Big Tax Dispute: Rs 7.96 Cr Addition Slashed After New Evidence, But Rule 46A Ignored by AO:

Big Tax Dispute: Rs 7.96 Cr Addition Slashed After New Evidence, But Rule 46A Ignored by AO Can ITAT rely on new evidence admitted without AO’s opportunity or Rule 46A compliance? Fact Of The Case In the 2006-07 assessment year, Kamraz Rural Bank reported an income of Rs 51,946,000/-. The Assessing Officer (AO) later added Rs. 79,680,000/- to the bank's income under Section 40(a)(ia) for not withholding tax on interest payments over Rs. 10,000/-. During the appeal, the Commissioner of Income Tax (Appeals) accepted new evidence from the bank showing that only Rs. 24,18,596/- was subject to TDS, reducing the addition. This adjustment was made without allowing the AO to review the new evidence, violating Rule 46A of the Income Tax Rules, a decision later upheld by the Tribunal. Issue of the Case Was the ITAT justified in upholding an order based on new evidence accepted without allowing the Assessing Officer to review it or documenting reasons for the delay as per Rule 46A? Decision of the Court The High Court granted the appeal, overturning prior decisions due to the lower authorities' failure to follow legal protocols. The court ruled that Rule 46A is mandatory; an appeals officer cannot accept new evidence without written justification and must allow the original tax officer to verify or contest it, violating the right to be heard.