^ •.^fi{»:. ^F/^ ^.5-/0 HIGH COURT OF CHHATTISGARH :_BILA_SPUR Tax Case No. 19 of 2009 Appellant (Revenue) Respondent (Assessee) Versus Commissioner of Income Tax, Raipur (Chhattisgarh) Hi-Tech Abrasives Ltd., MIG-21, Indrawati Colony, Raipur (C.G.) Order for consideration. Sd/-. Satish K. Agnihotri Judge HON'BLE MR. JUSTICE MANINDRA MOHAN .SHRIVASTAVA Sd/- ManindraMohanShrivastava Judge Post for ORDER on^^Febmary. 2010 Sd/- Satish K. Agnihotri Judge ln~' SS^^^^^^^S^^i^^t.^^gg^il^g^^^.^^BES^'^sF^^-:^:^. '^^ w HIGH COURT OP CHHATTISGARH : BILASPUR Tax Case No. 19 of 2009 Appellant (Revenue) Respondent (Assessee) Versus Commissioner of Income Tax, Raipur (Chhattisgarh) Hi-Tech Abrasives Ltd., MIG-21, Indrawati Colony, Raipur (C.G.) APPEAL UNDER SECTION 260-A OF THE INCOME TAX ACT. 1961 DB: Hon'ble Shri Satish K. Agnihotri 8s Hon'ble Shri Manindra Mohan Shrivastava, JJ Shri Rajeev Shrivastava, Standing Counsel with Ms V. Shradha Rao, Advocate for the appellant. Shri Shashank Dubey, Senior Advocate with Shri Ajay Shrivastava, , Advocate for the respondent. O^RDER (Passed on fh.is^f'day ofFebruary, 2010) Per Satish K. Agnihotri, J. fflps; The instant appeal arises from the order dated 28th November, 2008, passed by the Income Tax Appellate Tribunal, Bilaspur Bench (Camp at Raipur) in Appeal I.T.A. No. 358/Nag/2008 for the Assessment Year 2005-2006. On 15.5.2009, this appeal was admitted for hearing on 'the following substantial question of law: " Whether on the facts and circumstances of the case, the Hon'ble ITAT was justified in holding and placing reliance on the evidence in respect of installation of moulds and sale of the finished products, which was produced before the CIT(A) for the first time, and was admitted by him without complying rule 46A - of the I.T. Rules and without giving any opportunity to the Assessing Officer to rebut or^examine the same ?" Relevant facts, in nutshell, are that the respondent company is engaged in manufacture and sale of steel ingots, CI shots and grits, steel shots and grits, CI ingots, moulds and castings ete. For the AssessmentYear 2005-2006 the respondent submitted its return. •'•, v-sy '? 6. 'u The Assessing Officer found that the respondent has claiined depreciation on casting mould boxes worth Rs. 2,99,90,272/- by capitalizing the entire amount as plant 6s machinery. The depreciation was claimed on the count that the mould boxes were put in use for less than 180 days. It was found by the Assessing Officer that the respondent/company has not produced any evidence regarding arrival of the mould boxes at Raipur, which were claimed to have been purchased before the closing of the accounting year. Except the transportation and installation bills, no other evidence was submitted by the respondent/company during the course of the assessment proceeding. After close scrutiny, the Assessing Officer by order dated 12.12.2007 (Annexure A/l), passed under Section 143(3) of the Income Tax Act, 1961 ( for short the Acf, 1961'), declined to allow depreciation ofRs. 37,48,748/-on the mould boxes. Being aggrieved by the assessment order dated 12.12.2007, the respondent/company filed an appeal, beingAppeal No.0516/07-08 before the Commissioner of Income-Tax (Appeals), Raipur (hereinafter referred to "CIT (A)") on the ground that the Assessing Officer erred in making ad hoc addition/disallowance without assigning any reason. The Assessing Officer made ad hoc addition, Which is unreasonable and unwarranted and the addition on disallowance of depreciation was made on the ground that transportation bill was not produced and the' machine was not reached before March,'which is unreasonable and unwarranted. The appeal preferred by the respondent/company was allowed by the CIT(A) by order dated 11.3.2008 (Annexure A/2), holding that the respondent/company had bilties (invoices or luggage tickets) of t7f .'••"y'135-'^ /^as!s* \ '^. ^y "isiif^.y U8- ^. y 8. ti-ansportation, which were produced for verification. Those bilties show that the machinery reached the business premises and the mould boxes were in 'ready to use' condition and the respondent/company had sufficient time to install and use the same. Being aggrieved by the order dated 11.3.2008 the appellant/ department filed an appeal, being I.T.A. No. 358/Nag/2008 : Assessment Year 2005-06 before the Income Tax Appellate Tribunal (for short 'the Tribunal'), on the grounds, referred in para 2 of the order dated 28.11.2008 (Annexure A/3), which reads as under : " 1. On the facts and in the circumstances of the case, the Id. CIT(A) erred in deleting the addition of Rs. 2,00,000/- made for low margin of profit. The order of Ld. CIT(A) is erroneous both in law as well as on facts. 