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

ITA 508/CHANDI/2024

AI Insights

The case involves Aqua Fiber Industries, a partnership firm engaged in manufacturing and trading of polyester staple fiber and yarn, which filed an appeal against the order of the CIT(A) that deleted several additions made by the Assessing Officer (AO) under section 143(3) of the Income Tax Act. The additions included alleged bogus purchases, unconfirmed sundry creditors, disallowance of freight and handling charges, and advances to suppliers. The Revenue challenged the CIT(A)'s decision primarily on the grounds of violation of Rule 46A, arguing that the CIT(A) accepted additional evidence without proper scrutiny and without a remand report from the AO. The ITAT found that for some entities, the evidence was already part of the record and properly considered, but for others, the procedural requirements of Rule 46A were not met, necessitating a remand for further examination.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 711378 (ITAT-CHANDIGARH)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2025
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Assessment Year: 2017-2018
• Other Referred Cases: CIT v. Arora Iron & Steel Rolling Mills Pvt. Ltd., CIT v. Kulwinder Singh, CIT v. Supertech Forgings India Ltd.
• Laws Referred To: Income Tax Act, 1961, Income Tax Rules, 1962
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MEENAKSHI VOHRA
• Assessee Lawyers: PARIKSHIT AGGARWAL; C.A
• Keywords: Opportunity of being heard; Additional evidence; Corroborative evidences; Bogus purchase; Principle of natural justice; Bogus
• Section: 143(3)

Judgement Text

"आयकर अपीलीय अिधकरण,चǷीगढ़ Ɋायपीठ “ए” , चǷीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “A”, CHANDIGARH HEARING THROUGH: PHYSICAL MODE ŵी लिलत क ुमार, Ɋाियक सद˟ एवं ŵी क ृणवȶ सहाय, लेखा सद˟ BEFORE: SHRI. LALIET KUMAR, JM &SHRI. KRINWANT SAHAY, AM आयकरअपील सं./ ITA No. 508 /Chd/ 2024 िनधाŊरण वषŊ / Assessment Year : 2017-18 The Asst. CIT Panchkula Circle, Panchkula बनाम Aqua Fiber Industries SCO 398, First Floor, Sector 20 Panchkula, Haryana-134109 ˕ायीलेखासं./PAN NO: AAZFA6325M अपीलाथŎ/Appellant ŮȑथŎ/Respondent िनधाŊįरती की ओर से/Assessee by : Shri Parikshit Aggarwal, C.A राजˢ की ओरसे/ Revenue by : Smt. Meenakshi Vohra, CIT, DR सुनवाई की तारीख/Date of Hearing : 23/07/2025 उदघोषणा की तारीख/Date of Pronouncement : 25/07/2025 आदेश/Order PER LALIET KUMAR, J.M: This appeal filed by the Revenue is directed against the order dated 11.03.2024 passed by the Ld. CIT(A), NFAC Delhi for the assessment year 2017–18, whereby the additions made by the Assessing Officer were deleted. The Revenue has assailed the appellate order on the limited ground of alleged violation of Rule 46A of the Income Tax Rules, 1962. 2. The assessee is a partnership firm engaged in the manufacturing and trading of polyester staple fibre and yarn. It filed its return declaring income of Rs.18,06,38,350/-. The assessment was completed under section 143(3) of the Act, making additions of Rs.11,55,99,028/-, including:  Rs.10,52,04,593/- on account of alleged bogus purchases from six parties,  Rs.13,72,349/- for an unconfirmed sundry creditor (M/s Jiya Jee Synthetics), Printed from counselvise.com 2  Rs.11,88,391/- towards disallowance of freight and handling charges, and  Rs.78,33,695/- for advances to suppliers. 3. Against the order of the Ld. AO the assessee went in appeal before the Ld. CIT(A). The Ld. CIT(A), after considering the detailed submissions and supporting evidences furnished by the assessee, deleted the additions. 4. The Revenue’s challenge is confined to the CIT(A)'s acceptance of additional evidence allegedly in violation of Rule 46A. The merits of the deletion have not been independently challenged. 5. The DR submitted that the Ld. CIT(A) has passed the impugned order solely based on documents and submissions filed by the assessee during the course of appellate proceedings. It was contended that no remand report was called for from the Assessing Officer, nor was any independent verification carried out by the Ld. CIT(A) about the documents furnished by the assessee. The Learned DR argued that the Ld. CIT(A) merely accepted the plea of the assessee without due application of mind. It was further submitted that such action amounts to a gross violation of Rule 46A of the Income Tax Rules, 1962. In light of the above, it was urged that the matter may be restored to the file of the Assessing Officer for de novo adjudication in accordance with law. 6. 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. Printed from counselvise.com 3 6.1 It was further pointed out by Ld. AR that three of the six parties, namely M/s Arjoo Enterprises, Jai Bhagwan Iron and Bottle Store, and Jai Durga Traders from whom purchases of Rs.7.34 crores were made, had duly responded to notices under section 133(6), confirming the outstanding balances and additions qua the outstanding amounts were deled by Assessing Officer . 6.2 It was submitted by Ld. AR that while the AO alleged non-response regarding the purchases, he simultaneously accepted the confirmations concerning the closing balances. This inconsistent stand—accepting the parties’ existence and confirmations in part while rejecting them in part—renders the addition untenable. Ld. AR submitted that Ld. CIT(A) rightly took note of this contradiction and accepted the confirmations and explanation of the assessee, which were supported by contemporaneous documents including invoices, ledgers, and bank statements. 7. 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. 8. 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. Printed from counselvise.com 4 9. 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 . 10. 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 Printed from counselvise.com 5 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]. Printed from counselvise.com 6 10.4 With respect to the additions of Rs. 13,72,349/- for an unconfirmed sundry creditor (M/s Jiya Jee Synthetics), Rs. 11,88,391/- towards disallowance of freight and handling charges, and Rs. 78,33,695/- for advances to suppliers, we note that no specific submissions or arguments were advanced before us during the course of hearing to contest the additions made by the Assessing Officer or to support the deletions made by the Learned CIT(A). In the absence of any supporting material on record and in view of our decision to remand the matters concerning Ashirwad Enterprises, Govind Trading Company, and Sat Kartar Fibres to the file of the Jurisdictional Assessing Officer for fresh adjudication, we consider it appropriate to also restore the aforesaid issues to the file of the Jurisdictional Assessing Officer. The Assessing Officer shall adjudicate the same afresh in accordance with law after affording a reasonable opportunity of being heard to the assessee.\" 11. In the light of our finding given in para 10.1 to 10.4 the appeal of the Revenue is paratly allowed. Order pronounced in the open Court on 25/07/2025 Sd/- Sd/- क ृणवȶ सहाय लिलत क ुमार (KRINWANT SAHAY) (LALIET KUMAR) लेखा सद˟/ ACCOUNTANT MEMBER Ɋाियक सद˟/JUDICIAL MEMBER AG आदेश की Ůितिलिप अŤेिषत/ Copy of the order forwarded to : 1. अपीलाथŎ/ The Appellant 2. ŮȑथŎ/ The Respondent 3. आयकरआयुƅ/ CIT 4. आयकरआयुƅ (अपील)/ The CIT(A) 5. िवभागीय Ůितिनिध, आयकरअपीलीय आिधकरण, चǷीगढ़/ DR, ITAT, CHANDIGARH 6. गाडŊ फाईल/ Guard File आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar Printed from counselvise.com "