2025 (4) TMI 611 - HC - Income Tax

Admission of additional evidence under Rule 29 allowed as cash book and cash flow vital for limited scrutiny under s.143(2)

Shrivastava Associates Versus Income Tax Officer, Ward-3 (1), Raipur, Chhattisgarh

CHHATTISGARH HC allowed the application under Rule 29 of the ITAT Rules for admission of additional evidence, holding that ITAT erred in rejecting the ... Non admission of additional evidence by ITAT - application filed under Rule 29 of the ITAT Rules came to be rejected by the ITAT on the ground that both the cash book and cash flow statement which the assessee filed before the CIT (A) were in the nature of additional evidence and the assessee firm had adopted an evasive approach in assessment proceedings and not filed either of the aforesaid documents, which formed the very basis for selecting its case for limited scrutiny assessment u/s 143(2) of the IT Act - HELD THAT:- ITAT did not record a finding that the documents mentioned in paragraph 6 of the order as “additional evidence” are not necessary for deciding the case and pronouncing judgment or order for any substantial cause even after having recorded finding that those documents are vital and important as they form basis for limited scrutiny assessment u/s 143(2) of the Act. It is pertinent to note that so far as cash book is concerned, only one page had already been filed before the AO and it is not the finding of the ITAT that these documents are not necessary for just and proper disposal of appeal preferred by the appellant and for pronouncing the judgment. ITAT has erred in law without recording a specific finding which is sine qua non for considering the admission of documents and proceeded to reject the application. ITAT has legally erred in law in rejecting the application which runs contrary to the well settled decision in this behalf and consequently, the impugned order rejecting the application filed under Rule 29 of the ITAT Rules is set aside and subsequently, the appellate order dated 5-12-2023 is also set aside. The application under Rule 29 of the ITAT Rules for admission of additional evidence is allowed, as it is necessary for just and proper disposal of appeal. ISSUES PRESENTED AND CONSIDERED 1. Whether the Income Tax Appellate Tribunal (ITAT) was justified in upholding an addition by recording a finding which is perverse to the record. 2. Whether the ITAT was justified in declining the application for admission of additional evidence filed under Rule 29 of the Income-Tax (Appellate Tribunal) Rules, 1963, by recording a finding which is perverse to the record. ISSUE-WISE DETAILED ANALYSIS Issue 2 (Priority): Admissibility of additional evidence under Rule 29 of the ITAT Rules Legal framework: Rule 29 of the ITAT Rules prohibits production of additional evidence before the Tribunal except where (a) the Tribunal requires a document or witness to be produced to enable it to pass orders or for any other substantial cause, or (b) the income-tax authorities decided the case without giving sufficient opportunity to the assessee to adduce evidence. The rule corresponds to Order 41 Rule 27(b) CPC and requires reasons to be recorded when additional evidence is admitted. Precedent treatment: The Court reviewed and applied the following authorities: the Privy Council in Parsotim Thakur v. Lal Mohar Thakur (holding additional evidence admissible only where the appellate court requires it); Velji Deoraj & Co. (Bombay High Court) (applying the Privy Council approach and noting that admissibility depends on the court's requirement, not on mere materiality or availability); and Supreme Court decisions including Jagdish Prasad Patel (2019) and Union of India v. Ibrahim Uddin (2012) (holding that admission is exceptional, discretionary, circumscribed by the rule, and that inadvertence, ignorance, or negligence are generally not 'substantial cause'). Interpretation and reasoning: The Court treated Rule 29 as pari materia with Order 41 Rule 27 CPC and reiterated the settled principle that additional evidence at the appellate stage is admissible only if the Tribunal requires it to pronounce judgment or for some other substantial cause. The Court emphasized that the Tribunal's exercise of discretion must record reasons. Applying these parameters to the facts, the Court observed that the ITAT rejected the Rule 29 application on the ground that the cash book and cash-flow statements were additional evidence that the assessee had not filed earlier and that the assessee adopted an evasive approach. However, the ITAT did not record a specific finding that those documents were not necessary to decide the appeal or to pronounce judgment, despite recognizing they were vital and formed the basis for limited scrutiny under Section 143(2). The Court found a legal error in the ITAT's approach: the Tribunal erred by rejecting admission without the requisite finding that the documents were unnecessary for pronouncing judgment or that no substantial cause existed to admit them. Ratio vs. Obiter: Ratio - The Tribunal must record reasons when refusing or admitting additional evidence under Rule 29; admission is governed by the Tribunal's requirement to pronounce judgment or other substantial cause and cannot be refused merely because evidence was available earlier, unless reasons so indicate. Obiter - Observations reiterating that inadvertence or negligence generally do not constitute substantial cause (taken from Supreme Court precedent) were applied but not newly formulated. Conclusion on Issue 2: The ITAT erred in law by rejecting the Rule 29 application without recording the requisite specific findings. The Court allowed the application under Rule 29, took the documents on record, set aside the ITAT order rejecting the application and the impugned appellate order, and restored the matter to the ITAT for fresh hearing and disposal in accordance with law. Issue 1: Whether the ITAT's upholding of the addition was perverse to the record Legal framework: Determination of income and additions in assessment proceedings is subject to appellate review, but the correctness of such additions may be reconsidered only after the record is complete. Permissible appellate review is constrained by the admissible evidence before the Tribunal and the principles governing admission of fresh evidence (Rule 29 / Order 41 Rule 27 CPC). Precedent treatment: The Court relied on the principle (from cited Supreme Court authorities) that an appellate court should ordinarily not admit fresh evidence and can do so only in exceptional circumstances; where additional evidence removes doubt and has direct bearing on the main issue, admission may be compelled in the interest of justice. Interpretation and reasoning: The Court declined to answer Issue 1 on the merits because its resolution depends on the outcome of Issue 2. Having allowed the additional evidence and remitted the matter for fresh hearing, the Court considered it inexpedient to opine on whether the ITAT's earlier finding upholding the addition was perverse. The Court directed that the ITAT may take a fresh view after considering the admitted documents. Ratio vs. Obiter: Ratio - Where admission of additional evidence is necessary for just disposal, appellate court should admit and remit for fresh adjudication rather than sustain or condemn prior appellate conclusions based on an incomplete record. Obiter - None beyond procedural direction to the Tribunal. Conclusion on Issue 1: Left open for the ITAT to decide afresh in light of the admitted documents; the Court did not adjudicate whether the earlier upholding of the addition was perverse. Resultant directions and consequence The Tribunal's refusal to admit additional evidence was set aside; the additional documents were admitted; the appellate order rejecting admission and the ITAT order were set aside; the matter is restored to the ITAT for rehearing and fresh disposal in accordance with law. Each party to bear its own costs.