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Wednesday, September 12, 2012

Without an application under rule 46A, Commissioner of Income Tax (Appeals) cannot admit any new evidence/material brought in by assessee and A.O. must be given reasonable opportunity to examine the evidence or document

Summary: As per rule 46A(2), no evidence can be admitted by the Commissioner (Appeals) under sub-rule (1) unless he records in writing the reasons for its admission. Under rule 46A(3), it is clearly mentioned that the Commissioner (Appeals) shall not take into account any evidence produced under sub-rule (1) unless the Assessing Officer has been allowed a reasonable opportunity to examine the evidence or document or to cross-examine the witness produced by the appellant, or to produce any evidence or document or any witness in rebuttal of the additional evidence produced by the appellant. As regards rule 46A(4), it has also been mentioned that nothing contained in this rule shall affect the power of the Commissioner (Appeals) to direct the production of any document to enable 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. The Ld. CIT(A), without application under Rule 46A and without recording any reason for admitting the documents and explanation filed before him and without affording reasonable opportunity to examine such evidence or documents filed before him by the A.O. had decided the issue in favor of the assessee, which is clear violation of principle of natural justice. It is not a case under Rule 46A(4) that the Ld. CIT(A) had directed the assessee for production of any document to enable him to dispose of the appeal. Therefore, the decision of the ld. CIT(A) is in clear violation of principle of natural justice and bad in law. But in the interest of justice, since the details submitted by the Ld. CIT(A) remained to be examined by the A.O., though the same were not submitted before the AO in spite of number of opportunities given.

IN THE ITAT AMRITSAR BENCH
Deputy Commissioner of Income-tax, Circle, Pathankot
vs.
Gurdaspur Central Co-op. Bank Ltd.*
H.S. SIDHU, JUDICIAL MEMBER
AND B.P. JAIN, ACCOUNTANT MEMBER

IT APPEAL NO. 99 (ASR.) OF 2011

[ASSESSMENT YEAR 2007-08]

MAY 7, 2012

ORDER

1. This appeal of the assessee arises from the order of the CIT(A), Amritsar, dated 21.12.2010 for the assessment year 2007-08.

2. The assessee has raised following grounds of appeal:
"1.  On the facts and circumstances of the case, the ld. CIT(A), Amritsar, erred in deleting the addition of Rs.12,00,000/- made by the AO on the plea that the case of the assessee is squarely covered u/s 36(1)(viia) of the Income-tax Act, 1961 without appreciating the facts that the assessee failed to furnish the details of assets classified by the Reserve Bank of India as doubtful assets or loss of assets is in accordance with guidelines issued by it in this behalf.
 2.  On the facts and circumstances of the case, the ld. CIT(A), Amritsar, erred in deleting the addition of Rs.28,33,460/- made by the AO by observing that the payment made to petrol pump for purchase of petrol used in such hired vehicles was not liable to tax deducted at source without appreciating the fact that since the provisions of Chapter XVIIB were not complied with, the disallowance made u/s 40(a))(ia) of the Act was correct and should have been upheld.
 3.  On the facts and circumstances of the case, the order of the ld. CIT(A), Amritsar, be vacated and that of the AO be restored.
 4.  Appellant craves leave to amend or add any or more grounds of appeal."

3. In the first ground of appeal, the brief facts are that the assessee had claimed expenditure of Rs.12,00,000/- under the head "Provisions on Standard Assets". The assessee was specifically asked to explain the nature of this deduction but inspite of number of opportunities given, it failed to give any explanation on this account. Therefore, the deduction of Rs.12,00,000/- on account of provision on standard asset was disallowed and added to the returned income of the assessee..

