No Addition U/s. 153C Sustainable for Unabated Assessment Year in Absence of Incriminating Material; Rs. 11.30 Lakh Addition Deleted Following Abhisar Buildwell

ISSUE: Whether, in respect of an unabated and completed assessment year (A.Y. 2014-15), an addition of Rs. 11,30,000 made under Section 153C of the Income-tax Act, 1961 can be sustained when no incriminating material pertaining to the assessee was found during the course of search.

FACTS: A search under Section 132 was conducted on Tirupati Sunworld Group on 11.11.2014. Satisfaction notes were recorded by the Assessing Officer of the searched person on 10.10.2017 and by the Assessing Officer of the assessee on 27.03.2018, followed by issuance of notice under Section 153C read with Section 153A for A.Y. 2014-15. The assessee filed a return declaring income of Rs. 43,030. The Assessing Officer made an addition of Rs. 11,30,000 based on unexplained bank deposits obtained during assessment proceedings under Section 133(6), without relying on any incriminating material found during search. The ld. CIT(A) confirmed the addition, leading to the present appeal.

HELD: The Tribunal held that A.Y. 2014-15 was an unabated assessment year and that the addition was not based on any incriminating material found during the search. Relying on the Supreme Court decision in Abhisar Buildwell, it was held that no addition under Section 153C can be made for completed assessments in the absence of incriminating material unearthed during search. Accordingly, the impugned addition of Rs. 11,30,000 was deleted and the appeal of the assessee was allowed.

Undated Satisfaction Notes: Limitation under Section 153C to Be Reckoned from Date of Notice; Assessments for A.Ys. 2015-16 and 2017-18 Quashed as Time-Barred

ISSUE: Whether the assessments framed under section 153C for A.Ys. 2015-16 and 2017-18 were barred by limitation and without jurisdiction, having regard to the date of handing over of seized material/recording of satisfaction and, in the absence of dated satisfaction notes, whether the date of issue of notice under section 153C should govern the computation of the permissible block period.

FACTS: A search was conducted on a third party on 15.01.2021 relevant to A.Y. 2021-22. Proceedings under section 153C were initiated against the assessee on the basis of seized material, but the satisfaction notes recorded by the AO of the searched person as well as the AO of the assessee were undated. Notice under section 153C was issued to the assessee on 10.05.2023 for A.Y. 2015-16. The assessee raised technical grounds, including additional legal grounds before the Tribunal, contending that the impugned assessment years fell outside the block of six assessment years reckoned with reference to the deemed search year and were thus barred by limitation. Reliance was placed on judicial precedents, including the decision of the Delhi High Court in PCIT v. Ojjus Medicare Pvt. Ltd.

HELD: The Tribunal admitted the additional grounds as they were purely legal in nature. Following the Delhi High Court’s ruling, it was held that where satisfaction notes are undated or unavailable, the date of issuance of notice under section 153C is relevant for computing the block period. Since the notice was issued on 10.05.2023, the block of six assessment years commenced from A.Y. 2024-25 up to A.Y. 2018-19, rendering A.Ys. 2015-16 and 2017-18 outside the permissible block. Accordingly, the assessments for both years were held to be barred by limitation and quashed, without adjudicating on the merits of additions or disallowances.

Section 14A disallowance in respect of partnership firm investment restricted to extent of share of loss excluded under section 10(2A); no adjustment permissible under section 115JB; Revenue’s appeal dismissed

ISSUE: Whether the learned Commissioner of Income Tax (Appeals) was justified in restricting the disallowance under section 14A of the Income Tax Act, 1961 read with Rule 8D of the Income Tax Rules, 1962 to Rs. 71,04,282 and in deleting the consequential addition made by the Assessing Officer while computing book profit under section 115JB of the Act for Assessment Year 2017–18, when the assessee had not earned any positive exempt income but had incurred a loss from a partnership firm whose share does not form part of total income under section 10(2A).

FACTS: The assessee, engaged in real estate development, had made investments in a partnership firm and a company. During assessment under section 143(3), the Assessing Officer invoked section 14A read with Rule 8D and computed a disallowance of Rs. 2,97,08,765 at one percent of average investments, despite the assessee’s contention that no exempt income was earned during the year. The Assessing Officer also made a corresponding adjustment under section 115JB. In appeal, the Commissioner (Appeals) noted that the assessee had incurred a loss of Rs. 71,04,282 from the partnership firm, held that section 14A was applicable as the share of profit or loss from a firm is excluded under section 10(2A), but restricted the disallowance to Rs. 71,04,282 and deleted the balance as well as the adjustment under section 115JB by relying on judicial precedents including the Special Bench decision in PCIT v. Vireet Investment Pvt. Ltd.

