Income Tax Appellate Tribunal - Delhi
Hema Engg. Inds. Ltd., New Delhi vs Department Of Income Tax on 30 December, 2009
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "C" NEW DELHI
BEFORE SHRI R.P. TOLANI AND SHRI A.N. PAHUJA
ITA No. 1065/Del/2010
Asstt. Yr: 2006-07
DCIT Cir. 12(1), Vs. M/s Hema Engg. Inds. Ltd.,
New Delhi. Sachidananda Farm House,
Kishan Garh Village near DDA Sports
Complex, Meharuli, New Delhi.
PAN/GIR No. AAACH0118F
(Appellant) ( Respondent )
Appellant by : Shri R.S. Gill CIT DR
Respondent by : Shri Anil Kumar Malhotra CA
ORDER
PER R.P. TOLANI, J.M :
This is Revenue's appeal against CIT(A)'s order dated 30-12-2009 relating to A.Y. 2006-07. Following effective grounds are raised:
"1. On the facts and circumstances of the case and in law, the order of the CIT(A) is wrong, perverse, illegal and against the provisions of law which is liable to be set aside.
2. On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the disallowance made of Rs. 6,71,58,943/- out of the expenses at the rate of 10% as the same was rightly made in view of the findings of the AO with regard to the audit statement filed with the return.
3. On the facts and circumstances of the case and in law, whether the ld. CIT(A) was correct in entertaining the fresh evidence(s) filed by the assessee without affording an
2 ITA no. 1065/Del/10 Hema Engg. Industries Ltd.
opportunity to the AO to comment upon the same as this act of the CIT(A) was clearly in violation of Rule 46A.
4. On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the disallowance merely on the question of affording an opportunity of being heard before the AO without going into the merits of the case."
2. Brief facts are : Assessee is one of the ancillary of Hero Honda, M/s T.V.S. Motor Co. Ltd. and is a closely held company maintaining ERP system for its inventory and accounting. Assessment proceedings for the year in question started on 3-7-2008 pursuant to notice u/s 143(2), assessee's representative attended and part details were filed. Thereafter on 2-12-2008 assessee was asked to file various details and on 11-12-2008 the AO records that the assessee with his C.A. attended and filed the details in part. The case was adjourned to 15-12-2008. According to AO, no compliance was made and the case was getting time barred, ex parte assessment was framed on 24- 12-2008, making the impugned addition viz. 10% of the manufacturing, administrative and other expenses on ad hoc basis 2.1. Before CIT(A), it was pleaded that the ex parte assessment was arbitrary as the assessee had cooperated in the proceedings and the last notice fixing the date for hearing on 22-12-2008 was dispatched by speed post on 22-12-2008 itself. Since the assessment was framed without ensuring that the notice was served, assessee filed additional evidence in the form of various statements etc. CIT(A) forwarded the additional evidence to the AO. DCIT filed a remand report dated 3-9-2009 in which the fact that the date of hearing was fixed on 22-12-2008 was not denied and about allegation that this notice was dispatched on 22-12-2008 itself was claimed to be unfounded without giving any details / date of receipt or any further comments.
3 ITA no. 1065/Del/10 Hema Engg. Industries Ltd.
2.2. CIT(A) admitted the additional evidence and considering the remand report, deleted the addition by following observations:
"46A(4) Nothing contained in this rule shall affect the power of the Deputy Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals)to direct the production of any document or the examination of any witness, to enable him to dispose of the appeal, or for any other substantial cause including the enhancement of the assessment or penalty (whether on his own motion or on the request of the Assessing Officer under clause (a) of sub-section (1) of section 25 or the imposition of penalty under section 271."
Under section 250(4) of the Act, the first appellate authority may make such further enquiry as he thinks fit. In deserving cases, the appellate authority is obliged to hold such further enquiry which necessarily includes the production of additional evidence. Whereas fresh evidence is available and the assessee is in a position to produce the same, there is no reason as to why the first appellate authority should not examine it on merits and pass an appropriate order. The above view is supported by the decision of Hon'ble Kerala High Court in the case of K. Mohammed v. ITO [1977] 107 ITR 808."
