Remand Due to Violation of Rule 46A (Additional Evidence)

Issue

Whether the Commissioner (Appeals) is justified in deleting a disallowance under Section 40A(3) based on additional evidence without giving the Assessing Officer (AO) an opportunity to examine said evidence as required under Rule 46A.

Facts

The Disallowance: The AO accepted ₹22.45 crores of purchases as genuine but treated ₹2.00 crores of cash purchases as non-genuine, disallowing them under Section 40A(3) (which restricts cash payments above ₹20,000—now ₹10,000).
CIT(A) Action: The assessee filed additional evidence before the Commissioner (Appeals) under Rule 46A. The CIT(A) admitted the evidence and deleted the addition.
Revenue’s Grievance: The Revenue argued that the CIT(A) violated Rule 46A(3) by not allowing the AO to confront or verify the new documents.

Decision

Procedural Lapse: The Tribunal held that while the CIT(A) has the power to admit new evidence, it is mandatory to provide the AO with an opportunity to be heard or to file a remand report.
Natural Justice: Deciding the genuineness of a ₹1.47 crore purchase without departmental corroboration is a violation of the statutory procedure.
Outcome: The matter was remanded to the CIT(A) for a de novo (fresh) adjudication after following the proper procedure under Rule 46A. [Matter remanded]

II. Interest on Late Deposit of TDS is Not Deductible

Issue

Whether interest paid for the late deposit of Tax Deducted at Source (TDS) under Section 201(1A) is a deductible business expense or if it is in the nature of “Income Tax” and thus non-deductible.

Facts

The assessee claimed a deduction for interest paid due to delays in depositing TDS.
The CIT(A) had initially deleted the disallowance, treating it as a compensatory payment.

Decision

Tax vs. Business Expense: The Tribunal clarified that interest on late TDS is closely linked to the tax itself. Since income tax is not a deductible expense, interest arising from a default in tax payment is also not a compensatory business expenditure.
Outcome: The CIT(A)’s order was reversed, and the disallowance was upheld. [In favour of Revenue]

III. Ad-hoc Disallowances are Impermissible Without Evidence

Issue

Whether an Assessing Officer can make an “ad-hoc” disallowance (e.g., 10%) on firewood and packing material expenses without pointing out specific discrepancies.

Facts

The AO summarily disallowed 10% of the expenses claimed for firewood and packing materials on a purely estimated basis.
The CIT(A) deleted this addition.

Decision

Burden of Proof: The Tribunal held that if the Revenue cannot bring material to the record to contradict the CIT(A)’s findings or prove that the expenses were personal or non-business in nature, an ad-hoc percentage-based cut is not sustainable in law.
Outcome: The deletion of the ad-hoc disallowance was upheld. [In favour of assessee]

Key Takeaways

Rule 46A Compliance: When submitting new bills or ledgers at the appeal stage, always ensure the CIT(A) sends a copy to the AO for a remand report; otherwise, the Revenue can get the order set aside on this technicality alone.
TDS Interest: Unlike interest on a business loan, interest on statutory tax defaults (TDS, Advance Tax) is strictly non-deductible under Section 37(1).
Ad-hoc Additions: Vague “lump sum” disallowances by an AO can be successfully challenged if your books of accounts are audited and no specific vouchers are found to be missing.

IN THE ITAT RAIPUR BENCH

Deputy Commissioner of Income-tax

Bharat Agro Industries^*

Partha Sarathi Chaudhury, Judicial Member
and Avdhesh Kumar Mishra, Accountant Member

IT Appeal No. 511 (RPR) of 2025
[Assessment year 2015-16]

FEBRUARY 10, 2026

Jalaj Prakash, Adv. for the Appellant. Dr. Priyanka Patel, Sr. DR for the Respondent.

ORDER

Avdhesh Kumar Mishra, Accountant Member.- This appeal for Assessment Year (‘AY’) 2015-16 filed by the Revenue is directed against the order dated 18.06.2025 of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [‘CIT(A)’] passed under section 250 of the Income Tax Act, 1961 (‘Act’).

2. The following grounds of appeal have been taken by the revenue: –

“1.

Whether on the facts and in the circumstance of the case and in law, the Ld CIT(A) was justified in deleting the addition made by the AO to the tune of Rs 2,00,23,554 on account of disallowance under section 40A(3) of the Act for the purchase of Cassia Tora seeds, by admitting additional evidences in contravention of Income Tax Rules 46A(1) and 46A(2) and there by ignoring the facts brought on the record by the AO.

