ADDITIONAL EVIDENCE BEFORE APPELLATE AUTHORITIES UNDER INCOME TAX ACT, 1961

[Mr. M. GOVINDARAJAN]

Appeal provisions

Section 250 of the Income Tax Act, 1961 (‘Act’ for short) deals with the procedure in appeal.  Section 250 (1) of the Act provides that the Deputy Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals) shall fix a day and place for the hearing of the appeal, and shall give notice of the same to the appellant and to the Assessing Officer against whose order the appeal is preferred.  Section 250 (5) of the Act provides that the appellate authority at the time of hearing of an appeal may allow the appellant to go into any ground of appeal not specified in the grounds of appeal, if the appellate authority is satisfied that the omission of that ground from the form of appeal was not willful and unreasonable.

Powers of Appellate Authority

The appellate authority is vested with all  the plenary powers which the subordinate authority may have in the matter.  The powers of appellate authorities in admitting the new evidence and the duty imposed on them are analyzed in the following case laws:

In ‘Jute Corporation of India Limited V. Commissioner of Income Tax’ – 1990 (9) TMI 6 - SUPREME Court the Supreme Court while dealing with the powers of the appellate authority, observed that the appellate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions.  In the absence of statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter.

In this case the appellant sought modification of the order of assessment passed by the Income Tax Officer by raising additional ground which was rejected.   The Supreme Court observed that there is no good reason to justify the curtailment of the power of the appellate authority in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the Income Tax Officer.   The Supreme Court further observed that there may be several factors justifying the raising of a new plea in an appeal and each case has to be considered on its own facts.   The Appellate authority must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons.   The appellate authority should exercise his discretion in permitting or not permitting the assessee to raise an additional ground in accordance with the law and reason.  The Supreme Court further held that the same observations would apply to the appeals before the Tribunal also.

In ‘National Thermal Power Company Limited V. Commissioner of Income Tax’ – 1996 (12) TMI 7 - SUPREME Court the assessee had made short term deposits with banks.   The interest received on such deposits was offered by the assessee for tax assessment and the same was completed.   Before the Commissioner (Appeals) several issues were raised by the assessee but the said interest amount was not challenged.  The assessee has not challenged the same before the Tribunal also.  However later he raised additional grounds based on the decisions of two tribunals and contended that interest earned before setting up of business was not taxable as income.  The Supreme Court held that the Appellate authority must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons.   The Appellate Authority should exercise his discretion in permitting or not permitting the assessee to raise an additional ground in accordance with law and reason.   By interpreting Section 254 of the Act, the Supreme Court held that nothing prevented the Tribunal to consider the questions of law arising in the assessment proceedings, although not raised earlier.

In ‘Rai Kumar Srimal V. Commissioner of Income Tax (Appeals) ‘ – 1974 (12) TMI 31 - CALCUTTA High Court the High Court held that the Appellate authority is entitled to admit new grounmds or evidence either suo motu or at the intimation of the parties.   If he is  acting on being invited by the assessee then there must be some ground for admitting new evidence in the sense that there must be some explanation to show that the failure to adduce earlier the evidence sought to be adduced before the Appellate Authority was not willful and unreasonable.

In ‘Ramco Cements Limited V. Deputy Commissioner of Income Tax’ – 2014 (11) TMI 447 - MADRAS HIGH COURT the appellant filed a return of income on 29.07.1987 declaring a loss of ₹ 11,04,25,696.   The Assessing Officer redetermined the loss at ₹ 10,54,03,475.   The appellant filed appeal against this order before Commissioner (Appeals).  After filing the appeal raised additional ground stating that in the balance sheet printed in the annual report of the company, the assessee allowed the expenditure of ₹ 19,36,427/- attributed to market development advertisement expenses and in the return of income filed, the appellant omitted to claim the said expenditure as deduction under Section 37(1) of the Act.  The Commissioner (Appeals) refused to entertain the additional grounds of appeal and proceeded to decide the appeal on the merits on the other issues raised holding that the assessee has to explain that the omission to file the grounds originally was not willful and unreasonable.