HELD: The Tribunal upheld the order of the Commissioner (Appeals), holding that section 14A was attracted since the share of profit or loss from a partnership firm does not form part of total income under section 10(2A), even if the result is a loss. However, the disallowance under section 14A cannot exceed the amount of income (or loss) excluded from total income, and therefore the restriction of disallowance to Rs. 71,04,282 was legally sustainable. The deletion of the addition under section 115JB was also affirmed in view of settled law that disallowance computed under section 14A read with Rule 8D cannot be imported into the computation of book profit. Consequently, the Revenue’s appeal was dismissed.

Section 68 Addition on Share Capital Deleted for 14 Investors; NRI Investment Issue Remanded for Fresh Verification

ISSUE: Whether the additions made under section 68 of the Income-tax Act, 1961, on account of share capital and share premium received by the assessee-company were sustainable in law, particularly in respect of (i) deletion of addition relating to 14 resident investors as challenged by the Revenue, and (ii) confirmation of addition of Rs. 74,98,262 relating to investment by one NRI investor as challenged by the assessee.

FACTS: The assessee issued equity shares at a face value of Rs. 10 with a premium of Rs. 8,688.68 per share, aggregating to Rs. 5,00,00,012, during AY 2012-13. The Assessing Officer treated the entire amount as unexplained cash credit under section 68, doubting the creditworthiness and genuineness of the investors, though no specific defect was found in the DCF valuation. On appeal, the CIT(A) called for a remand report, verified compliance to notices under section 133(6), and held that the assessee had established identity, genuineness, and creditworthiness in respect of 14 investors, deleting the addition of Rs. 4,25,01,740, but sustained the addition of Rs. 74,98,262 relating to an NRI investor for want of documentary evidence of creditworthiness. Both the assessee and the Revenue filed cross appeals before the Tribunal.

HELD: The Tribunal upheld the order of the CIT(A) deleting the addition of Rs. 4,25,01,740, holding that the assessee had duly discharged the onus under section 68 in respect of 14 investors and that the Assessing Officer’s conclusions were based on conjecture without further enquiry. In respect of the NRI investor, the Tribunal admitted additional evidence in the form of bank statements produced by the assessee and remanded the matter to the CIT(A) for fresh verification after granting due opportunity of hearing. Accordingly, the Revenue’s appeal was dismissed, and the assessee’s appeal was allowed for statistical purposes.

Delay condoned; ad hoc 1% addition to closing stock deleted in absence of rejection of books and in view of complete WIP evidence furnished

ISSUE: Whether the delay of 319 days in filing the appeal before the Tribunal deserved to be condoned, and whether the ad hoc addition of 1% of the closing stock amounting to Rs. 5,67,458/- sustained by the Ld. CIT(A) for A.Y. 2018-19 was legally sustainable when the assessee’s books of account were not rejected and detailed supporting material was furnished.

FACTS: The assessee, a civil contractor executing works for PWD, CPWD and AAI, filed an appeal against the order of the NFAC, Delhi dated 18/07/2024 arising from assessment under section 143(3) r.w.s. 143(3A) and 143(3B) dated 29/01/2021. There was a delay of 319 days in filing the appeal before the Tribunal, which was explained through a sworn affidavit citing lack of knowledge of tax matters, absence of staff, and subsequent appointment of a consultant. On merits, the Ld. AO made an ad hoc addition of 1% of the closing stock of Rs. 5,67,45,824/-, sustained by the Ld. CIT(A), on the ground that the basis of valuation of closing stock was not properly explained, despite the assessee having filed job-wise details of work-in-progress, running bills, and bank statements evidencing subsequent receipts.

HELD: The Tribunal condoned the delay of 319 days, holding that the assessee was prevented by genuine reasons and noting the absence of serious objection from the Ld. DR. On merits, it was held that the assessee had furnished complete details of closing work-in-progress, running bills, and supporting bank statements, and that the Ld. AO had not rejected the books of account. The estimation of closing stock by applying an ad hoc rate of 1% was found to be arbitrary, without rational basis, and unsustainable in law. Accordingly, the impugned order was set aside and the addition of Rs. 5,67,458/- was directed to be deleted, and the appeal was allowed.

Reassessment beyond three years quashed as alleged escapement below Rs. 50 lakhs; jurisdiction under sections 147/148 held invalid.

ISSUE: Whether the reassessment proceedings initiated against the assessee for AY 2016-17 and AY 2017-18 under section 147, pursuant to notices issued under section 148, were valid in law, particularly in view of the limitation prescribed under the amended section 149 of the Income Tax Act, 1961.

FACTS: The assessee, a USA-based company providing LOMA course enrollments and LIMRA professional development offerings, challenged reassessment orders dated 26.03.2024 passed under section 147 read with section 144C, in conformity with the DRP directions. The Assessing Officer quantified alleged income escaping assessment at Rs. 4,10,200 for AY 2016-17 and Rs. 3,17,776 for AY 2017-18, representing membership fees received from an Indian entity. Notices under section 148 were issued beyond three years from the end of the relevant assessment years. The assessee contended that the notices were barred by limitation since the alleged escapement was far below Rs. 50 lakhs, as required under section 149(1)(b), relying inter alia on the Supreme Court decision in Rajeev Bansal.

