Admission of Additional Evidence Sans Rule 46A(3) Compliance Invalid: ITAT Revives ₹1.77 Cr Unexplained Purchase Addition [Read Order]

The Raipur Bench of the Income Tax Appellate Tribunal (ITAT) that the admission of additional evidence without complying with the mandatory requirements of Rule 46A(3) of the Income Tax Rules, 1962, is unlawful, and set aside the relief granted by the first appellate authority and revived the addition of ₹1.77 crore relating to unexplained purchases for fresh consideration.

The appellant, Goenka Rockwool India Private Limited, had filed its return of income for the Assessment Year 2013-14 declaring a total income of ₹30.53 lakh. The assessment was originally completed under Section 143(3) of the Income TaxAct, 1961, determining the income at ₹41.22 lakh. Subsequently, the assessment was re-opened under Section 147 of the Income-Tax Act, 1961, based on information received from the Commercial Tax Department of Raipur.

The basis for the reassessment was that purchases made by the assessee from proprietorship concerns had not genuinely conducted business activity and these concerns were alleged to have provided the assessee with fake invoices. Thus, the AO issued a reassessment order under section 147 read with section 143(3) of the Income Tax Act, 1961, adding ₹1.77 crore in respect of unexplained purchases and determining the total income to be ₹1.81 crore.

Aggrieved by the reassessment order, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals) through the National Faceless Appeal Centre [CIT(A)]. During the appellate proceedings, the assessee sought admission of additional evidence, which was accepted and led to deletion of the entire addition. Aggrieved, the Revenue has challenged the order of CIT(A) before the ITAT.

The Revenue has argued through their representative Dr. Priyanka Patel that the CIT(A) did not comply with the requirements of Rule 46A(3) of the Income Tax Rules, 1962 for admitting additional evidence. It was argued that although the additional evidence was forwarded to the AO for a remand report, where no such report was received, and despite this, the appellate authority proceeded to grant relief to the assessee.

The Bench comprising Partha Sarathi Chaudhury, Judicial Member, and Arun Khodpia, Accountant Member, held that the procedure adopted by the CIT(A) was contrary to law. The Tribunal observed that once additional evidence is admitted, Rule 46A(3) of the Income Tax Rules, 1962, mandatorily requires the AO to be given an effective opportunity to examine such evidence and furnish a remand report.

The Tribunal clarifies that merely issuing reminders to the AO and proceeding to decide the appeal in the absence of a remand report does not amount to compliance with Rule 46A(3). Further, held that deciding the appeal without such verification also runs contrary to Section 250(4) and Section 250(6) of the Income Tax Act, 1961, which obligate the appellate authority to make proper inquiries and pass a reasoned order.

Without entering into the merits of the addition relating to unexplained purchases, the Tribunal set aside the order of the CIT(A) and remanded the matter back with a direction to obtain a remand report from the AO and thereafter adjudicate the issue afresh in accordance with law. Consequently, the Revenue’s appeal was allowed for statistical purposes, while the assessee’s cross-objection was dismissed as infructuous.

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