Without prejudice to the above, whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in ignoring violation of Income Tax Rule 46A(3) without appreciating that (a) the additional evidences admitted were not forwarded to the AO and remand report was not called from him and, accordingly, AO did not get “reasonable opportunity” in terms of Rule 46A(3)? (b) Normally whenever a document is proposed to be used against the assessee, it is provided in advance and about seven days are given for him to respond, however, in contrast, such opportunity was not allowed to the AO/Department in the instant: case?

Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) has erred in not providing reasonable 3 opportunity of being heard to the AO as provided under rule 46A(3) of IT rules 1964 to examine and rebut the claim of assessee lodged before CIT(A) for the first time.

Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred while deciding the appeal in favour of the appellant, failed to allude to relevant facts on record, misread the evidence and its probative value thereby giving rise to perversity in the order of ITAT, which itself gives rise to Question of Law as held in several case laws including in the case of Sudarshan Silk and Sarees(SC)/[2008] 300 ITR 205 (SC) (SC) ?

Whether on the facts and in the circumstance of the case and in law, the Ld. CIT(A) was justified in deleting the disallowance of Rs.74,291/-on account of interest on late payment of TDS in view of judgment of ITAT, Delhi’s Bench in case of India Flysafe Aviation Ltd. Versus DCIT, Circle-12 (1), New Delhi -2024 (1) TMI 696.

Whether on the facts and in the circumstance of the case and in law, the Ld. CIT(A) was justified in deleting the ad-hoc disallowances made by the AO to the tune of Rs 2,41,693 being 10% of expenses claimed under head fire wood expenses and packing material expenses in view of judgment of ITAT. Delhi’s Bench in case of Brolife Medical Pvt. Ltd v. ACIT.

Any other ground which may be adducted at the time of hearing.”

3. The relevant facts giving rise to this appeal are that the assessee, engaged in the business of manufacturing and trading of Charota Seeds and Cassia Tora Splits, filed its Income Tax Return (‘ITR’) of the relevant year on 30.09.2015 declaring income of Rs.53,41,840/-. The case was picked up for scrutiny under category of limited scrutiny. During the course of assessment proceedings, the Ld. Assessing Officer (‘AO’) investigated the issue of purchases of Cassia Tora seeds to the tune of Rs.25,24,76,931/-. Out of purchases of Rs.25,24,76,931/-, purchases of Rs.24,44,91,400/- were in cash. The Ld. AO conducted enquiries by issuing notices under section 133(6) of the Act. The Ld. AO accepted purchases of Rs.22,44,67,846/- on the basis of outcome of enquiries. However, the Ld. AO was not able to enquire the remaining purchases of Rs.2,00,23,554/-(Rs.24,44,91,400/- minus Rs.22,44,67,846/-) as the requisite details thereof were not made available by the assessee. The Ld. AO therefore, held purchases of Rs.2,00,23,554/- as non-genuine and taxed the same as under:

“Regarding, the rest of the amount, i.e. Rs.2,00,23,554/- for which expenses have been incurred in cash for purchase of cassior tora seeds, though it is claimed to have purchased from / kishan, but the assessee failed to produce the and kishan for examination on oath. Further the onus to produce the kishan/Dala/Agent/Agent lies with assessee as the assessee firm has been in direct contact with such kishan/Dala/Agent/Agent for its business activities, since most of the notices u/s 133(6) were return un-served. The fact was brought to the notice of the assessee and asked why Rs.2,00,23,554/- should not be added back to the total income of the assessee in contravention of provision u/s 40A(3) of the Act. In response, the counsel of the assessee submitted the written reply which is scanned as under:-

xxx xxx xxx

The reply of the assessee was examined found not plausible. A plain reading of the Rule 6DD(e) makes it clear that it is applicable only to the payments in cash for the purchase of the agricultural or forest produce directly to the cultivators, growers or producers of the agricultural or forest produce alone to avail of the benefit of the said clause. Further Rule 6DD(k) is makes it clear that it is applicable only to the payments made by a person to his agent who is required to make the further payment in cash on behalf of such person.

