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Facts
The Revenue appealed against the order of the CIT(A) who had allowed the assessee's appeal. The Assessing Officer (AO) had made additions regarding disallowance of short-term capital loss and unexplained purchases. The CIT(A) admitted additional evidence without a remand report and allowed the appeal.
Held
The Tribunal held that the CIT(A) erred in admitting additional evidence without calling for the AO's comments and without giving the AO an opportunity to examine the evidence. The Tribunal set aside the order of the CIT(A).
Key Issues
Whether the CIT(A) erred in admitting additional evidence without following Rule 46A of the Income Tax Rules and without giving the AO an opportunity to examine the same.
Sections Cited
Sec. 143(2), Sec. 142(1), Sec. 69C, Rule 46A
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Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI GEORGE GEORGE K & SHRI INTURI RAMA RAO
O R D E R
PER GEORGE GEORGE K, VICE PRESIDENT:
This appeal filed by the Department is directed against the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi dated 14.07.2025 passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Year is 2016-17.
2 -: 2. Brief facts of the case are as follows: The assessee is a company. For the assessment year 2016-17, return of income was filed on 15.10.2016 declaring ‘nil’ income under normal computation and book loss of Rs.8,09,07,842/- u/s.115JB of the Act. The assessment was selected for scrutiny and notice u/s.143(2) of the Act was issued on 08.07.2017. Thereafter notices u/s.142(1) of the Act were issued on 16.10.2018 and 13.12.2016. In response to the notice, assessee submitted balance sheet, profit & loss account along with schedules. A Show cause notice dated 17.12.2018 was issued. To the show-cause notice isused, assessee sought more time to comply. During the course of assessment proceedings, the AO noticed that assessee claimed Short Term Capital Gains (STCG) on sale of immovable property (property sold on 02.12.2015). The assessee had calculated the STCG at Rs.2,68,84,985/- where as per the sale deed, sale consideration was Rs.2,75,27,600/-. The sale deed did not mention about the sale of its machineries and furniture & fixtures. The assessee did not furnish any other evidence for sale of machineries and furniture & fixtures. Therefore, the AO estimated the sale consideration at Rs.5,01,29,085/- which was the written down value as on 01.04.2015. Accordingly, the AO disallowed loss of Rs.3,92,54,617/- in computing the short-term capital gains on sale of immovable property. Further, AO noticed 3 -: that as per P&L account, assessee claimed total turnover of Rs.20,33,800/-, opening stock of Rs.5,55,915/- and closing stock of Rs.3,36,133/- and purchase at ‘nil’. However as per confirmation received from the sundry creditors, the total purchases was Rs.5,78,07,509/- and sale of Rs.1,39,51,092/-. Therefore, the AO noticed undisclosed purchase of Rs.4,38,56,417/-. Since assessee failed to furnish documentary evidence, AO completed the assessment u/s.143(3) of the Act by making addition of Rs.6,52,52,149/-.
Aggrieved by the order of the AO, assessee filed appeal before the First Appellate Authority (FAA). Before the FAA, assessee had filed evidences, additional documents in support of its claim. The FAA without calling for the remand report allowed the appeal of the assessee. The relevant findings of the FAA allowing both the grounds of the assessee read as follows:- “In this ground, the assessee contested the disallowance of short term capital loss made by AO of Rs. 3,92,54,617/-.
I have considered the facts and circumstances of the case. I have also considered the assessee’s submissions. From the assessee’s submissions, it is understood that the assessee sold land and building together for Rs.5,01,29,085/- out of which, the portion land sale is at Rs.2,25,72,400/- and portion of building sales is at Rs.2,75,27,600/-. Apart from this, the assessee also sold plant and machinery, furniture, computers etc. at Rs.26,56,918/-. As against above sales consideration, the assessee clearly submitted working of long term capital gain on 4 -: sales of land after considering the cost of acquisition of Rs.1,63,19,296. Finally, the assessee arrived long term capital gains at Rs.62,53,904/-. Likewise, the assessee also submitted working for short term capital gains on sale of building at Rs.1,60,10,517/-. However, with regard to sale of plant and machinery, furniture etc. the AO did not consider opening WDV of Rs.4,19,11,535/-. In this regard, the assessee provided that it has sold plant and machinery, furniture, etc. at Rs.26,56,918/- to one party by name Amtek Auto Ltd. and furnished necessary sales invoices. After deducting the above sale value from the opening WDV, long term capital loss was arrived by the assessee at Rs.3,92,54,617/- I have gone through the assessee’s workings and the same found to be in order and there was no reason to make any disallowance in this regard. Therefore, the long term capital loss as arrived by the assessee is proper and disallowance made by the AO is not warranted. Accordingly, this ground of appeal is hereby allowed.
