ITAT Mumbai: Rule 46A Violation Fatal – CIT(A) Cannot Delete Additions Without AO Verification

ITO Vs Ashwin Popatlal Shah (ITAT Mumbai)

ITAT Mumbai: Rule 46A Violation Fatal – CIT(A) Cannot Delete Additions Without AO Verification

In this case, the ITAT Mumbai dealt with deletion of ₹2.01 crore alleged bogus purchase addition by the CIT(A), where the assessee had produced confirmations, invoices, and ITRs of suppliers during appellate proceedings.

The Tribunal found a serious procedural lapse—the CIT(A) had relied on additional evidence not furnished before the AO and failed to follow mandatory Rule 46A procedure, i.e., no remand report or opportunity was given to the Assessing Officer to verify such evidence.

It was emphasized that:

• Rule 46A is not a technicality but a safeguard of natural justice
• Any additional evidence admitted at appellate stage must be confronted to the AO
• Failure to do so results in denial of verification rights to Revenue

Accordingly, even though the assessee produced documents supporting genuineness of purchases, the Tribunal held that CIT(A)’s deletion cannot stand due to procedural illegality.

The Tribunal also noted that the CIT(A) failed to adjudicate the ground challenging validity of reassessment, which is a mandatory duty.

Final Outcome:

• CIT(A) order set aside
• Matter restored for fresh adjudication
• Direction to follow Rule 46A and obtain remand report
• CIT(A) directed to also decide reassessment validity ground

This ruling reinforces a critical principle: even strong evidence cannot cure violation of mandatory appellate procedure-Rule 46A compliance is essential.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

This appeal by the Revenue and cross-objection by the assessee are directed against order dated 28.10.2025 passed by the Ld. Commissioner of Income-tax (Appeals) – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2020-21.

2. The grounds raised by the Revenue are reproduced as under:

1. Whether on the fact and in the circumstances of the case and in law, the Ld.crr(A) has erred in deleting entire addition of Rs. 2,01,73,880/- made by the A.O.

2. Whether on the fact and in the circumstances of the case and in law, the Ld.crr(A) has erred in the order by violating the mandatory procedure under Rule 46A (as per para 5.6 of the C1T(A) order) and thus failed to conduct verification and accepted documents without enquiry during appellate proceedings.

3. Whether on the fact and in the circumstances of the case and in law, the Ld. C1T(A) has erred in deleting the addition by accepting the assessee’s explanation without any independent verification, and without calling for remand report from the Assessing Officer to verify the fresh evidences filed during the appellate proceedings, thereby violating Rule 46A of the I.T. Rules, 1962.

4. Whether on the fact and in the circumstances of the case and in law, the Ld.CIT(A) erred in ignoring the fact that there was a non­compliance of the purchase party of the assessee, though the detail of corresponding purchase voucher of diamond which were sold to the assessee, which were called for u/s 133(6) of the Act, were not submitted during assessment proceedings as well as appellate proceedings by the purchase party, which goes to the root of genuineness of purchase.

5. We pray to add, alter, amend, delete and/or modify any or all of the aforesaid grounds of appeal either at the time of hearing or at any time before the date of hearing.

2.1 The grounds raised by the assessee in cross-objection is reproduced as under:

1. Ground 1 On the facts and circumstances of the case and law, the Ld. C1T(A) failed to appreciate that reassessment proceeding initiated under section 147 is bad in law and deserved to be quashed.

3. Briefly stated, facts of the case are that the the assessee, an individual engaged in the business of trading in cut and polished as well as rough diamonds, filed the return of income declaring total income of 28,47,390/-. Subsequently, based on information suggesting that the assessee had allegedly entered into accommodation transactions during the relevant financial year by way of bogus purchases of gems/jewellery from PIHU Gems LLP, Sanjay Nareshchandra Sheth and Mitesh Mahesh Shah for a total purchase consideration of Rs.2,01,73,880/- and reassessment proceedings were initiated under section 147 of the Act. Pursuant thereto, following due procedure under the provisions of the Act, the ld AO issued notice u/s 148 of the Act on 30.03.2024 and the reassessment was completed by the Assessing Officer on 26/03/2025 making an addition of 22,01,73,880/- on account of alleged non-genuine purchases.

4. In appeal, the Learned CIT(A) deleted the entire addition on merits after considering submissions and documentary evidences furnished by the assessee, including confirmations, invoices, and income-tax returns of the alleged counterparties. However, the ground raised by the assessee challenging the validity of reassessment proceedings was not adjudicated.

5. The Revenue has assailed the impugned order primarily on the ground that the Learned CIT(A) admitted and relied upon additional evidences without complying with the mandatory procedure prescribed under Rule 46A of the Income-tax Rules, 1962, and without affording the Assessing Officer an opportunity to examine such evidences. The assessee, by way of cross-objection, has challenged the validity of the reassessment proceedings, contending that the same is bad in law.

6. We have heard rival submissions of the parties and perused the relevant materials on record. We find that one of the main grievance of the Revenue raised in ground No. 2 and 3 of the appeal is that the Ld. CIT(A) has deleted the addition on merit after considering the additional evidences without following the due process of Rule 46A of the Income-tax Rules, 1962 (in short ‘the Rules’) and therefore, the order of the Ld. CIT(A) might be set aside. The relevant finding of the Ld. CIT(A) is reproduced as under:

“5.6 After careful consideration of the facts on record, the assessment order, and the detailed written submissions along with the paper book filed by the appellant vide submission dated 14.10.2025, I find merit in the contentions of the appellant. The paper book was examined in detail. Part-I of the paper book (pages 1-77) contains the submissions and evidences already filed during the assessment proceedings, whereas from pages 77 onwards, the appellant has placed on record the additional supporting evidences substantiating the genuineness of the impugned purchase transactions.