4. Before the Ld. CIT(A), the assessee submitted written submissions which are reproduced in CIT(A)'s order in para 5 on pages 8 & 9. The Ld. CIT(A) vide para 7 of his order deleted the addition observing that the AO had given no reasons for the disallowance of expense. Thereafter, the Ld. CIT(A) on the basis of submissions made before him by the Ld. counsel for the assessee that the expense is debited notionally @ 0.1% to 0.4% of such assets to maintain and retain all standard assets, as per Master Circular on Income Recognition Asset Classification, Provisioning and other related matters issued by the Reserve Bank of India. He further mentioned that u/s 35A of the Banking Regulation Act, 1949, the Reserve Bank of India has been empowered to issue directions to all the banks as to regulate the banking business in the public interest or in the interest of banking policy. After discussing what has been submitted by the assessee before him, the ld. CIT(A) observed that the assessee had no option but to claim the same and the claim, even if notional, is exclusively laid out for the purpose of smooth running of banking business and thee is no reason not to allow the same to the assessee. It is a statutory claim allowable on the analogy of 30% deduction allowed in respect of income under the head house property, without making it necessary to show the evidence of such expense having been actually incurred. The AO had failed to appreciate that section 36(1)(viia) is amended by the Finance Act, 2007 to include co-operative banks for the purpose of allowability of deduction under this section retrospectively from Ist April, 2007 and subsequent years. This amendment was brought to give relief to the co-operative banks which have been withdrawn as a deduction under section 80P. Referring to the Rule 6ABA, it was observed that deduction under section 36(1)(viia) is a notional deduction, which is within the limits of the said section. Accordingly, the Ld. CIT(A) deleted the addition.

5. As regards ground No.2, the brief facts are that the assessee has claimed Rs.26,33,460/- on account of hire of vehicles but no TDS had been deducted on account of payments made to the vehicle owners. Inspite of specific opportunities given to the assessee, the assessee failed to file any evidence that provisions of TDS are not applicable to the payments made for hired vehicles. Therefore, as per provisions of section 40(a)(ia) of the Act, the amount of TDS was not deducted in computing the income chargeable under the head profit and gains of business or profession on which tax is deductible at source under chapter XVIIB . Accordingly, the said amount was disallowed and added to the returned income of the assessee.

6. Before the Ld. CIT(A), the assessee made the written submissions which are available at pages 9 to 13 of CIT(A)'s order. On the basis of the submissions by the assessee, the ld. CIT(A) vide para 8 of his order at pages 15 to 18 deleted the addition by observing that certain categories of bank employees are entitled to facility of staff vehicle for the performance of their official duties. Since the bank did not own a fleet of its own vehicles so as to provide it to a number of its employees entitled to it at HO and at its 44 branches, the banking Board has formulated a policy to allow vehicle maintenance expenses at a fixed rate on daily basis to all such employees, having regard to their rank and type of vehicle entitled to. It is for the concerned employees to arrange the vehicle of its own and justify the expense claimed. The fuel charges are to be borne by the bank. The vehicle owner is not under any contract with the bank or any of its employees to provide his vehicle. It depends upon the availability of the vehicles, which may be hired again or not. Therefore, the factual aspects of the matter are not covered under the provisions of section 194C of the Act. Further, the aggregate payment never exceeded the limit of Rs.50,000/- in a year which could entail liability of TDS. The AO has not brought on record even a single instance through out and arbitrarily invoked the provisions of section 40(a)(ia) of the Act. The total expenditure of the said vehicle includes petrol expenses amounting to Rs.11,84,383/- separately borne by the bank but included in the total amount. The AO has failed to notice the same. The said amount is not liable to TDS. The Auditor of the assessee has reported in the tax audit report in Col. 27 that the assessee has complied with the provisions of Chapter XXVII-B. Therefore, no disallowance made by the AO under these circumstances was justified and accordingly, the addition of Rs. 28,33,460/- was deleted.

7. The Ld. DR, Sh. Amrik Chand, appearing on behalf of the Revenue argued that no details were submitted with regard to the provisions on Standard Assets inspite of number of opportunities given to the assessee. Also with regard to claim of expenses of Rs. 28,33,460/- on account of hired vehicle, a specific opportunity was given to the assessee to file any evidence that the provisions of TDS are not applicable. Payments were made to the owners of hired vehicles but the assessee failed to file such details. The Ld. CIT(A) after considering the submissions of the assessee and without giving any opportunity to the AO has decided the issue, which is in violation of principle of natural justice. On merit, the Ld. DR argued that the assessee had not shown the provisions as to how the R.B.I. Act is applicable u/s 36(1)(viia), which specifically speaks of the provisions for bad and doubtful debt and no provision of standard on asset is there in the Income Tax Act.

7.1 As regards the disallowance under section 40(a)(ia) of the Act for hired vehicles, as per details placed before the ld. CIT(A), the payments have been made on periodical basis mostly on monthly basis, which can only be part of the contract. The total payments made periodically, monthly or half yearly have been bifurcated by the assessee only as hiring charges, petrol charges and other charges. The Ld. DR, therefore, prayed before the Bench to restore the order of the Assessing Officer by reversing the order of the ld. CIT(A) on both the grounds.