Ground No. 2. In this ground the assessee contested the addition made by the AO on account of unexplained purchases u/s 69C of the IT Act.
I have considered the facts and circumstances of the case. I have also considered the assessee’s submissions. From the facts of the case, it is understood that the AO called for details of increase in current liabilities during the year and the same were submitted by the assessee. From the assessee’s details, the AO found that there were purchases of Rs.4,38,53,588/- from M/s. Wintech Equipment Pvt. Ltd and purchase of Rs.1,39,52,921/- from M/s. KAC Casting Ltd. Similarly, there were sales of Rs.1,39,51,092/- to M/s Grant Machines Pvt. Ltd. In this regard, the AO noticed that as per P&L account the total turnover was shown only at Rs.20,33,800/- and therefore disbelieved the purchase transactions as well as sales transactions and proceeded to add the purchases of Rs.4,38,56,417/- as unexplained expenditure u/s 69C of the IT Act. In this regard, during the course of appellate proceedings the assessee company submitted that it had presented financials on net revenue basis in the P&L account but not on gross revenue basis. But actual gross revenue was at Rs.115.49 crore and purchases were at Rs.115.29 crores and due to this accounting presentation which led the AO to wrongly assume that there were unaccounted purchases and thereby disbelieved the transactions of the assesse. I have considered the assessee’s submissions, from the verification of the details submitted by the 5 -: assessee, and from the verification of financials of the suppliers/ selling parties, it is noticed that the assessee showed net revenue of Rs.20,33,800/- in P&L account, but actually gross revenue was at Rs.115.49 crores and gross purchases were at Rs.115.29 crores. Thus, even though purchases were not shown on gross basis, but there were actual purchases and sales were transacted on gross basis during the year. This accounting pattern clearly shows that there were actual purchases to the tune of Rs.115.29 crores but not shown on gross basis. Finally, the assessee only shown net revenue in the financials which led to the AO’s wrong inference and thereby wrong additions. As discussed above, the addition made by the AO on account of unexplained purchases has no basis and acccordingly the same is hereby deleted. Accordingly, this ground of appeal is hereby allowed.”
4. Aggrieved by the order of the FAA, the Department has filed the present appeal before the Tribunal. The grounds raised read as follows:-
1. Whether on the facts and circumstances of the case, the Learned CIT(A) has erred in holding that the assessee's actual gross purchase is Rs. 115.29 crores and gross revenue was at Rs. 115.49 but not shown on gross basis when the assessee himself reported in the P & L Account and in the return of income that the purchases at Rs. NIL.
2. Whether on the facts and circumstances of the case, the Learned CIT(A) has erred in accepting the submission of the assessee that his financials were reported on "net revenue basis".
3. Whether on the facts and circumstances of the case, the Learned CIT(A) has erred in accepting the submission of the assessee without calling for any remand report from the Assessing Officer.
4. Whether on the facts and circumstances of the case, the Learned CIT(A) has erred in holding that the assessee had admitted his financials on the "net revenue basis" when the assessee had himself admitted in the GST return that his sales is only Rs.20,33,800/-.
5. Whether on the facts and circumstances the case, the Learned CIT(A) has erred in accepting the argument of the assessee when the assessee had not submitted any Tax Audit Report for the relevant assessment year.
6 -: 5. The Ld.DR submitted that the FAA in utter disregard to the mandate prescribed in Rule 46A of the Income Tax Rules, 1962 decided the issue in favour of assessee. Therefore, it was submitted that in the interest of justice and equity the issue needs to be restored to the files of the AO for giving him an opportunity to examine the fresh evidence / submissions made before the FAA.