2. On the facts and in the circumstances of the case, the Id. CIT(A) erred in deleting the disallowance made out of depreciation on casting moulds boxes at Rs. 37,48,784/-. 3 . On the facts and in the circumstances of the case, the Id. CIT(A) erred in deleting the addition of Rs. 46,780/- on account of depreciation on car and Rs. 1,79,OOO/- on account of misc. expenses (i.e. conveyance exp. Mobile exp. Telephone Exp and Vehicle running exp) made by the Assessing Officer. 4. The order of the Id. CIT(A) is erroneous both in law as well as on facts. " The above appeal filed by the appellant/department was dismissed by the impugned order dated 28th November, 2008 (Annexure A/3) and the order dated 11.3.2008 was affirmed. Being aggrieved by the impugned order dated 28.11.2008, passed by the Tribunal, the appellant/department has filed this appeal under Section 260-A ofthe Act, 1961, on the ground that the CIT(A) had admitted additional evidence in the form of transportation bilties, in contravention of Rule 46 A of the Income Tax Rules, 1962 (for short 'the Rules, 1962') without recording the re@.sons in writing for such adraission and granted the relief to the '^^^^^^asss^s^^^^i^^^ -<<a A-«?<^^ 10. respondent/company. The Tribunal has affirmed the order passed by the CIT (A) holding that the same was based on facts and documentary evidence, whereas during the assessment proceeding the respondent/coinpany had expressed its inability to furnish any evidence in support of their claim of arrival of inould boxes at Raipur. The order passed by the Assessing Officer, disallowing depreciation was proper and legal, based on facts and documents. The Tribunal has failed to appreciate the admitted facts on record that the mould boxes did not reach at the respondent/company at Raipur. The Tribunal has erred in affirming the order passed by the CIT(A) because the CIT(A) had admitted the additional evidence in contravention of fhe provisions of Rule 46-A of the Rules, 1962, without assigning reasons for such admission in writing and without affording an opportunity to the Assessing Officer. Learned counsel appearing for the appellant/deparfanent assails the order dated 11.3.2008, passed by the CIT(A) and the order dated 28.11.2008, passed by the Tribunal on the afore-stated grounds. In support of his submission, the counsel relies on a decision of High Court of F>unjab 8s Haryana (dated 26th Pebruary, 2009 in IT Appeal No. 171 of 2002) in Commissioner of Income • Tax Vs. Oscar Laboratories (P) Ltd.1; that of the High Court of Delhi (dated 23rd April, 2007 in IT Appeal 1000 of 2006 ) in Coniniissioner of Incoine Tax Vs. United Towers I.P. Ltd.2; and further a decision by the High Court of Allahabad (dated 20th January, 2005 in I.T Ref. No. 96 of1987) in Haji Lal Mohd. Biri Works Vs. Coinmissioner oflncome Tax3 '(2009) 179TAXMAN 176 2 (2008) 172 TAXMAN 267 3 (2005) 145 TAXMAN 578 (A11) iiil|^^^^ ^ .i '>.- 11. On the other hand, learned counsel appearing for the respondent/company supports the order passed by the CIT (A) and the order passed by the Tribunal. 12. We have heard learned counsel appearing for the parties and perused the pleadings and documents appended thereto. 13. The main liinb of the argument of learned counsel appearing for the appellant/department is non-compliance of the statutory provisions of Rule 46A of the Income Tax Rules, 1962, which reads as under : " 46A.(1) The appellant shall not be entitled to produce before the {Deputy (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) (d) x 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 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 •y .9' I. ' i S 1 "ses'esii i '%tel-<f'',..'»' .-<?• evidence produced under sub-rule (l) unless the {Assessing Officer} has been allowed a reasonable 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 fhe request of the {Assessing officer} under clause (a) of sub-section (1) of section 251 or the imposition of penalty under section 271.}. 