Rule 46A compliance requires AO confrontation and remand report before fresh evidence is used in appeal.

The first appellate authority must follow Rule 46A before relying on additional evidence, including giving the Assessing Officer a reasonable opportunity to examine and rebut the material and, where required, considering a remand report. The power of further inquiry under Section 250(4) is distinct from the procedure for admitting fresh evidence, and admission of documents such as share purchasers' returns, share certificates, bank statements and earlier balance sheets cannot replace that safeguards-based process. The matter was therefore remanded to ensure Rule 46A compliance and obtain the Assessing Officer's remand report.

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Issues: (i) Whether the first appellate authority could delete the addition after admitting additional evidence without following the procedure under Rule 46A of the Income-tax Rules, 1962 and without calling for the Assessing Officer's remand report.

Analysis: The additional material produced before the first appellate authority comprised share buyers' income-tax returns, share certificates, bank statements and earlier balance sheets. The order of the first appellate authority showed admission of such evidence, but it did not contain a detailed examination of its veracity or demonstrate that the Assessing Officer had been given a reasonable opportunity to examine and rebut the material. The Tribunal noted that the power to make further inquiry under Section 250(4) of the Income-tax Act, 1961 is distinct from the procedure governing admission of additional evidence under Rule 46A, and that the latter requires confrontation of the material to the Assessing Officer and consideration of a remand report.

Conclusion: The matter was rightly remanded to the first appellate authority for compliance with Rule 46A and for obtaining the Assessing Officer's remand report, so the Revenue succeeded on this issue.

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