INCOME TAX OFFICER, NAGAPATTINAM vs. HOTEL ATLANTIC INN, KARAIKAL

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ITA 271/CHNY/2026Status: DisposedITAT Chennai06 August 2026AY 2017-188 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal held that the CIT(A) erred by admitting additional evidence without providing the AO an opportunity to examine and comment on it, violating Rule 46A of the Income Tax Rules. The matter was restored to the CIT(A) for fresh adjudication.

What were the facts?

The assessee firm did not file its return of income for AY 2017-18. The AO reopened the assessment and made additions for estimated business income, bogus unsecured loans, and unexplained expenditure. The CIT(A) deleted these additions based on additional evidence filed by the assessee.

What were the issues?

Whether the CIT(A) was justified in deleting additions based on additional evidence without affording the AO an opportunity to examine it as per Rule 46A.

Which sections of the Income-tax Act were involved?

Section 68,Section 69C,Section 147,Section 144B,Section 270A,Section 271AAC(1)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI

Before: SHRI S.S. VISWANETHRA RAVI & SHRI S. R. RAGHUNATHA

For Respondent: Shri. R.Subramanian, CA
Hearing: 30.06.2026Pronounced: 06.08.2026

आदेश /O R D E R PER S.R. RAGHUNATHA, AM : This appeal has been preferred by the Revenue against the order passed by the Learned Commissioner of Income Tax, Appeal, CIT(Appeals), National Faceless Appeal Centre, Delhi, [hereinafter referred to as “the Ld. CIT(A)”], dated 08.12.2025, arising from the assessment order dated 19.03.2025 for the Assessment Year (AY) 2017-18 passed by the Assessing Officer, Assessment Unit [hereinafter referred to as “the AO”], u/s. 147 r.w.s. 144B of the Income- tax Act, 1961 (hereinafter referred to as “the Act”).

2.

The brief facts of the case emanating from the records are that the assessee is a firm and had not filed its return of income for the AY 2017-18. As

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per the records available with the department, the Revenue found that the assessee had made huge purchases of liquor from various concerns but did not file the return of income. Accordingly, the statutory notices were issued and the assessment was reopened. The AO issued notices by giving multiple opportunities for compliance, however, the assessee did not respond for any of the notices except seeking for adjournment for some of the notices. The assessee submitted that the return of income for the earlier years from AYs 2014-15 to 2016-17 and also AYs 2018-19 to 2023-24 have been filed by claiming refund and obtained the same. Hence, the assessee was on the assumption that the return of income for the AY 2017-18 need not be filed as the liability is covered by the TCS amount. During the assessment proceedings, on perusal of the available records, the AO found that the assessee had failed to declare income from room rents and discount for the Ay 2017-18, however, the same was declared for AYs 2016-17 and 2018-19 of Rs.42,45,850/- and Rs.48,93,453/-, respectively. Hence, the AO computed the estimated business income of Rs.45,69,651 (average of two years) added to the business income. Further, the AO also made the additions of Rs.1,84,87,063/- and Rs.38,05,321/- on account of bogus unsecured loans and unexplained expenditure u/s.68 and 69C of the Act, respectively, by passing an order u/s.144 r.w.s. 147 of the Act dated 19.03.2025. 3. Aggrieved by the order of the AO, the assessee preferred an appeal before the ld.CIT(A). Before the ld.CIT(A), the assessee filed a detailed written submission in response to the notices issued by the ld.CIT(A). On perusal of the submissions made by the assessee, the ld.CIT(A) granted the relief based on the additional evidences filed, as detailed below. (i) The room rent of Rs.41,47,196/- was supported by VAT assessment order by showing the bifurcation of turnover in respect of goods sold and room rent declared. (ii) In respect of unexplained cash credit made u/s.68 of the Act, the assessee filed additional evidences of loan statement from Rebco Bank and also a confirmation from Mr.Mohamed Iliyaas.

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(iii) In respect of unexplained expenditure made u/s.69C of the Act, provided the details of liquor license fees paid through bank challens and packing expenses paid supported by the bills from university stationary, Karaikal, bank statement for interest expenses, etc. were submitted.

4.

