SUBRAMANIAM VELMURUGAN,GOBICHETTIPALAYAM vs. ACIT, CIRCLE-2,, ERODE

The Assessee raised the following grounds of appeal : “1. The order of the NFAC, Delhi dated 04.09.2025 vide DIN & Order No. ITBA/NFAC/S/250/2025-26/1080362492(1) for the above mentioned Assessment Year is contrary to law, fact and in circumstances of the case.

The NFAC, Delhi erred in sustaining the disallowance the expenditure reckoned to have been incurred and claimed by the appellant in the computation to the tune of Rs.1,90,00,000/- and consequently erred in sustaining the addition of such sum as income of the appellant in the computation of taxable total income without assigning proper reasons and justification.

The NFAC, Delhi failed to appreciate the addition(s) made solely on the basis of the concession made before the Assessing Officer was wholly unjustified and not sustainable in law and ought to have appreciated that such concession would not automatically confer jurisdiction to assess the disputed sum(s) as income of the appellant, thereby vitiating the addition(s) made based on such concession given during the assessment proceedings.

The NFAC, Delhi failed to appreciate disputed sum(s) were incurred and recorded in the books of accounts of M/s Bharathi Vidyalaya Matric Hr Sec School (PAN: AABTB0160F) and further ought to have appreciated that the assessment of such sums as income of the appellant without examining the books of accounts of the said entity was wrong, erroneous, incorrect, invalid, unjustified and not sustainable both on facts and in law

The NFAC, Delhi failed to appreciate that the assessment of such sum on the premise of the said expenditure was incurred by the appellant in the capacity of a contractor was wrong and unjustified and ought to have appreciated that the appellant was mere supervisor, thereby vitiating the disputed addition(s) made in the hands of the appellant in its entirety.

The NFAC, Delhi erred in sustaining the disallowance of Rs. 1,00,00,000/-being the cash payments alleged to have made in excess of threshold limit prescribed in terms of Section 40A(3) of the Act and consequently erred in sustaining the addition of such sum in the computation of taxable total income without assigning proper reasons and justification.

The NFAC, Delhi failed to appreciate that in any event, the proviso below Section 40A(3A) of the Act, which proviso carving out the exceptions including the transactions in cash exceeding the threshold limit under commercial expediency was completely overlooked and brushed aside, thereby vitiating the disputed disallowance in its entirety.

The NFAC, Delhi failed to appreciate that the genuineness of the alleged transaction in question being not doubted, the purposive legislation of Section 40A(3) of the Act was completely overlooked and brushed aside, thereby vitiating the related findings.

The NFAC, Delhi failed to appreciate that the scrutiny assessment order was passed out of time, invalid, passed without jurisdiction and not sustainable both on facts and in law

The NFAC, Delhi failed to appreciate that the findings in relation thereto forming part of the impugned order were wrong, erroneous, incorrect, invalid, unjustified and not sustainable both on facts and in law

The NFAC, Delhi failed to appreciate that the entire re-computation of taxable total income was wrong, erroneous, incorrect, invalid, unjustified and not sustainable both on facts and in law.

The NFAC, Delhi failed to appreciate that in any event having not independently examined the nature of the additions / disallowances forming part of the assessment order, the consequential sustenance of the entire addition / disallowance as income of the appellant was wrong, erroneous, incorrect, invalid, unjustified and not sustainable both on facts and in law.

The NFAC, Delhi failed to appreciate that there was no effective/proper opportunity given before passing the impugned order including non granting of personal hearing scheduled on 05.09.2025, the impugned order passed on 04.09.2025 in complete violation of the principles of natural justice should be considered as nullity in law.

The Appellant craves leave to file additional grounds/arguments at the time of hearing.”

