apply to income tax proceedings. While Rule 46A of the Income Tax Rules statutorily recognizes the admissibility of additional evidences by the First Appellate Authority in specified circumstances, the powers of CIT(A) to admit additional evidences are far wider in terms of Section 250(4) of the Act and are not fettered by limitation imposed under Rule 46A. The powers of CIT(A) conferred by Section 250(4) are not curtailed or disturbed by Rule 46A. In fact, Rule 46A(4) specifically lays down that its provisions shall not affect the powers of First Appellate Authority to call for the production of any document or the examination of any witness in order to enable him to dispose of the appeal before him or for any substantial cause including enhancement and imposition of penalty.

5.2 In the factual backdrop, the CIT(A) has unjustifiably denied to admit and to consider the evidences placed before him both on the touch stone of Rule 46A of the Income Tax Rules as well as appellate power conferred under Section 250(4) of the Act. The denial of opportunity to assessee at both stage, i.e., before Assessing Officer and CIT(A) has rendered the action of the Revenue Authorities bad in law.

5.3 We thus set aside the order of the CIT(A) and having regard to the factual matrix, the issue is restored to the file of the Assessing Officer for taking into account all evidences that may be placed before him and to make such inquiry and verification as may be considered necessary in respect of the impugned cash credit transactions in question. The assessee shall be at liberty to adduce such evidence as may be considered expedient to support its case on the subject matter of dispute. Needless to say, Assessing Officer shall provide reasonable opportunity to the assessee and pass speaking order in accordance with law on the subject matter in dispute.

In the result, the appeal of the assessee is allowed for statistical purposes.