1997 (6) TMI 75 - AT - Income Tax

Summary

Issues Involved:

1. Admissibility of additional evidence under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963.
2. Whether the department should be given a reasonable opportunity to rebut the additional evidence.
3. Disallowance of interest under section 57(iii) of the Income-tax Act, 1961.

Summary:

Admissibility of Additional Evidence:

The Tribunal considered whether additional evidence, consisting of correspondence between the assessee and the HUF landlord, and a letter from Union Bank of India, should be admitted under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963. The Judicial Member opined that the documents were vital and essential for a fair resolution of the appeal, citing the Tribunal's decision in Rajmoti Industries and the Supreme Court's ruling in K. Venkataramiah's case. The Third Member agreed, stating that the evidence was necessary to enable the Tribunal to pass orders effectively and to avoid a miscarriage of justice.

Opportunity for Rebuttal:

The Tribunal unanimously held that if additional evidence is admitted, the department must be given a reasonable opportunity to rebut it, adhering to the principle of Audi alteram Partem. This ensures that no party is condemned unheard, maintaining fairness in the adjudication process.

Disallowance of Interest u/s 57(iii):

The core issue was whether the interest of Rs. 1,16,250 paid to Union Bank of India should be disallowed under section 57(iii) because the assessee did not charge interest on a deposit of Rs. 7,75,000 with the HUF landlord. The Judicial Member disagreed with the Accountant Member's view, arguing that the interest paid was for earning rental income and should be allowed as a deduction. The Judicial Member cited the Supreme Court's decision in Rajendra Prasad Moody and the Gujarat High Court's decision in Smt. Virmati Ramkrishna, which support the allowance of such expenditure if it is laid out wholly and exclusively for earning income.

Third Member's Decision:

The Third Member agreed with the Judicial Member on the admissibility of additional evidence and the necessity to allow the department to rebut it. However, the Third Member refrained from giving an opinion on the merits of the disallowance of interest, stating that it would be an exercise in futility without considering the additional evidence and the department's rebuttal.

Conclusion:

The Tribunal admitted the additional evidence, allowed the department an opportunity to rebut it, and remanded the case back to the regular Bench for final disposal in light of the additional evidence and rebuttal.