2025 (4) TMI 611 - HC - Income Tax

Non admission of additional evidence by ITAT - application filed under Rule 29 of the ITAT Rules came to be rejected by the ITAT on the ground that both the cash book and cash flow statement which the assessee filed before the CIT (A) were in the nature of additional evidence and the assessee firm had adopted an evasive approach in assessment proceedings and not filed either of the aforesaid documents which formed the very basis for selecting its case for limited scrutiny assessment u/s 143(2) of the IT Act - HELD THAT - ITAT did not record a finding that the documents mentioned in paragraph 6 of the order as additional evidence are not necessary for deciding the case and pronouncing judgment or order for any substantial cause even after having recorded finding that those documents are vital and important as they form basis for limited scrutiny assessment u/s 143(2) of the Act. It is pertinent to note that so far as cash book is concerned only one page had already been filed before the AO and it is not the finding of the ITAT that these documents are not necessary for just and proper disposal of appeal preferred by the appellant and for pronouncing the judgment. ITAT has erred in law without recording a specific finding which is sine qua non for considering the admission of documents and proceeded to reject the application. ITAT has legally erred in law in rejecting the application which runs contrary to the well settled decision in this behalf and consequently the impugned order rejecting the application filed under Rule 29 of the ITAT Rules is set aside and subsequently the appellate order dated 5-12-2023 is also set aside. The application under Rule 29 of the ITAT Rules for admission of additional evidence is allowed as it is necessary for just and proper disposal of appeal.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

A. Whether the Income Tax Appellate Tribunal (ITAT) was justified in upholding the addition of Rs. 29,64,532/- by recording a finding that is perverse to the record.

B. Whether the ITAT was justified in declining the application for admission of additional evidence filed by the appellant under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963, by recording a finding that is perverse to the record.

ISSUE-WISE DETAILED ANALYSIS

Issue B: Declining the Application for Admission of Additional Evidence

Relevant legal framework and precedents:

Rule 29 of the ITAT Rules governs the production of additional evidence before the Tribunal. It states that parties are not entitled to produce additional evidence unless the Tribunal requires it for passing orders or if the income-tax authorities have decided the case without giving sufficient opportunity to the assessee to adduce evidence. This rule is akin to Order 41 Rule 27(b) of the CPC, which allows the appellate court to admit additional evidence if it is required for pronouncing judgment or for any substantial cause.

Precedents include:

- The Privy Council in Parsotim Thakur v. Lal Mohar Thakur, which emphasized that additional evidence can only be admitted if the court requires it.

- The Bombay High Court in Velji Deoraj & Co. v. Commissioner of Income-tax, which held that the admission of additional evidence is dependent solely on the requirement of the court.

- The Supreme Court in Jagdish Prasad Patel v. Shivnath, which reiterated that appellate courts should not travel outside the record of the lower court except in exceptional circumstances.

Court's interpretation and reasoning:

The Court analyzed Rule 29 of the ITAT Rules and its parallels with Order 41 Rule 27(b) of the CPC. It emphasized that the admission of additional evidence is contingent upon the requirement of the appellate body to pronounce judgment or for any substantial cause. The Tribunal must record reasons for admitting additional evidence.

Key evidence and findings:

The ITAT rejected the application for additional evidence on the grounds that the appellant had an evasive approach and failed to submit the necessary documents during the assessment proceedings. However, the ITAT did not record a finding on whether the documents were necessary for deciding the case or pronouncing judgment.

Application of law to facts:

The Court found that the ITAT erred by not considering whether the documents were necessary for the just and proper disposal of the appeal. The ITAT failed to record specific findings required for the admission of additional evidence, which is a legal error.

Treatment of competing arguments:

The appellant argued that the additional documents were necessary for a just resolution of the appeal. The respondent contended that the appellant had sufficient opportunity to present these documents earlier. The Court sided with the appellant, finding that the ITAT did not properly consider the necessity of the documents for the appeal's resolution.

Conclusions:

The Court concluded that the ITAT's rejection of the application under Rule 29 was legally erroneous. The application for additional evidence was allowed, and the matter was remitted to the ITAT for fresh consideration.

Issue A: Justification of the Addition of Rs. 29,64,532/-

Given the Court's decision to allow additional evidence, it deemed it unnecessary to address this issue. The ITAT is to take a fresh view in light of the newly admitted evidence.

SIGNIFICANT HOLDINGS

- The Court held that Rule 29 of the ITAT Rules requires the Tribunal to consider whether additional evidence is necessary for the just resolution of an appeal. The Tribunal must record specific findings to justify the admission of such evidence.

- The decision emphasized that the power to admit additional evidence is not a right of the parties but a discretion of the appellate body, to be exercised judiciously and sparingly.

- The Court set aside the ITAT's order rejecting the application for additional evidence and remitted the case for fresh consideration, allowing the documents to be admitted.

The appeal was allowed to the extent of admitting additional evidence, with the matter remitted to the ITAT for a fresh hearing and disposal in accordance with the law. The parties were directed to bear their own costs.