The case was first posted for hearing on 09.12.2025. Since assessee did not appear, the notice was issued to the assessee through the DR. Again, the case was posted on 17.12.2025 and none was present on behalf of the assessee. Hence, notice was issued through RPAD. In between, the case was posted on 12.01.2026 and 02.02.2026. On 03.02.026, the Ld.DR had submitted a report of the Inspector of Income Tax, stating that assessee had sold the business concern to M/s. Hindustan Pipes & Tubes and was unable to contact M/s.ACL Industries Ltd. The report of the Inspector of Income Tax who was directed by the DR to serve the notice on the assessee reads as follows:- Report on Service of Hearing Notice in the case of M/s ACL Inudistries Limited, No.232/2. Myleripalayam Village, Othakkalmandapam Post, Pollachi Main Road, Coimbatore -641032 having PAN:AADCA9183A, for the A.Y.2016-17 issued by the Hon'ble Income Tax Appellate Tribunal (ITAT). 'B' Bench, Chennai of ITA.No.2592/CHNY/2025.
7 -: As directed by the Income tax Officer, Corporate Ward-1, Coimbatore, to serve the hearing notice mentioned above, I visited the Address provided in the hearing notice at No.232/2, Myleripalayam Village, Othakkalmandapam Post, Pollachi Main Road, Coimbatore 641032 in the case of M/s ACL Industries Limited. When I reached the location it was found that no company is situated there in the name of M/s ACL Industries Limited, instead a company named M/s Hindustan Pipes & Tubes, a manufacturing Plastic Pipes and Tubes is located. I enquired people available there. One Mr. Vairamuthu (Mobile No: 9041633335) a sales man told me that no such company in the name of M/s ACL. Industries Limited was found there. He further given me a contact details (96649 90801) of Mr. Sadasivam, General Manager of M/s Hindustan Pipes & Tubes. When contacted Mr. Sadasivam, G.M. told me that the company M/s Hindustan Pipes & Tubes has take over the property from M/s ACL Industries Limited on 02.12.2015 and started manufacturing of Pipes and Tubes from the year 2020. Attachment enclosed for ready reference.
In light of the above report of the Inspector of Income Tax and inspite of RPAD notice being issued to the address furnished by the assessee and since assessee being absent during all hearings, we deem it appropriate to dispose off the case on merits after hearing the Ld.DR.
In the instant case, on perusal of the impugned order of the FAA, it is clear that assessee had furnished additional evidences in the form of sales invoices from one party by the name Amtek Auto Ltd., and also submitted the working for STCG on the sale of building and how the opening WDV is arrived at, etc. It is also noticed that fresh details were submitted by the assessee during the 8 -: course of appellate proceedings and how it had presented financials on the revenue basis in the P&L account and not on the gross revenue basis. The FAA without calling for a remand report had adjudicated the issues in favour of the assessee and allowed the appeal of the assessee.
The prescription of Rule 46 of the Income Tax Rules, 1962 is clear that the assessee is an ordinarily not entitled to produce additional evidence before the FAA other than that which is furnished to the AO, except in four circumstances enumerated in clause (a) to (d) of sub-rule (1) of Rule 46A of the Income Tax Rules, 1962. Sub-Rule (2) of Rule 46A however provides that no evidence shall be admitted under Sub-Rule (1) of Rule 46A unless the FAA records in writing the reasons for its admission. Sub-Rule (3) of Rule 46A further stipulates the FAA shall not take into account any evidence produced under sub-rule (1) unless the AO has allowed reasonable opportunity to examine the evidence or document in rebuttal of the additional evidence produced by the assessee.
In the instant case, the FAA has examined fresh evidences such as invoice of Amtek Auto Ltd., as additional evidence. The FAA 9 -: ought to have called for the comments of the AO and in absence of the same, the impugned order of the FAA is set aside and the matter is restored to the files of the AO for deciding the issue afresh as per law. The AO shall afford a reasonable opportunity of hearing to the assessee. The assessee shall co-operate with the Department to facilitate the framing of proper assessment and would also be entitled to file any additional evidence before the AO in support of its case. It is ordered accordingly.
In the result, the appeal filed by the Revenue is allowed for statistical purposes.
Order pronounced in the open court on 3rd February, 2026 at Chennai.