DCIT, CIRCLE-, LUCKNOW vs. MOHAMMAD RIZWAN, LUCKNOW

PER SUDHANSHU SRIVASTAVA, J.M.:

This appeal has been preferred by the Revenue against the order dated 09.06.2023, passed by the National Faceless Appeal Centre, Delhi (NFAC) for Assessment Year 2017-18.

2.0 The brief facts of the case are that the assessee was a Real Estate Developer and was engaged in the business of executing the construction of Commercial/Residential Buildings and selling properties. The assessee e-filed his return of income for the year under consideration on 31.01.2018, declaring a total income of Rs.39,82,620/-. The case of the assessee was selected for scrutiny under CASS for the reason “abnormal increase in cash deposits during demonetization period as compared to pre-

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demonetization period”. During the course of assessment proceedings, the assessee had acknowledged deposits of following amounts in his bank accounts during the demonetization period, i.e. from 09.11.2016 to 30.12.2016:

Sl. Name of Bank Account No. Amount (Rs.) No. 1 Union Bank of India 353302010815382 2,97,500 2 Union Bank of India 353306680000033 30,42,000 3 ICICI Bank Ltd. 126105500354 3,00,000 4 ICICI Bank Ltd. 12610501786 2,00,000 Total 38,39,500

2.1 The assessee was required to explain the source of these deposits. However, after considering the replies furnished by the assessee in this regard, the Assessing Officer (AO) treated the total cash deposits made by the assessee in his bank accounts, totaling to Rs.38,39,500/- as unexplained money and added the same to the income of the assessee under section 69A of the Act.

2.2 It was further noticed by the AO that the assessee had declared a total investment of Rs.98,78,000/- on construction of property situated at 29, Jopling Road Lucknow during the year under consideration. He, therefore, issued Commission under section 131(1)(d) of the Income Tax Act, 1961 (hereinafter called “the Act’) to the Departmental Valuation Officer (DVO), Lucknow,

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who submitted his Valuation Report dated 21.07.2020. Accordingly, the cost of the said property (excluding land) was estimated at Rs.9,06,51,361/- against the estimated cost submitted by the assessee at Rs.2,40,14,735/-. The Valuation Officer also reported the estimated cost of the property for the year under consideration at Rs.3,72,87,696/-, whereas the assessee had declared a total investment of Rs.98,78,000/- on construction of the said property. The difference between the estimated cost reported by the Valuation Officer and investment declared by the assessee, which came to Rs.2,74,09,696/- (3,72,87,696 – 98,78,000), was treated as unexplained expenditure of the assessee and was added to the income of the assessee under the head income from other sources under section 69C of the Act. The AO completed the assessment under section 143(3) read with section 144B of the Act, computing the income of the assessee as under:

Total income returned by the assessee : Rs.39,82,620/- Addition u/s 69A & 69C of the Act : Rs.3,12,49,196/-

Total Income : Rs.3,52,31,816/-

2.3 The AO also invoked the provisions of section 115BBE of the Act.

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2.4 Aggrieved, the Assessee preferred an appeal before the Ld. First Appellate Authority. During the pendency of appeal before the Ld. First Appellate Authority, the assessee filed a Writ Petition (No.19823 of 2021) before the Hon'ble Jurisdictional High Court of Allahabad at Lucknow Bench, challenging the assessment order dated 28.06.2021. While disposing of the Writ Petition filed by the assessee, the Hon'ble High Court passed an order dated 02.11.2022, directing the Ld. First Appellate Authority to dispose of the appeal and the connected interim Stay Application expeditiously in accordance with law preferably within a period of one month from the date of production of copy of the order of the Hon'ble High Court dated 02.11.2021. The Hon'ble High Court also directed that no coercive steps towards recovery should be taken till the period of disposal of Stay Application filed by the assessee or one month, whichever was earlier.