14. It is evident froin the assessment order 12.12.2007 (Annexure A/l) that the assesse continued to derive income from manufacture and sale of steel items namely steel ingots, C.I. shots and grits, steel shots and grits, C.I. ingot, mould and castings etc. The assesse had maintained complete quantitative details of the raw materials and fmished goods. Para 3 of the order reads as under : " 3. During the year assesse has made extensive expansion of its unit. It has shown purchases of casting mould boxes fmished worth Rs. 2,99,90,272/- from Shree Mahavir Dyeing and Printing Mills Pvt. Ltd., Mumbai and the entire amount has been capitalized in plant and machinery and also claimed the same to have been put to use for less than 180 days. Verification of the bills revealed that the entire purchases have been made towards the end of the financial year. Assesse was, therefore, required to produce the transportation bills vide order-sheet entry dated 06-12-2007. On the next date of hearing on 11-12-2007, Shri Sunil Johri, CA and Shri Rajeev Shukla, FCA attended and admitted that the transportation bills are not available. They =3s^:3:5S:ES^^^@M®A^a^^s^^^SNi^^ have also submitted that they have nothing to say except that transportation bills and installation bills cannot be produced. In the absence of the above documents it is not possible to verify whether the mould boxes did reach Raipur and whether they were put to use during the financial year itself. It is pertinent to put on record that although the purchase bills states the purchases as F.0.R., it is imininent that a copy of the transport bill ought to be with the assesse. The assessee's denial, in other words, means and leads to the conclusion that the mould boxes purchased did not reach Raipur before the close of the accounting year and, therefore, the same could not have been put to use during the year as claimed by the assessee. Depreciation thereon claimed by the assessee @ 12.5% {50% of the full rate} shall therefore be disallowed and added back to the total income of the assessee. The disallowance works out to Rs. 37,48,784/-. " 15. Accordingly, by order dated 12.12.2007 the depreciation of Rs. 37,48,784/- was disallowed on casting mould boxes to the respondent/company. 16. The Commissioner of Income-Tax (Appeals) Raipur in his order dated 11.3.2008 (Annexure A/2) has held that from the facts and circumstances of the case, it is found that the disallowance is without any basis and without pointing out any specific instance. The disallowance made by the AO is not corroborated with any evidence. The saine is not sustainable. The appellant had purchased the complete new plant & machineries. The purchase of the plant was on FOR basis including installation. In the assessment order, the AO had mentioned that the appellant made purchases as FOR. It is a fact that when appellant had not incurred transportation expenses then how it is possible to have the transportation bills. However, the company has bilties of the transportation which were produced for verification, although these are not part of the accounts. The bilties shows that the machineries reached to the business premises of the appellant and the mould boxes are ready to use condidon. There was sufficient time for the appellant to install and put to use the same. The appellant had also started the production before 31/03/2005 of CI Ingot Mould by using the newly purchased mould boxes which is also evident from the invoice produced in this regard. Accordingly, the CIT(A), Raipur allowed the appeal filed by the respondent/Company. 17. By the impugned order dated 28.11.2008 (Annexure A/3) the Tribunal has dismissed the appeal filed by the appellant/department holding that the appellant could not contradict the findings of the CIT (A) and the observations of the CIT (A) are based on the facts and supported by the documentary evidence filed by the assessee and also by the decision of the Hon'ble Supreme Court in Dhakeshwari Cotton Mills Pvt. Ltd. Vs. CIT4. 18. The substantial question of law for our consideration is in regard to the reliance on the evidence in respect of installation of moulds and sale of the finished products. 19. It: is evident from the assessment order that the respondent/company had purchased the casting mould boxes fmished, worth Rs. 2,99,90,272/-, from Shree Mahavir Dyeing and Printing Mills Pvt. Ltd, Mumbai and the entire amount was capitalized in plant and inachinery. Since the articles were purchased from a company situated at Mumbai to the respondent/company at Raipur, therefore, the assessee was 26 ITR 775 (SC) s required to produce the transportation bills. However, it was admitted by the respondent/company that the transportation bills were not available. Thus, there was no evidence produced before the Assessment Officer to seek depreciation on casting mould boxes. 