HELD: The Tribunal held that, under the amended provisions of section 149, reassessment notices issued beyond three years are permissible only where income escaping assessment exceeds Rs. 50 lakhs. As the alleged escapement for both years was substantially below this threshold, the Assessing Officer lacked jurisdiction to issue the notices under section 148. Consequently, the assumption of jurisdiction under section 147 was held to be invalid, the reassessment proceedings for both assessment years were quashed, and the appeals were allowed, with all other grounds left open.

Rejection of Section 12AB Registration Set Aside for Violation of Natural Justice; Matter Remanded to CIT(E) for Fresh Adjudication

ISSUE: Whether the Commissioner of Income Tax (Exemptions), Chandigarh was justified in rejecting the assessee’s application for registration under section 12AB of the Income Tax Act, 1961 on the grounds of lack of genuineness of activities, and whether such rejection was vitiated due to limitation, deemed approval, and violation of principles of natural justice by reliance on material not confronted to the assessee.

FACTS: The assessee applied for registration under section 12A(1)(ac)(iii) on 09/07/2024. The Ld. CIT(E) issued a questionnaire seeking proof of charitable activities, to which the assessee replied stating that it commenced activities on 01/11/2024 and had undertaken a single charitable act by donating Rs. 2,41,302 on 21/11/2024 for eye operations of the poor through another charitable trust. The Ld. CIT(E) observed that this was the only activity since inception, noted that photographs indicated involvement of other entities with common directors, and concluded that the assessee had claimed activities of others as its own. On this basis, the application for registration was rejected vide order dated 11/02/2025. The assessee contended that the order was time-barred, that the findings were based on public domain or third-party material not confronted to it, and that there was violation of natural justice.

HELD: The Tribunal held that, in the interest of justice, the impugned order required interference as the assessee was not afforded a fair opportunity to rebut the material allegedly relied upon by the Ld. CIT(E). Without expressing any opinion on merits, the order rejecting registration under section 12AB was set aside and the matter was restored to the file of the Ld. CIT(E) for fresh adjudication after granting due opportunity of hearing and passing a reasoned and speaking order, including examination of issues relating to limitation, deemed approval, and statutory compliance. Consequently, the appeals were allowed for statistical purposes, with similar directions applying to the connected appeal.

Ex parte dismissal by CIT(A) set aside; matter restored for fresh adjudication on merits with cost of Rs. 5,000, appeal allowed for statistical purposes

ISSUE: Whether the Ld. CIT(A)/NFAC was justified in dismissing the assessee’s appeal ex parte for A.Y. 2006-07 without adjudicating the grounds on merits and without considering the documents and submissions filed by the assessee, and whether such dismissal warranted restoration of the matter for fresh decision.

FACTS: The assessee challenged the order dated 21.03.2025 passed under section 250 of the Income-tax Act, 1961 for A.Y. 2006-07. The assessee repeatedly remained absent before the Tribunal and had earlier sought adjournments which were rejected. The record showed persistent non-cooperation by the assessee before the Assessing Officer and the Ld. CIT(A). The assessment was completed ex parte under section 144 read with section 147 based on information received from French authorities under the Indo-French Fiscal Convention, 1992. The first appellate authority dismissed the appeal ex parte due to non-appearance and lack of substantiation. Before the Tribunal, the assessee contended that the Ld. CIT(A) failed to consider submissions and evidences filed in the paper book, while the Departmental Representative supported the orders and the matter was heard ex parte.

HELD: The Tribunal held that notwithstanding the non-cooperation of the assessee, it was the statutory duty of the Ld. CIT(A) to adjudicate the appeal on merits after considering the material and submissions available on record. Accordingly, the impugned order was set aside and the matter was restored to the file of the Ld. CIT(A) for fresh adjudication after providing adequate opportunity to the assessee, subject to payment of cost of Rs. 5,000 to the Prime Minister Relief Fund and compliance within 30 days. It was clarified that the restoration did not amount to any expression on the merits of the case, and the appeal was allowed for statistical purposes.

Assessment quashed for want of valid notice under section 143(2) by jurisdictional Assessing Officer

ISSUE: Whether the assessment order passed under section 143(3) of the Income-tax Act, 1961 for AY 2012-13 is valid in law when the mandatory notice under section 143(2) was issued by a non-jurisdictional Assessing Officer and not by the Assessing Officer who ultimately framed the assessment.

FACTS: The assessee filed its return of income on 24.01.2013 declaring a loss of Rs. 221/-. The case was selected for scrutiny under CASS, and a notice under section 143(2) dated 07.08.2013 was issued by ITO Ward 41(2), Kolkata. The assessee objected to the jurisdiction of the said officer, contending that jurisdiction lay with another ward. Subsequently, the case was transferred and the assessment was ultimately completed by ITO Ward 9(3), Kolkata, who framed the assessment under section 143(3) making an addition of Rs. 1,11,77,957/- under section 68 on account of unexplained share capital/share premium, without issuing any fresh notice under section 143(2). The Ld. CIT(A), NFAC upheld the assessment.