We see that facts and principle laid down in case of Anupam Fashion Palace are applicable to the facts of the case before us. It is not correct that in every case, the first appellate authority should provide opportunity to the ITO to examine any evidence produced by the assessee in the appellate proceeding and obtain a remand report from the Assessing officer. There is ample power and jurisdiction with first appellate authority to take evidence necessary for disposal of appeal. However, in complex cases and where new material is placed in appeal, an opportunity to the ITO to find rebutting material should be provided in terms of rule 46A of Income-tax Rules".
The above decision clearly points out that even ex parte assessment u/s 144 must confirm to the rules of justice and equity and cannot be arbitrary and capricious. Several courts 4 ITA no. 1065/Del/10 Hema Engg. Industries Ltd.
have held that while making a best judgment assessment, the authority must make an honest & fair estimate of the income and also take into account the performance of the assessee in the previous year. Perusal of the records show that the AO has not been able to point out any defects in the material with was available before him during the course of assessment proceedings. The auditors have also clearly pointed out that proper books of account have been maintained by the appellant. During the course of appellate proceedings also all the relevant details of mfg. And administrative expenses were filed. The disallowance made by the AO is only on the basis of estimates and without pointing out any defects in the material which was available on record. The copies of the details filed during the appellate proceeding were forwarded to the AO for his report. The only comments of the AO are that proper opportunity was given to the appellant and he relied on the order passed by him u/s 144. In view of the discussions above and on the basis of the evidences submitted during the course of appellate proceedings I am of the considered opinion that the disallowance made by the AO on estimate basis is without merit. Hence the disallowance made by the AO is deleted."
Aggrieved, Revenue is before us.
3. Ld. DR contends that Rule 46A(3) clearly mandates reasonable opportunity being given to the AO in respect of additional evidence which is proposed to be admitted by the CIT(A). In this case AO was not given reasonable opportunity of being heard. Assessee was granted sufficient opportunities in assessment proceedings, therefore, the ex parte assessment was justified and CIT(A) should not have admitted the additional evidence as the assessee was not prevented by sufficient cause. Reliance is placed on Hon'ble Delhi High Court judgment dated 15-11-2011in ITA no. 928/2011 in the case of CIT Vs. Manish Build Well Pvt. Ltd., holding as under:
"24. In the present case, the CIT(A) has observed that the additional evidence should be admitted because the assessee 5 ITA no. 1065/Del/10 Hema Engg. Industries Ltd.
was prevented by adducing them before the assessing officer. This observation takes car of clause (c) of sub-rule (1) of Rule 46A. The observation of the CIT(A) also takes care of sub-rule (2) under which he is required to record his reasons for admitting the additional evidence. Thus, the requirement of sub-rules (1) and (2) of Rule 46A have been complied with.
However, sub-rule (3) which interdicts the CIT(A) from taking into account any evidence produced for the first time before him unless the Assessing Officer has had a reasonable opportunity of examining the evidence and rebut the same, has not been complied with. There is nothing in the order of the CIT(A) to show that the Assessing Officer was confronted with the confirmation letters received by the assessee from the customers who paid the amounts by cheques and asked for comments. Thus, the end result has been that additional evidence was admitted and accepted as genuine without the Assessing Officer furnishing his comments and without verification. Since this is an indispensable requirement, we are of the vie that the Tribunal ought to have restored the matter to the CIT(A) with the direction to him to comply with sub-rule (3) of Rule 46A. In our opinion and with respect, the error committed by the Tribunal is that it proceeded to mix up the powers of the CIT(A) under sub-section (4) of Section 250 with the powers vested in him under Rule 46A. The Tribunal seems to have overlooked sub-rule (4) of Rule 46A which itself takes note of the distinction between the powers conferred by the CIT(A) under the statute while disposing of the assessee's appeal and the powers conferred upon him under Rule 46A. The Tribunal erred in its interpretation of the provisions of Rule 46A vis a vis Section 250(4). Its view that since in any case the CIT(A), by virtue of his conterminous powers over the assessment order, was empowered to call for any document or make any further enquiry as he thinks fit, there was no violation of Rule 46A is erroneous. The Tribunal appears to have not appreciated the distinction between the two provisions. If the view of the Tribunal is accepted, it would make Rule 46A otiose and it would open up the possibility of the assessee' contending that any additional evidence sought to be introduced by them before the CIT(A) cannot be subjected to the conditions prescribed in Rule 46A because in any case the 6 ITA no. 1065/Del/10 Hema Engg. Industries Ltd.
