2007 (3) TMI 292 - AT - Income Tax

Provisions of section 250 - addition on account of freight receipts - CIT deleted the additions made by the learned Assessing Officer based on the gross amounts shown in the TDS certificates issued by M/s. Ramco Industries Ltd . - HELD THAT - In the instant case the entire additional evidence has come on the record of the first appellate authority because the first appellate authority decided to examine the facts of the case in depth and adjudicate upon the matter on the basis of evidence and material thus gathered. The learned CIT(A) was empowered to do so under the provisions of section 250(4). The results of enquiry conducted by him could either go to further cement the case made out by the Assessing Officer or to help out the assessee against the findings of the Assessing Officer. The mere fact that the results of the enquiries thus conducted supported the case of the assessee and not that of revenue has no bearing on the jurisdiction and powers of the learned CIT(A). The learned CIT(A) could have confronted the Assessing Officer with the evidence thus received and the material thus gathered and allow the Assessing Officer to have his say in the matter and perhaps had he done so this dispute would not have arisen. But we do not see any requirement in law that the first appellate authority should invariably consult or confront the Assessing Officer every time an additional evidence that was not before the Assessing Officer comes on the record of the first appellate authority. Where the additional evidence is obtained by the first appellate authority on its own motion, there is no requirement in law to consult/confront the Assessing Officer with such additional evidence. There may be cases where additional evidence is admitted by the first appellate authority on a request or application being made by the assessee. In such cases sub-rule (2) of rule 46A requires the first appellate authority to allow the Assessing Officer a further opportunity to rebut the fresh evidence filed by the assessee. Even that requirement cannot be said to be a rule of universal application. If the additional evidence furnished by the assessee before the appellate authority is in the nature of clinching evidence leaving no further room for any doubt or controversy in such a case no useful purpose would be served on performing the ritual of forwarding the evidence/material to the Assessing Officer and obtain his report. In such exceptional circumstances, the requirement of sub-rule (3) may be dispensed with. Thus, we see no infirmity in the impugned order of the learned CIT(A) who has taken pains to examine the issue before him comprehensively and arrive at a correct finding of fact and should be congratulated for having done so. We therefore uphold his order and dismiss these three appeals filed by the revenue.

Summary

Issues Involved:

1. Deletion of the addition made by the Assessing Officer on account of freight receipts.
2. Alleged violation of Rule 46A of the Income-tax Rules and principles of natural justice by the CIT(A).

Detailed Analysis:

1. Deletion of the Addition Made by the Assessing Officer on Account of Freight Receipts:

The core dispute in these appeals revolves around the deletion of the addition made by the Assessing Officer (AO) concerning freight receipts paid by M/s. Ramco Industries Ltd. The AO found that the assessee received large amounts as freight charges, as evidenced by TDS certificates issued by M/s. Ramco Industries Ltd. The assessee contended that he did not earn the freight receipts on which tax was deducted at source because he acted solely on a commission basis. The freight received from M/s. Ramco Industries was paid to various transporters for transporting goods belonging to M/s. Ramco Industries Ltd. The assessee's role was limited to supplying trucks owned by others, and he only earned commission income. The AO did not accept this explanation and assessed the gross receipts as the assessee's income.

Upon appeal, the CIT(A) conducted proceedings under section 250(4) of the Act, calling for detailed accounts and records from the assessee. The CIT(A) found the assessee's explanation justified and deleted the additions made by the AO based on the gross amounts shown in the TDS certificates.

2. Alleged Violation of Rule 46A of the Income-tax Rules and Principles of Natural Justice by the CIT(A):

During the hearing, the departmental representative objected to the CIT(A)'s order, arguing it violated Rule 46A of the Income-tax Rules and principles of natural justice, as the AO was not confronted with the material furnished by the assessee. The representative cited the judgment of the Bombay High Court in Gammon India Ltd. v. CIT to support this argument. However, the assessee's counsel argued that the CIT(A) exercised his powers under section 250(4), and thus there was no violation of Rule 46A.

The Tribunal considered the rival submissions and clarified the distinction between evidence voluntarily furnished by an assessee and evidence requisitioned by the first appellate authority. Rule 46A applies to the former, not the latter. Rule 46A restricts an assessee from producing additional evidence before the first appellate authority unless certain conditions are met, such as the AO refusing to admit evidence or the assessee being prevented by sufficient cause from producing evidence earlier.

Section 250(4) empowers the first appellate authority to make further inquiries or direct the AO to do so. This power is long-standing and has been upheld by the Supreme Court in various judgments, including CIT v. Kanpur Coal Syndicate and Jute Corpn. of India Ltd. v. CIT. The Tribunal noted that the first appellate authority's powers are extensive and not confined to matters considered by the AO.

The Tribunal also referenced several judgments affirming that the first appellate authority must make inquiries if warranted by the facts and circumstances, even if the AO did not. The provisions of Rule 46A do not impair the first appellate authority's power to make further inquiries or admit additional evidence if necessary for proper disposal of the appeal.

In this case, the CIT(A) decided to examine the facts in-depth and adjudicate based on the evidence gathered. The Tribunal found no requirement in law for the first appellate authority to consult or confront the AO every time additional evidence is obtained on its own motion. The Tribunal upheld the CIT(A)'s order, dismissing the revenue's appeals, and commended the CIT(A) for comprehensively examining the issue and arriving at a correct finding of fact.