2009 (9) TMI 20 - HC - Income Tax

Power of commissioner (appeals) section 250(4) and Rule 46A(3) and 46A(4) Held that - A bare perusal of the statutory provisions show that the Commissioner(Appeals) at the time of hearing of the appeal can make such further inquiry as it deems fit and may ask the Assessing Officer to make such an inquiry. This provision in the Act vests the appellate authority with the power to make further inquiry which would in our opinion include the power to admit further evidence. - Before the ITAT the main ground urged on behalf of the revenue was that even if evidence was to be permitted to be adduced by the assessee at the appellate stage, the Assessing Officer should have been given an opportunity to verify/rebut the evidence. This submission of the revenue was rejected by the ITAT on the ground that Rule 46A (4) does not warrant giving of any opportunity to the Assessing Officer. It also held that the power to admit additional evidence under Section 250 could not be circumscribed by the rules. order of the ITAT set aside.

Summary

Issues:
1. Admissibility of fresh evidence by CIT(A) without giving opportunity to Assessing Officer.
2. Misconstruction of material on records by the Tribunal.

Issue 1: Admissibility of fresh evidence by CIT(A) without giving opportunity to Assessing Officer:
The case involved an appeal regarding the assessment year 1996-97 where the Assessing Officer made additions to the income of the assessee. The assessee submitted additional evidence before the Commissioner (Appeals) to support their case, which the Commissioner accepted and allowed the appeal. The main contention raised before the ITAT by the revenue was that the Assessing Officer should have been given an opportunity to verify or rebut the additional evidence produced by the assessee. The ITAT rejected this argument, stating that Rule 46A(4) does not mandate giving such an opportunity to the Assessing Officer. However, the High Court analyzed Section 250(4) of the Income Tax Act, which empowers the Commissioner (Appeals) to make further inquiries before disposing of an appeal. The Court held that the power to admit additional evidence is vested with the appellate authority, but Rule 46A(3) mandates giving the Assessing Officer a reasonable opportunity to examine or rebut the evidence. Non-compliance with this provision would vitiate the order, as it goes against the principles of natural justice. Therefore, the Court allowed the appeal of the revenue, set aside the Tribunal's order, and directed the CIT to provide the Assessing Officer with an opportunity to counter the evidence or produce rebuttal evidence.

Issue 2: Misconstruction of material on records by the Tribunal:
The Tribunal had misconstrued the material on records by holding that the power to admit additional evidence under Section 250 is not circumscribed by the rules. However, the High Court clarified that while the appellate authority has the power to admit further evidence, Rule 46A sets out the procedure for admitting such evidence. The Court emphasized that the Assessing Officer must be given a reasonable opportunity to examine or rebut any additional evidence produced by the appellant. The High Court's decision highlighted the mandatory nature of this provision and emphasized that non-compliance would invalidate the order. Therefore, the Court set aside the Tribunal's findings and remanded the matter to the Commissioner for disposal in accordance with the observations made.

In conclusion, the High Court's judgment clarified the admissibility of fresh evidence by the CIT(A) and the necessity of providing the Assessing Officer with a fair opportunity to examine and counter such evidence. The Court's decision underscored the importance of adhering to procedural fairness and natural justice principles in tax appeal proceedings.