Thursday, February 28, 2013



  The World


  Don't mess with Lawyers....

LAWYERS !  you will love this !!!!!!!!!!

A lawyer defending a man  accused of burglary tried this creative defence:

 "My client merely inserted his arm into the window and removed a few trifling articles. His arm is not himself, and I fail to see how you can punish the whole individual for an offence committed by his limb."

Well put," the judge replied.
"Using your logic, I sentence the defendant's arm to 5 year's mprisonment. He can accompany it or not, as he chooses." 
The defendant smiled.

 With his lawyer's assistance he
 detached his artificial limb, laid it on the  bench, and walked out. ...Don't mess with Lawyers....

2) If Priyanka Chopra (PC) was our finance Minister!!!! 

Union Budget, 2013  Highlights

1) all year sales on fresh stocks
2) national holidays on kitty days

3) no import duty on diamonds 
4) designer bags available on ration card
5) 2 maids free on every child
6) 1 gift mandatory from hubby per day
7) Waking women before 11.50 am would be a punishable law

8) calls to moms would be free gift from telephone authority of india
9) All scientists would be diverted to develop medicine to reduce all body fat in a minute

10) Cosmetic companies would sell products on no loss no profit basis with regular supply of free samples

11) Around the world trip mandatory on every women's birthday =))




Did You Know...
Sikhs contribute:

* 33% of total income tax
* 67% of total charities
* 45% of Indian Army
* 59,000++ Gurudwaras serve LANGAR to 5,900,000+ people everyday!

All this when THEY make only 1.4% of the total INDIAN POPULATION.

Please Read This interesting Story

We all love Sardar jokes. But do you know that Sikhs are one of the hardest working, prosperous and diversified communities in the world! My friend told me about the following incident which I wish to share with you. It has had a deep impact on my thinking.

During the last vacation, a few friends came to Kolkata. They rented a taxi for local sight-seeing. The driver was an old Sardar and boys being boys, these pals began cracking Sardarji jokes, just to tease the old man. But to their surprise, the fellow remained unperturbed..

At the end of the sight-seeing, they paid the cab hire charges. The Sardar returned the change, but he gave each one of them one rupee extra andsaid,''Sons, since morning you have been telling Sardarji jokes. I listened to them all and let me tell you, some of them were in bad taste. Still, I don't mind coz I know that you are young blood and are yet to see the world. But I have one request. I am giving you one rupee each. Give it to the first Sardar beggar that you come across in this or any other city!!!"

My friend continued, "That one rupee coin is still with me. I couldn't find a single Sardar begging anywhere."

MORAL: The secret behind their universal success is their willingness to do any job with utmost dedication and pride. A Sardar will drive a truck or set up a roadside garage or a dhaba, run a fruit juice stall, take up small time carpentry, ... but he will never beg on the streets*

