ASSISTANT COMMISSIONER OF INCOME TAX, PANCHKULA CIRCLE, PANCHKULA, PANCHKULA vs. AQUA FIBER INDSUTRIES, PANCHKULA

Per contra, the Ld. AR submitted that during appellate proceedings before the Ld. CIT(A) , the assessee submitted confirmations, purchase bills, VAT returns, bank statements, transport records, ledger extracts, and PAN details in support of its claim that the purchases and advances were genuine, which were available on the record of Assessing Officer . It was explained that these confirmations had been filed during assessment in response to the AO’s notice dated 07.12.2019 but were ignored when the assessment was finalised on 16.12.2019 the same date the confirmations were submitted. Therefore, it was contended that there was no breach of Rule 46A.

As regards the remaining three parties Ashirwad Enterprises, Govind Trading Co., and Sat Kartar Fibres it was brought to our notice that during scrutiny for the subsequent A.Y. 2018–19, the AO had examined transactions with these entities and accepted their genuineness. This was evidenced by the issuance of a questionnaire and acceptance of assessee’s reply in that year, wherein no adverse inference was drawn and no addition was made.

The assessee also highlighted that the gross profit declared in A.Y. 2017–18 was higher than that of the preceding and succeeding years. The corresponding sales against these purchases were accepted and no adverse comment was made on the quantitative details of stock. Moreover, the books of account were not rejected under section 145(3). In such circumstances, when the trading results have been accepted, additions on account of purchases or creditors without discrediting the evidence on record are unjustified.

We have heard the rival contention and perused the material available on the record. While we recognise that Rule 46A is a procedural safeguard against unilateral production of evidence at the appellate stage, the application of this rule must be seen in light of the circumstances. In the present case, the confirmations were already submitted during the assessment proceedings and were part of the record in respect to M/s Arjoo Enterprises, Jai Bhagwan Iron and Bottle Store, and Jai Durga Traders from whom the purchases were made to the tune of Rs 7.34 crores. In our view, once the evidence and the confirmation letters are available on the record of the assessing officer, then there is no impediment in exercising power by the Ld. CIT(A) to decide the issue based on the confirmation letter. Furthermore, the Revenue has not demonstrated any prejudice caused by the Ld. CIT(A)’s action or shown that such evidence was considered without opportunity. On the contrary, the Ld. CIT(A) has duly examined the evidence and passed a reasoned order. We also cannot overlook that the Revenue has accepted all sales and the book results. Once purchases have been accounted for, payments made through banking channels, and the corresponding sales accepted, disallowance of such purchases without disproving the transactions is not permissible. The confirmations and supporting evidence were not only furnished but were also verifiable through tax records. In view of the above the additions of Rs. 7.34 crores in respect to M/s Arjoo Enterprises, Jai Bhagwan Iron and Bottle Store, and Jai Durga Traders is deleted .

Ashirwad Enterprises, Govind Trading Co., and Sat Kartar Fibres, 10.1. Concerning the three entities in question, namely Ashirwad Enterprises, Govind Trading Co., and Sat Kartar Fibres, it is the case of the assessee that Sat Kartar Fibres was common to both Assessment Years 2017–18 and 2018–19. However, it has been fairly admitted that the transactions with the other two parties Ashirwad Enterprises and Govind Trading Co. were not subject to scrutiny assessment in the subsequent Assessment Year 2018–19.It is an undisputed fact that the assessee had not filed any confirmation letters or supporting documentary evidence before the Assessing Officer during the course of assessment proceedings in respect of all three entities. Despite the absence of such material on record, the Ld. CIT(A) has proceeded to accept the assessee’s submissions as correct without calling for a remand report from the Assessing Officer or undertaking any independent verification. 10.2. In our considered opinion, such an approach adopted by the Learned CIT(A) is not in accordance with the provisions and underlying spirit of Rule 46A of the Income Tax Rules, 1962. The said Rule has been incorporated to ensure that any additional evidence sought to be produced at the appellate stage is properly scrutinized and that the Assessing Officer is granted an opportunity to examine and rebut the same. This procedure is not merely procedural but is rooted in the foundational principles of natural justice. In the present case, there has been a clear violation of these principles, as the additional evidence—if any—was neither brought to the notice of the Assessing Officer nor was he granted an opportunity to offer his comments or objections. 10.3 We are, therefore, of the considered view that the matter—to the extent of purchases made from Ashirwad Enterprises, Govind Trading Co., and Sat Kartar Fibres requires fresh examination. The transactions with these parties, including their creditworthiness and the genuineness of the purchases, shall be verified afresh by the Assessing Officer, by law, after affording the assessee a reasonable opportunity of being heard. It is also directed that while adjudicating the issue afresh, the Assessing Officer shall keep in view and consider the binding precedents laid down by the Hon’ble Punjab & Haryana High Court in the cases of: A. CIT v. Arora Iron & Steel Rolling Mills Pvt. Ltd. [(2012) 21 taxmann.com 68], B. CIT v. Kulwinder Singh [(2013) 29 taxmann.com 12], and C. CIT v. Supertech Forgings India Ltd. [(2013) 39 taxmann.com 149].