Facts of the Case

The assessee, Tilak Proficient Nidhi Limited, filed its return of income which was selected for scrutiny assessment. During assessment proceedings, the Assessing Officer issued statutory notices seeking details regarding cash deposits, increase in fixed assets, and fixed deposits. However, the assessee failed to furnish the required information.

Consequently, the AO completed the assessment under Section 143(3) based on material available on record and made additions on account of unexplained cash deposits, increase in assets, and fixed deposits invoking Section 69A.

The assessee preferred an appeal before the Commissioner of Income Tax (Appeals), who deleted the additions after accepting explanations and documents furnished for the first time at the appellate stage.

Issues Involved

  1. Whether the CIT(A) was justified in deleting additions based on evidence not produced before the AO.
  2. Whether additional evidence could be admitted without following Rule 46A.
  3. Whether the assessment order required reconsideration in light of procedural violations.
  4. Whether principles of natural justice were followed.

Petitioner’s (Revenue’s) Arguments

  • The assessee did not cooperate during assessment and failed to furnish required details.
  • The AO made additions based on available records due to non-compliance.
  • The CIT(A) accepted additional evidence without giving the AO an opportunity to examine or rebut the same.
  • Such acceptance violated Rule 46A of the Income-tax Rules.
  • Therefore, the appellate order was legally unsustainable.

Respondent’s (Assessee’s) Arguments

  • The additions made by the AO were excessive and not based on proper appreciation of facts.
  • Relevant explanations and supporting documents were furnished before the CIT(A).
  • The assessee contended that the additions lacked merit and deserved deletion.

Court Order / Findings (ITAT)

  • The assessee had failed to furnish details during assessment proceedings.
  • The CIT(A) admitted additional evidence produced for the first time at the appellate stage.
  • However, the CIT(A) did not follow the mandatory procedure under Rule 46A, which requires giving the AO an opportunity to examine such evidence and submit a remand report.
  • Acceptance of additional evidence without complying with Rule 46A renders the appellate order invalid.

Important Clarification by the Tribunal

  • Rule 46A safeguards procedural fairness in appellate proceedings.
  • Admission of fresh evidence cannot bypass the Assessing Officer’s right to verification.
  • Appellate authorities must adhere strictly to statutory procedures to uphold natural justice. 

Link to download the order  https://itat.gov.in/public/files/upload/1658396139-Tilak%20Profcient.pdf

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