Court Upholds Tribunal's Discretion in Rejecting Additional Evidence

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Case Name:

Fairdeal Filaments Ltd. Vs Commissioner of Income Tax (High Court of Gujarat)

Income Tax Reference No.107 of 1996

Date: 12th February 2008

Key Takeaways:

1. Appellate authorities have discretion in admitting additional evidence.

2. Courts are reluctant to interfere with factual findings of lower appellate bodies.

3. Negligent or non-cooperative assessees may be denied the benefit of submitting additional evidence.

Issue: 

Was the Tribunal correct in law in not admitting additional evidence under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963?

Facts:

- The case concerns the Assessment Year 1991-92.

- Fairdeal Filaments Ltd. filed a tax return declaring income of Rs. 72,900.

- The Assessing Officer made additions and disallowances to the declared income.

- The assessee appealed to the Commissioner (Appeals), who partly allowed the appeal but refused to admit additional evidence.

- The assessee then appealed to the Income Tax Appellate Tribunal, which also refused to admit additional evidence.

Arguments:

Assessee:

- Sufficient opportunity was not given to produce evidence before the Assessing Officer.

- The Tribunal should have admitted additional evidence under Rule 29 of the ITAT Rules.

Revenue:

- The assessee was given adequate opportunities to present evidence.

- The Tribunal's discretion was exercised correctly and shouldn't be interfered with.

Key Legal Precedents:

1. Pari Mangaldas Girdhardas Vs. CIT 1977 CTR (Guj.) 647:

Discussed the scope of Rule 29 of ITAT Rules.

2. CIT Vs. Ogale Glass Works Ltd., (1954) 25 ITR 529:

Referenced regarding the High Court's ability to consider evidence available on record.

3. Ram Prasad Sharma Vs. C.I.T. (1979) 119 ITR 867:

Production of additional evidence before appellate authorities is not a matter of right.

4. CIT Vs. Rao Raja Hanut Singh (2001) 252 ITR 528:

Tribunal's discretion, if not arbitrary or capricious, should not be interfered with.

Judgement:

The High Court ruled in favor of the Revenue, finding that:

1. The Tribunal correctly concluded that sufficient opportunities were given to the assessee.

2. The Tribunal's exercise of discretion under Rule 29 was not erroneous or arbitrary.

3. The Court cannot interfere with concurrent findings of fact by appellate authorities.

FAQs:

Q1: Can an assessee produce additional evidence at any stage of appeal?

A1: No, it's subject to the discretion of the appellate authorities and specific rules.

Q2: What factors might lead to rejection of additional evidence?

A2: Negligence, non-cooperation, or recalcitrant behavior by the assessee.

Q3: Can the High Court review factual findings of the Tribunal?

A3: Generally, no. The High Court is reluctant to interfere with factual findings unless there's a specific question of law.

Q4: What is Rule 29 of the ITAT Rules?

A4: It governs the production of additional evidence before the Income Tax Appellate Tribunal.

Q5: Does this judgment set a precedent for future cases?

A5: Yes, it reinforces the principle that appellate authorities have discretion in admitting additional evidence, and courts should not interfere unless the discretion is exercised arbitrarily.

1 The Income Tax Appellate Tribunal, Ahmedabad Bench 'B' has referred the following three questions u/s. 256(1) of the Income Tax Act, 1961 (the Act) at the instance of the applicant-assessee.

“ 1. Whether, on the facts and in the circumstances of the case, the Tribunal's interpretation and application of Rule 29 of the I.T. Rules, 1962 is correct in law ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal's decision not to admit additional evidence is correct in law in view of Gujarat High Court decision in the case of Pari Mangaldas Girdhardas vs. CIT (1977) CTR 647?

3. Whether, on the facts and in the circumstnaces of the case, the Tribunal was right in law in upholding the decision of the successor CIT(A) not to consider the evidence produced by the assessee as directed by the predecessor CIT(A) and in itself not considering it?”

2 The Assessment Year is 1991-92, the relevant accounting period being Financial Year ended on 31.03.1991. The assessee, a Private Limited Company, filed return of income on 30.12.1991 declaring total income of Rs.72,900/-. The Assessing Officer made addition on account of unexplained share capital to the tune of Rs.18,40,200/-, disallowed the consultation fees of Rs.75,000/-, and disallowed claim u/s.80I of the Act.

