1990 (7) TMI 155 - AT - Income Tax

Summary

Issues Involved:
1. Adequacy of opportunity given to the assessee for producing books of accounts.
2. Justification of the CIT(A)'s decision to set aside the assessment.
3. Application of Rule 46A of the Income-tax Rules.
4. Validity of the assessment and additions made by the Income-tax Officer (ITO).

Detailed Analysis:

1. Adequacy of Opportunity Given to the Assessee for Producing Books of Accounts:
The Department contended that the assessee was given adequate and sufficient opportunities to produce the books of accounts, vouchers, and bank pass books, but failed to do so. The ITO issued multiple notices and letters, including a notice under section 142(1) on 7-9-1983 and another letter on 4-1-1984, yet the assessee did not comply. The return was filed late, and even after filing, the required documents were not produced. The CIT(A), however, accepted the assessee's explanation that the books were in possession of a hostile accountant.

2. Justification of the CIT(A)'s Decision to Set Aside the Assessment:
The CIT(A) set aside the assessment, directing the ITO to give another opportunity to the assessee to produce the relevant books of accounts. The CIT(A) accepted the assessee's plea that the accountant was non-cooperative and hostile due to unpaid salaries, which was not verified or substantiated. The Department argued that this explanation was unjustifiably accepted and that the CIT(A) did not verify the facts, including the identity of the accountant and the period for which the salary was unpaid. The Tribunal found substance in the Department's contention that the CIT(A) was unreasonable in giving yet another opportunity to the assessee.

3. Application of Rule 46A of the Income-tax Rules:
Rule 46A restricts the assessee from producing fresh evidence before the first appellate authority except in specified circumstances, such as refusal to admit evidence by the ITO or sufficient cause preventing the assessee from producing the evidence earlier. The Tribunal noted that the CIT(A) did not properly examine whether these exceptions applied in this case. The Tribunal referred to the decision in CIT v. Indian Express (Madurai) (P.) Ltd. and Tulsi Lal Manilal v. CIT, emphasizing that fresh evidence should not be admitted unless it ensures that the assessment is not arbitrary or capricious.

4. Validity of the Assessment and Additions Made by the ITO:
The ITO completed the assessment under section 143(3) based on the information available, resulting in a total income computation significantly different from the returned loss. The CIT(A) discussed the assessee's objections to various additions but ultimately felt unable to adjudicate on the merits due to the non-production of books. The Tribunal decided that the CIT(A) should re-adjudicate the matter, considering whether the assessee should be allowed to produce the books and, if not, whether the original assessment was arbitrary or capricious.

Conclusion:
The Tribunal set aside the CIT(A)'s order and remanded the matter back to the CIT(A) for fresh adjudication. The CIT(A) was directed to first determine if the assessee should be allowed to produce the books of accounts and, if not, to ensure that the original assessment was not arbitrary or capricious. The Department's appeal was allowed, and the assessee's cross-objections were dismissed.