Briefly stated facts of the case are that the appellant is an Individual engaged in the business of execution of contracts. The Return of Income for the Assessment Year 2015-16 was filed on 31.10.2015 disclosing a total income of Rs.17,20,770/-. Against the said return of income, the assessment was completed by ACIT, Circle-2, Erode Tamilnadu vide order dated 21.12.2017 passed u/s.143(3) of the Act at a total income of Rs.3,07,20,770/-. While doing so, the Assessing Officer made addition of Rs.1,90,00,000/- towards material recovery expenses brought to M/s.Bharathi Vidyalaya Matric Hr.Sec School. The Assessing Officer also made addition of Rs.1,00,00,000/- u/s.40A(3) of the Act. The factual background leading to the above addition is under :

During the course of assessment proceedings, the Assessing Officer had called upon the appellant to produce the supporting bills in support of the expenditure, other expenditure of Rs.3,75,48,440/- which includes a sum of Rs.2,91,00,000/- claimed as material recovery expenses paid to M/s. M/s.Bharathi Vidyalaya Matric Hr.Sec School. The Assessing Officer had cross verified this expenditure with the Principal M/s.Bharathi Vidyalaya Matric Hr.Sec School and found that no cash was paid to said school. When this information had confronted with the appellant, the appellant had agreed to offer a sum of Rs.1.90 crores out of Rs.2.9 crores. Accordingly, the Assessing Officer made addition of Rs.1.90 crores. The Assessing Officer also found during the course of assessment proceedings that the expenditure was incurred in cash in excess of Rs.20,000/- in contravention of provisions u/s.40A(3) of the Act. Accordingly, a sum of Rs.1crore was disallowed based on the concession made by the appellant during the course of assessment proceedings.

Being aggrieved by the above assessment order, the appellant preferred an appeal before ld.CIT(A) contending that in the absence of any dispute that the appellant had executed civil contract during the previous year relevant to assessment year under consideration, the Assessing Officer ought to have estimated the income at 8% of the turnover instead of making unreasonable additions. However, the ld.CIT(A) had confirmed the addition by holding that the appellant had agreed for the additions during the course of assessment proceedings.

Being aggrieved by the order of ld.CIT(A), the appellant is in appeal before us in the present appeal. The Learned Counsel submits that the ld.CIT(A) ought not have sustained the additions made by the Assessing Officer merely based on the concession recorded during the course of assessment proceedings without bringing any independent evidence on record and also placed reliance on the Hon’ble Madras High Court in the decision in the case of Mariam Aysha Vs. CAIT [1976] 104 ITR 381. Therefore, the matter may be remanded to the file of Assessing Officer.

On the other hand, Ld.Sr.DR submits that during the course of assessment proceedings, the appellant that failed to substantiate the genuineness of the expenditure incurred. Similarly, it is an admitted fact that the appellant had incurred an expenditure in cash exceeding Rs.20,000/-. Therefore, no interference in the impugned order is called-for.

We heard rival submissions and perused the material available on record. On bare perusal of the assessment order, it would reveal that the Assessing Officer made additions based on the concessions recorded from the appellant. It is an admitted fact that the appellant had executed civil contract work for M/s.Bharathi Vidyalaya Matric Hr.Sec School. It is a normal practice that contractee supplies the cement, steel for execution of work. The cost of which is recovered in the running bills. In such scenario, the question of incurring expenditure in cash does not arise. However, the AO had made addition of Rs.1,90,00,000/- merely based on the concessions given by the Ld.AR of the appellant. It is contended before us that the statement was recorded from the AR of the appellant by exercising the coercion without entering into the issue whether the statement was extracted by coercion or not! It is suffice to hold that the no addition can be made merely based on the concession of the assessee without bringing any independent corroborative evidence by the AO. Similarly, the AO ha not pointed out the cases where the appellant had incurred cash expenditure in cash exceeding Rs.20,000/- on a single day. This addition u/s.40A(3) was also made based on the concessions recorded from the appellant for the reasons stated(supra). Therefore, we are of the considered opinion that the this issue also requires to be reconsidered by the AO in accordance with law after affording opportunity of being heard to the appellant.

In the result, appeal of the assessee is partly allowed for statistical purpose. Order pronounced in the open Court on 22nd May, 2026.