Income Tax Rule 46A(3) must be Complied by CIT(A) while Admitting Additional Evidence like C-Forms: ITAT [Read Order]

The Raipur Bench of the Income Tax Appellate Tribunal ( ITAT ) ruled that compliance with Rule 46A(3) of the Income Tax Rules, 1962, is strictly mandatory when an appellate authority admits additional evidence.

The Tribunal observed that if a Commissioner of Income Tax (Appeals) accepts new documents such as C-Forms during proceedings, they cannot independently rely on them without first giving the Assessing Officer (AO) a fair opportunity to examine and verify the evidence.

The income tax department filed an appeal against CIT(A)’s order which was in favour of Durga Saw Mill, the assessee for the Assessment Year 2017-18. During the initial scrutiny, the Assessing Officer made an addition to the taxpayer's income under Section 68 of the Income Tax Act, 1961 classifying certain receipts as unexplained cash credits.

In its defense, the assessee argued that the amounts in question were entirely genuine sales proceeds received from M/s Ankit Trading Co. through standard banking channels. To back this up, the taxpayer provided invoices, bank statements, and C-Forms.

While the majority of these documents were presented to the AO during the original assessment, the C-Forms were introduced for the very first time during the appellate proceedings before the CIT(A).

The CIT(A) found merit in the taxpayer’s explanation and deleted the addition. The appellate authority noted that the assessee had successfully discharged its primary burden of proof by establishing the identity of the buyer, the genuineness of the transactions, and the routing of payments through legitimate banking channels.

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The CIT(A) further reasoned that once this initial evidence was laid out, the burden shifted to the Assessing Officer to disprove the claims through further inquiry, which had not occurred.

However, the Revenue Department submitted that the C-Forms were important evidence that directly impacted the verification of the transactions' genuineness and VAT compliance. It added that the CIT(A) made an error by admitting these new documents without forwarding them to the AO for a remand report or rebuttal, violating the mandate of Rule 46A(3).

The bench of Partha Sarathy Chaudhury found relevance in the Revenue’s arguments. Admitting the importance of C-Forms as evidence which influences the case's final outcome, it noted that the CIT(A) had bypassed a procedural requirement under Rule 46A(3).

Therefore, the appellate tribunal set aside the order of CIT(A) favouring assessee and remanded the matter back to the appellate authority for fresh adjudication. ‘Rule 46A(3) of the IT Rules, 1962 has to be complied with by the first appellate authority while admitting the addition evidences’ said the bench while concluding its order.

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