HELD: The Tribunal held that issuance of notice under section 143(2) by the jurisdictional Assessing Officer who frames the assessment is mandatory and goes to the root of jurisdiction. Since, in the present case, the notice under section 143(2) was issued by a non-jurisdictional officer and no such notice was issued by the Assessing Officer who completed the assessment, the assessment was ab initio void and invalid in law. Following the binding coordinate bench decision and the jurisdictional High Court precedents, the assessment order was quashed and the appeal of the assessee was allowed.

Addition under section 69A deleted where NSEL transactions were recorded in books and routed through banking channels; outstanding receivables of earlier years cannot be treated as unexplained money of the year — Revenue’s appeal dismissed.

ISSUE: Whether the Ld. CIT(A) was justified in deleting the addition of Rs. 4,88,00,000 made by the Assessing Officer under section 69A of the Income-tax Act, 1961, treating the outstanding receivables/investments relating to transactions on the National Spot Exchange Ltd. (NSEL) platform as unexplained money for AY 2014-15.

FACTS: The Revenue filed an appeal against the order of the Ld. CIT(A), NFAC, Delhi dated 04.02.2025, with a delay of 36 days, which was condoned as it occurred due to administrative approvals and was not opposed by the assessee. The assessee had originally filed its return declaring income of Rs. 28,60,680. Based on information from the Investigation Wing regarding alleged suspicious NSEL transactions, reassessment proceedings were initiated and culminated in an addition of Rs. 4,88,00,000 under section 69A, treating the reported NSEL investments as unexplained money. The Ld. CIT(A) deleted the addition holding that the transactions were duly recorded in the books of account, routed through banking channels, largely pertained to earlier years, and that the Assessing Officer had misconstrued bank narration “CAS PRES CHQ” as cash transactions and had proceeded on surmises linked to the termination of NSEL operations rather than on lack of source.

HELD: The Tribunal upheld the order of the Ld. CIT(A), holding that section 69A applies only to money or assets not recorded in the books of account, whereas the impugned NSEL transactions were admittedly recorded and executed through banking channels. It was further held that the Assessing Officer erred in treating outstanding receivables of earlier years as unexplained investments of the relevant year and in doubting the bona fides of the assessee merely due to defaults by certain NSEL traders, despite evidence of recovery efforts by NSEL. Finding the appellate order to be reasoned and in accordance with law, the Tribunal dismissed the Revenue’s appeal.

Section 14A Interest Disallowance Deleted Where Interest-Free Funds Exceeded Exempt Investments; Administrative Disallowance Sustained — Appeal Partly Allowed

ISSUE: Whether the disallowance made under section 14A of the Income Tax Act, 1961, particularly the interest component computed under Rule 8D, was justified when the assessee-bank possessed sufficient interest-free funds exceeding the value of investments yielding exempt income for AY 2014-15.

FACTS: The assessee, a co-operative bank, filed its return declaring income of Rs. 1,18,79,695. During scrutiny, the Assessing Officer noted that the assessee earned exempt income but made no suo motu disallowance under section 14A, while having borrowed interest-bearing funds. Applying Rule 8D, the AO disallowed interest of Rs. 28,78,790 and further disallowed Rs. 2,87,590 at 0.5% of average investments, aggregating to Rs. 31,66,380, which was confirmed by the CIT(A). Before the Tribunal, the assessee relied on the Supreme Court judgment in Reliance Industries Ltd., contending that its interest-free funds of about Rs. 22.07 crore were far in excess of investments of about Rs. 5.27 crore yielding exempt income, and there was no finding that borrowed funds were used for such investments.

HELD: The Tribunal held that, in light of the Supreme Court ruling in Reliance Industries Ltd., where interest-free funds available are sufficient to cover investments generating exempt income, a presumption arises that such investments are made out of interest-free funds. As the AO made no specific finding that interest-bearing funds were deployed for exempt investments, the interest disallowance of Rs. 28,78,790 under section 14A was deleted. However, the administrative expense disallowance of Rs. 2,87,590 computed at 0.5% of average investments was sustained. Accordingly, the appeal was partly allowed.

Ex-parte CIT(A) Orders Set Aside and Matters Remanded for Fresh Adjudication After Grant of Opportunity; Appeals Allowed for Statistical Purposes

ISSUE: Whether the ex-parte orders passed by the Ld. CIT(A)/NFAC for A.Ys. 2010-11 to 2014-15, confirming additions relating to excess sugarcane price paid over FRP and sale of sugar at concessional rates, were sustainable in law when the assessee claimed non-receipt of hearing notices, and whether the matters required restoration for fresh adjudication on merits.