8. On the other hand, the ld. counsel for the assessee, Sh. J.S. Bhasin, strongly relied upon the order of the ld. CIT(A) and reiterated the submissions made before him on both the grounds. He filed paper book containing pages 1 to 23 before the Bench which was filed before the ld. CIT(A).

9. We have heard the rival contentions and perused the facts of the case. There is no dispute to the fact that the assessee had not submitted any explanation or documentary evidence for the claim of Rs. 12,00,000/- as per 'Provisions of Standard Assets'. Similarly, inspite of specific opportunity given to the assessee with regard to the claim of Rs. 28,33,460/- on account of hired vehicles, the assessee failed to file any evidence that the provisions of TDS are not applicable to the payments made for hired vehicles. In such situation and facts and circumstances of the case, there was no alternative left with the AO but to disallow both the claims made by the assessee. Before the ld. CIT(A), the assessee made submissions and as claimed has submitted the Circular of the Reserve Bank of India, Audit Report of the RBI and other details in paper book containing pages 1 to 23. On the basis of which, the ld. CIT(A) had deleted the additions by accepting the explanation of the assessee. Now the question arises whether the ld. CIT(A) is authorized to admit such additional evidences which are in the form of R.B.I. guidelines, list of advances advanced by the bank, relevant pages of Statutory audit showing calculation of standard Assets & provision of Rs. 12 lacs, details of hired vehicles showing petrol expenses debited under this head and relevant Tax Audit report in form No.3CD at PB 1 to 23, which were only filed before the ld. CIT(A). Under Rule 46A of the Income Tax Rules, 1962, it has been provided that the appellant is not entitled to produce before the ld. CIT(A) 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 circumstances referred to under Rule 46A(1), which for the sake of clarity are reproduced as under:
"(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."

9.1 As per Rule 46A(2), no evidence can be admitted by the ld. CIT(A) under sub-rule (1) unless he records in writing the reasons for its admission. Under Rule 46A(3), it is clearly mentioned that the Ld. CIT(A) shall not take into account any evidence produced under sub-rule (1) unless the Assessing Officer has been allowed a reasonable opportunity to examine the evidence or document or to cross-examine the witness produced by the appellant, or to produce any evidence or document or any witness in rebuttal of the additional evidence produced by the appellant. As regards Rule 46A(4), it has also been mentioned that nothing contained in this rule shall affect the power of the CIT(A) to direct the production of any document to enable 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 AO. In the present case, the assessee had submitted the details with regard to hiring charges, petrol charges and other charges before the ld. CIT(A) and other evidences to show that the claim of Rs.12,00,000/- is available to the assessee. In the present case, the assessee has not moved any application for admission of any additional evidence under Rule 46A of the Income Tax Rules, 1962. Even if the application under Rule 46A has not been filed before the ld. CIT(A), the assessee has not shown that the AO has refused to admit the evidence which ought to have been admitted or the assessee was prevented by sufficient cause from producing the evidence which he was called upon to produce by the AO; or where the assessee was prevented by sufficient cause from producing before the AO any evidence which is relevant to any ground of appeal; or where the AO has made the order appealed against without giving sufficient opportunity to the assessee to adduce evidence relevant to any ground of appeal.

9.2 The Ld. CIT(A), without application under Rule 46A and without recording any reason for admitting the documents and explanation filed before him and without affording reasonable opportunity to examine such evidence or documents filed before him by the AO had decided the issue in favour of the assessee, which is clear violation of principle of natural justice. It is not a case under Rule 46A(4) that the ld. CIT(A) had directed the assessee for production of any document to enable him to dispose of the appeal. Therefore, the decision of the ld. CIT(A) is in clear violation of principle of natural justice and bad in law. But in the interest of justice, since the details submitted by the ld. CIT(A) remained to be examined by the AO, though the same were not submitted before the AO inspite of number of opportunities given. Therefore, the issues involved in ground Nos. 1 & 2 are set aside to the file of the AO who will decide the issue denovo but by providing opportunity of being heard to the assessee and after considering the documents submitted before the Ld. CIT(A). Accordingly, the appeal of the Revenue is allowed for statistical purposes.

10. In the result, the appeal of the Revenue in ITA No.99(Asr)/2011 is allowed for statistical purposes.

Matter Remanded
...xxx...

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