In view of the above submissions and supporting evidences filed by the assessee, the ld.CIT(A) deleted all the three additions by passing an order dated 08.12.2025, by holding as under:-

“7.2 The grounds of appeal of the appellant in respect of the above three additions made by the AO u/s 68 and 69C of the Income tax Act have been examined. The AO has ignored the facts that the appellant had already included the room rent in the gross receipts which is manifested in the VAT returns and other documents furnished by the appellant. The AO has also ignored the facts relating to the loan and overdraft raised by the appellant partners from the banks including the Repco Bank, Karaikal. The fact of the genuine business expenses of the appellant, whose item-wise, head-wise details have been provided by the appellant have also been ignored by the AO while making lumpsum addition on this account. 7.3. After considering the facts of the case and documents submitted by the appellant, additions made by the AO in the assessment order are not found sustainable as the same have been made in a cursory and perfunctory manner after ignoring the accounts and related documents of the appellant and these additions are hereby deleted. These grounds of the appellant in respect of the three additions made by the AO are therefore allowed and the additions made by the AO are deleted. 7.4. The grounds of appeal in respect of the initiation of penalty u/s 270A and 271AAC(1) of the Income tax Act, 1961 and charging of the interest, are consequential in nature and therefore need not be adjudicated. In the conclusion, appeal of the appellant is partly allowed.” 5. Aggrieved by the order of the ld.CIT(A), the Revenue is in appeal before us, by raising the following grounds of appeal:-

“1) The order of the Ld. CIT(A) is opposed to law on the facts and in the circumstances of the case. (2) The Ld.CIT(A) erred in deleting the addition of business income of Rs.45.69.651/- on the basis of additional evidences filed by the assessee during the appellate proceedings without providing an opportunity to the Assessing Officer in gross violation of Rule 46A of the Income Tax Rules, 1962. (3) The Ld.CIT(A) erred in deleting the addition of Rs. 1,84,87,063/- made u/s 68 of the Income Tax Act 1961 on the basis of additional evidences filed by the assessee during the appellate proceedings without providing an opportunity to the Assessing Officer in gross violation of Rule 46A of the Income Tax Rules, 1962? (4) The Ld.CIT(A) erred in deleting the addition of Rs.38,05,321/- made u/s 69C of the Income Tax Act 1961 on the basis of additional evidences filed by the assessee during the appellate proceedings without providing an opportunity to

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the Assessing Officer in gross violation of Rule 46A of the Income Tax Rules, 1962. (5) The CIT(A) erred by not satisfying the requirement of Rule 46A by admitting and accepting additional evidences without AO furnishing his comments and without verification, as held in CIT Vs Manish Buildwell (P) Ltd. (2011) 16 taxmann.com 27 (Delhi) dated 15.11.2011. (6) For these and such other grounds that may be adduced at the time of hearing and it is prayed that the order of the Ld. CIT(A) may be reversed and that of the Assessing Officer be restored.” 6. The ld.DR for the Revenue submitted that the ld.CIT(A) has erred in deleting the additions made by the AO in the ex parte order on the basis of additional evidences filed by the assessee during the appellate proceedings without providing an opportunity to the AO, which in gross violation of rule 46A of the Income Tax Rules, 1962. Therefore, the ld.DR relying on the decision of the Hon’ble Delhi High Court in the case of CIT v. Manish Buildwell (P) Ltd. (2011) 16 taxmann.com 27 (Delhi) dated 15.11.2011, stated that the ld.CIT(A) has erred by not satisfying the requirement of Rule 46A by admitting and accepting additional evidences without obtaining the comments and verification of the AO, and hence, prayed for setting aside the order of the ld.CIT(A).

7.

Per contra, the ld.AR for the assessee submitted that the documents, which have been filed before the ld.CIT(A) are maintained in the regular course of business and hence even after the verification by the AO, the decision of the ld.CIT(A) would not have been changed. Therefore, there is no error in the order of the ld.CIT(A) as the ld.CIT(A) is also having a co-terminus power to conclude the assessment. Therefore, the ld.AR prayed for confirming the order of the ld.CIT(A) by dismissing the appeal of the Revenue.

8.

We have heard the rival submissions, perused the orders of the authorities below and carefully examined the material available on record. The solitary issue arising for our consideration is whether the ld.CIT(A) was justified in deleting the additions made by the AO on the basis of additional evidences furnished by the assessee during the appellate proceedings without complying with the mandatory requirements prescribed under Rule 46A of the Income-tax Rules, 1962.

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9.

The facts emerging from the record reveal that the assessment in the present case was completed ex parte u/s.144 r.w.s 147 of the Act. It is an admitted position that despite issuance of several statutory notices by the AO, the assessee did not furnish the requisite details and evidences during the course of assessment proceedings, except seeking adjournments on certain occasions. Consequently, in the absence of the necessary details, the AO estimated the business income and made additions u/s.68 and 69C of the Act based on the material available on record. 10. During the appellate proceedings, however, the assessee furnished various documents and evidences which admittedly had not been produced before the AO. These included the VAT assessment order and turnover details in support of the room rent receipts, loan statements from Repco Bank, confirmation from one of the creditors, details relating to liquor licence fees, packing expenses, interest payments supported by bank statements and other documentary evidences. It is evident from the appellate order that the ld.CIT(A) has accepted these documents and, relying entirely upon such additional evidences, deleted all the additions made by the AO. 11. A careful reading of the impugned order does not indicate that the ld.CIT(A) either recorded any satisfaction as contemplated under Rule 46A(2) for admitting the additional evidences or afforded an opportunity to the AO to examine such evidences, cross-verify the same or furnish a remand report in terms of Rule 46A(3) of the Income-tax Rules. The appellate order is completely silent on these mandatory procedural requirements. Rule 46A embodies the principles of natural justice. While the Ld.CIT(A) possesses wide appellate powers, including powers co-terminus with those of the AO, the exercise of such powers cannot be divorced from the statutory safeguards prescribed under Rule 46A when an assessee seeks to produce evidence which was not produced before the AO. Once additional evidence is admitted, the AO must necessarily be afforded a reasonable opportunity to examine the evidence, rebut the same, or produce evidence in response thereto. This requirement is mandatory and not merely procedural.

