ABHINAV METALS PRIVATE LIMITED,HYDERABAD vs. ITO, WARD- 1(1), HYDERABAD

Succinctly stated, the assessee-company had filed its return of income for A.Y. 2022-23 on 10.10.2022, declaring an income of Rs. 10,50,020/-. Subsequently, its case was selected for complete scrutiny under CASS on two issues, viz.: (i) high liabilities as compared to low income/receipts; and (ii) loans and premium received during the year — verification of applicability of Section 56(2)(viib) or any other relevant provision of the Act.

During the course of the assessment proceedings, the AO, inter alia, observed that the assessee-company had received loans aggregating to Rs. 1,23,78,500/- from five parties. The AO further observed that the aforesaid parties did not possess sufficient means or creditworthiness to advance such substantial amounts by way of unsecured loans to the assessee-company.

The AO, however, accepted the loan of Rs. 21 lac received by the assessee- company from one of the parties, viz. Shri Raja Pandian Johar. However, the AO, in respect of the remaining four lenders, did not find favor with the assessee’s claim that the loans were genuine.

After considering the details furnished by the assessee-company in respect of the aforesaid lenders, the AO was of the view that the creditworthiness of the four lenders and the genuineness of the corresponding loan transactions had not been satisfactorily established. Accordingly, the AO treated the loans received from the said four parties aggregating to Rs. 1,02,78,500/- as unexplained cash credits under Section 68 of the Act.

Consequently, the AO, vide assessment order passed under Section 143(3) r.w Section 144B of the Act dated 20.03.2024, determined the total income of the assessee-company at Rs. 1,13,28,520/-.

Aggrieved, the assessee-company carried the matter in appeal before the CIT(A).

As is discernible from the record, the assessee-company, vide its written submissions dated 21.07.2025 filed before the CIT(A), had sought admission of certain additional evidence under Rule 46A of the Income-tax Rules, 1962 (“the Rules”, for short). The additional evidence included, inter alia, financial statements, copies of returns of income, and other documentary material pertaining to the four lenders, which, according to the assessee-company, were relevant for establishing their creditworthiness and the genuineness of the loan transactions.

The Ld. CIT(A), in the body of the appellate order, had duly reproduced the request made by the assessee-company for admission of the aforesaid additional evidence. However, while disposing of the appeal, the CIT(A) failed to adjudicate upon the assessee-company’s application under Rule 46A of the Rules. In other words, the CIT(A), without either accepting or rejecting the application for admission of additional evidence, proceeded to adjudicate the appeal on the merits and upheld the view taken by the AO. For the sake of completeness, we deem it appropriate to reproduce the relevant observations of the learned CIT(A) hereinbelow:

Aggrieved by the order of the CIT(A), the assessee-company has carried the matter in appeal before us.

We have heard the learned Authorized Representatives of both the parties, perused the orders of the authorities below and considered the material available on record.

Shri A Srinivas, CA, learned Authorized Representative (for short, “AR”) for the assessee-company, at the threshold of hearing of the appeal, submitted that the CIT(A) had grossly erred both in law and on facts of the case by summarily disregarding the application filed by the assessee-company under Rule 46A of the Income Tax Rules. 1962 seeking admission of certain additional documentary evidence having a material bearing on the adjudication of the issues involved in the present appeal. Elaborating on his contention, the Ld. AR submitted that the assessee-company, vide its written submissions dated 21.07.2025, had filed an application under Rule 46A before the CIT(A), seeking admission of certain documentary evidence, including financial statements, copies of returns of income and other relevant documents pertaining to the aforesaid four lenders. It was submitted that the said documents were furnished to establish the lenders' creditworthiness and the authenticity of the loan transactions.

The Ld. AR submitted that although the CIT(A) had specifically noticed and culled out the assessee-company’s letter requesting for admission of additional evidence in the appellate order, he had neither accepted nor rejected the said application. Rather, the CIT(A) proceeded to adjudicate the appeal on merits and upheld the addition made by the AO under Section 68 of the Act.