CIT(A) is vested with conterminous powers over the assessment orders or powers of independent enquiry under sub- section (4) of Section 250. This is a consequence which cannot at all be countenanced."
Order of AO is relied on.
4. Ld. counsel for the assessee, on the other hand, vehemently argues:
i. That the assessee filed an application for admission of additional evidence and made out a clear cut case of being prevented by sufficient reasons in filing this additional evidence inasmuch as the notice of hearing was the CIT(A) before admitting the additional evidence forwarded the same to AO. ii. That AO gave a vague reply in remand and did not controvert the assessee's contention that notice fixing the date of hearing on 2- 12-2008 was dispatched by the speed post on 22-12-2008. Without ensuring the service of notice of hearing, AO framed the ex parte assessment on 24-12-2008.
4.1. It is further pleaded that the conditions of Rule 46A(3) as held by Hon'ble High Court in the case of Manish Build Well Pvt. Ltd. (supra), stands duly complied with inasmuch as the CIT(A) forwarded all documents proposed as addl. evidence to AO. In reply thereof, AO has given following remand report:
"In this connection it is submitted that the plea of the assessee that it was not afforded an opportunity of being heard, is wrong as the assessee was accorded several opportunities to file in the details as is apparent from the order sheet entry dated 07-10- 2008 adjourning the case to 23-10-2008. The AR of the assessee company appeared on 02-12-2008 only i.e. after a lapse of 38 days, which proves that the assessee had sufficient time to prepare/ submit the details as required. The AR of the assessee appeared on 02-12-2008, wherein he was asked to 7 ITA no. 1065/Del/10 Hema Engg. Industries Ltd.
appear on 08-12-2008. Similarly the case was adjourned to 15- 12-2008 but none attended on the said date. The non cooperation from the assessee is apparent from the events as elaborated above. As the case was going to be barred by limitation on 31-12-2008, the undersigned was left with no option but to pass the order u/s 144 with the help of the part details submitted by the assessee. In view of the above, it is submitted that the plea of the assessee that it was not accorded reasonable time to submit the details is not acceptable. Further, the plea of the assessee that the notice u/s 143(2) was dispatched on 22-12-2008 asking him to attend the proceedings on 22-12-2008 itself is unfounded in view of the reasons that sufficient time before the issue of final notice was given to the assessee so as to submit the details which was not complied with by the assessee in view of the above findings, I rely on the order passed u/s 144 dated 24-12-2008."
4.2. The remand report mainly contains following comments:
(i) The assessee was given sufficient opportunities.
(ii) 144 assessment was proper, which is relied on.
(iii) Assessee's plea about the date of hearing dated 22-12-2008 has been reported vaguely as unfounded without indicating on which date the notice of hearing was dispatched and on which date it was served.
4.3. AO relied on his 144 assessment and no adverse comments have been offered about the merits of ad hoc disallowance and documents filed by the assessee.
4.4. Thus the AO was given sufficient opportunity by the CIT(A) to present his case. Thus on the issue of admission of additional evidence and merits thereof, the provisions of rule 46A(3) are duly complied with. 4.5. Ld. counsel contends that the AO has not controverted the merits of the additional evidence; CIT(A) was right in admitting the additional 8 ITA no. 1065/Del/10 Hema Engg. Industries Ltd.
evidence on fulfillment of conditions of Rule 46A and on merits his order is relied on.
5. We have heard rival contentions and gone through the entire material available on record. Rule 46A provides as under:
"Production of additional evidence before the [Deputy Commissioner (Appeals)] [and Commissioner (Appeals)]. 46A. (1) The appellant shall not be entitled to produce before the [Deputy Commissioner (Appeals)] [or, as the case may be, the Commissioner (Appeals)], any evidence, whether oral or documentary, other than the evidence produced by him during the course of proceedings before the [Assessing Officer], except in the following circumstances, namely:
(a) where the [ Assessing Officer] has refused to admit evidence which ought to have been admitted ; or
(b) where the appellant was prevented by sufficient cause from producing the evidence which he was called upon to produce by the [Assessing Officer] ; or
(c) where the appellant was prevented by sufficient cause from producing before the [Assessing Officer] any evidence which is relevant to any ground of appeal ; or
(d) where the [Assessing Officer] has made the order appealed against without giving sufficient opportunity to the appellant to adduce evidence relevant to any ground of appeal.
