The ITAT Mumbai has reaffirmed a foundational principle of tax administration: an assessee cannot be penalized on the basis of data withheld from them. In a significant ruling, the Tribunal set aside an addition made solely due to unreconciled import and export figures from DGFT, emphasizing that procedural fairness is non-negotiable under the Income Tax Act.
Background & Facts
The Dispute
The appellant, Kimplas Piping Systems Pvt. Ltd., engaged in manufacturing and trading of electrofusion, compression, and irrigation fittings, filed its income tax return for A.Y. 2020-21 declaring a total income of Rs. 11,65,47,682. During assessment, the Assessing Officer (AO) noticed a substantial discrepancy between the assessee’s declared purchases of Rs. 9,64,24,137 and the import data of Rs. 31,67,05,414 reported by the Directorate General of Foreign Trade (DGFT). Similarly, a mismatch of Rs. 63,41,446 was observed in export figures. The AO made additions of Rs. 2,12,263 (unreconciled imports) and Rs. 63,41,446 (unreconciled exports) to the total income, citing failure to reconcile.
Key Facts
- The assessee’s return declared purchases of Rs. 9,64,24,137, which it clarified pertained only to finished goods, not raw material imports.
- DGFT-reported imports: Rs. 31,67,05,414; assessee’s self-reported imports: Rs. 31,69,17,677 (difference: Rs. 2,12,263).
- DGFT-reported exports: Rs. 63,41,446 higher than declared in return.
- The assessee submitted a reconciliation statement but argued it could not verify the DGFT data as it was never disclosed.
- The AO made additions without providing the underlying DGFT data to the assessee.
- The learned CIT(A) upheld the additions without addressing the lack of disclosure.
Procedural History
- 31.03.2021: Income tax return filed for A.Y. 2020-21.
- 27.09.2022: AO passed order under section 143(3) read with section 144B, making additions of Rs. 2,12,263 and Rs. 63,41,446.
- 15.10.2025: CIT(A) dismissed the appeal, upholding the additions.
- 29.04.2026: Hearing before ITAT Mumbai.
- 06.05.2026: ITAT Mumbai delivered order.
The Parties' Positions
For the Appellant: The assessee contended that the AO and CIT(A) violated principles of natural justice by making additions based on undisclosed DGFT data. It submitted that without access to the source data, reconciliation was impossible. It further argued that the additions were arbitrary and not supported by evidence.
For the Respondent: The Department initially defended the additions but, during the hearing, conceded that complete DGFT data was available with the AO. The Department’s representative undertook to provide the full data to the assessee and offered a sample of April 2019 export details.
Relief Sought
The appellant sought: (1) deletion of additions of Rs. 2,12,263 and Rs. 63,41,446; (2) direction to provide full DGFT data; (3) restoration of the case for fresh adjudication with opportunity of hearing.
The Legal Issue
Can an addition to income be sustained under the Income Tax Act when the basis of the addition - DGFT data on imports and exports - is not disclosed to the assessee, thereby denying the right to be heard?
Arguments Presented
For the Appellant
The assessee relied on the doctrine of natural justice, particularly the rule audi alteram partem. It argued that the AO’s failure to provide the DGFT data rendered the assessment void ab initio. It cited State of U.P. v. Mohammad Javed and K. S. Puttaswamy v. Union of India to emphasize that procedural fairness is integral to tax adjudication. The assessee submitted that it had attempted reconciliation to the extent possible and that the burden of proof lay with the Revenue to substantiate its claims.
For the Respondent
The Department initially defended the additions as a legitimate exercise of the AO’s powers under section 143(3). However, during the hearing, it conceded that the complete DGFT data was available and had not been shared. The Department’s representative undertook to furnish the full data and proposed restoration of the matter for fresh adjudication.
The Court's Analysis
The Tribunal observed that the additions were made solely on the basis of un-reconciled figures from DGFT, yet the assessee was never provided with the underlying data to verify or explain the discrepancies. The Tribunal noted that the assessee had submitted a reconciliation statement showing a minimal difference of Rs. 2,12,263 in imports, indicating a good faith effort. The fact that the Revenue had the complete data but withheld it was deemed fatal to the validity of the addition.
"It is elementary that no order of assessment can be passed without affording a reasonable opportunity of hearing, which includes disclosure of the material on which the adverse finding is based."
The Tribunal held that the CIT(A) erred in upholding the addition without addressing the denial of access to evidence. The Department’s belated offer to provide the data during the appeal was insufficient to cure the procedural defect. The Tribunal emphasized that the right to be heard is not a formality but a substantive right under Section 144B and Section 250 of the Income Tax Act.
The Tribunal further noted that the Revenue’s reliance on sample data for April 2019 was inadequate to justify a global addition for the entire financial year. The Tribunal concluded that the only just course was to restore the matter to the AO for fresh adjudication, with full disclosure of DGFT data and a fair opportunity for reconciliation.
The Verdict
The appeal is allowed for statistical purposes. The impugned order dated 15.10.2025 is set aside. The matter is restored to the file of the Jurisdictional AO for de novo adjudication. The AO is directed to provide the assessee with the complete data of imports and exports as received from DGFT for A.Y. 2020-21. The assessee shall be afforded a reasonable opportunity to reconcile the data. No order shall be passed without affording a full hearing. All contentions of the assessee are kept open.
What This Means For Similar Cases
Disclosure of DGFT Data Is Mandatory
- Practitioners must insist on production of DGFT data before any addition based on import/export mismatches.
- Any addition made without disclosure is voidable on grounds of natural justice.
- AO’s reliance on aggregate figures without itemized data is legally unsustainable.
Reconciliation Is a Two-Way Process
- Taxpayers are not obligated to reconcile data they cannot access.
- The burden to produce source data lies with the Revenue.
- Partial reconciliation (e.g., 99% match) cannot justify addition on the remaining 1% without full disclosure.
Procedural Compliance Trumps Revenue Convenience
- The Revenue cannot use voluminous data as an excuse to withhold information.
- Sample data is insufficient for year-long assessments.
- Restoration for fresh adjudication is the correct remedy, not deletion or upholding.
