1998 (2) TMI 107 - HC - Income Tax

Rule 46A limits fresh evidence, but s.250(4)-(5) allows AAC to admit it; Rs.40,000 loan evidence must be reconsidered

HC held rule 46A restricts an appellant from adducing fresh evidence except as provided, but Appellate Assistant Commissioner (AAC) under s.250(4)-(5) has ... Scope and ambit of rule 46A - Capital Asset - Capital Gains - Equity Shares - Investment Company - Whether the Tribunal was justified in upholding the view taken by the Appellate Assistant Commissioner of Income-tax that under rule 46A(1), (2), (3), the evidence produced before him could not be admitted on the records? - HELD THAT:- On a plain reading of rule 46A, it is clear that this rule is intended to put fetters on the right of the appellant to produce before the Appellate Assistant Commissioner any evidence, whether oral or documentary, other than the evidence produced by him during the course of the proceedings before the Income-tax Officer, except in the circumstances set out therein. 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 sub-section (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 wilful. 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 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. If the Appellate Assistant Commissioner fails to exercise his discretion judicially, and arbitrarily refuses to make enquiry in a case where the facts and circumstances so demand, his action would be open for correction by a higher authority. In the instant case, the Income-tax Officer treated the amount of two loans as income of the assessee from undisclosed sources because the summons issued by him could not be served on the creditors. At the time of hearing of the appeal against the above order before the Appellate Assistant Commissioner, the assessee wanted to prove the genuineness of the loan of Rs. 40,000 from one of the borrowers, viz., Champaklal Dalpatrai by relying upon the fact that the amount had been received by the assessee by cheque and repaid by cheque. In support of this contention, the assessee wanted to produce photostat copies of the cheques, a certificate from the bank to show that a sum of Rs. 40,000 was received by the assessee from Champaklal Dalpatrai by cheque and a copy of the account of the assessee with the said bank. Prima facie, this information was necessary to decide the controversy in regard to the genuineness of the loan of Rs. 40,000 taken by the assessee from Champaklal Dalpatrai. The Appellate Assistant Commissioner should have considered this evidence in exercise of his powers under sub-sections (4) and (5) of section 250 of the Act which he failed to do. In our opinion, it is a fit case where the Appellate Assistant Commissioner should have exercised the powers conferred upon him under sub-section (4) of section 250 of the Act and taken on record the xerox copies of the cheque, the certificate from the bank and the copy of the account of the assessee with the said bank and considered the same for deciding the genuineness of the loan of Rs. 40,000. The Appellate Assistant Commissioner, in our view, was not correct in holding that the case of the assessee did not fall in any of the four exceptions set out in sub-rule (1) of rule 46A. In fact, the present case would fall under clause (c) of sub-rule (1) of rule 46A because the assessee had no occasion to collect this evidence earlier. He could have reasonably expected that the creditors will appear before the Income-tax Officer in compliance with the summons issued by him. He was never informed by the Income-tax Officer that the creditors were not available or unidentifiable. If he had been informed by the Income-tax Officer in the course of assessment proceedings that he was not inclined to accept the loans as genuine because of the non-availability of the creditors, he could have tried to satisfy him about the genuineness of the loan by producing other evidence. At the time of hearing of the appeal, the appellant tried to satisfy the Appellate Assistant Commissioner about the genuineness of one of the loans by producing material which he could collect in the meantime. This case, therefore, will fall under clause (c) of sub-rule (1) of rule 46A of the Rules. In any view of the matter, we are of the opinion that in the instant case, the Appellate Assistant Commissioner should have considered the evidence produced by the assessee in regard to the loan of Rs. 40,000 from Champaklal Dalpatrai. In view of the above, we answer question No. 3 in the negative and in favour of the assessee. In view of the above answer to question No. 3, questions Nos. 1 and 2 need not be answered. So far as question No. 4 is concerned, we are of the opinion that the question referred to us is not a question of law. We, therefore, decline to answer the same. We, however, make it clear that so far as the addition of Rs. 40,000 being loan from Champaklal Dalpatrai is concerned, the same may be examined afresh in the light of the evidence produced by the assessee. Issues Involved:1. Whether rule 46A applied to the present case.2. Whether the Tribunal was justified in upholding the view that evidence produced before the Appellate Assistant Commissioner could not be admitted under rule 46A.3. Whether the Tribunal was justified in sustaining the addition of Rs. 1,43,520 as income from undisclosed sources.Summary:Issue 1: Applicability of Rule 46AThe Tribunal did not decide on the applicability of rule 46A. The High Court noted that rule 46A is intended to restrict the appellant from producing new evidence before the Appellate Assistant Commissioner unless specific conditions are met. However, it does not limit the powers of the Appellate Assistant Commissioner to call for additional evidence or make further inquiries as per sub-section (4) of section 250 of the Income-tax Act, 1961.Issue 2: Justification for Not Admitting EvidenceThe Tribunal upheld the Appellate Assistant Commissioner's decision not to admit additional evidence under rule 46A, as the assessee did not produce the evidence before the Income-tax Officer and did not meet any exceptions under sub-rule (1) of rule 46A. The High Court, however, found that the Appellate Assistant Commissioner should have exercised his powers under sub-sections (4) and (5) of section 250 to admit the evidence, as it was necessary to decide the genuineness of the loan. The High Court also opined that the case fell under clause (c) of sub-rule (1) of rule 46A, as the assessee had no prior occasion to collect the evidence and was not informed by the Income-tax Officer about the non-availability of the creditors.Issue 3: Sustaining the Addition of Rs. 1,43,520The Tribunal sustained the addition of Rs. 1,43,520 as income from undisclosed sources due to the non-availability of the creditors. The High Court declined to answer this question as a question of law but directed that the addition of Rs. 40,000 from Champaklal Dalpatrai be re-examined in light of the new evidence produced by the assessee.Conclusion:The High Court answered question No. 3 in the negative and in favor of the assessee, indicating that the Appellate Assistant Commissioner should have considered the additional evidence. Consequently, questions Nos. 1 and 2 were deemed unnecessary to answer. The reference was disposed of with no order as to costs, and the addition of Rs. 40,000 was directed to be re-examined.