In the instant case the assessee failed to produce some of the Agents/farmers/villagers/tribals for examination on oath. In absence of the same, the genuineness of the payment made to such framers/tribals/villagers who are in turn to be producers or growers of such articles, could not be verified. Further, Payment has been made to the agent/villagers/farmers/ tribals is also remains unverified. Further, the contention of the assessee that the agents are residing in distant area or other state for which they could not be produced is not acceptable as sufficient opportunities were provided to the assessee in this regard during the course of made to the cultivators, growers or producers of the agricultural/forest produce or product or the agents to avail the benefit of rule 6DD(e)/(k), the same lies with the assessee and the assessee failed to do so during the course of assessment proceedings.

If, the contention of the assessee is accepted, then the requirement of Subsection (3) of Section 40A will be impracticable and would lead to difficulties in its application.

In view of the fact and discussion above, Rs. 2,00,23,554/- is disallowed for violation of section 40A(3) of the Income tax Act, 1961 and added back to the total income of the assessee.”

3.1. Aggrieved with the assessment order, the assessee filed appeal before the Ld. CIT(A), who allowed the appeal not only based on evidences produced before him but also on the preponderance of probability of enquiries outcome resulting 92% purchases genuine. The relevant part of the Ld. CIT(A)’s order reads as under:

“4.1 With regard to the addition of Rs.2,00,23,554 due to disallowance under section/40A(3) of the Act for the purchase of Cassia Tora seeds, the appellant clearly explained the modus of purchase or procurement of the forest produce from tribal villagers or farmers through local agents. The appellant argued that they could prove the purchases to the extent of Rs.22,44,67,846, and due to a lack of time and miscellaneous small purchases from various parties, they could not furnish confirmation for the sum of Rs.2.00.23.554 before the assessing officer The appellant has now provided confirmation for purchases made through C. Arvind Bansal of Ambikapur, a broker, amounting to Rs 52.96.441 as additional evidence before the authority, Considering the circumstances explained by the appellant, the additional evidence is admitted. The appellant further argued that the assessing officer verified almost 9 out of 11 any test check of the purchases, such a large sampling size would be sufficient to consider the genuineness of the purchases claimed by the appellant. The appellant also argued that there was no deficiency or adverse finding by the assessing officer regarding the 92% of the verified purchases, and thus the remaining purchases should be accepted as genuine given the practical difficulties in procuring the forest produce and confirming payments from the tribals, villagers, and farmers.

The appellant relied on the decisions of jurisdictional High Court and ITAT. supporting their argument that where the genuineness of payment and the party are not in dispute, no disallowance under section 40A(3) can be made.

Considering the totality of facts and arguments presented by the appellant, and the fact that purchases amounting to Rs.22.44.67.846 were verified and confirmed during the assessment proceeding, and that the remaining payments followed the same processes and procedures, I find merit in the appellant’s argument. Further, there was no adverse material on record to doubt the genuineness of the purchases and the payments made in respect of them. Accordingly, the ground on this issue is allowed.”

4. At the outset, Dr. Priyanka Patel, Ld. Senior Departmental Representative (‘DR’) drew our attention to page Nos. 9, 10 and 20 of the impugned order to submit that the Ld. CIT(A) had admitted the additional evidences contrary to the provisions of Rule 46A(3) of the Income Tax Rules, 1962 (‘IT Rules’). She placed emphasis on following paras of impugned order:

“3.i. The AO observed that against purchases of about 24-44 crore of Casa Tom seeds, he appellant produced suppliers and brokers in respect of purchases of about Rx 22.44 crores only and therefore in in respect of balance purchases, the appellant has failed to prove genuineness of payment of Rs. 2.0023,554 54-to the farmers. He. therefore, Invoking soc 40A(3), disallowed the same. The details of amount disallowed by AD are as under”

Particulars	Amount(Rs)
Purchases through broker Arvind Bansal, Ambikapur	52,96,441/-
Purchases though broker Kelan Sihare of Mana	22,184/-
Miscellaneous purchases	1,47,04,929/-
Total	2,00,23,554/-

We are enclosing herewith a confirmation in respect of purchases made through Shri Arvind Bansal, Ambikapur (page no. 188), which could not be obtained during assessment due to paucity of time. For admission of the same as additional evidence, a separate letter is being submitted. This is an additional evidence and separate letter is being filed making a prayer for admission of additional evidence u’r 46A.

