Tax Appellate Authority Cannot Rely On New Evidence Without Letting Tax Officer Examine It: ITAT Mumbai

The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has held that while taxpayers may file additional evidence at the appellate stage in appropriate cases, the appellate authority cannot rely on such fresh material without first giving the Assessing Officer an opportunity to examine it and respond.

Referring to Rule 46A of the Income-tax Rules, 1962, which governs admission of additional evidence before the appellate authority, a bench of Judicial Member Anikesh Banerjee and Accountant Member Om Prakash Kant and observed:

“Compliance with Rule 46A is not a mere procedural formality but a substantive safeguard intended to preserve fairness in adjudication.”

The bench further held:

“the failure to afford the Assessing Officer an opportunity to examine the additional evidences has resulted in violation of the principles of natural justice and has rendered the impugned appellate findings procedurally unsustainable.”

The case arose from an assessment against Aspri Spirits Pvt. Ltd., an importer, trader and distributor of liquor. The tax officer made additions relating to an unsecured loan, trade payables, interest expenditure and incentive and promotion expenses.

The company's income was assessed at ₹38.51 crore against its returned income of ₹25.83 crore.

The Commissioner of Income Tax (Appeals) later granted substantial relief to the company. It deleted additions relating to the unsecured loan, trade payables, and interest expenditure. It also reduced the disallowance on incentive and promotion expenses from ₹3.90 crore to ₹50 lakh.

Before the tribunal, the Revenue argued that the appellate authority had relied on fresh documents including confirmations, bank statements, income-tax records, reconciliations, invoices and financial statements.

These were not part of the assessment record. Both sides also conceded that substantial documentary evidence not forming part of the assessment record had been furnished before the appellate authority.

The tribunal found that these documents formed the basis of the relief granted. However, no effective opportunity was given to the Assessing Officer to verify their authenticity, correctness, or evidentiary value.

The tribunal accordingly set aside the appellate order on all issues under challenge. It restored the matter to the Assessing Officer for fresh adjudication.

For Assessee: Advocate Vimal Punmiya

For Revenue: Advocate Rajesh Kumar Yadav (CIT-DR)