Monday, February 25, 2013



  By Subash Agarwal, Advocate


1.       Price Waterhouse Coopers (P.) Ltd. vs. CIT 348 ITR 308
Penalty for concealment of income u/s 271(1)(c)- no penalty in case of a bonafide error
The facts of the case are rather peculiar and somewhat unique. The assessee is undoubtedly a reputed firm and has great expertise available with it. Notwithstanding this, it is possible that even the assessee could make a 'silly' mistake and indeed this has been acknowledged both by the Tribunal as well as by the High Court.
The fact that the tax audit report was filed along with the return and that it unequivocally stated that the provision for payment was not allowable under section 40A(7) indicates that the assessee made a computation error in its return of income. Apart from the fact that the assessee did not notice the error, it was not even noticed by the Assessing Officer who framed the assessment order. In that sense, even the Assessing Officer seems to have made a mistake in overlooking the contents of the tax audit report.
2.       CIT vs. Ahmedabad Stamp Vendors Association 348 ITR 378
Section 194H of the Income-tax Act, 1961 - Deduction of tax at source – not applicable in the case of discount on stamp purchases
Discount given to the Stamp Vendors is for purchasing the stamps in bulk       quantity and the said discount is in the nature of cash discount.
In the circumstances, we concur with the impugned judgement that the impugned transaction is a sale. Consequently, section 194H of the Income-tax Act, 1961, has no application.
3.       CIT vs. Gebilal Kanhaialal HUF 348 ITR 561
Section 271(1)(c) r/w explanation 5 - Penalty for concealment of income in search cases - To grant immunity from penalty, no time-limit for payment of tax is prescribed under clause 2 of Explanation 5 to section 271(1)(c)
a)                Three conditions have got to be satisfied by the assessee for claiming immunity from payment of penalty under clause (2) of Explanation 5 to section 271(1)(c ). The first condition was that the assessee must make a statement under section 132(4) in the course of search stating that the unaccounted assets and incriminating documents found from his possession during the search have been acquired out of his income, which has not been disclosed in the return of income to be furnished before expiry of time specified in section 139(1). Such statement was made by the Karta during the search which concluded on 1-8-1987. It is not in dispute that condition No.1 was fulfilled. The second condition for availing of the immunity from penalty under section 271(1)(c) was that the assessee should specify, in his statement under section 132(4), the manner in which such income stood derived. Admittedly, the second condition, in the present case also stood satisfied. According to the Department, the assessee was not entitled to immunity under clause (2) as he did not satisfy the third condition for availing the benefit of waiver of penalty under section 271(1)(c) as the assessee failed to file his return of income on 31-7-1987 and pay tax thereon particularly when the assessee conceded on 1-8-1987 that there was concealment of income. The third condition under clause (2) was that the assessee had to pay the tax together with interest, if any, in respect of such undisclosed income.
b)                However, no time limit for payment of such tax stood prescribed under clause (2). The only requirement stipulated in the third condition was for the assessee to 'pay tax together with interest'.
c)                 In the present case, the third condition also stood fulfilled. The assessee has paid tax with interest up to the date of payment. The only condition which was required to be fulfilled for getting the immunity, after the search proceedings got over, was that the assessee had to pay the tax together with interest in respect of such undisclosed income up to the date of payment. Clause (2) did not prescribe the time limit within which the assessee should pay tax on income disclosed in the statement under section 132(4).
d)                 For the above reasons, it was held that the assessee was entitled to        immunity under clause (2) of Explanation 5 to section 271(1)(c).
Author’s Note: Section 271(1)(c) r/w explanation 5 is applicable to search cases only upto31.5.2007. In cases of searches initiated after that date, new provision of penalty i.e., sec. 271AAA becomes applicable.

4.       CIT vs. Dynavision Ltd. 348 ITR 380
Section 145:  Where assessee had been consistently following a method of valuation of stock and Assessing Officer revalued closing stock by adding the element of excise duty without making any adjustment to opening stock, any addition on account of under valuation of closing stock was unjustified
a)    It is not in dispute that the assessee has been following consistently the method of valuation of closing stock which is "cost or market price whichever is lower." Moreover, the AO conceded before the CIT(A) that he revalued the closing stock without making any adjustment to the opening stock . Though under section 3 of the Central Excise Act, 1944, the levy of excise duty is on the manufacture of the finished product the same is quantified and collected on the value (i.e. selling price). In the case of Chainrup Sampatram v. CIT [1953] 24 ITR 481(SC), it has been held that, "valuation of unsold stock at the close of the accounting period was a necessary part of the process of determining the trading results of that period. It cannot be regarded as source of profits. That, the true purpose of crediting the value of unsold stock is to balance the cost of the goods entered on the other side of the account at the time of the purchase, so that on cancelling out of the entries relating to the same stock from both sides of the account would leave only the transactions in which actual sales in the course of the year has taken place and thereby showing the profit or loss actually realized on the year's trading. The entry for stock which appears in the trading account is intended to cancel the charge for the goods bought which have remained unsold which should represent the cost of the goods". (see also : para 8 of the judgment in the case of CIT v. Hindustan Zinc Ltd. [2007] 291 ITR 391(SC)

b)      The addition of Rs. 16,39,000/- to the income of the assessee on the ground of undervaluation of the closing stock was wrong..

