ORDER
M. A. BAKHSHI, J. M. :
The appeal of the appellant, being a limited company, is directed against the order dt. 7th Aug., 1992 of CIT(A), Muzaffarnagar. The dispute, inter alia, is relating to the addition of Rs. 1,64,70,000 made under S. 68 of the IT Act, 1961. In the previous year ending on 31st March, 1989 assessed claimed to have received the following amounts from the respective parties :
(i) Allen Bradley Overseas Ltd., U.K.
1,05,30,000
(ii) Debikay Technologies Ltd.
1,24,20,000
(iii) Majestic Trading & Services (P) Ltd.
40,50,000
2,70,00,000
Since assesseds share capital had gone up to Rs. 4.05 crores from Rs. 1.35 crores in the preceding year, the Assessing Officer vide order-sheet entry dt. 24th July, 1990, required the assessed to furnish detailed list of fresh shareholders giving their complete postal address together with confirmation letters from them indicating their ward/circle/range, etc. On 23rd Aug., 1990, assessed furnished information as required by the Assessing Officer. It seems, on the basis of search and seizure operations in the case of Calcutta office of the assessed-company and at premises of some other companies of this group, the Assessing Officer got suspicious about the genuineness of the shareholders. The result of the search operations had revealed that the directors of the company either through them or their family members of through various trusted employees had floated a chain of investment companies. The shares of such 9 companies were found in the premises of one D. K. I. Ltd. In the same premises blank share transfer paper of M/s. Majestic Trading & Services Ltd. duly signed were also found and seized. It seems that as a result of this information, the Assessing Officer subjected the investment made by the two companies of deep scrutiny. On 10th Feb., 1992, the representative of the assessed was asked to produce principal officers of Debikay Technologies Ltd. and Majestic Trading & Services P. Ltd. along with their books, balance-sheet, list of their shareholders indicating their postal addresses so as to verify the genuineness and creditworthiness in respect of huge addresses so as to verify the genuineness and creditworthiness in respect of huge investment in the share capital. The date for this purpose was fixed as 5th March, 1992. In the meantime, on 25th Feb., 1992, the representative of the assessed was also asked to furnish copies of latest assessment orders. On 5th March, 1992, assessed appeared before the Assessing Officer and filed copies of registered letters issued to the two companies, namely, M/s. Debikay Technologies Ltd. and M/s. Majestic Trading & Services P. Ltd. in regard to furnishing of information and requested the Assessing Officer to issue summons under S. 131 for ensuring compliance.
2. On 11th March, 1992, Shri S. P. Aggarwal, CA, along with Shri Ajit Mathur appeared on behalf of M/s. Debikay Tech. Ltd. before the Assessing Officer along with letter dt. 25th Feb., 1992. Some information was furnished before the Assessing Officer. The Assessing Officer, however, required further information i.e., detailed list along with full postal addresses of persons giving money for share allotment to M/s. Debikay Information Technologies Ltd. to be filed on or before 13th March, 1992. It was noted by the Assessing Officer in the order-sheet that compliance to the notice issued under S. 131 was partly made. On 20th March, 1992 assessed was required to produce depositors/subscribers for shares, particulars of original shareholders and current shareholders and to explain credit entries in the bank account of M/s. Debikay Technologies Ltd. On 27th March, 1992, some further information seems to have been filed before the Assessing Officer and case finally fixed for 30th March, 1992. On 30th March, 1992, hearing was closed for purposes of assessment. The Assessing Officer treated the amounts as received from M/s. Debikay Technologies Ltd. and M/s. Majestic Trading & Services P. Ltd. as unexplained by invoking provisions of S. 68. The decision of the Delhi High Court in the case of CIT vs. Stellar Investment Ltd. (1991) 192 ITR 287 (Del) cited by assessed was sought to be distinguished on the ground that the issue before the High Court was as to whether a question of law arose out of the order of the Tribunal and the observations made by their Lordships of the Delhi High Court had no relevance to the case of the assessed-company, inasmuch as, according to the Assessing Officer, the assessed companys money had been brought into the books of the company by using the other two companies as a conduit. According to the Assessing Officer once the shareholders are found to be bogus and the identities of the intermediaries, paper concerns, are proved to be none other than the persons connected with the management of the assessed-company, the corporate veil will not come in the way of invoking S. 68 of the IT Act, 1961. Assessing Officer further observed that one could understand if the third parties were genuine concerns and if any undisclosed income relating to them is noticed elsewhere, the addition could be made in the respective hands. But that principle according to Assessing Officer is inapplicable to the facts of this case. The addition of Rs. 1,64,70,000 was thus accordingly made.