The appellant, aggrieved by this order, filed appeal against this order  before the Tribunal.  Before the Tribunal the appellant contended that the Commissioner (Appeals) had erroneously rejected the plea of the assessee to raise additional grounds in the appeal.   The Tribunal did not accept the assessee’s plea and dismissed the appeal.  Aggrieved against this order the appellant approached the High Court.   Before the High Court the appellant submitted the following:

• The proceedings before the Commissioner (Appeals) is a continuation of the assessment proceedings and therefore the Commissioner (Appeals) ought to have considered the additional grounds raised in exercise of Section 250(2) of the Act;
• The reasoning of the Commissioner (Appeals) that the fact is raised belatedly and it is not a question of law, is not correct;
• The issue is in relation to the determination of the total income and the tax liability thereon, based on the details furnished by the assessee in the balance sheet.  However in the return of income the assessee failed to make the claim for deduction under Section 37(1) of the Act;
• For the purpose of determining the total income and tax liability therefore, as the details relevant for determination was available in the balance sheet the omission to make such a claim in the return should not be held against the assessee and frustrate the claim, which is lawfully due and allowable expenditure;
• The relief should have been granted by the Commissioner (Appeals).

The Revenue put forth the following:

• It is the assessee’s duty to claim deduction of expenditure under Section 37(1) at the time of filing of return of income but he failed to do and that cannot be made good at the appellate stage;
• If a deduction is not claimed before the assessing authority and there was no consideration by the Assessing Officer on such deduction, the same cannot be urged before the Commission (Appeals) without filing a revised return;

The High Court analyzed the provisions of Section 250 of the Act.  The High Court held that  a reading of Section 250 it is clear that the finding of the Commissioner (Appeals) appears to be not in consonance with Section 250 (5) of the Act.   In terms of this section the duty is case on the Commissioner (Appeals) to satisfy himself as to whether the omission to raise additional grounds in the appeal is not willful or unreasonable.   If the assessee gives an explanation and supports the explanation with relevant materials to state that as to why it was not raised at the first instance, the Commissioner should go into the issue as to whether such a omission was willful or unreasonable.

The High Court held that the assessee in this case has bona fide shown all the expenditure in the balance of the company as stated in the annual printed report but the claim was not made in the returns.   Noticing the omission, which was due to inadvertence, additional grounds was raised in the appeal stage by the assessee.  Section 250(5) of the Act provides for allowing the appellant to raise such an additional ground and it is for the Commissioner (Appeals) to state that the omission to raise additional was not willful or unreasonable.   But the Commissioner (Appeals) in his case has erroneously thrown the onus on the assessee to explain the omission as not willful or unreasonable.  The High Court found that the claim of the assessee is not willful and the additional ground raised by the assessee cannot be termed as unreasonable.

The High Court further held that the Act does not contain any expression provision preventing the assessee from raising additional grounds in appeal and there is also no provision in the Act restricting the appellate authority to entertain such additional ground in the appeal.   In the absence of statutory bar, the appellate authority is vested with the power, which is co-terminus with that of the original authority, to allow the assessee to raise additional ground, if the same is bona fide and not willful or reasonable.  The High Court answered the question of law in favor of the appellant and against the Revenue.

Entitlement of department on admission of additional evidence 

Once the document is admitted as additional evidence for the first time at the stage of the appeal the Department is entitled to put forward its own consideration or objection  on them.  In ‘Commissioner of Income Tax V. Unique Plastics Private Limited’ – 2015 (8) TMI 568 - ANDHRA PRADESH HIGH COURT the High Court held that if the additional evidence is in the form of any document the department shall be entitled to examine or to make its own scrutiny of the same.   On the other hand, if the evidence is in the form of deposition of any witness, it shall be entitled to cross examine him.   The Department can adduce its own oral or documentary evidence to contradict or rebut the additional evidence that was adduced by a party, for the first time, at the stage of appeal.

Conclusion

It is evident from the above discussions the Appellate Authority is vested with all the plenary powers which the subordinate authority may have in the matter.  The appellate authority may allow additional evidence raised by the assessee in the appeal stage provided the appellant has to explain his case as bona fide and not unreasonable.  There is no statutory restriction to reject the additional evidence in the appeal stage.   The appellate authority is to consider the additional evidence in the appeal proceedings and if it is admitted the Department is entitled to make scrutiny of the document or cross examine the additional evidence.