As regards miscellaneous purchases of Rs. 1,47,04,929, it is submitted that such purchases were made from a number of parties, in small quantities. All such parties are located in interior forest areas and they sold the goods to appellant through one or the common acquaintance. Since such purchases were from numerous parties and in very small quantities and having regard to the nature of transactions, it was not possible for the appellant to have maintained the details of such transactions.”

[Emphasis supplied]

4.1 The Ld. Sr. DR submitted that the additional evidence filed by the assessee got demonstrated by the above emphasized para of the impugned order.

5. With respect to the miscellaneous purchases of Rs.1,47,04,929/-, the Ld. Sr. DR submitted that the assessee had not filed any corroboratory evidence in this regard. The simple reasoning submitted by the assessee was that these purchases had been done from numerous parties and details thereof were not maintained. On this submission of the assessee, the purchases could not be treated explained, submitted the Ld. Sr. DR. Further, she also put emphasis on the fact that the purchases could not be accepted on the principle of preponderance of probability of enquiries outcome. It was categorically submitted that the assessee was duty bound to explain the genuineness of each purchase if asked to do so. The claim that the said purchases of Rs.1,47,04,929/- done from numerous parties could not be the reason to treat these purchases genuine. She submitted that the Ld. CIT(A) erred in admitting additional evidences submitted by the assessee through a separate application filed under Rule 46A(3) of the IT Rules without providing any opportunity of being heard to the Ld. AO. Further, the purchases of Rs.1,47,04,929/- were not established by the assessee to have been done from the parties recorded in the books of account. Hence, the result of enquiries outcome of other purchases could not explain the purchases of Rs.1,47,04,929/-as there was no correlation of any kind in such purchases and therefore, the principle of preponderance of probability of enquiries outcome applied by the Ld. CIT(A) was not justified. On the remaining Grounds, the Ld. Sr. DR relied upon the Ld. AO’s order.

6. At the outset, Shri Jalaj Prakash, Ld. Counsel representing the assessee, submitted that this appeal was not maintainable as the tax effect was below the threshold limit prescribed by the CBDT Circular 9/2024 as the Ground Nos. 1-4 were in respect of additional evidence under Rule 46A(3) of the IT Rules and the additional evidence was only with respect to purchases of Rs.52,96,441/-. The Ld. Counsel further submitted that the said evidences produced before the Ld. CIT(A) could not be termed as additional evidence filed for the first time on the reasoning that the CIT(A) had all the powers of the AO.

7. Further, he submitted that the Ld. CIT(A) had not decided the issue of purchases of Rs.1,47,04,929/- by admitting any additional evidence. Hence, the Grounds raised by the Revenue were not justified on this score. He drew our attention to the fact that the Ld. CIT(A) had rightly applied the principle of preponderance of probability of enquiries outcome in respect of the purchases of Rs.1,47,04,929/-. The same needed to be accepted as the said purchases had been done from the remote areas from various individuals. He further submitted that this issue was squarely covered by the decision of the Tribunal in the assessee’s own case in Bharat Agro Industries v. ITO [IT Appeal No. 263/RPR/2017, dated 13-08-2021]. Further, the Ld. Counsel contended that the above purchases could not be doubted on the reasoning that such purchases were non-genuine particularly when the Ld. AO, who had neither rejected the books of account nor disputed the sales made by the assessee. Since the sales had been accepted; therefore, the corresponding purchases had to be accepted, contended the Ld. Counsel. He distinguished the case laws relied upon by the Revenue (mentioned in Grounds). Further, he contended that the interest on late deposit of TDS, being compensatory in nature, had rightly been deleted by the Ld. CIT(A). With respect to adhock disallowances of expenditure, he placed emphasis on the finding of the Ld. CIT(A). He therefore, prayed for the dismissal of the Revenue’s appeal.

8. We have heard both parties at length and have considered materials available on the record. We do not find any merit in the contention of the Ld. Counsel that this appeal is not maintainable as the tax effect is below the threshold limit prescribed by the CBDT Circular 9/2024 as the Revenue has challenged the issue of purchases of Rs.2,00,23,554/- not only by admitting the additional evidence by ignoring the facts as mentioned in the Ground No. 1. We therefore, will decide the case on merit.