3 The assessee carried the matter in appeal before the Commissioner (Appeals) who partly allowed the appeal on one another ground but confirmed the Assessment Order in relation to the aforesaid three items by refusing to admit additional evidence in the following terms :

“3. Before me, the appellant has, furnished the above list showing the names and addresses, and P.A. Numbers of these share-holders and contended that above addition should be deleted and addition, if any, should be considered in the hands of individual share-holders of company.

4. Since the list of the share-holders now being furnished to me was in the nature of an additional evidence, not submitted before the Assessing Officer, the A.O. Was requested whether the evidence being furnished in the course of the appellate proceedings should be admitted. The Assessing Officer reiterated the arguments given in the assessment order i.e. appellant was given repeated opportunity to file this information before him, but it did not care to file the same before him.

5. I have gone through the case-records and find that the Assessing Officer has given more than adequate opportunity to the appellant to furnish the information regarding the names and addresses of the share-holders but the appellant has failed to file the same before him. The first notice calling for this information is found to have been issued by the Assessing Officer on 2-3-93 and another notice calling for the same information was issued on 19-3-93 but the appellant cared not to comply with these notices. Therefore, whatever be the merits of appellant's case, I am of the view that its case is not covered by the rule 46A of I.T. Rules. Accordingly, this ground of appeal is rejected.”

4 The assessee carried the matter in Second Appeal before the Tribunal wherein on behalf of the assessee the following submissions were made :

“4. Shri R.N. Vepari, the learned Counsel for the assessee submitted that the CIT(A) erred in not taking into consideration evidence regarding source of share capital in the form of confirmation, names, addresses, P.A. Nos. of share holders who had contributed share capital when the appellant was prevented from producing such evidence before the Assessing Officer as sufficient opportunity was not given to the assessee. He, therefore, submitted that the orders of the authorities below should be set aside and the matter restored either to the ITO or to the CIT(A)”.

5. It was further pleaded that the Tribunal should permit adducing of additional evidence in exercise of powers under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963 (ITAT Rules). The Tribunal rejected the contention raised on behalf of the assessee in the following terms :

“6. We have considered the rival submissions and perused the facts on record. A perusal of the assessment order reveals that the Assessing Officer gave adequate opportunity from time to time and asked the assessee to furnish the details/evidence in respect of the share capital as also the names, addresses and share holdings of the holders but the assessee took it very lightly and made no compliance. The assessee thus showed no respect for law. It is an admitted fact that the evidence in respect of the share capital as detailed supra was furnished for the first time before the CIT(A) vide letter dt. 28/12/93 (page 28 of the paper book). We have gone through this letter and find that the assessee submitted 'A detailed chart is enclosed to show what happened on various dates and the assessee remained under the impression that since it was not a time-barring assessment, the assessment would not be finalised'. This shows that the assessee took the whole thing very lightly and rather dictated to the Assessing Officer to take up assessment proceedings at their convenience as it was not getting time barred. The fact of the matter is that the Assessing Officer gave a number of opportunities to the assessee and the assessee not only not availed of these opportunities but showed great dis-respect to the process of law. Under the circumstances the CIT (A) was justified in not admitting the evidence furnished before him for the first time when it was not furnished before the Assessing Officer, without any reasonable cause. Before us a plea has been raised that this evidence should be admitted under Rule 29 of the I.T.Rules. There is no doubt that Rule 29 enables the Tribunal to admit additional evidence in certain cases and under certain circumstances but the benediction of rule 29 can not be bestowed upon any party who is negligent, non-co- operative and recalcitrant; nor should the Tribunal give another chance or opportunity to any party to cover up lacunae, latches and lapses. Taking into consideration the facts and circumstances of the case we do not consider the case of the assessee as fit for invoking Rule 29 of the I.T. Rules”.

6. Mr. M.J.Shah, learned Advocate appearing on behalf of the applicant-assessee submitted that the Tribunal has committed an error in law in not admitting additional evidence under Rule 29 of the ITAT Rules considering the peculiar fact situation of the case. Inviting attention to the reproduction of various dates on which opportunity was given by the Assessing Officer and the assessee's response as recorded in the assessment order it was submitted that the last such opportunity was granted vide letter dated 19.03.1993 seeking compliance by 25.03.1993, but the Assessment Year under consideration i.e. Assessment Year 1991-92 was not getting barred by limitation on 31.03.1993 and hence in relation to immediately preceding assessment year viz. assessment year 1990-1991 which was getting barred by limitation on 31.03.1993, the assessee had asked for adjournment after pointing out this fact as the Chartered Accountant representing the assessee before the Assessing Officer was busy with other assessments which were getting barred by limitation.