FACTS: The assessee, a co-operative sugar factory, filed appeals against assessment orders passed u/s 143(3) r.w.s. 254 making additions of Rs.27,83,24,995/- towards excess cane price and Rs.2,76,91,229/- towards concessional sale of sugar. Appeals before CIT(A)/NFAC were dismissed ex-parte due to non-appearance. The assessee explained, through an affidavit, that hearing notices were issued on an old, non-functional email ID, resulting in lack of opportunity of hearing. Identical facts and issues existed for A.Ys. 2010-11 to 2014-15, and delay in filing appeals before the Tribunal was duly condoned.

HELD: The Tribunal held that, in the interest of justice, the ex-parte orders of the Ld. CIT(A)/NFAC could not be sustained. Without examining the merits, the matters were set aside and remanded to the Ld. CIT(A)/NFAC for de novo adjudication after providing reasonable opportunity of hearing to the assessee. The assessee was directed to cooperate and file all necessary submissions. Consequently, the appeal for A.Y. 2010-11 and the connected appeals for A.Ys. 2011-12 to 2014-15 were allowed for statistical purposes.

Reassessment and Addition Set Aside and Matter Remanded to AO for De Novo Examination Due to Unresolved Factual Issues and Procedural Compliance

ISSUE: Whether the reassessment proceedings initiated under Section 148 for A.Y. 2012-13 were valid in law, including the question of existence of “reason to believe” and the necessity of issuance of notice under Section 143(2), and whether the addition of Rs.63,40,400 on account of alleged unexplained cash deposits under Section 68 was sustainable.

FACTS: The assessee filed a belated return declaring a loss of Rs.1,66,199. Based on AIR information regarding cash deposits of Rs.63,40,400 in the assessee’s ICICI Bank account, reassessment proceedings were initiated and completed under Sections 147/143(3), treating the deposits as unexplained under Section 68 and assessing total income at Rs.61,73,801, with penalty proceedings initiated separately. The CIT(A) upheld the reassessment, held that non-issuance of notice under Section 143(2) was not fatal due to delayed filing of return in response to Section 148, and sustained the addition on the ground that the assessee failed to substantiate the explanation that deposits represented immigration fees.

HELD: The Tribunal noted conflicting claims regarding filing of evidences and unresolved factual issues concerning compliance with notice under Section 148 and the consequent requirement of notice under Section 143(2). In the interest of justice, the Tribunal set aside the order of the CIT(A) and restored the entire matter to the file of the Assessing Officer for de novo assessment, directing fresh examination of all issues and evidences after granting adequate opportunity of hearing. The appeal was allowed for statistical purposes.

Landmark Supreme Court Ruling Clarifies Interpretation Principles and Holds Section 44C Applicable to All Head Office Expenditure of Non-Resident Assessees, Whether Common or Exclusive, Dated - 15-12-2025

ISSUE: Whether Section 44C of the Income-tax Act, 1961 is confined only to “common” head office expenditure incurred for multiple foreign branches, or whether it also extends to expenditure incurred by the head office of a non-resident assessee outside India exclusively for its Indian branches, thereby constituting “head office expenditure” subject to the statutory ceiling under Section 44C, or alternatively whether such exclusive expenditure falls outside the ambit of Section 44C and is fully allowable as a deduction under Section 37(1).

FACTS: The appeals arose from a dispute on the scope of Section 44C of the Income-tax Act, 1961 in relation to deductions claimed by non-resident banking assessees for expenditure incurred by their overseas head offices. The respondents claimed that certain expenses were incurred exclusively for Indian branches and were therefore fully allowable under Section 37(1), whereas the Assessing Officers applied Section 44C and restricted the deductions to the statutory ceiling. The Tribunal and the Bombay High Court, relying on precedents such as Emirates Commercial Bank, accepted the assessee’s contention that exclusive head office expenditure for Indian operations fell outside Section 44C. The Revenue, contending that Section 44C covers both common and exclusive head office expenditure, appealed to the Supreme Court, necessitating interpretation of the expressions “head office expenditure” and “attributable to” used in the provision.

HELD: The Supreme Court held in favour of the Revenue and ruled that Section 44C of the Income-tax Act, 1961 applies to all head office expenditure incurred outside India by a non-resident assessee, irrespective of whether such expenditure is common to multiple branches or incurred exclusively for Indian branches. The Court emphasised strict interpretation of taxing statutes and held that the statutory definition of “head office expenditure” under Section 44C depends solely on the nature and place of incurrence of expenditure, making any distinction between common and exclusive expenditure legally irrelevant. Consequently, once the expenditure falls within the definition and is attributable to Indian business, the non obstante clause mandates that the deduction is subject to the statutory ceiling prescribed under Section 44C, and cannot be allowed in full under Section 37(1).

The Tribunal Upholds Deletion of Section 14A Disallowance and Rejects Penalty Proceedings; Revenue Appeal and Assessee Cross Objection Dismissed

Issue: Whether the disallowance under section 14A read with Rule 8D of the Income-tax Rules for Rs. 3,11,29,516/- made by the AO was justified, and whether penalty proceedings under section 270A could be initiated.