9. The Rule 46A(3) of the IT Rules reads as under:

‘”46A.(3) The [Joint Commissioner] (Appeals) or, as the case may be, the Commissioner (Appeals)] shall not take into account any evidence produced under sub-rule (1) unless the Assessing Officer has been allowed a reasonable opportunity—

(a) to examine the evidence or document or to cross-examine the witness produced by the appellant, or

(b) to produce any evidence or document or any witness in rebuttal of the additional evidence produced by the appellant.”

10. In view of the Rule 46A(3) of the IT Rules, the Ld. CIT(A) is duty bound to give an opportunity of being heard to the Ld. AO and that is why the word ‘shall’ has been used in this Rule. Before the Ld. CIT(A), the assessee sought permission for adducing additional evidence under Rule 46A of the IT Rules, which was accepted and appeal of the assessee was allowed on the basis of additional evidence adduced by the assessee. Further, the Ld. Counsel has not brought any material on the record to demonstrate that the said additional evidences based on which the appeal decided were available before the Ld. AO during the assessment proceedings. From the perusal of the impugned order, we find that the Ld. CIT(A) has not provided any opportunity of being heard to the Ld. AO and has decided the issue of genuineness of purchases of Rs.52,96,441/- and Rs.22,184/- by admitting the additional evidences. We therefore, set aside the finding of the Ld. CIT(A) with respect to the purchases of Rs.52,96,441/- and Rs.22,184/- and remand this matter (purchases of Rs.52,96,441/- and Rs.22,184/-) to the file of the Ld. CIT(A) to decide the issue of purchases of Rs.52,96,441/- and Rs.22,184/- denovo as per the Law and in accordance with the IT Rules.

11. With respect to the purchases of Rs.1,47,04,929/-, we find force in contentions/arguments of the Ld. Sr. DR that the result of enquiries outcome of other purchases should not be deciding factor for purchases of Rs.1,47,04,929/-as there is no correlation with such purchases and the principle of preponderance of probability of enquiries outcome in purchases other than the purchases of Rs.1,47,04,929/- will not be a basis for treating the purchases of Rs.1,47,04,929/-genuine. We have gone through the decision of the Tribunal in the assessee’s own case in ITA NO.263/RPR/2017 and find that the issue in dispute in that case was with respect to the disallowance under section 40A(3) of the Act, whereas the issue before us in present case is different. Therefore, we hold that the said decision does not come to the rescue of the appellant assessee in the present case. Keeping in view the facts in entirety, we, without commenting on the merit of the disallowance, set aside the finding of the Ld. CIT(A) with respect to the purchases of Rs.1,47,04,929/- and remand this matter (purchases of Rs.1,47,04,929/-) to the file of the Ld. CIT(A) to decide the issue of purchases of Rs.1,47,04,929/- denovo as per the Law. Thus, Ground Nos. 1-3 raised by the Revenue, in view of the above finding is allowed as above. The Ground No. 4 raised by the Revenue, being academic, is not adjudicated here and thus, the same stands dismissed.

12. The issue of disallowance of interest on late deposit of TDS has been decided by divergently by various benches of the Tribunal. The payment of interest on late deposit of TDS takes colour from the nature of the levy with reference to which such interest is paid and the tax required to be but not paid in time, which renders the assessee liable for payment of interest and may be construed as being in the nature of a direct tax and similar to the income tax payable under the Act. Hence, we are of the considered view that the interest paid under section 201(1A) of the Act is in the nature of income tax and the same is not a compensatory payment. Thus, we following the decision of the Delhi Tribunal in the case of India Flysafe Aviation Ltd. v. Dy. CIT (Delhi-Trib.)/2024 TMI 696, hold that the Ld. CIT(A) is not justified in deleting the disallowance of Rs.74,291/- on this score. Thus, the finding of the Ld. CIT(A) on the issue of disallowance of interest on late deposit of TDS is reversed and the finding of the Ld. AO is sustained. The Ground No. 5 raised by the Revenue stands allowed as above.

13. The Revenue has not brought any material on the record to contradict the finding of the Ld. CIT(A) on the issue of adhock disallowances of expenditure. Hence, we are not inclined to interfere with the finding of the Ld. CIT(A) on this score as the impugned order deleting the addition of Rs.2,41,693/- is well reasoned. The Ground No. 6 raised by the Revenue stands dismissed being devoid of any merit.

14. In the result, the appeal of the Revenue is partly allowed as above.