POPULAR WINE MART,MUMBAI vs. ITO WARD 25(3)(1), MUMBAI

The brief facts of the case are that, the assessee, M/s. Popular Wine Mart, is a retail wine shop carrying on business under a licence granted by the Collector of Mumbai City. For the Assessment Year 2021-22, the assessee filed its return of income declaring a total income of Rs. 4,14,870/-. The case was selected for scrutiny and statutory notices were issued. During the course of assessment proceedings, the Assessing Officer ("AO") issued a show cause notice calling upon the assessee to explain certain issues arising from the material available on record.

The AO noticed that notices under section 133(6) of the Income-tax Act, 1961 ("the Act") had been issued to eight creditors reflected in the books of the assessee. Out of the said eight creditors, only four parties responded to the notices, whereas no response was received from the remaining four creditors. The AO, therefore, called upon the assessee to explain why the aggregate credit balance of Rs. 8,45,840/- standing in the names of the said four creditors should not be treated as unexplained credits under the provisions of the Act.

The AO further observed that a housing loan amounting to Rs. 48,63,264/- was reflected as an outstanding liability in the balance sheet of the assessee. On verification, it was noticed that the said loan had been sanctioned by the bank in the names of Shri Aditya Rajiv Deokar and Shri Rajiv Janardhan Deokar, the latter being one of the partners of the assessee firm, and not in the name of the assessee firm itself. The AO, therefore, required the assessee to establish as to why the amount of Rs. 48,63,264/- should not be treated as an unexplained credit. Consequentially, the AO also proposed to disallow the interest expenditure of Rs. 72,745/- claimed by the assessee in respect of the aforesaid loan.

The assessee did not furnish any reply to the aforesaid show cause notice nor were the requisite evidences produced before the AO. In the absence of any explanation from the assessee, the AO proceeded to complete the assessment under section 143(3) read with section 144B of the Act vide order dated 10.09.2022. The AO made an addition of Rs. 8,45,840/- towards unexplained creditors, treated the outstanding loan of Rs. 48,63,264/- as unexplained credit, disallowed the corresponding interest expenditure of Rs. 72,745/- and determined the total income of the assessee at Rs. 61,96,719/-.

Aggrieved by the assessment order, the assessee preferred an appeal before the learned Commissioner of Income Tax (Appeals) (“Ld.CIT(A)”). The Ld. CIT(A), however, dismissed the appeal for want of prosecution on account of the assessee's non-compliance and, without adjudicating the issues on merits, confirmed the additions made by the AO. Being further aggrieved, the assessee has preferred the present appeal before this Tribunal.

The appeal came up for hearing before the Tribunal on 25.06.2026. During the course of hearing, it was noticed that both the assessment order and the appellate order had been passed ex parte without the issues being examined on merits after considering the explanation and evidences of the assessee. Considering the facts and circumstances of the case and in the interest of substantial justice, the Bench was of the prima facie view that the matter deserved to be restored to the file of the Ld. CIT(A) for fresh adjudication. However, having regard to the conduct of the assessee in not responding to the statutory notices during the assessment proceedings and in not effectively prosecuting the appeal before the first appellate authority, the Tribunal considered it appropriate to impose costs of Rs. 22,000/- payable to the Income-tax Department as a condition precedent for remanding the matter. Accordingly, the matter was adjourned to 04.08.2026 for reporting compliance with the said direction.

When the matter was taken up on 04.08.2026, the learned Authorised Representative (“Ld. AR”) for the assessee produced the challan evidencing payment of Rs. 22,000/- in favour of the Income-tax Department and filed a copy thereof, which has been taken on record and forms part of the case records. It was, however, noticed that although the Tribunal had directed the payment to be made within fifteen days from 25.06.2026, the amount was actually remitted on 14.07.2026, resulting in a delay of four days. The Ld. AR submitted that the delay was neither deliberate nor intentional but had occurred due to inadvertent circumstances and prayed that the same may be condoned in the interest of justice. The learned Departmental Representative (“Ld. DR”) fairly submitted that since the cost had ultimately been paid and the Tribunal had already expressed its inclination to restore the matter for fresh adjudication, the appeal may be remanded to the file of the Ld. CIT(A) for disposal on merits.

We have carefully considered the rival submissions and perused the material available on record. We have also verified the challan evidencing payment of costs, which has been placed on record. It is an undisputed fact that the direction issued by this Tribunal on the earlier date of hearing has substantially been complied with, though there is a marginal delay of four days in remitting the amount. Having regard to the explanation offered by the assessee and considering that the payment has in fact been made, we are satisfied that the delay was not deliberate or wilful. In our considered opinion, such a minor delay ought not to defeat the cause of substantial justice, particularly when the Tribunal had already formed the view that the matter requires fresh consideration on merits.

We further find that the assessment order as well as the order of the Ld. CIT(A) came to be passed ex parte without adequate participation by the assessee. Since the additions involve examination of factual issues relating to the genuineness of trade creditors, the nature and source of the outstanding loan, and the allowability of the corresponding interest expenditure, the interests of justice would be adequately served by restoring the matter to the file of the Ld. CIT(A) for adjudication afresh after affording reasonable opportunity of hearing to the assessee.

Accordingly, we set aside the orders of the authorities below and restore the entire matter to the file of the Ld. CIT(A) for fresh adjudication de novo in accordance with law. The Ld. CIT(A) shall afford adequate and effective opportunity of hearing to the assessee, consider all documentary evidence and submissions that may be placed on record, and thereafter pass a reasoned and speaking order in accordance with law.

The assessee is also directed to extend full cooperation during the appellate proceedings by promptly complying with all notices and requisitions issued by the Ld. CIT(A), producing all relevant books of account and supporting evidences, and by refraining from seeking unnecessary adjournments. It is made clear that if the assessee fails to cooperate with the appellate proceedings, the Ld. CIT(A) shall be at liberty to dispose of the appeal in accordance with law on the basis of the material available on record.

In the result, the orders of the lower authorities are set aside and the matter is restored to the file of the Ld. CIT(A) for fresh adjudication in the light of the observations made hereinabove. The appeal filed by the assessee is treated as allowed for statistical purposes.