Facts: The assessee had sufficient own funds exceeding the investments in tax-exempt instruments and had voluntarily made a suo-motu disallowance for expenditure related to exempt income. The AO made an additional disallowance under section 14A/Rule 8D and initiated penalty proceedings under section 270A. The assessee challenged both actions, citing earlier favorable Tribunal decisions in its own cases for AYs 2009-10, 2011-12, and 2017-18, and relying on the Supreme Court decision in Pr. CIT vs. Sintex Industries Ltd (2018), which held that no disallowance under section 14A arises where investments are made from surplus own funds.

Held: The Tribunal upheld the order of the Ld. CIT(A), deleting the disallowance under section 14A and rejecting the initiation of penalty proceedings under section 270A. The Revenue’s appeal was dismissed, and the assessee’s cross objection was rendered infructuous and dismissed.

The Tribunal Condoned Delay, Directs Appeals to be Decided on Merits

Issue: Whether the delay in filing the appeals against assessment and penalty orders can be condoned to enable adjudication on merit.

Facts: The assessee, a company, filed its return for AY 2016-17 declaring a loss of Rs.2,04,04,835/-, which was revised to Nil income in response to a notice u/s 148. The Assessing Officer assessed income at Rs.26,45,49,456/- by making additions on account of unexplained loans, applicability of section 43CA, and investments in immovable property. Appeals against the assessment and penalty of Rs.1,24,49,980/- were filed with delays of 219 and 76 days respectively, citing financial difficulties, ongoing litigations, business burdens, attachment of assets, and personal stress of a director. The Ld. CIT(A) / NFAC dismissed both appeals due to unexplained delay.

Held: The Tribunal allowed both appeals, holding that substantial justice should prevail over technical delay. The matter was remanded to the Ld. CIT(A) / NFAC with a direction to condone the delay and decide the appeals on merits, giving the assessee an opportunity to be heard, in line with Supreme Court precedents emphasizing adjudication on merits over procedural delays.

ITAT Restores Director’s Appeals to AO for Fresh Consideration Due to Non-Submission of Documents; Allowed for Statistical Purposes

Issue: Whether the additions made in the hands of the Assessee under section 144 of the Act, relating to reimbursement of expenses, uniform and medical allowances, and interest paid, can be upheld when the Assessee could not furnish requisite details due to financial constraints of the company, and the CIT(A) dismissed the appeal as infructuous despite the dispute not being settled under Vivad se Vishwas Scheme.

Facts: The Assessee, a director of M/s. Yojaka India Private Limited, filed returns for AYs 2012-13, 2013-14, and 2015-16 claiming exemptions on reimbursement, uniform, and medical allowances. The Assessing Officer disallowed these claims and interest deductions, assessing income at Rs. 1,03,22,553/- against returned income of Rs. 85,30,600/-. The CIT(A) dismissed the Assessee’s appeal as infructuous, citing settlement under Vivad se Vishwas Scheme. The Assessee appealed to the ITAT, which was initially dismissed on jurisdictional grounds and later recalled. Due to financial constraints, the Assessee could not furnish necessary documents. Similar issues in appeals of other directors of the company were remitted to the AO for fresh consideration.

Held: Following the coordinate bench decision in the appeals of other directors, the ITAT restored the appeals of the Assessee to the file of the Assessing Officer for denovo consideration, directing the Assessee to submit requisite documents within 90 days. The appeals are allowed for statistical purposes.

Revenue Appeal Dismissed as Not Maintainable for Tax Effect Below Prescribed Limit

Issue: Whether the appeal filed by Revenue for assessment year 2014-15 is maintainable before the Income Tax Appellate Tribunal given that the total tax effect is below Rs.60,00,000.

Fact: Revenue filed an appeal against the order of CIT(A)-4, Lucknow. On perusal of Form 36, it was noted that the total tax effect of the appeal is below Rs.60,00,000, the minimum limit prescribed by CBDT for filing an appeal before the ITAT. Both parties agreed that since the tax effect is below the prescribed limit, the appeal is not maintainable.

Held: The appeal filed by Revenue is dismissed in limine as not maintainable without admission or going into the merits. Revenue is, however, permitted to approach the ITAT for restoration if it is found that the appeal is otherwise maintainable.

Assessee given final opportunity to seek condonation of delay; merits of employee contribution addition to be examined if delay is condoned.

Issue: Whether the rectification claim under Section 154 for deletion of Rs. 7,69,000 paid towards employee’s contribution (ESI, PF, etc.) is maintainable and whether the addition made by AO/CPC for delayed payment is justified.

Facts: The assessee filed an appeal against the order of Ld. CIT(A)/NFAC for A.Y. 2020-21, seeking deletion of Rs. 7,69,000 added as deemed income for delayed payment of employee contributions. The assessee contended that the payments were made within the due date under Section 139(1) and that the amendment to Section 36(1)(va) Explanation 2 was prospective, effective from A.Y. 2022-23. The appeal was dismissed by Ld. CIT(A)/NFAC as time-barred by almost three years, without condonation of delay being sought by the assessee. AO/CPC had made the addition considering delayed deposits under relevant labour statutes.