That the Assessing Officer did not deal with the application for adjournment and straight away passed the assessment order. The predecessor Commissioner (Appeals) had directed the assessee to produce the evidence on merits of the additions made but by the time the evidence could be tendered the Commissioner (Appeals) had been transferred and the successor Commissioner (Appeals) did not permit production of additional evidence. That even the Tribunal did not consider the aforesaid circumstances in which the assessee had been placed while upholding the order of Commissioner (Appeals) and also rejecting the plea for admission of additional evidence under Rule 29 of the ITAT Rules. The learned Advocate therefore pleaded that in the interest of justice an opportunity was required to be granted to the assessee to produce relevant material on record before any addition/ disallowance could be made and all the authorities had erred in law in not granting such an opportunity. Therefore, the High Court should send the matter back to the Tribunal with a direction to admit additional evidence and thereafter decide the merits of the case, viz. whether any addition/disallowance was permissible.

In support of the submissions made reliance has been placed on decision of High Court of Orissa in case of Patny & Co. CIT, (1955) 28 ITR 414 as well as decision of this High Court in the case of CIT Vs.Kaira District Co-operative Milk Producers' Union Ltd.,(1979) 116 ITR 319 to point out that in both the decisions the Supreme Court decision in case of CIT Vs. Ogale Glass Works Ltd.,(1954) 25 ITR 529 was relied upon enabling the High Court to consider the evidence which was already available on record of the Income Tax Authorities.

6.1 It was further submitted that the submissions made are supported by communication dated 20.3.1993, which was the assessee's letter addressed to the Assessing Officer in response to letter dated 19.3.1993 written by the Assessing Officer, and letter dated 28.12.1993 which was written to Commissioner (Appeals) wherein the factum of direction by predecessor Commissioner (Appeals) to produce the additional evidence was reflected.

6.2 Lastly reliance was placed on decision of this Court in the case of Pari Mangaldas Girdhardas Vs. CIT 1977 CTR (Guj.) 647 to contend that even in case where it may be possible to pronounce judgment on the state of record as it is, if there is inherent lacunae or defect, in the interest of justice something which remains obscure should be permitted to be filled up by permitting production of additional evidence so as to enable the Court/Tribunal to pronounce judgment in a more satisfactory manner.

7. Mr.B.B. Naik, learned Standing Counsel appearing on behalf of the respondent-Revenue has placed reliance on Allahabad High Court decision in the case of Ram Prasad Sharma Vs. C.I.T.(1979) 119 ITR 867 to submit that the production of additional evidence either before the First Appellate Authority or Tribunal was not as a matter of right and in case a discretion was exercised in accordance with law there was no occasion to interfere. Similarly decision of Rajasthan High Court in the case of CIT Vs. Rao Raja Hanut Singh (2001) 252 ITR 528 was referred to, to point out that if the Tribunal has exercised discretion whether to admit additional evidence or not and such exercise of discretion is not found to be either arbitrary or capricious or injudicious in any manner no question of law can be said to arise merely because in exercise of its discretion Tribunal could have permitted production of additional evidence. It was therefore urged that there was no error in the impugned order of Tribunal, and in fact no question of law arose from the order of the Tribunal, so as to warrant interference.

8. The facts narrated hereinbefore go to show that before the Tribunal the limited question that was raised was whether the Commissioner (Appeals) had rightly turned down the request made by the assessee for production of additional evidence. Alternatively, it was contended on behalf of the assessee that the Tribunal may exercise discretion vested in the Tribunal vide Rule 29 of the ITAT Rules and admit additional evidence. The Tribunal has come to the conclusion that there was no infirmity in the order of Commissioner (Appeals) rejecting the plea of the assessee for production of additional evidence because, according to the Tribunal Commissioner (Appeals) had rightly come to the conclusion that sufficient opportunities had been granted to the assessee by the Assessing Officer. In fact the finding of the Tribunal on this ground is that the assessee took the entire matter very lightly and asked the Assessing Officer to take up the assessment proceedings at the convenience of the assessee (or may be the Chartered Accountant of the assessee) as pleaded, because the assessment was not getting time barred. If both the Appellate Authorities have concurrently come to the conclusion that sufficient opportunities were granted to the assessee it is not possible to go behind the said findings which are primarily based on appreciation of evidence on record.

9. Similarly so far as admitting additional evidence under Rule 29 of the ITAT Rules is concerned the Tribunal has come to the conclusion that the benefit under the said Rule is not available to a person who is negligent, non-cooperative and recalcitrant; and the Tribunal is not required to give another chance or opportunity to a person to cover up its own lapses. Even on this ground it is not possible to hold that the Tribunal has committed any error in law so as to call for intervention.