5.       CIT vs. Bannari Amman Sugars Ltd  210 Taxman 271
Sec 145: Closing stock may be valued below the cost price/market price in spl. circumstances
By virtue of Essential Commodities Act, 1955 and Sugar control order a sugar manufacturer was required to sell 40 per cent of its production at notified levy price to Public distribution system which is lower than cost. However as per Incentive scheme, 40 per cent of total sugar production was permitted to be sold at market price (i.e. incentive sugar).

The said scheme  came up for consideration before Supreme Court in case of CIT v. Ponni Sugars & Chemicals Ltd. [2008] 306 ITR 392  in which Court held that excess amount realized by manufacturer over notified price on sale of incentive sugar should be treated as a capital receipt which was not taxable under the Act. In view of said decision, assessee, who was engaged in business of manufacture and sale of sugar was right in valuing closing stock of incentive sugar at levy price.

6.       CIT v.S. Khader Khan Son 210 Taxman 248
Section 133A :  Survey
Section 133A does not empower A.O to examine any person on oath; so statement recorded under section 133A has no evidentiary value and any admission made during such statement cannot be made basis of addition.

1.       CIT vs. Indeo Airways (P.) Ltd. 349 ITR 85 (Del)
Sec 132 (4A) :  once a presumption had been drawn as to the contents of documents  recovered during search being true, revenue cannot require assessee to produce materials in support of expenditure entries contained in very same documents

If the revenue was of the opinion that the expenses claimed towards 'green boxes' was inadmissible or was excessive, or not genuine, in order to reject the entries in the books of account and other documents of the assessee, seized during the search, it ought to have relied on other materials. Having once drawn the presumption that the contents of the documents (of the assessee) taken into possession during the search were true, the revenue could not have, consistently with that presumption, proceeded to require the assessee to produce materials in support of the expenditure entries. Such an inconsistent approach in respect of the contents of the same book appears to have been founded only on suspicion that they were not genuine. However, suspicion cannot replace proof. Moreover, the full effect of the presumption should be given effect to, whenever the statute directs a particular non-existent state of affairs to be assumed

2.       Harshad J. Choksi vs. CIT 349 ITR 250 (Bom)

Section 28(i), r/w section 36(1)(vii) and section 36(2):If an amount claimed as bad debt is held to be not deductible in view of non-compliance of condition provided under section 36(2), same could be considered as an allowable business loss

a)                On the basis of the decision in Badridas Daga vs. CIT [1958] 34 ITR 10 (SC) , it can be concluded that even if the deduction is not allowable as bad debts, the Tribunal ought to have considered the assessee's claim for deduction as business loss. This is particularly so, as there is no bar in claiming a loss as a business loss, if the same is incidental to carrying on of a business. The fact that condition of bad debts were not satisfied by the assessee would not prevent him from claiming deduction as a business loss incurred in the course of carrying on business as share broker.
b)                In fact, the Bombay High Court in the case of CIT vs. R.B. Rungta & Co. [1963] 50 ITR 233 upheld the finding of the Tribunal that the loss could be allowed on general principles governing computation of profits under section 10 of the Indian Income-tax Act, 1922, which is similar/identical to section 28 of the 1961 Act. The revenue in that case urged that the assessee having claimed deduction as a bad debt the benefit of the general principle of law that all expenditure incurred in carrying on the business must be deducted to arrive at a profit cannot be extended. This submission was negatived by the Court and it was held that even where the debt is not held to be allowable as bad debts yet the same would be allowable as a deduction as a revenue loss in computing profits of the business under section 10(1) of the Indian Income-tax Act, 1922.

3.       CIT vs .Dinesh Jain HUF 211 Taxman 23 ( Del)
Sec 69B: Without a finding that assessee invested more than what was recorded in its books of account, section 69B cannot be invoked.