Held: The appellate authority directed that the assessee be given a final opportunity to file reasons for condonation of delay under Section 249(3). The CIT(A)/NFAC shall first decide on condonation of delay and then, if delay is condoned, examine the merits regarding payment of employee contributions in light of the Supreme Court decision in Checkmate Services (P.) Ltd. v. CIT. The appeal is allowed for statistical purposes.

The Tribunal Dismisses Assessee’s Appeal, Confirms Taxation of Rs.26,68,000/- as Unexplained Cash Deposits During Demonetization Period.

Issue: Whether the cash deposits of Rs.39,22,500/- made by the assessee during the demonetization period can be treated as unexplained income under section 69A of the Income Tax Act, 1961, or whether they represent withdrawals from previous years’ salary legitimately held as cash.

Facts: The assessee, an individual, filed his return declaring total income of Rs.9,50,070/-. During limited scrutiny for A.Y. 2017-18, it was observed that he deposited Rs.39,22,500/- in his bank accounts during the demonetization period. The assessee claimed that this cash came from salary withdrawals made over F.Y. 2014-15 to 2016-17, retained as cash due to a past matrimonial dispute and personal expenditures. The Assessing Officer treated Rs.32,68,000/- of these deposits as undisclosed income under section 69A, allowing only Rs.6,54,500/- to be set off. The CIT(A) partly allowed the appeal by granting relief of Rs.6,00,000/- and confirmed the remaining addition of Rs.26,68,000/-.

Held: The Tribunal upheld the CIT(A) order, observing that the withdrawals were made 5-7 years prior and there was no evidence to substantiate the claim that the cash deposits originated from previous withdrawals. The assessee’s explanation regarding matrimonial concerns and salary withdrawals from only one account was not accepted. Consequently, only Rs.6,00,000/- was allowed as set-off, and the balance Rs.26,68,000/- was confirmed as taxable income. The appeal of the assessee was dismissed.

The Tribunal Remits Ex Parte Assessment for Fresh Adjudication After Condoning Delay, Imposes Cost on Assessee

Issue: Whether the appeal filed by the assessee against the ex parte assessment order for A.Y. 2017-18 can be admitted and the matter remitted back for fresh adjudication despite non-participation during assessment and appellate proceedings.

Facts: The assessee, an individual dealer in cement, steel, electrical goods, and hardware, did not file his return of income for A.Y. 2017-18. During the demonetization period, cash deposits of Rs.12,08,000/- were made into his bank account, with total bank credits of Rs.1,02,00,370/-. The AO issued notices, but the assessee did not respond, leading to an ex parte assessment u/s.144, treating Rs.12,08,000/- as unexplained investment u/s.69 and 8% of the remaining bank credits as unaccounted business income. The assessee also failed to appear before the ld.CIT(A), who confirmed the AO’s order. The assessee later filed an appeal before the Tribunal, citing unawareness of the orders due to non-receipt of e-mails.

Held: The Tribunal condoned the delay in filing the appeal, set aside the order of the ld.CIT(A), and remitted the matter back to the AO for de novo assessment after providing reasonable opportunity to the assessee, directing diligence in filing submissions. A cost of Rs.5,000/- was imposed on the assessee for non-participation. The appeal was allowed for statistical purposes.

Section 68 Additions on Unsecured Loans: Tribunal Directs Admission of Additional Evidence and Restores Appeal to CIT(A)

ISSUE: Whether the Commissioner of Income-tax (Appeals) erred in refusing to admit additional evidences filed under Rule 46A in support of the assessee’s explanation regarding unsecured loans treated as unexplained cash credits under Section 68 of the Income-tax Act for AY 2013-14, and whether the matter requires restoration for de novo adjudication.

FACTS: The assessee, engaged in the manufacturing of hulled sesame seeds, filed a return declaring income of Rs. 11,12,500. During assessment, the Assessing Officer observed unsecured loans of Rs. 25,50,000 from four parties and Rs. 24,70,000 from twelve parties, and held that the assessee failed to establish genuineness and creditworthiness, or produce lenders; therefore, the AO added the amounts under Section 68. Before the CIT(A), the assessee filed a Rule 46A application along with confirmations, Form 15G/15H, ITRs, PAN, Aadhaar, and bank statements of creditors, and also demonstrated that certain credits pertained to earlier years. The CIT(A) reproduced the submission but declined to admit the evidences and dismissed the appeal. On further appeal, the assessee sought admission of the additional evidences, while the Department relied on the order of the CIT(A).

HELD: The Tribunal held that the additional evidences were crucial for determining the nature of unsecured loans and required factual verification to assess genuineness and creditworthiness under Section 68. In the interest of justice, the matter was remanded to the CIT(A) for de novo adjudication with a direction to admit the additional evidences and permit the assessee to furnish further supporting documents. The assessee was instructed to cooperate and avoid unwarranted adjournments. Consequently, Grounds 2 and 3 were allowed for statistical purposes, and Grounds 4 to 9 were also restored to the CIT(A). The appeal was allowed for statistical purposes.

