ACIT, MUMBAI vs. AUTOPLANT SYSTEM INDIA PRIVATE LIMITED, NAVI MUMBAI

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ITA 2840/MUM/2026Status: DisposedITAT Mumbai10 August 2026AY 2020-217 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal noted that the CIT(A) accepted additional documents without allowing the AO an opportunity to examine them. Therefore, the matter was restored to the CIT(A) for fresh examination, including a remand report from the AO.

What were the facts?

The assessee company capitalized intangible assets worth Rs. 2,08,80,573/-. The Assessing Officer (AO) added this amount to the assessee's income, holding it as unexplained investment, as the assessee failed to provide satisfactory documentary evidence. The Commissioner (Appeals) deleted this addition.

What were the issues?

Whether the CIT(A) erred in deleting the addition of unexplained investment in intangible assets without allowing the AO an opportunity to examine additional evidence. Whether the capitalized expenditure, recorded in books, can be treated as unexplained investment under Section 69.

Which sections of the Income-tax Act were involved?

Section 69,Section 115BBE,Section 143(3),Section 144B,Section 250

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI

Before: SHRI ANIKESH BANERJEE & SHRI BIJAYANANDA PRUSETH

For Respondent: Shri Tanmay Milind Phadke

आदेश / ORDER

PER SHRI ANIKESH BANERJEE, JUDICIAL MEMBER: The instant appeal of the revenue filed against the order of the NFAC, Delhi [for brevity “Ld. CIT(A)”], order passed under Section 250 of the Income Tax Act, 1961 (for brevity ‘the Act’), for Assessment Year 2020-21, date of order 03.02.2026. The impugned order emanated from the order of the Assessment Unit, Income Tax Department (for brevity ‘Ld. AO’), order passed under Section 143(3) r.w.s. 144B of the Act, date of order 19.09.2022. The revenue has filed the following grounds: “1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A)(NFAC) erred in deleting the addition of 2,08,80,573/ made u/s 69 r.ws 115BBE of the Income-tax Act, 1961, ignoring the fact that the assessce failed to substantiate the existence and acquisition of intangible assets with any documentary evidence despite being provided multiple opportunities. 2. The Ld. CIT(A)(NFAC) erred in holding that the provisions of Section 69 are not applicable merely because the amount was recorded in the books, failing to appreciate that an entry in the books of account, unsupported by primary evidence, falls within the ambit of "unexplained investment as held by the Hon'ble Supreme Court in CIT v P. Mohanakala (291 ITR 278). 3. The Ld. CIT(A)(NFAC) failed to appreciate that the burden of proof to explain the nature and source of an investment lies entirely on the assessee, and in the absence of invoices, agreements, or proof of payment, the AO was justified in drawing an adverse inference as per the ratio laid down in CIT v. Durga Prasad More (82 ITR 540) (SC). 4. The Ld. CIT(A)(NFAC) erred in accepting the assessce's contention that the amount represents "capitalization of business expenditure without requiring any proof of the actual delivery of services or assets, thereby acting on a self-serving explanation that fails the "test of human probabilities" established in Sumati Dayal v. CIT (214 ITR 801) (SC). 5. The Ld. CIT(A) (NPAC) erred in law by not considering that under Section 69, the "satisfactoriness" of the explanation is at the discretion of the AO, and in the absence of primary vouchers, the AO is not bound to accept the accounting treatment adopted by the assessee. 6. The appellant craves leave to add, amend, modify, or withdraw any ground of appeal at or before the time of hearing.”

2.

The brief facts of the case are that the assessee is a private limited company and carried out manufacturing and trading of steel pipes. The assessee filed the return u/s. 139(1) declaring total income as Nil and claiming a refund amounting to Rs. 17,13,370/-. The assessee's case was taken for scrutiny on the ground “high liabilities as compared to low income/receipts” and “introduction/addition of high-value intangible assets during the year”.

During the assessment proceedings, the Ld. AO observed that the assessee had made investment in intangible assets amounting to Rs. 2,08,80,573/-. The requisite notice u/s. 142(1) was duly issued to furnish documentary evidence in support of the evidence/addition towards intangible assets. The assessee had complied the statutory notice issued by the various dates. Finally, the Ld. AO, being dissatisfied with the evidence submitted by the assessee, added back the investment related to intangible assets amounting to Rs. 2,08,80,573/-. Being aggrieved, the assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) had allowed the appeal of the assessee. Being aggrieved, the revenue filed an appeal before us.