a)                Section 69B does not permit an inference to be drawn from the circumstances surrounding the transaction that the purchaser of the property must have paid more than what was actually recorded in his books of account for the simple reason that such an inference could be very subjective and could involve the dangerous consequence of a notional or fictional income being brought to tax contrary to the strict provisions of article 265 of the Constitution of India and Entry 82 in List I of the Seventh Schedule thereto which deals with 'Taxes on income other than agricultural income'.
b)                Applying the logic and reasoning in K.P. Varghese v. ITO [1981] 131 ITR 597 ( SC) , for the purposes of section 69B it is the burden of the Assessing Officer to first prove that there was understatement of the consideration (investment) in the books of account. Once that undervaluation is established as a matter of fact, the Assessing Officer, in the absence of any satisfactory explanation from the assessee as to the source of the undisclosed portion of the investment, can proceed to adopt some dependable or reliable yardstick with which to measure the extent of understatement of the investment. One such yardstick can be the fair market value of the property determined in accordance with the Wealth Tax Act.
c)                 Whether the basis adopted by the Assessing Officer is an acceptable one or not may depend on the facts and circumstances of the particular case. That question may, however, arise only when actual understatement is first proved by the Assessing Officer. It is only to this extent that the rigour of the burden placed on the Assessing Officer may be relaxed in cases where there is evidence to show understatement of the investment, but evidence to show the precise extent thereof is lacking.

4.       Maganbhai Hansrajbhai Patel vs. CIT 211 Taxman 386(Guj)
Sec 179: Only tax due of company, and not interest or penalty, can be recovered from directors; if no misfeasance, gross negligence or breach of duty is alleged, recovery under section 179 from director cannot be made; director is liable only if recovery cannot be made from company

a)                The liability of the director to pay the dues of the company arises in terms of section 179(1) and such liability would be co-extensive as provided in the said provision which refers to tax dues. The director may be considered an assessee under section 2(7) of the Act which provides that assessee means a person by whom any tax or any other sum of money is payable under the Act. However, the same must be qua the tax of the company which was due and remained unpaid. By virtue of section 179(1) the director cannot be held liable for interest and penalty and thereupon be treated as an assessee under section 2(7) as a person by whom any tax or any other sum of money is payable under the Act.
b)                Section 179(1) provides for a vicarious liability of the director of a public company for payment of tax dues which cannot be recovered from the company. However, such liability could be avoided if the director proves that the non-recovery cannot be attributed to any gross negligence, misfeasance or breach of duty on his part in relation to the affairs of the company. It is of course true that the responsibility of establishing such facts is cast upon the director. However, once the director places before the authority his reasons why it should be held that non-recovery cannot be attributed to any of the three factors, the authority would have to examine such grounds and come to a conclusion in this respect. Significantly, the question of lack of gross negligence, misfeasance or breach of duty on part of the director is to be viewed in the context of non-recovery of the tax dues of the company. In other words, as long as the director establishes that the non-recovery of the tax cannot be attributed to his gross neglect, etc., his liability under section 179(1) would not arise. Here again the Legislature advisedly used the word gross neglect and not a mere neglect on his part.

5.       CIT vs. Usha International Ltd 348 ITR 485 (Del)(FB)
Sec 147: change of opinion- various facets


a)      Reassessment proceedings can be validly initiated in case return of income is processed under section 143(1) and no scrutiny assessment is undertaken. In such cases there is no change of opinion?
b)      Reassessment proceedings will be invalid in case the assessment order itself records that the issue was raised and is decided in favour of the assessee. Reassessment proceedings in the said cases will be hit by principle of 'change of opinion'.
c)       Reassessment proceedings will be invalid in case an issue or query is raised and answered by the assessee in original assessment proceedings but thereafter the Assessing Officer does not make any addition in the assessment order. In such situations it should be accepted that the issue was examined but the Assessing Officer did not find any ground or reason to make addition or reject the stand of the assessee. He forms an opinion. The reassessment will be invalid because the Assessing Officer had formed an opinion in the original assessment, though he had not recorded his reasons.
d)      Where an Assessing Officer incorrectly or erroneously applies law or comes to a wrong conclusion and income chargeable to tax has escaped assessment, resort to section 263 is available and should be    resorted to. But initiation of reassessment proceedings will be invalid on the ground of change of opinion.
e)       There may be cases where the Assessing Officer does not and may not raise any written query but still the Assessing Officer in the first round/ original proceedings may have examined the subject matter, claim etc., because the aspect or question may be too apparent and obvious. To hold that the Assessing Officer in the first round did not examine the question or subject matter and form an opinion, would be contrary and opposed to normal human conduct. Such cases have to be examined individually. Some matters may require examination of the assessment order or queries raised by the Assessing Officer and answers given by the assessee but in others cases, a deeper scrutiny or examination may be necessary. The stand of the revenue and the assessee would be relevant. Several aspects including papers filed and submitted with the return and during the original proceedings are relevant and material. Sometimes application of mind and formation of opinion can be ascertained and gathered even when no specific question or query in writing had been raised by the Assessing Officer. The aspects and questions examined during the course of assessment proceedings itself may indicate that the Assessing Officer must have applied his mind on the entry, claim or deduction etc. It may be apparent and obvious to hold that the Assessing Officer would not have gone into the said question or applied his mind. However, this would depend upon the facts and circumstances of each case     
f)       Assessment proceedings cannot be validly reopened under Section 147 of the Act, even within four year, if an assessee has furnished full and true particulars at the time of original assessment with reference to income alleged to have escaped assessment.