The Tribunal Deletes Rs.41,40,000/- Addition Where Earlier Agreement and Partial Payment in Bank Were Made; Sections 50C and 56(2)(vii)(b)(ii) Not Attracted

Issue: Whether the addition of Rs.41,40,000/- on account of undervaluation of immovable property under Section 56(2)(vii)(b)(ii) read with Section 50C is justified when the assessee had entered into an earlier agreement on 28.06.2007 and partially paid consideration through banking channels.

Facts: The assessee filed income return for A.Y. 2015-16 declaring Rs.11,04,230/-. The AO, on verification, noted that the assessee purchased property with 15% share amounting to Rs.73,95,000/- but paid lesser consideration than market value, and assessed the difference of Rs.41,40,000/- as income from other sources under Section 56(2)(vii)(b)(ii). Ld. CIT(A) upheld the addition, rejecting the assessee’s contention that the market value as of the initial agreement date in 2007 should apply, citing non-payment of substantial consideration and lack of possession.

Held: The Tribunal held that Section 50C and Section 56(2)(vii)(b)(ii) are not attracted as the assessee had entered into an agreement in 2007 and partially paid Rs.1,00,000/- through banking channels. The AO’s addition and reasoning regarding substantial payment and possession were not sustainable under the provisions of the Act. Accordingly, the addition of Rs.41,40,000/- was deleted and the appeal of the assessee was allowed.

Applicability of Section 11(2) When Accumulated Funds Earmarked for Specific School Projects Are Applied to General Educational Expenditure

Issue: whether Rs. 3,94,60,633, accumulated under section 11(2) for AY 2013-14 for construction of buildings at two specific schools, but subsequently applied by the assessee-trust toward general educational capital expenditure across multiple schools, could still qualify as valid application of income under section 11. The Assessing Officer and CIT(A) held that since the assessee did not utilise the funds strictly for the specific purposes mentioned in Form 10 nor sought prior approval to apply it to other charitable purposes, the unutilised portion of Rs. 2,63,76,431 was taxable under section 11(3). The assessee contended that all expenditure was on education, its sole charitable object, and therefore qualified as application of income.

Fact: The assessee, a registered charitable trust running multiple schools, had accumulated Rs. 4,44,60,633 under section 11(2) for constructing school buildings at Gurgaon and Tronica City. For the relevant year, Rs. 3,94,60,633 remained unutilised at the beginning of the year. During AY 2018-19, the trust incurred total capital expenditure of Rs. 5,47,45,585 across 13 schools, including the two specified in Form 10. The AO accepted only Rs. 1,30,84,202 as utilisation for the specified schools and taxed the balance as unutilised accumulation. The assessee relied on Supreme Court and Delhi High Court rulings (including Daulat Ram Educational Society) to argue that section 11(2) permits application of accumulated funds to any charitable purpose falling within the trust’s objects, and that procedural defects in Form 10 cannot defeat exemption.

Held: The Tribunal held that since the trust’s sole object was education and the entire expenditure of Rs. 5,47,45,585 was incurred for educational purposes, the benefit of section 11(2) must be allowed. Relying on binding judicial precedents, it held that section 11(2) does not prohibit plurality of purposes so long as they are charitable and fall within the trust’s objects, and that non-specificity or procedural defects in Form 10 do not invalidate the exemption. The Tribunal therefore accepted the assessee’s claim in principle, subject to AO’s verification of the actual expenditure, and directed that the application of income be allowed. The addition of Rs. 2,63,76,431 was deleted, and all grounds of appeal were allowed.

The Tribunal Quashes Assessment Order for Non-Compliance with Section 144C(1) in Transfer Pricing Remand Case

Issue: Whether the assessment order dated 30.12.2016 passed by the AO in the second round of proceedings violated the mandatory provisions of section 144C(1) of the Act by not issuing a draft assessment order, thereby rendering it void ab initio.

Facts: The assessee’s case for A.Y. 2008-09 was reopened after being remanded by the Tribunal for fresh examination of transfer pricing adjustments. The TPO conducted a fresh benchmarking exercise, and the AO passed the final assessment order without issuing a draft assessment order under section 144C(1). The assessee contended that this omission violated the mandatory procedure, relying on judicial precedents including Principal CIT vs. Sumitomo Corporation and Control Risk India (P) Ltd.. The Revenue argued that the issue was not raised earlier before CIT(A) and that procedural lapses, if any, were curable under section 292B.

Held: The Tribunal held that since the TPO proposed adjustments prejudicial to the assessee after the remand, issuance of a draft assessment order under section 144C(1) was mandatory. Non-compliance with this provision rendered the assessment order dated 30.12.2016 void. Accordingly, the Tribunal quashed the assessment order and allowed the appeal of the assessee.