3. assessed appealed to the CIT(A) and sought to furnish additional evidence to dispel the inference drawn by the Assessing Officer in the assessment order. The learned CIT(A) refused to admit the evidence as according to him conditions under r. 46A were not satisfied and has accordingly confirmed the addition of Rs. 1,64,70,000.
4. Before us, an application under r. 29 of the ITAT Rules was filed and in addition to the evidence which was not admitted by the CIT(A), assessed sought permission to file further supporting evidence which according to the assessed became available to the assessed only after passing of the order by the CIT(A).
5. The learned counsel for the assessed Shri R. Ganeshan contended that assessed had done its best within its control to furnish the information before the Assessing Officer. Since information sought from the shareholders was not available with the assessed, the only course open was to make a request to the Assessing Officer for issue of the summons under S. 131. The Assessing Officer, according to the learned counsel, was pleased to issue summons under S. 131 in response to which M/s. Debikay Technologies Ltd. furnished some information. The Majestic Trading & Services P. Ltd. have not furnished the evidence during the course of assessment proceedings. The assessed was informed only on 20th March, 1992 about the non-furnishing of information by Majestic Trading and Services P. Ltd. and the Debikay Technologies Ltd. having complied the notice in part only. Since the time allowed to the assessed was not sufficient, the information could not be furnished before the Assessing Officer by 30th March, 1992. The Assessing Officer has drawn adverse inference on account of non-availability of certain information in respect of the shareholders. After the receipt of the assessment order assessed made efforts and persuaded the shareholders to provide information that would facilitate proper assessment in the case of the assessed. The CIT(A), according to the learned counsel, has unjustifiably refused to entertain the evidence and has denied justice to the assessed. According to the learned counsel, the non-furnishing of information before the Assessing Officer by the assessed was not deliberate. The Assessing Officer, according to the learned counsel, has ignored the fact that there was change of management and accordingly the information was not readily available to the assessed. In any case the material being available, the cause of justice would be served if the issue is decided on merits rather than by drawing adverse inference and by ignoring the material evidence. The learned counsel for the assessed further contended that the evidence sought to be produced before the authorities is already on record of the Assessing Officer in penalty proceedings and the same has been admitted. Since assessed was prevented by sufficient cause in not furnishing the evidence before the Assessing Officer, the CIT(A) was not justified in refusing to entertain the same. Learned counsel further placed reliance on the decision of the Kerala High Court in the case of State of Kerala vs. V. K. Ramunni Panicker & Ors. (1977) 108 ITR 120 (Ker) and Punjab & Haryana High Court in the case of CIT vs. Jay Textile Mills (1981) 128 ITR 480 (P&H) in support of the contention that CIT(A) was not justified in refusing to entertain the evidence. The learned counsel for the assessed further contended that assessed having discharged its onus in relation to establishing the identity of the shareholders the payment but for Rs. 20,000 having been received by cheques, the shareholders being assessed to tax, the Assessing Officer was not justified in drawing the inference that the amount received from the shareholders was the income of the assessed from undisclosed sources. It was further contended that bank pass books had been furnished by the Debikay Technologies Ltd. before the Assessing Officer establishing the source of the money paid to the assessed. assessed, according to the learned counsel, is not aware as to whether M/s. Debikay Technologies Ltd. was asked to establish the source of the deposits made in bank account out of which money was paid to assessed. assessed was asked to prove the source of the deposits in the bank accounts of the third party only on 20th March, 1992 and since the time allowed was too short no compliance could be made.
6. The learned counsel attempted to argue the case on merits and contended that the source of the money received from the two companies was genuine and supported by evidence.