6.       CIT v. Arts Beauty Exports 211 Taxman 155(Del.)(mag)

Section 10B  - Export Oriented undertaking

 A mere reconstitution of partnership firm does not amount to splitting up or reconstruction of partnership business already in existence so as to deny exemption under section 10B.

7.       CIT v.Income-tax Settlement Commission 210 Taxman 529 (Guj)

Section 245C - Settlement Commission- Application for settlement of cases - Maintainability of

Where by efflux of time, it is not open for Assessing Officer to pass an order of assessment, merely because return was accepted under section 143(1), case of assessee cannot be deemed to be pending for assessment only because final order of assessment under section 143(3) was not passed.
Where assessments had become time-barred without any notice under section 143(2) and even final time-limit for passing orders, even if such notices were issued, had expired and the assessee filed his application for settlement before Commission, the assessee's application was not maintainable.

Friday, February 22, 2013


By Subash Agarwal, Advocate
1.        The first appellate authority viz., CIT(A) enjoys wide powers under the statute. Though he sits in appeal preferred by the assessee against the order of assessment framed by the AO., his powers are plenary and coterminous with that of the assessing officer (AO.). He can do what the AO. could do and can also direct him to do what he has failed to do. Thus his powers are not akin to the powers possessed by a court of appeal under the Code Of Civil Procedure. An aggrieved assessee filing an appeal before the CIT(A) may be taken aback when he chooses to enhance the assessment made by the A O. (such power has been specifically conferred by the statute upon him.) rather than addressing the grievance of the assessee.
But surprisingly, when it comes to granting relief to the assessee by admitting evidence which could not be produced before the A O. at the time of assessment proceedings, he does not enjoy unbridled power.

CIT(A)’s right to take additional evidence- not unfettered

2.        Lawmakers perhaps thought that the unfettered powers of the CIT(A) to admit additional evidence would lead to leakage of revenue. Therefore, clause (mm) was introduced in section 295(2) to empower the rule making authority to prescribe the circumstances in which, the conditions subject to which and the manner in which, the CIT(A) may permit an appellant to produce evidence which could not be produced before the AO. Armed by the said power, CBDT framed rule 46A in the Income tax Rules, 1962 w.e.f 1.4.1993. Under the said rule, CIT(A) was permitted to admit fresh evidence only under the following circumstances-
(a) where the Income-tax 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 Income-tax Officer; or
(c) where the appellant was prevented by sufficient cause from producing before the Income-tax Officer any evidence which is relevant to any ground of appeal;
(d) where the Income-tax Officer has made the order appealed against without giving sufficient opportunity to the appellant to adduce evidence relevant to any ground of appeal."

Under sub rule (3) to rule 46A, a condition was imposed that such evidence shall not be taken into account by the CIT(A) unless the AO. was confronted with the same.

Rule 46A-whether ultra vires the Act.

3.               The validity to rule 46A was under challenge before the Allahabad High Court in Smt Mohindar Kaur vs. Central Govt (1976) 104ITR 120.
The Court analysed the provisions of section 250(4) and section 250(5) of the Act and observed that no part of Rule 46A whittles down or impairs the power to make further inquiry conferred upon the first appellate authority by section 250(4).
Similarly, section 250(5) confers power upon CIT(A) to permit the appellant to raise a fresh point which has not been even touched by rule 46A The Court finally held that rule 46A is not ultra vires section 250 or 251 of the Act. On the contrary, it gives a right to the appellant to produce additional evidence which was earlier not available to him.

