ITAT Sets Aside CIT(A) Order for Violating Rule 46A(3) in Admitting Fresh Evidence without AO’s Examination [Read Order]

In a recent decision, the Pune bench of the Income Tax Appellate Tribunal held that when fresh evidence is admitted at the appellate stage, the Assessing Officer must be given an opportunity to examine it under Rule 46A(3) of the Income Tax Rules, 1962.

The assessee, Rajivgandhi Grameen Bigarsheti Path Sanstha Marydit, is a cooperative society engaged in providing credit facilities to its members. For the assessment year 2017-18, it did not file its return of income. The case was selected for scrutiny based on significant cash deposits made during the demonetization period.

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Following the selection, the Assessing Officer (AO) issued notices under section 142(1) of the Income tax Act, 1961. However, the assessee failed to comply with the notices and provided no explanations. As a result, the assessment was completed ex-parte under section 144 of the Act.

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In the assessment order, the AO determined a total income of ₹2,02,56,693, treating it as unexplained income u/s 69A, including deposits during and beyond the demonetization period.

Aggrieved by this addition, the assessee appealed before the Commissioner of Income Tax (Appeals) [ CIT(A) ].

The assessee submitted that it had to obtain a new PAN due to technical issues with the earlier one, and all returns and audit reports were filed using the new PAN. However, the assessment was wrongly made on the old, inactive PAN, leading to the ex-parte order.

The assessee placed audit reports, bank statements, cash depositors’ details, and 'Income Tax Return – Verification (ITR-V) to substantiate the claims. And also confirmed that all books were audited as per statutes.

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After considering the fresh evidence submitted by the assessee, CIT(A) set aside the additions made by the AO. However, this was done without allowing AO to verify or examine the newly submitted evidence.

 The revenue, thus appealed to the ITAT against this decision.

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Department’s counsel, Arvind Desai, argued that CIT(A)’s acceptance of additional evidence without granting the Assessing Officer an opportunity to verify or respond amounted to a violation of Rule 46A(3) of the Income Tax Rules, 1962.

Meanwhile, the counsel for the assessee, Pramod S. Shingte, reiterated the facts already placed before the CIT(A).The counsel argued that not referring the documents to the AO did not amount to any procedural errors.

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After hearing both sides, the bench of Vinay Bhamore (Judicial Member) and Manish Borad ( Accountant Member ) noted that CIT(A) admitted fresh evidence without allowing the AO to examine it, violating Rule 46A(3) of the Income Tax Rules, 1962.

Even though the bench acknowledged the genuineness of documents, including ITR-V, audit reports, etc., it held that procedural fairness was compromised.

Therefore, the Tribunal remanded the case to the CIT(A) with instructions to provide the AO an opportunity to examine the fresh material and adjudicate the matter afresh.

To Read the full text of the Order CLICK HERE

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