Facts of the Case

The Revenue conducted search and seizure operations under Section 132 on the Vaish Group on 3 February 2011, along with survey proceedings under Section 133A. Based on seized material, proceedings under Section 153C were initiated against the assessee, a partnership firm engaged in mining of boulders and manufacturing/trading of grits.

The Assessing Officer noted discrepancies between the market value of boulders mined as reported by the District Magistrate, Sonebhadra, and the sales recorded in the assessee’s books. The AO rejected the books under Section 145(3) and estimated undisclosed profits by applying a net profit rate of 30% on the differential value, resulting in an addition of ₹1,72,94,050.

Issues Involved

  1. Whether deletion of addition by CIT(A) based on additional evidence was valid.
  2. Whether failure to provide the AO an opportunity to examine such evidence violated Rule 46A.
  3. Whether the AO was justified in rejecting books and estimating profits.

Petitioner’s (Revenue’s) Arguments

  • The CIT(A) relied on a certificate produced for the first time at the appellate stage.
  • The certificate constituted additional evidence.
  • No remand report or comments were obtained from the Assessing Officer.
  • Such action violated Rule 46A of the Income-tax Rules.
  • Therefore, the deletion of addition was unsustainable.

Respondent’s (Assessee’s) Position

The assessee did not appear before the Tribunal despite multiple opportunities. The relief granted by CIT(A) was based on the reasoning that the difference in valuation arose due to application of rates applicable to grits rather than boulders and that there was no discrepancy in quantity mined.

Court Order / Findings (ITAT)

  • The CIT(A) accepted additional evidence without forwarding it to the AO.
  • This constituted a clear violation of Rule 46A.
  • The appellate order, therefore, could not be sustained in law.
  • Proper opportunity must be given to both parties in accordance with principles of natural justice.

Important Clarification

  • Additional evidence at the appellate stage cannot be relied upon without compliance with Rule 46A.
  • The Assessing Officer must be given an opportunity to examine and rebut such evidence.
  • Violation of procedural safeguards renders the appellate order unsustainable.
  • Remand is appropriate where factual verification is required.

Link to download the order - .https://itat.gov.in/public/files/upload/1660221501-506Alld2015%20ACIT.pdf

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