10. The position in law as regards admission of additional evidence, both in relation to Rule 46A of the IT Rules and Rule 29 of the ITAT Rules is similar. No person is entitled to seek admission of additional evidence as a matter of right. In fact opening portions of both the rules are couched in negative terminology and place an embargo on a person from seeking admission of the additional evidence. The only exception being, fulfillment of the stipulated conditions. Therefore, the Appellate Authorities are vested with a discretion whether to admit or to reject an application for production of additional evidence and for this purpose the only test which is relevant is whether discretion has been validly exercised in the facts and circumstances of the case, in other words, is supported by reasons and is not capricious or arbitrary in any manner. Applying the aforesaid test to the facts of the case it becomes apparent that the Tribunal has approached the matter correctly and once the Tribunal has exercised discretion legally in accordance with law it is not possible to come to the conclusion that in the facts and circumstances of the case, such exercise of discretion is either coloured by irrelevant considerations or is capricious or arbitrary.

11. In so far as Rule 29 of the ITAT Rules is concerned in the case of Pari Mangaldas Girdhardas (supra) this High Court after setting out the text of the Rule has stated as under :

“The provisions of the said Rule make it clear that the parties to the appeal shall not be entitled to produce additional evidence either oral or documentary before the Tribunal. However, in three classes of cases it permits production of additional evidence :(1) when the Tribunal requires any documents to be produced or any witness to be examined or any affidavit to be filed to enable it to pass orders; (2) when the Tribunal requires any documents to be produced or any witness to be examined or any affidavit to be filed for any other substantial cause; or (3) when the Income-tax authorities have decided the case without giving sufficient opportunity to the assessee to adduce evidence either on points specified by them or not specified by them. The said Rule provides that in any of those three cases, for reasons to be recorded, the Tribunal may allow the production of additional evidence. We are not concerned in the present case with a case falling in the third category and we need to say no more about it. Since the provisions of the said Rule are in pari materia with the provisions of order 41, Rule 27 of the Code of Civil Procedure, we may refer to some of the decided cases relating to Order 41, Rule 27(1)(b) C.P.C. in order to appreciate the nature and ambit of the power conferred under Rule 29 upon the Tribunal in so far as the first two categories of cases are concerned”.

12. In so far as the said decision is concerned the Court was not called upon to consider whether the case fell within the third category of exception, viz. when the Income Tax Authorities have decided the case without giving sufficient opportunity to the assessee to adduce evidence. Therefore, the ratio laid down in the said decision is confined to the first two categories of exceptions as stated by the High Court. Though the learned Advocate for the applicant-assessee submitted that the case of the assessee was also governed by the first two exceptions when one reads submissions made before the Tribunal and taking into consideration the contentions raised before this Court it is not possible to accept the said submission. In fact the assessee's case all along has been that sufficient opportunity was not given to the assessee to bring on record material to show that no addition/disallowance was warranted; that despite the assessee having asked for adjournment, the Assessing Officer proceeded to complete the assessment without dealing with the adjournment application. In this regard suffice it to state that both the Appellate Authorities have recorded that sufficient opportunities were granted to the assessee. Whether sufficient opportunities were granted or not is basically a question of fact and the High Court cannot go behind the finding of fact recorded by the Tribunal. In the event, according to the assessee, the finding was either not supported by evidence on record or was contrary to the evidence on record, it was for the assessee to raise a specific question in this regard, as to whether the finding of the Tribunal is supported by any material or any evidence on record. In absence of such a question the Court cannot, in the guise of referring to material on record, ignore the finding of fact recorded by the Tribunal in exercise of reference jurisdiction. Letter dated 28.03.1983 on which reliance is placed on behalf of the assessee is nowhere referred to in the order of the Tribunal and the Court cannot go into the same as the said letter has also not been annexed to the statement of the case.

13. In the aforesaid fact situation, the decisions cited on behalf of the assessee cannot carry the case of the assessee any further, because admittedly in the said decisions the Courts have found that there was material available on record which was referred to either by Commissioner (Appeals) or the Tribunal but had not formed part of the statement of case. In the present case that is not the situation.

14. Hence, in absence of any infirmity in the exercise of discretion by Tribunal all the three questions referred for opinion of the High Court are answered in the Negative i.e. in favour of the revenue and against the assessee.

15. The Reference stands disposed of accordingly with no order as to costs.

Sd/-

(D.A. Mehta, J.)

Sd/-

(Z.K. Saiyed, J.)