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12.

The Hon'ble Delhi High Court in CIT v. Manish Buildwell (P.) Ltd. [(2011) 16 taxmann.com 27 (Delhi)] has clearly held that although the Commissioner (Appeals) has co-terminus powers with the AO, where additional evidence furnished by the assessee is admitted under Rule 46A, compliance with the procedure prescribed therein is mandatory. The AO must be given an effective opportunity to examine the additional evidence before any relief is granted to the assessee. Similar principles have consistently been reiterated by various High Courts and coordinate benches of the Tribunal. 13. In the present case, the ld.CIT(A) has granted substantial relief to the assessee by relying upon documentary evidences which admittedly formed no part of the assessment records. The deletion of the additions has been founded entirely on such documents. However, the AO has not been afforded any opportunity whatsoever to verify the genuineness of the VAT records, the loan statements, confirmations, bank records or the supporting vouchers relating to the expenditure claimed by the assessee. Such a course adopted by the ld.CIT(A), in our considered opinion, is in clear violation of Rule 46A of the Income-tax Rules and is contrary to the settled principles governing appellate proceedings. 14. At the same time, we are equally conscious of the fact that the additional evidences produced by the assessee appear to be relevant for adjudicating the issues on merits. The object of tax adjudication is to determine the correct tax liability on the basis of proper appreciation of all relevant materials. Therefore, merely on account of procedural irregularity, neither should the additional evidences be ignored nor should the relief granted by the ld.CIT(A) be sustained without proper verification. Considering the totality of the facts and circumstances of the case, we are of the considered view that the ends of justice would be adequately met if the matter is restored to the file of the ld.CIT(A). The ld.CIT(A) shall first examine the admissibility of the additional evidences in accordance with Rule 46A by recording reasons, wherever required, and thereafter forward all such evidences to the AO for verification and for furnishing a remand report. Upon receipt of the remand report, the assessee shall be

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afforded an opportunity to file its rejoinder, if any, and thereafter the ld.CIT(A) shall adjudicate the issues afresh by passing a speaking order in accordance with law after considering the material placed by both sides. 15. We make it clear that we have not expressed any opinion on the merits of the additions relating to the estimated business income, the addition u/s.68 or the disallowance u/s.69C of the Act. All the issues are left open for fresh adjudication by the ld.CIT(A) uninfluenced by any observations contained in this order except to the extent of ensuring compliance with Rule 46A of the Income- tax Rules. The assessee is also directed to extend full cooperation during the remand proceedings by producing all relevant books of account, vouchers, bank statements and supporting evidences as may be called for by the AO or the ld.CIT(A), so that the issues can be adjudicated expeditiously and in accordance with law. Therefore, the impugned order of the ld.CIT(A) is set aside and the matter is restored to his file for fresh adjudication after complying with the mandatory provisions of Rule 46A of the Income-tax Rules, 1962 and after affording adequate opportunity of hearing to both the assessee and the AO. Accordingly, the grounds raised by the Revenue are allowed. 16. In the result, the appeal of the Revenue is allowed for statistical purposes.

Order pronounced in the court on 06th August, 2026 at Chennai.

Sd/- Sd/- (एस एस विश्िनेत्र रवि) (एस. आर. रघुनार्था) (S.S. VISWANETHRA RAVI) (S. R. RAGHUNATHA) न्याययक सदस्य/Judicial Member लेखा सदस्य/Accountant Member

चेन्नई/Chennai, ददनांक/Dated, the 06th August, 2026. Devadas

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आदेश की प्रनतललपप अग्रेपर्त/Copy to: 1. अपीलार्थी/Appellant 2. प्रत्यर्थी/Respondent 3.आयकर आयुक्त/CIT– Chennai/Coimbatore/Madurai/Salem 4. पवभागीय प्रनतननधि/DR Digitally signed by DEVADAS DEVADAS 5. गार्ा फाईल/GF GOPALANACHARY GOPALANACHARY Date: 2026.08.11 09:16:32 +05'30'

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