20. In view of the aforesaid discussion, the fmding of the CIT(A) that the disallowance is without any basis and without pointing out any specific instance and the disallowance is not corroborated with any evidence appears to be contrary to record. The CIT (A) has applied the ratio laid down in Dhakeshwari Cotton Mills (supra) to the effect that "the ITO is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all. There must be something more than bare suspicion to support the assessments." In our considered opinion, when no document was produced before the Assessment Officer, the rado of the decision by Supreme Court in Dhakeshwari Cotton Mills (supra) is not applicable to the facts and circumstances of the case on hand. 21. When the articles were purchased from Mumbai to Raipur, the finding of the CIT (A) that the purchase of the. plant was on FOR basis including installation, when the appellant had not incurred transportation expenses then how it is possible to have the transportation bills; is also not sustainable. 22. The further observation of the CIT (A) that the company has bilties of the transportation which were^produced for verification, although these are not part of the accounts; shows that the respondent/company had produced the oral and documentary evidence before the CIT(A) and the same was relied upon by the x CIT(A), in contravention of the provisions of Section 46A of the |iR ^^-^''^f^ /^.~\ .^f l " ^ Sii. ^ i, SSsssiifSi s ^^/ t^-syr 10 Rules, 1962. Because, even on asking, no evidence was produced by the respondent/company before the Assessing Officer and it is not a case where the Assessing officer has refused to admit evidence which ought to have been admitted or the respondent/company was prevented from producing the evidence, which he was called upon to produce or the respondent/company was prevented from producing any evidence which was relevant to any ground of assessment or the Assessing Officer has made the order appealed against without giving sufficient opportunity to the respondent/company to adduce evidence relevant to any ground. 23. The assessment order has been faulted without considering the fact that the new evidence and pleadings i.e. bilties were not produced before the Assessing Officer by the assessee. The evidence was produced for the first time before the CIT (A). A bare perusal of Rule 46A of the Rules, 1962 cleariy provides that no additional evidence can be admitted other than the evidence produced during the course of the proceedings before the Assessing Officer, except in certain circumstances, as enshrined in Rule 46 (1) (a) to (d) after recording the reasons in writing. 24. The High Court of Punjab and Haryana, High Court of Delhi and " High Court of Allahabad in respective decisions (supra), held fhat before adinitting new evidence, recording of reasons in writing and affording opportunity of hearing to the other side, by the CIT (A) or as the case may be, is mandatory and statutory requirement of the provisions ofRule 46A ofthe Rules, 1962. 25. In the case on hand, the CIT (A) has not recorded the reasons in writing before admission of the addition'al evidence, as .provided in '<li'»., '& 11 ^ ^s^'x^ ^ ft '•'SSSfsS-Si ^ x.. v":y '''itfc.X-ti'""'' sub-rule (2) of Rule 46A of the Rules, 1962. Thus, the substantial question of law posed before us is answered in the negative. 26. In the result, the appeal is allowed. The irapugned order dated 11.3.2008 (Annexure A/2), passed by the CIT (A) and the order dated 28.11.2008 (Annexure A/3), passed by the Tribunal are quashed. The matter is remanded back to the CIT (A) to admit additio.nal evidence after recording the reasons in writing and affording an opportunity of hearing to the other side, as enshrined under the provisions of Rule 46A of the Act, 1962. 27. The matter is being remanded back to the CIT (A), Raipur, as the additional evidence was produced before fhe CIT (A), which without recording the reasons in writing and affording an opportunity of hearing to the other side (appellant/department) was admitted and accepted as the additional evidence. The same was affirmed subsequently by the Tribunal. 28. No order asto costs. Sd/- Satish K. Agnihotri Judge Sd/- ManindraMohanShrivastava Judge Thakur ^•y