7. The learned Departmental Representative Shri O. S. Bajpai, on the other hand, vehemently opposed the admission of the additional evidence at this stage and sought to justify the decision of the CIT(A) in not entertaining the evidence sought to be produced before him for the first time. Shri Bajpai referred to r. 46A of the IT Rules and contended that assesseds case did not fit in any of the situations provided under r. 46A and as such the evidence furnished could not be entertained at this stage. Shri Bajpai further contended that there was no change in the management of M/s. Debikay Technologies Ltd. and M/s. Majestic Trading & Services P. Ltd. and as such assessed cannot be said to have been prevented by sufficient cause in furnishing the information required by the Assessing Officer at the time of assessment. Referring to r. 29 of the ITAT Rules, the learned Departmental Representative, contended that assessed is not entitled to produce additional evidence as the evidence sought to be produced is not conclusive. Referring to the contention raised on behalf of the assessed that in the case of M/s. Debikay Information Technologies Ltd. the Assessing Officer had after due scrutiny accepted the creditors appearing in the balance sheet, Shri Bajpai contended that the finding was contrary to facts on record. In this connection, he sought to rely on the order sheet entries made in the case of M/s. Debikay Information Technologies Ltd. to show that the finding recorded by the Assessing Officer was contrary to the facts on record. According to Shri Bajpai, the information was furnished on the last day of the hearing and accordingly the same could not have been verified by the Assessing Officer. In respect to a query from the Bench as to why the order sheet entry should be taken into consideration being an additional evidence produced for the first time before the Tribunal that too without permission, Shri Bajpai contended that he was merely relying on the order sheet entries, etc. which form record of the proceedings and that such evidence was not additional evidence for the purpose of r. 29 of the ITAT Rules. According to Shri Bajpai the duty of the assessed was to establish the identity of the shareholders, their creditworthiness and the genuineness of the transactions. Since Assessing Officer was prevented from making further enquiries that could have resulted as a consequence of furnishing of information by the assessed, assessed should suffer the consequences. According to the learned Departmental Representative, the powers of the Tribunal under r. 29 can be exercised only when the evidence sought to be produced is clinching and decisive. In this connection, reliance was placed on the decision of the Allahabad High Court in the case of Jagannath Prasad Kanhaiya Lal vs. CIT (1988) 171 ITR 596 (All). Shri Bajpai contended that the information was within the knowledge of the assessed and it was under an obligation to put its best foot forward in the matter of furnishing of information. That not having been done, the Assessing Officer was entitled and justified in drawing adverse inference. Referring to the decision of the Delhi High Court in the case of Stellar Investment Ltd. (supra) Shri Bajpai contended that the decision is inapplicable to the facts of this case. Our attention was drawn to the order of the Delhi High Court in the case of CIT vs. Bhagwati Jewels Ltd. dt. 24th Sept., 1992 [since reported in (1993) 201 ITR 461 (Del)] where notwithstanding the decision of the Delhi High Court in the case of Stellar Investment Ltd. (supra), direction under S. 256(2) has been issued for drawing a reference to the Hon’ble High Court on account of addition made in respect of shareholders. Shri Bajpai contended that the addition made by the Assessing Officer was fully justified in the facts and in the circumstances of this case.
8. We have given our careful consideration to the rival contentions on the preliminary issue, which was quite significant. We have indicated the facts of this case in detail and it is not necessary for us to repeat the same. The preliminary issue before us is thus limited to the admission of additional evidence sought to be produced by the assessed. There is no dispute about the powers of the appellate authority to admit new grounds or evidence either suo motu or at the invitation of the parties. However, the question involved in this appeal is not about the powers of the first appellate authority in regard to the admission of a new ground or admission of the additional evidence suo motu or at the invitation of the parties. The question, however, is as to under what circumstances a party is entitled to produce fresh evidence before the first appellate authority as well as before the Tribunal. We may have to turn to r. 46A of the IT Rules and, in our view, it will be useful to reproduce the said rule for the sake of facility :
“46A(1) The appellant shall not be entitled to produce before the Dy. Commissioner(A) or, as the case may be, the Commissioner(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 following circumstances, namely :
(a) where the Assessing Officer has refused to admit evidence which ought to have been admitted; or
(b) where the appellant was prevented by sufficient cause from producing the evidence which he was called upon to produce by the Assessing Officer; or
(c) where the appellant was prevented by sufficient cause from producing before the Assessing Officer any evidence which is relevant to any ground of appeal; or
(d) where the Assessing Officer has made the order appealed against without giving sufficient opportunity to the appellant to adduce evidence relevant to any ground of appeal.