3.

The Ld. DR argued and contended that the Ld. AO had rightly disallowed the capital expenditure claimed by the assessee on the ground that the documents furnished during the assessment proceedings were neither satisfactory nor supported by adequate evidence. It was further submitted that the Ld. CIT(A) accepted additional documents during the appellate proceedings without affording the Ld. AO a reasonable opportunity to examine and verify the same, thereby violating the principles of natural justice. According to the Ld. DR, the Ld. AO was deprived of the opportunity to verify the evidence relied upon by the assessee before the Ld. CIT(A). In support of these contentions, the Ld. DR invited our attention to page 8 of the impugned assessment order. The relevant extract from the impugned assessment order is reproduced below: “(d) Variations proposed on the basis of inference drawn (specify the basis of inference and quantify the variation proposed, if possible). Variation has been proposed amountingRs. 2,08,80,573/- toward unexplained investment in intangible asset. The assessee is a company which are engaged in providing logistics solutions that provide maximum benefits with minimum impacts on day-to-day operation. During the year under consideration the assessee has shown investment in intangible assets amounting Rs. 2,08,80,573/-The assessee was requested vide notice u/s 142(1) of the Act dated 09.11.2021, 04.01.2022, 08.02.2022 and 03.03.2022 to furnish documentary evidence in support of the investment or addition toward intangible assets. The assessee has submitted its reply on 20.01.2022 and 09.03.2022 in response to the statutory notices issued on various dates. The relevant details available on the record along with the submission made by the assessee have been perused and it is revealed that the assessee has failed to furnished any evidence in support of the investment of Rs. 2,08,80,573/- in intangible assets. Therefore, the genuineness, identity and creditworthiness of the source of investment in intangible assessee remains unverified/unexplained. In the light of the principle of natural justice a final opportunity in the form of Show Cause Notice dated 31.08.2022 was provided to the asseessee requesting to furnish supporting documents toward investment in intangible assets on or before 07.09.2022, but this time also the assessee has failed to furnish relevant documentary evidence in support of its contention of investment in intangible assets amounting to Rs. 2,08,80,573/-. Hence, the unexplained investment in intangible assets amounting Rs. 2,08,80,573/- by the assessee during the year under consideration is added back to the income of the assessee u/s 69 r.w.s 115BBE of the Act. Addition: Rs. 2,08,80,573/-. Since, the assessee has under reported its income, therefore, penalty proceeding u/s 270A of the Act is initiated separately for under reporting of its income. 4.2 Synopsis of the reply of the assessee to SCN and additional SCN (If any): No. 4.3 Synopsis of information evidence collected after SCN (if any):Assessee has not comply with the SCN. 4.4 Conclusion drawn: In view of above-mentioned facts an addition of Rs. 2,08,80,573/-”.

4.

The Ld. AR argued and contended that the assessee had invested in intangible assets and the ledger copies of the investment and the salary registers were duly submitted before the Ld. AO. The assessee had also complied the notices issued by the Ld. AO. However, without considering the assessee's submissions, the addition was duly confirmed. The Ld. AR invited our attention to page 21 & 22 of the impugned appellate order. The relevant extract from the impugned appellate order is reproduced below: “Ground Nos. 1: Addition of Rs. 2,08,80,573/- on account of capitalised intangible assets treated as unexplained investment.

