ITAT Delhi: NFAC Cannot Set Aside Assessment Without Deciding Additional Evidence Under Rule 46A

Background

The Delhi Bench of the Income Tax Appellate Tribunal has held that the National Faceless Appeal Centre (NFAC) erred in mechanically setting aside an assessment without first adjudicating the admissibility of additional evidence under Rule 46A of the Income Tax Rules and without calling for a remand report from the Assessing Officer. The case arose from reassessment proceedings against the Institute of Orient Philosophy for AY 2013–14, triggered by an alleged undervalued sale of immovable property. While the stamp duty value stood at ₹2.80 crore, the recorded sale consideration was only ₹10 lakh. The Assessing Officer treated the transaction as unexplained and assessed income at ₹2.99 crore.

Before the NFAC, the assessee for the first time relied on its registration under Section 12AA and claimed exemption on the basis of charitable status, producing supporting material as additional evidence. Instead of examining whether such evidence deserved admission under Rule 46A — and if so, seeking the Assessing Officer’s comments — the NFAC simply set aside the assessment for fresh adjudication.

Outcome

The Tribunal found this approach legally flawed. It observed that the appellate authority is required to first decide on the acceptance or rejection of additional evidence. Where admitted, procedural fairness mandates calling for a remand report before deciding the appeal on merits. Further, the Tribunal reiterated that the power to set aside assessments is not unfettered and cannot be exercised as a shortcut in regular assessments.

Accordingly, the matter was restored to the NFAC with directions to properly deal with the additional evidence in accordance with Rule 46A and pass a reasoned appellate order.