The Ld. AR submitted that the additional evidence sought to be placed on record was directly relevant to the controversy before the appellate authority and had a material bearing on the determination of the creditworthiness of the lenders and genuineness of the loan transactions. Carrying his contention further, the Ld. AR submitted that the failure of the CIT(A) to adjudicate the Rule 46A application had resulted in denial of a proper and effective opportunity to the assessee- company to substantiate its claim of having received genuine loans from the lenders in question.

The Ld. AR further submitted that the discretion vested with the CIT(A) under Rule 46A of the Rules is required to be exercised judiciously and in accordance with law. It was submitted that once an application seeking admission of additional evidence is filed, it cannot simply be brushed aside without recording a finding on whether the conditions prescribed under Rule 46A are satisfied. It was, therefore, submitted that the matter in all fairness and in the interest of justice ought to be restored to the file of the learned CIT(A) for considering the assessee- company’s application under Rule 46A and thereafter adjudicating the appeal afresh in accordance with law.

Per contra, Shri Mohan Babu, Ld. Senior Departmental Representative (for short, “Sr. DR”) relied upon the orders of the authorities below. However, the learned Sr. DR could not controvert the fact that the application filed by the assessee-company under Rule 46A of the Rules had not been expressly adjudicated upon by the learned CIT(A).

We have given thoughtful consideration to the contentions advanced by the Ld. Authorized Representatives of both parties and perused the material available on record. We find on a perusal of the CIT(A) order that the assessee-company had indeed filed an application before the CIT(A) seeking admission of additional evidence under Rule 46A of the Income Tax Rules, 1962. The Ld. CIT(A) had also taken note of and culled out the said application in the body of his order. However, thereafter, the application was neither accepted nor rejected by the CIT(A), and the appeal was proceeded with and decided on merits.

In our considered view, the aforesaid approach of the CIT(A) cannot be sustained. We say so, for the reason that once the assessee-company had specifically invoked Rule 46A of the Income tax Rules, 1962 and sought admission of additional evidence, it was incumbent upon the learned CIT(A) to examine the application in accordance with the statutory requirements and to record a speaking finding either admitting or rejecting the additional evidence. We are firmly of the view that the CIT(A) could not have bypassed the said application and proceeded to adjudicate the appeal without first dealing with the same.

We may herein observe that the purpose of Rule 46A is to regulate the admission of additional evidence at the first appellate stage. The authority exercising appellate jurisdiction is required to consider whether the conditions prescribed therein are satisfied and, where additional evidence is admitted, to afford the AO an effective opportunity to examine the same and to rebut the evidence, if so warranted.

However, as the CIT(A) in the present case has failed to adjudicate upon the assessee-company’s application under Rule 46A and has not examined the additional evidence in accordance with law, we deem it appropriate, in the interest of justice and fairness, to restore the matter to the file of the CIT(A).

Accordingly, the impugned order of the CIT(A) is set aside, and the matter is restored to his file with a direction to first consider and adjudicate upon the assessee-company’s application for admission of additional evidence under Rule 46A of the Income Tax Rules, 1962 in accordance with law. If the additional evidence is admitted, the CIT(A) shall provide an appropriate opportunity to the AO to examine the same and furnish his comments, as contemplated under Rule 46A. Thereafter, the CIT(A) shall adjudicate the grounds raised by the assessee- company on merits, including the issue relating to the addition of Rs. 1,02,78,500/- made under Section 68 of the Act, after considering the additional evidence, if admitted, as well as the material already available on record. Needless to say, the assessee-company shall be afforded a reasonable and effective opportunity of being heard and shall remain at liberty to furnish such further documentary evidence and explanations as may be relevant to establish the identity and creditworthiness of the lenders and the genuineness of the loan transactions, as per the extant law.

In the result, the appeal filed by the assessee-company is allowed for statistical purposes in terms of our aforesaid observations.