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Facts
The assessee, a real estate company, filed its return admitting a loss. The Assessing Officer made additions for closing WIP and stock, interest expenses, and unexplained cash credits. The CIT(A) dismissed the assessee's appeal.
Held
The Tribunal held that Rule 46A does not permit the CIT(A) to scrutinize the credibility of additional evidence before admitting it. The CIT(A) should have admitted the evidence and forwarded it for a remand report.
Key Issues
Whether the CIT(A) was justified in rejecting the additional evidence filed by the assessee under Rule 46A without admitting it and whether the assessee's non-participation in assessment proceedings was due to sufficient cause.
Sections Cited
143(3), 144B, 142(1), 68, 46A, 251, 271
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI ABY T VARKEY & SHRI S. R. RAGHUNATHA
आदेश /O R D E R
PER S. R. RAGHUNATHA, AM :
The present appeal is filed by the assessee against the order dated 11.09.2025 passed by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred to as “ld.CIT(A)”), dismissing the appeal filed by the assessee against the assessment order dated 26.03.2024 passed u/s.143(3) read with section 144B of the Income Tax Act, 1961 (hereinafter referred to as the “Act”), pertaining to Assessment Year (A.Y.) 2022-23.
:-2-: ITA. No.:2605/Chny/2025
The brief facts of the case leading to the present appeal are as follows. The assessee is a company engaged in the business of real estate and development of residential / commercial buildings. During the assessment year under appeal, the assessee had filed its return of income by admitting the current year loss of Rs.22,58,06,372/-. The case was taken up for scrutiny and various notices u/s.142(1) of the Act were issued however, the assessee failed to reply to the same and finally the assessment order came to be passed by making the following addition / disallowance: A) Closing WIP and stock in trade – Rs.327,54,98,018/- B) Interest expenses – Rs.14,40,653/-, C) Unexplained Cash credits u/s.68 of the Act – Rs.84,25,28,000/- The assessee was aggrieved by this assessment order and hence filed an appeal before the ld.CIT(A), which came to be dismissed and thus leading to the present appeal before us.
The ld.AR of the assessee submitted that before the CIT(A), additional evidence in respect of all the issues under consideration were filed along with a petition under Rule 46A. The reason for not participating in the proceedings before Assessing Officer was manifold right from change in auditors, absence of key personnels owing to medical reasons and system migration and not wilful. However, the ld.CIT(A) rejected the additional evidence stating that these reasons are vague and not acceptable and also that the Assessing Officer had given a lot of opportunities to present the case and since the assessee did not respond to, the additional evidences cannot be accepted now. Further the ld.CIT(A) had stated that in form 35, it was specified that there are no additional evidence and hence providing evidence now is not acceptable. That apart, the ld.CIT(A) had raised doubts on the credibility of the evidence owing to the time gap of presenting them during appeal and not during the assessment. The ld.CIT(A) had also pointed out some discrepancies in the evidences that were filed and the ld.AR contended vehemently that the assessee was not given any opportunity to give its reply in respect of the alleged discrepancies and at any rate, there are no discrepancies as alleged by the ld.CIT(A) and that the :-3-: ITA. No.:2605/Chny/2025 ld.CIT(A) had not appreciated the evidences in proper perspective. Besides, the ld.AR contended that the additions themselves are totally erroneous and unsubstantiated. With respect to the addition on closing WIP and stock, the Assessing Officer had stated that if closing WIP is valued at higher cost, the cost of the goods is increased and consequently reduces the gross profit. This is totally an erroneous understanding and against the established accounting principles; whenever the closing stock is valued at higher value, it increases the gross profit and not vice versa. The ld.AR prayed that the additional evidence may be admitted and the case may be remitted to the Assessing Officer for fresh consideration.
Per contra, the ld.DR relied upon the orders of the authorities below and prayed that the appeal may be dismissed. It was the contention of the ld.DR that admission of additional evidence is not a matter of right and since the assessee did not establish the reasons which prevented the assessee from filing the evidence during the course of assessment proceedings, the order of the ld.CIT(A) does not need any interference.