(2)……….
(3)……….
(4)………..”
As per the facts on record it is not a case where the Assessing Officer has refused to admit evidence which he ought to have admitted. Therefore, sub-r. (a) of r. 46A is inapplicable. Sub-r. (b) speaks of assessed being prevented by sufficient cause from producing the evidence which he was called upon to produce by the Assessing Officer. We have to consider the applicability of this sub-rule. Sub-r. (c) speaks of appellant being prevented by sufficient cause from producing before the Assessing Officer any evidence relevant to any ground of appeal notwithstanding the fact that such evidence was not required to be furnished by the Assessing Officer. This also seems to be relevant in the case before us. Sub-r. (d) speaks of a situation where the Assessing Officer has made the order appealed against without giving sufficient opportunity to the assessed to adduce evidence. assessed does not rely on this sub-rule.
9. Since assessed claims to have been prevented by sufficient cause from producing evidence which he was called upon to produce by the Assessing Officer and other evidence which according to the assessed is very relevant to the ground of appeal, we may have to fall back on the record of the proceedings before the Assessing Officer.
10. We have the order sheet entries made by the Assessing Officer during the course of assessment proceeding on perusal of which it is observed that the assessed had filed the return of income on 24th July, 1990. Assessing Officer required the assessed to furnish detailed list of fresh shareholders giving their complete postal address together with confirmation letters from them indicating their ward/circle/range, etc. On 23rd Aug., 1990 assessed furnished the information as required by the Assessing Officer. Further queries seem to have been made in regard to amounts received from the two companies only in February, 1992. On 10th Feb., 1992, assessed was asked to produce principal officers of M/s. Debikay Technologies Ltd. and M/s. Majestic Trading & Services P. Ltd. along with their books, balance sheet, list of their shareholders indicating their postal address so as to verify the genuineness and creditworthiness in respect of investments in the share capital. The date for this purpose was fixed for 5th March, 1992. On 25th Feb., 1992, assesseds representative was further asked to furnish copies of the latest assessment orders. On 5th March, 1992, assessed appeared before the Assessing Officer and filed copies of the registered letters issued to the two companies, namely, M/s. Debikay Technologies Ltd. and M/s. Majestic Trading & Services P. Ltd. in regard to the furnishing of information and requested the Assessing Officer to issue summons under S. 131 for ensuring compliance. On 11th March, 1992 representative of M/s. Debikay Technologies Ltd. appeared before the Assessing Officer along with letter dt. 25th Feb., 1992 and furnished some information. Assessing Officer undisputedly required the representative of M/s. Debikay Technologies Ltd. to furnish further information. As per the noting of the Assessing Officer in the order sheet compliance to notice under S. 131 was made partially. On 20th March, 1992, assessed was directed to pursue the filing of further information required from M/s. Debikay Technologies Ltd. and M/s. Majestic Trading & Services Ltd. The two companies as well as the assessed failed to furnish the requisite information as a result of which Assessing Officer treated the money received from the two companies as bogus and made the additions. There are two aspects of the matter in hand. One is the obligation of the assessed to support the return of income and the other is the power of the Assessing Officer to make enquiries and collect material. The relevant provision of law is S. 143. Whereas assessed is required to support the return, Assessing Officer is empowered to make enquiries, collect material and frame the assessment on the basis of the material so gathered. It, therefore, becomes relevant to see if the assessed had discharged its duty in supporting the return. assessed has furnished the following information during the course of assessment proceedings in regard to the amounts received from the two companies in question :
“Debikay Technologies Ltd. :
I. Confirmation dt. 8th Aug., 1990 giving;
(i) No. of shares – 1,24,200 shares subscribed for.
(ii) Cheque Nos. in respect of such subscription.
(iii) Name of the bank on which such cheques were drawn.
(iv) Amounts in respect of each such cheques.
(v) Their Permanent Account No. and the Circle in which they are assessed.
II. Letter dt. 9th March, 1992 addressed to the respondent admitting enclosing :
(i) Their Memorandums and Articles of Association.
(ii) Copy of their Certificate of Incorporation.