Notice of hearing to A.O.-whether is tantamount to compliance under Rule 46A.

4.              As per section 250(1), the CIT(A) has to give notice of hearing to the AO. against whose order appeal is preferred. When such a notice is given, often a plea is raised on behalf of the assessee that there is sufficient compliance of rule 46A as the A O. has been given opportunity of being heard and such an opportunity may also be construed to be an opportunity to rebut the additional evidence produced by the assessee. This view has not found favour with the courts. The Gujarat High Court in CIT vs. Valimohmed Ahmedbhai (1982) 134 ITR 214 (Guj.) held that by the admittance of additional evidence, something adverse to the ITO is sought to be done in the course of appeal by way of augmenting the record. Therefore, ITO need to be heard for the purpose and be given an opportunity to meet with the additional material by way of cross examination, counter evidence and urging submissions in the context of the augmented record. Any order admitting additional evidence behind the back of the ITO is the order passed in violation of the principles of natural justice.

Violation of Rule 46A-consequences

5.            Any order passed by the CIT(A) granting relief to the appellant by admitting additional evidence but without giving a specific opportunity of being heard to the A O. to rebut the same is in contravention of rule 46A(3). Such orders are liable to be set aside and the matters are normally restored back 'to the file of the AO. for fresh examination.

Materials clarificatory in nature-whether amounts to additional evidence

6.              Courts have held that clarificatory nature of materials are not additional evidence. This issue arose before the Karnataka High Court in Sri Shankar Khandasari Sugar Mills vs. CIT (1992) 193 ITR 669. The issue before the court, in brief, was that the ITO framed the best judgement assessment U/S 144 relying upon the material from the Commercial Tax Department relating to the turnover of the assessee. Before the CIT(A), the assessee produced S.T. assessment order for the first time who refused to look into the same on the pretext of additional evidence. Holding the action of the CIT(A) to be unjustified, the court observed-

“The appellate authority should have accepted the material produced by the assessee as clarificatory in nature and considered the same to test the fairness and propriety of the estimate of income made by the Income-tax Officer. Though it was belated production of very relevant material, no prejudice (in its legal sense) would have resulted to the Revenue by considering the material produced by the assessee"
"In the absence of any prejudice to the Revenue, and the basis of the tax under the Act being to levy tax, as far as possible, on the real income, the approach should be liberal in applying the procedural provisions of the Act. An appeal is but a continuation of the original proceeding and what the Income-tax Officer could have done, the appellate authority also could do." (emphasis supplied)
Recently, in a Third Member case before the Gauhati Bench of the Tribunal in DCIT vs. New Manas Tea Estate (P) Ltd 73 ITD 157, the relevant facts were that the assessee had purchased tea leaves from 'A' Ltd. under an agreement pursuant to which certain amount was debited in the purchase and expenses account at a certain rate plus 0.50p in respect of the cess imposed by the Government. At the end of the year, it was found that a certain amount of cess remained payable to 'A' Ltd. The AO. disallowed the same under section 43B. Before the CIT(A) for the first time the assessee produced a letter issued by 'A' Ltd. stating therein that it had deposited cess in full.
The Third Member on appreciation of these facts held that the evidence in the form of the letter could not be considered an additional evidence. The CIT(A) has rightly stated that this letter was only clarificatory in nature. He further held that even this clarification was not needed because the main and the only relevant evidence viz., agreement with 'A' Ltd. was already on the file of the AO.