We have heard the rival contention and gone through the orders of the authorities below. Though the assessee had not participated in the assessment proceedings, yet before the ld.CIT(A), they had filed the petition under rule 46A of the Income Tax Rules along with additional evidence.
Rule 46A reads as follows:
Production of additional evidence before the 83[Joint Commissioner] (Appeals) and Commissioner (Appeals). 46A. (1) The appellant shall not be entitled to produce before the 83[Joint Commissioner] (Appeals) or, as the case may be, the Commissioner (Appeals), any evidence, whether oral or documentary, other than the evidence produced by him during the course of proceedings before the Assessing Officer, except in the following circumstances, namely :— (a) where the Assessing Officer has refused to admit evidence which ought to have been admitted ; or :-4-: ITA. No.:2605/Chny/2025
(b) where the appellant was prevented by sufficient cause from producing the evidence which he was called upon to produce by the Assessing Officer ; or (c) where the appellant was prevented by sufficient cause from producing before the Assessing Officer any evidence which is relevant to any ground of appeal ; or (d) where the Assessing Officer has made the order appealed against without giving sufficient opportunity to the appellant to adduce evidence relevant to any ground of appeal. (2) No evidence shall be admitted under sub-rule (1) unless the 84[Joint Commissioner] (Appeals) or, as the case may be, the Commissioner (Appeals) records in writing the reasons for its admission. (3) The 84[Joint Commissioner] (Appeals) or, as the case may be, the Commissioner (Appeals)] shall not take into account any evidence produced under sub-rule (1) unless the Assessing Officer has been allowed a reasonable opportunity— (a) to examine the evidence or document or to cross-examine the witness produced by the appellant, or (b) to produce any evidence or document or any witness in rebuttal of the additional evidence produced by the appellant. (4) Nothing contained in this rule shall affect the power of the 84[Joint Commissioner] (Appeals) or, as the case may be, the Commissioner (Appeals)] to direct the production of any document, or the examination of any witness, to enable him to dispose of the appeal, or for any other substantial cause including the enhancement of the assessment or penalty (whether on his own motion or on the request of the Assessing Officer) under clause (a) of sub-section (1) of section 251 or the imposition of penalty under section 271.
7. In our considered view, Rule 46A does not permit the ld.CIT(A) to scrutinise the credibility of the additional evidence before admitting the same. Once a case is covered within the contours of rule 46A, the ld.CIT(A) is bound to accept the same and then send it to the Assessing Officer for remand report, who is at liberty to scrutinise the genuineness of the evidences or otherwise, albeit, after giving reasonable opportunity to the assessee, can decide on the credibility of the evidence. In our view, the assessee was prevented from sufficient cause in producing the evidence at the time of assessment proceedings. Also, we hold that merely because, while filling form 35, if the assessee has replied “no” in respect of the column on ‘additional evidence’, it does not mean that the assessee is prevented from filing the additional evidence during the course of appeal hearing. Technical considerations should
:-5-: ITA. No.:2605/Chny/2025 not come in the way of substantial justice, and such hyper-technical view need not be taken, when the assessee comes up with its evidence during the appeal hearing.
In the present facts of the case and considering the way in which the additions are made, ignoring the fundamental principles of accountancy and keeping in mind the principle of natural justice, we deem it fit to grant another opportunity of hearing to the assessee before the Assessing Officer. Since the assessee failed to participate before the AO, we levy the cost of Rs.15,000/- to be paid to State Legal Aid Authority, Hon’ble High Court of Madras and produce proof of payment of cost to the Registry within 30 days from the date of receipt of this order. Accordingly, the impugned order is set aside and the case is remitted to the file of Assessing Officer for de novo adjudication, after affording reasonable opportunity of hearing to the assessee. The assessee is directed to cooperate in the assessment proceedings and substantiate its case, failing which, the Assessing Officer shall be at liberty to proceed with the assessment in a manner known to law.
In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open court on 22nd December, 2025 at Chennai.