5.7 Specifically, the appellant has furnished (i) confirmation of accounts with M/ s. Pihu Gems LLP along with copies of corresponding sales invoices (pages 78-83) reflecting sales aggregating to 43,34,591/-; (ii) confirmation of accounts with M/ s. Sanjay Gems showing purchases of 54,00,915/ – (page 91); and (iii) confirmation of accounts with M/ s. Neev Diamonds evidencing purchases aggregating to 1,24,27,505/- (page 96). Copies of the income-tax returns filed by the aforesaid parties have also been furnished in the paper book to corroborate the existence and identity of the counterparties. On perusal, these evidences clearly establish that the transactions were duly accounted for in the regular books of account, supported by verifiable documentary records, and routed through normal banking channels.

5.8 It is also noted that the appellant has, during the appellate proceedings, produced all the documents and confirmations that were called for by the Assessing Officer but could not be furnished at the assessment stage. The confirmations and supporting documents substantiate the genuineness of the purchase and sales transactions in question and dispel the allegation of accommodation entries or bogus purchases. The Assessing Officer has not brought any adverse material on record to controvert or disprove these evidences.

5.9 In view of the above, I am satisfied that the appellant has successfully demonstrated the identity and existence of the concerned parties, the genuineness of the transactions, and the correctness of the amounts recorded. The disallowance made on account of alleged bogus purchases and consequent addition to income is, therefore, not sustainable in law or on facts. Accordingly, the addition of 2,01,73,880/- made by the Assessing Officer is hereby deleted. Hence, all the grounds of appeal stands ALLOWED.”

( emphasis supplied externally)

6.1 On perusal of the above finding, it is evidence that in paragraph 5.8, the Ld. CIT(A) himself has mentioned that assessee had produced certain documents and confirmation that were called for by the Assessing Officer but could not be furnished at the assessment stage. Further, the Ld. CIT(A) in paragraph 5.3 of the impugned order has also recorded that the assessee failed to provide corresponding purchase vouchers of Shri Sanjay Naresh Chandra Seth allegedly due to short period of the time. The relevant finding of the Ld. CIT(A) is reproduced as under:

“5.3 It is observed from the assessment order that the appellant has failed to furnish the complete details, which could prove the genuineness of the transactions. The appellant provided the Axix Bank statement reflecting Pihu Gems statement, Neev diamond confirmation of accounts, Neev ITR, Sanjay Gems Confirmation and details of corresponding purchases of gems. Thereafter, notice u/ s 133(6) were issued and served to third parties on 13.03.2025. However, as the third parties failed to comply with the notice u/ s.133 (6) of the I.T. Act, 1961. Summons u/ s.131(c) of the LT.Act, 1961on 14.03. 2025 to furnish the details as mentioned in the summon. In response to the summon, only

Sanjay Naresh Chandra Seth furnished details along with sales vouchers of the gems sold to the assessee but failed to provide the corresponding purchase vouchers of the Gems which were sold to the assessee; and other party did not provide the details stating that due to short period of time the documents could not be gathered.”

( emphasis supplied externally)

6.2 Upon a perusal of paragraphs 5.6 and 5.8 of the impugned order as reproduced above, it is evident that the Ld. CIT(A) accepted fresh evidence (i.e. confirmations and ITRs of third parties) which, by the Ld. CIT(A)’s own admission, were not available during the assessment stage.

6.3 The Rule 46A of the Rules is not a mere technicality but a cornerstone of natural justice in tax jurisprudence. It mandates that when the First Appellate Authority admits evidence not produced before the AO, it must grant the AO a reasonable opportunity to examine such evidence or file a remand report. By failing to seek a remand report or provide the AO with an opportunity to rebut the new documentation, the Ld. CIT(A) has bypassed the statutory check and balance mechanism. Admissibility of evidence at the appellate stage is subject to the rigorous procedural safeguards of Rule 46A. An order passed in breach of this rule suffers from a fundamental procedural infirmity, as the Revenue is deprived of its right to verify the veracity of documents that effectively reverse the assessment. Thus, the Ld. CIT(A) has not followed the procedure of the Rule 46A of Rules provided for admitting of the additional evidence which were not filed before the Ld. Assessing Officer.

6.4 Accordingly, we set aside the impugned order of the Learned CIT(A) on the issue of deletion of addition and restore the matter to his file with a direction to: (i) consider the additional evidences strictly in accordance with Rule 46A of the Income-tax Rules, 1962; (ii) afford a reasonable opportunity to the Assessing Officer to examine the evidences and submit a remand report; and (iii) thereafter adjudicate the issue afresh on merits in accordance with law.

6.5 Insofar as the cross-objection filed by the assessee is concerned, it is observed that the Learned CIT(A) has failed to adjudicate the ground challenging the validity of reassessment proceedings. This omission goes to the root of the matter. The Learned CIT(A) is duty-bound to adjudicate all grounds raised before him. Accordingly, we direct the Learned CIT(A) to adjudicate the ground relating to the validity of reassessment proceedings afresh, in accordance with law, after affording due opportunity to the assessee.

6.6    Accordingly, we conclude that in view of the procedural lapses identified above, we find it just and proper to set aside the impugned order and restore the matter to the file of the Ld. CIT(A) for fresh adjudication as directed above.

6.7 Consequently, Ground Nos. 2 and 3 of the Revenue’s appeal are allowed for statistical purposes. The remaining grounds on merits are rendered academic at this stage. The Cross-Objection of the Assessee is likewise allowed for statistical purposes.

7. In the result, the appeal of the Revenue and the Cross-Objection of the Assessee are allowed for statistical purposes

Order pronounced in the open Court on 20/04/2026.