(iii) Copy of fresh Certificate of Incorporation consequent to the changes in the name of their company.
(iv) Details of their subscription of the shares of the appellant :
(a) 33,550 shares in 1986
(b) 48,800 shares in financial year 1987-88
(c) 1,24,200 shares in financial year 1988-89
(v) Their balance sheets for the years ended 31st Dec., 1986, 31st March, 1988 and 31st March, 1989 pointing out reflection of their investment in the shares of the appellant and admission thereof in such balance sheets.
(vi) Copies of bank statements, which reflect their investment in the shares of the appellant.
(vii) Their permanent account number and the circle in which they are assessed.
(viii) Their assessment order for asst. yr. 1986-87; for asst. yrs. 1987-88 to 1990-91, confirming no taxable income and the reason thereof given.
(ix) List of their shareholders as on 31st Dec., 1989.”
If we consider the decision of the Delhi High Court in the case of Stellar Investment Ltd. (supra) and the decision of the Hon’ble Supreme Court in the case of CIT vs. Orissa Corporation P. Ltd. and ignoring the fact that the shareholders of the company are closely connected and that certain incriminating material had been seized as a result of search operations in this case and other allied cases, it would appear that the primary onus that rests upon the assessed could be said to have been discharged. We may, however, hasten to add that, keeping in view the material seized as a result of search operations in this case and allied cases, the Assessing Officer was justified and in fact duty bound to probe the source of the moneys received from shareholders. As we have already pointed out the Assessing Officer as per the entries made in the order sheet, has started to act in this direction only from February, 1992 i.e., towards the fag end of the year. assessed was called upon to furnish information which under ordinary circumstances could not have been available with the assessed itself. The information was sought in respect of shareholders and the assessed was entitled to request the Assessing Officer to enforce attendance by issuing notices under S. 131. Assessing Officer considering the request of the assessed as legitimate has issued summons under S. 131 to the two companies in response to which one of the companies made compliance in part. In respect of another company, it seems that the Assessing Officer was unable to serve the notice under S. 131 upon the assessed. The Assessing Officer being empowered to enforce the attendance of the witnesses as also enforcing the furnishing of information by the witnesses assessed cannot be totally blamed for not having furnished the information before the Assessing Officer within the short period of time allowed towards the fag end of the year. If the company has failed to furnish information required by the Assessing Officer, what steps were taken by the Assessing Officer to enforce compliance. Unless the assessed was informed about the non-compliance of the notices by the witnesses, no fault could be found with the assessed once notice under S. 131 had been issued to the witnesses. No doubt assessed has been informed on 29th March, 1992 about the non-furnishing of information but the time allowed for compliance cannot be said to be sufficient so as to prevent the assessed from furnishing the required evidence as also the supporting evidence before the appellate authorities. Some distinction has got to be made between the negligence of the assessed in furnishing of evidence and conscious defiance thereof. In this case assessed can be accused of being negligent in not having persuaded the witnesses to furnish evidence but it cannot be said with certainty that assessed has acted deliberately in not furnishing the required evidence before the Assessing Officer. We are conscious of the decision of the Calcutta High Court in the case of Rai Kumar Srimal vs. CIT (1976) 102 ITR 525 (Cal) which was approved by the Supreme Court in the case of Jute Corporation of India Ltd. vs. CIT (1991) 187 ITR 688 (SC) where their Lordships of the High Court held that for admitting new evidence there must be some explanation to show that the failure to adduce evidence earlier sought to be adduced before the AAC was not willful and not unreasonable. Given the circumstances of this case and considering the facts and circumstances in totality, we are of the view that the non-furnishing of evidence before the Assessing Officer by the assessed cannot be said to be willful. In our view, the cause of justice would be served by admitting the evidence sought to be produced by the assessed and deciding the case on merits. We are reminded of the observations of their Lordships of the Supreme Court in the case of Collector, Land Acquisition vs. Mst. Kati ji & Ors. (1987) 167 ITR 471 (SC) that the Court should have a pragmatic and liberal approach and that substantial justice should be done to the parties. In this case, assessment was made on 30th March, 1992. Application for furnishing of additional evidence filed by the assessed is dt. 25th June, 1992 i.e., within three months of the passing of the assessment order. The CIT(A) has also passed the order on 7th Aug., 1992 and we are deciding the appeal before the close of the financial year 1992-93. Since much time had not passed from the time of seeking the information till the same was sought to be produced, in our view, therefore, the interest of justice will not suffer if the evidence sought to be produced is admitted, considered and the issue decided on merits. The evidence and material sought for admission cannot, on the face of it, be said to be irrelevant not material.