Vide Ground Nos. 1, the appellant has challenged the addition of Rs. 2,08,80,573/- made by the Ld. Assessing Officer under section 69 read with section 115BBE of the Act. While framing the assessment, the Assessing Officer has observed that the appellant had shown addition of intangible assets amounting to Rs. 2,08,80,573/- during the year. According to the Assessing Officer, the appellant failed to furnish documentary evidence in support of such capitalisation and the source thereof despite several notices issued under section 142(1) and a final show cause notice. The Assessing Officer further expressed the view that the value of intangible assets may have been overstated and that capitalisation ought to have a nexus with the revenue earned during the year. On these combined premises, the Assessing Officer concluded that the genuineness, identity and creditworthiness of the source of the socalled investment remained unexplained and accordingly treated the capitalised amount as unexplained investment under section 69 of the Act. In appeal, the appellant has explained that the impugned amount represents internally generated software and intellectual property developed in the course of its SaaS and IoT-based logistics business. The expenditure incurred is stated to be primarily towards salary and employee-related costs, which are duly recorded in the books of account. It is the appellant’s case that such expenditure was capitalised in accordance with Accounting Standard AS-26 upon reaching the development stage and that capitalisation is merely an accounting recognition of already recorded expenditure. It is further submitted that development of intellectual property and revenue generation do not necessarily occur in the same financial year and therefore, linking capitalisation to proportionate revenue is misconceived. I have considered the rival contentions and the material available on record. The undisputed position emerging from the assessment order itself is that the impugned amount is recorded in the books of account and relates to business expenditure incurred by the appellant. The Assessing Officer has not rejected the books of account under section 145 of the Act, nor has he brought on record any material to show that the appellant made any investment outside the books or from any unexplained source. Section 69 of the Act can be invoked only where an assessee has made an investment which is not recorded in the books of account and the assessee fails to offer a satisfactory explanation about the nature and source of such investment. In the present case, the Assessing Officer’s grievance is essentially with regard to the justification and timing of capitalisation of business expenditure. Even assuming that the Assessing Officer was not satisfied with the documentation or the accounting treatment, such dissatisfaction by itself does not convert a book-recorded business expenditure into an unexplained investment within the meaning of section 69 of the Act. The further reasoning of the Assessing Officer that capitalisation should be linked to the proportion of revenue earned during the year is also not supported by any specific provision of the Act. In businesses involving software and intellectual property development, it is a normal commercial reality that development costs are incurred in anticipation of future economic benefits and that monetisation may occur in subsequent years. The timing of revenue recognition by itself, cannot be a determinative factor for treating capitalised development cost as unexplained income. On an overall consideration of the facts and the statutory framework, it is evident that the Assessing Officer has proceeded to invoke section 69 on a misappreciation of the nature of the transaction and the scope of the provision. The impugned addition represents capitalisation of recorded business expenditure and does not satisfy the essential conditions for application of section 69 of the Act. Accordingly, the addition of Rs. 2,08,80,573/- made under section 69 read with section 115BBE of the Act is deleted. Ground Nos. 1 is allowed.”

5.

We have heard the rival submissions and perused the material available on record. The assessee filed its return of income under section 139(1) of the Act, and the case was selected for scrutiny, inter alia, on account of the substantial addition to intangible assets amounting to Rs. 2,08,80,573/-. During the assessment proceedings, the Ld. AO repeatedly called upon the assessee to furnish documentary evidence in support of the capitalization of the said intangible assets. According to the Ld. AO, despite several opportunities, the assessee failed to furnish satisfactory evidence, and the impugned addition was consequently made under section 69 read with section 115BBE of the Act. From the impugned appellate order, we find that the Ld. CIT(A) accepted the assessee's explanation and the supporting material regarding the capitalization of internally generated software and intellectual property and deleted the addition. However, there is nothing on record to indicate that such material was subjected to verification by the Ld. AO by way of a remand report or that an effective opportunity was afforded to the Ld. AO to examine the additional evidence and offer his comments thereon. In these circumstances, we are of the considered view that the matter requires fresh examination in the interest of justice. Accordingly, we set aside the impugned appellate order and restore the matter to the file of the Ld. CIT(A). The Ld. CIT(A) shall admit and examine all the evidence relied upon by the assessee, call for a remand report from the Ld. AO, and thereafter adjudicate the issue afresh by passing a reasoned and speaking order in accordance with law after affording adequate opportunity of hearing to both parties. It is clarified that we have not expressed any opinion on the merits of the controversy. All legal and factual contentions of both parties are kept open for adjudication in the set-aside proceedings. Needless to say, the assessee shall extend full cooperation and shall not seek unnecessary adjournments during the remand proceedings. 6. In the result, the appeal of the revenue bearing ITA No.2840/Mum/2026 is allowed for statistical purposes. Order pronounced in the open court on 10th day of August 2026.

Sd/- Sd/-

(BIJAYANANDA PRUSETH) (ANIKESH BANERJEE) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai,िदनांक/Dated: 10/08/2026 Soumili, PS

Copy of the Order forwarded to: अपीलाथ�/The Appellant , 1. �ितवादी/ The Respondent. 2. आयकरआयु� CIT 3. िवभागीय�ितिनिध, आय.अपी.अिध., मुंबई/DR, ITAT, 4. Mumbai गाड�फाइल/Guard file. 5.

BY ORDER, //True Copy// (Asstt. Registrar), ITAT, MUMBAI

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