(2) No evidence shall be admitted under sub-rule (1) unless the [Deputy Commissioner (Appeals)] [or, as the case may be, the Commissioner (Appeals)] records in writing the reasons for its admission.
(3) The [Deputy Commissioner (Appeals)] [or, as the case may be, the Commissioner (Appeals)] shall not take into account any evidence produced under sub-rule (1) unless the [Assessing Officer] has been allowed a reasonable 9 ITA no. 1065/Del/10 Hema Engg. Industries Ltd.
opportunity
(a) to examine the evidence or document or to cross-examine the witness produced by the appellant, or
(b) to produce any evidence or document or any witness in rebuttal of the additional evidence produced by the appellant.
(4) Nothing contained in this rule shall affect the power of the [Deputy Commissioner (Appeals)] [or, as the case may be, the Commissioner (Appeals)] to direct the production of any document, or the examination of any witness, to enable him to dispose of the appeal, or for any other substantial cause including the enhancement of the assessment or penalty (whether on his own motion or on the request of the [Assessing Officer]) under clause (a) of sub-section (1) of section 251 or the imposition of penalty under section 271.] 5.1. So far as conditions of rule 46A(1) are concerned, it clearly emerges from the record that notice fixing the date of hearing 22-12-2008, was dispatched on the same date. AO in his remand report has no where mentioned the actual date of dispatch and service of notice on the assessee. From the assessment order it is clear that case was earlier listed for hearing on 15-12-2008, therefore, it is but obvious that the notice of hearing for the date of 22-12-2008 must have been issued after that date. Assuming the notice of hearing is prepared on 16-12-08 and dispatched on 17-12-2008, the service will take about two days, thus in any case the notice will not reach the assessee before 18-12-2008, which will not be a sufficient time for complying on hearing dated 22-12-2008. Under these circumstances, we are inclined to accept the plea of the assessee that it was not given sufficient time for compliance during the assessment which necessitated filing of additional evidence.
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5.2. In view of the above, we are inclined to hold that the assessee was prevented by sufficient cause, therefore, the conditions of Rule 46A(1) are complied with.
5.3. The conditions of Rule 46A(2) are complied as the CIT(A) has recorded his reasons for admitting the additional evidence.
5.4. Coming to Rule 46A(3), it is undisputed from the record that the entire additional evidence was forwarded to AO for inquiry and remand report. AO's remand report is reproduced above. There is no objection on admission of additional evidence, AO only reiterates that the assessee was given sufficient opportunity and the order u/s 144 was proper. 5.5. Hon'ble Delhi High Court in the case of Manish Build well Pvt. Ltd. (supra) holds that AO should be given adequate opportunity of being heard by CIT(A). In the remand report AO has no where pointed out paucity of time or any reason for further time to on the additional evidence. As a proper opportunity is given by CIT(A), rule 46A(3) has been properly complied with by the ld. CIT(A).
5.6. Before the Hon'ble Delhi High Court in the case Manish Build well Pvt. Ltd. (supra), the fact was that additional evidence sought to admitted, was not forwarded to AO and assessee pleaded that the additional evidence may be considered u/s 250(4) as asked by CIT(A) as his suo motu enquiries, which was denied by the Hon'ble High Court.
5.7. In this case, AO was given proper opportunity by CIT(A), which clearly emerges from record. In view of the foregoing, there is no violation 11 ITA no. 1065/Del/10 Hema Engg. Industries Ltd.
of Rule 46A. Therefore, we are unable to allow the ground raised by the revenue in this behalf.
5.8. Coming to the ad hoc 10% disallowance across the board on all the expenses, in our view CIT(A) has given sufficient reasons for deleting the addition, which are reproduced above. While framing the ex parte assessment, AO has statutory responsibility to be reasonable and making 10% ad hoc disallowance out of all the expenditure without consulting the preceding or subsequent assessment record of the assessee, the disallowance made by AO was arbitrary and rightly deleted by CIT(A). We uphold his order.
6. In the result, revenue's appeal is dismissed.
Order pronounced in open court on 02-03-2012.
Sd/- Sd/-
( A.N. PAHUJA) ( R.P. TOLANI)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 02-032012.
MP
Copy to :
1. Assessee.
2. AO
3. CIT
4. CIT(A)
5. DR
12 ITA no. 1065/Del/10
Hema Engg. Industries Ltd.