11. We, therefore, in exercise of our powers under S. 256 r/w r. 29 of the ITAT Rules admit the evidence produced by the assessed, which is listed hereunder, and restore the issue to the file of the Assessing Officer to be decided afresh in accordance with law and after giving reasonable opportunity of being heard to the assessed :
LIST OF EVIDENCES :
A. Regarding subscription of shares by DTL
Page Nos. of P.B.
– List of shareholders as on 31st May, 1992
131
– Audited Accounts 1st April, 1989 to 31st March, 1990
149-158
– Audited Accounts 1st April, 1990 to 31st March, 1991
159-170
– List of Directors as on 31st March, 1989
201
– Certificate of DTL giving source of money
202-203
– Certificate of DTL regarding transaction-wise Investments in Allen Bradley
204-206
– Copy of 35 Equity Share Applications submitted by DITL to DTL totalling Rs. 206.55 lacs
207-241
B. Regarding Debikay Information Technologies Ltd.
– List of Top ten shareholders as on 31st March, 1989
242
– Certificate regarding investments as on 31st March, 1989
243
– Confirmation regarding payments by DTL
244
– List of Directors as on 31st March, 1989
245
– Audited Accounts 1st Oct., 1985 to 31st Dec., 1986
246-259
– Audited Accounts 1st Jan., 1987 to 31st March, 1988
260-282
– Audited Accounts 1st April, 1988 to 31st March, 1989
283 to 298
– Memorandum and Articles of Association
299-361
– Abstract of Daily Quotation List of Delhi Stock exchange
362-363
– GIR No. and Ward where assessed to tax
364
– Certificate for commencement of business
365
– Prospectus for Share Issue
366-396
– List of top 20 shareholders as on 14th Dec., 1988
397-398
– List of top 20 shareholders as on 30th Sept., 1991
399-400
– Income-tax PAN of top shareholders
401
C. Regarding Subscription of Shares by MTSL
– Intimation under S. 143(1)(a) for asst. yr. 1989-90
404
– Annual Accounts for the period ended 31st March, 1991
417-429
– List of shareholders as on 31st March, 1989
432
– MTSLs Certificate regarding investment in Allen Bradley giving date, cheque No. bank etc.
433
– Certificate regarding sources of MTSL as on 31st March, 1989
434
– List of Directors as on 31st March, 1989
435
– Copies of two equity share applications submitted by Charaiveti Estates Ltd.
436-437
Increase in Share Capital
– ABIL Board Resolution for increase in share capital
58
– ABIL application to Controller of Capital Issue for permission
59-87
– CCI consent letter
88-89
– Letter of offer sent to shareholders
90-94
– Return of allotment of shares filed with the Register of Cos. (ROC)
95-96
– Annual Return of ABIL made up to 29th Aug., 1988 filed with the ROC
97-110
– Annual Return of ABIL made up to 22nd Dec., 1989 filed with the ROC
111-123
– Approval of PICUP & SBI for transfer of controlling interest to Crompton Greaves Ltd. and other supportive investors
788-789
– Agreement for sale of shares in August, 1990 between Majestic, Debikay Technologies Ltd. and Crompton Greaves Ltd.
790-793
– Bills & Receipts of DTL and Majestic on CGL for sale of shares
794-797
– Deed of Guarantee & Indemnity between Crompton Greaves Ltd. (CGL) and Mr. Duruv Kumar Khaitan (DKK)
798-802
– Assessment order under S. 143(3) for asst. yr. 1989-90 of Debikay Information Technology Ltd.
803-808
– Another note on Technical know-how
809-814
10. Since we have remitted the matter to the file of the Assessing Officer in respect of the assessment of sum of Rs. 1,64,70,000, the other issues raised before us are also restored to the file of the Assessing Officer to be decided afresh in accordance with law.
11. For statistical purposes, the appeal of the assessed is allowed.