Evidence received pursuant to an enquiry-whether rule 46A attracted

7.              Section 250(4) gives wide discretion to the CIT(A) to make such further inquiry as he thinks fit or to direct the AO. to make further inquiry and report the result to him. Even, rule 46A(4) clarifies that nothing contained in rule 46A shall affect the CIT(A)'s power to direct the production of any document or the examination of any witness to enable him to dispose of the appeal. Even circular no. 108 dated 20.3.1973 explaining the amendment pertaining to introduction of rule 46A echoes the same view. Therefore, additional evidences produced before the CIT(A) pursuant to his direction stand on a different footing than the new evidences produced before him suo motu by the assessee. Needless to say, in the former case, rule 46A shall not be applicable and there shall not be any necessity on the part of the CIT(A) to get them subjected to scrutiny by the AO.
The distinctive features of the two situations were appreciated by the Allahabad High Court in Smt. Mohindar Kaur vs. Central Govt. 104 ITR 120 (All.) which prompted the Hon'ble Court to uphold the validity of rule 46A Before coming to the said conclusion the High Court held that prior to enactment of rule 46A, the appellant had no right to adduce additional evidence. The CIT(A) could permit the production of additional evidence if he thought it was necessary to enable him to dispose of the appeal or if he thought it fit to make further inquiry, but under rule 46A(I), the appellant has a right to produce additional evidence in the circumstances mentioned in its various sub-clauses (see paragraph 2 above).

Smt. Prabhadevi S.Shah’s case-giving a new dimension

8.            The Bombay High Court in Smt. Prabhavati SShah 's case (1998) 231 ITR 1 has given a new dimension to the provisions relating to admission of new evidence before the CIT(A). The interesting facts in this case were that loans taken by the assessee were added as undisclosed income U/S 68. Before the CIT(A), the assessee wanted to produce additional evidences in the form of xerox copies of cheques, a certificate from the bank and copies of the bank statements which were not accepted by him holding that he was not obliged to accept additional evidences as the assessee's case did not fall in any of the four exceptions set out in rule 46A(l). The Bombay High Court negatived the contention of the CIT(A) and held that under section 250(4), he was empowered to make such further inquiry as he thinks fit and such power being quasi judicial power , it was incumbent on him to exercise the same if the facts and circumstances justify. It further held that if the first appellate authority failed to exercise his discretion judicially and arbitrarily refused to make inquiry in a case where the facts and circumstances so demand, his action would be open for correction by a higher authority.
In other words, the message from the Bombay High Court is that if prima facie an information! evidence is necessary to examine the claim of the assessee, the CIT(A) should consider the necessary evidence in exercise of powers u/s 250(4) even if the case of the assessee does not fall within the four comers of the circumstances enumerated in rule 46A(l).
Following the Smt. Prabhavati SShah's case (supra), some benches of the Tribunal have rejected the technical objection raised by the Revenue in regard to the admission of additional evidence.
In a case before the Cuttack Bench in DCIT vs. Pradeep Oxygen (P) Ltd (2001) 71 TTJ 662, the facts were that a Board Resolution in support of reimbursement of medical expenses to its managing director was produced for the first time before the CIT(A). The revenue raised the technical objection of admission by the CIT(A) of fresh evidence in violation of rule 46A. Tribunal dismissed the revenue's appeal following Smt. Prabhavati SShah's case (supra) holding that the CIT(A) was fully justified in examining the circumstances in which the medical reimbursement was made more particularly when disallowance was made without giving any opportunity of hearing to the assessee on that aspect of the matter.
In ITO vs. Bajoria Foundation (2001) 71 TTJ 343, the Calcutta Bench of the Tribunal once again followed Smt. Prabhavati S Shah's case (supra) to reject the technical objection of the revenue and held that CIT(A) could consider the necessary evidence in exercise of his powers under section 250(4) if prima facie an information is necessary to examine the claim of the assessee.

Concluding Remarks
9.             In a number of cases, CIT(A) grants relief to the assessee by admitting additional evidence in violation of rule 46A i.e., without giving an opportunity to the AO to rebut the evidences produced by the assessee. Even in cases where he is admitting additional evidences pursuant to inquiries made by him, such facts are not properly brought on record or in his order. Therefore, the relief granted to the assessee by him remains on paper only inasmuch as the revenue invariably challenges such orders before the Tribunal taking the ground of violation of rule 46A The Tribunal in such cases has no option but to restore the issues back to the AO's file for examination. The assessee is a great sufferer in such cases not only in terms of cost but also because it becomes difficult for him to substantiate the evidences after a time lag. And all this happens to him for no fault on his part.