2.5 The assessee submitted detailed responses and documents during the course of proceedings before the Ld. First Appellate Authority and the Ld. First Appellate Authority asked for comments from the AO on the same. However, despite providing three opportunities, no Report was submitted by the AO. The Ld. First Appellate Authority, thereafter, after considering the submissions of the assessee and also considering

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the materials on record, deleted the additions made by the AO and allowed the appeal of the assessee.

2.6 Now the Revenue has approached this Tribunal challenging the order of the NFAC, by raising the following grounds of appeal:

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3.0 During the course of hearing before us, the Ld. CIT (DR), apropos Ground No.1, submitted that the addition of Rs.2,74,09,696/- was made by the AO under section 69C of the Act being the difference in cost of investment disclosed by the assessee and the cost of construction estimated by the DVO on the basis of DVO's Report. It was submitted that the cost of construction of the property whose investment was disclosed as Rs.98,78,000 by the assessee for the financial year 2016-17 was referred to the DVO by the AO under section 131(1)(d) of the Act. The Ld. CIT (DR) submitted that the Ld. First Appellate Authority allowed relief to the assessee on the ground that the AO failed to submit the Remand Report and, thus, failed to offer his comments on certain discrepancies in the Valuation Report claimed by the assessee and that the Ld. First Appellate Authority had incorrectly mentioned in his appellate order that the DVO's Report was submitted under section 142A of the Act, whereas the reference was made by the AO to the DVO under section 131(1)(d) of the Act which showed non-application of mind by the Ld. First Appellate Authority. The Ld. CIT (DR) submitted that the Ld. First Appellate Authority had allowed relief to the assessee by relying on the case laws pertaining to Section 142A of the Act.

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3.1 The Ld. CIT(DR) further submitted that even in absence of submission of Remand Report by the AO, it was incumbent upon the Ld. First Appellate Authority to conduct relevant inquiries himself having co-terminus powers with the AO. Relying on the judgment of the Hon'ble Delhi High Court in case of Commissioner of Income-tax-II v. Jansampark Advertising & Marketing Pvt. Ltd. [2015] 56 taxmann.com 286 (Del), the Ld. CIT (DR) submitted that that in case of failure of the AO to conduct relevant inquiries, obligation to conduct proper inquiry shifts to the Commissioner (Appeals) and the Tribunal and that they cannot simply delete addition made by the AO on ground of lack of inquiry.

3.2 Apropos Ground No.2, the Ld. CIT (DR) submitted that the Ld. First Appellate Authority has failed to follow the conditions laid down in Rule 46A(1) in letter and spirit and allowed relief to the assessee on ground of lack of inquiry in violation of the ratio laid down by the Hon'ble Delhi High Court in case of Commissioner of Income-tax-II v. Jansampark Advertising & Marketing Pvt. Ltd. [2015] 56 taxmann.com 286 (Del).

3.3 Apropos Ground No.3, the Ld. CIT (DR) submitted that the Ld. First Appellate Authority deleted the addition of Rs.38,39,500/- towards unexplained cash deposits made by the

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assessee during the demonetization period solely on the ground that the AO had failed to submit Remand Report. The Ld. CIT (DR) submitted that the AO had rejected the explanation of the assessee regarding the sources of cash deposits of Rs.38,39,500/- made by the assessee during the demonetization period, as the assessee had failed to provide the supporting evidences. The judgment of the Hon'ble Delhi High Court in case of Commissioner of Income-tax-II v. Jansampark Advertising & Marketing Pvt. Ltd. [2015] 56 taxmann.com 286 (Del) was again relied upon.

3.4 The Ld. CIT (DR) prayed that in view of these facts, the order of the Ld. First Appellate Authority may be set aside and that the order of the AO may be confirmed by allowing the appeal of the Revenue.

4.0 Per contra, the Ld. Authorized Representative for the assessee (Ld. A.R.) submitted that apropos Ground No.2 raised by the Revenue, the averment of the Department that conditions as per Rule 46A(1) were not satisfied, is totally wrong inasmuch as on a perusal of the impugned appellate order passed by Ld. CIT(A), (specially para 7.3 at page 12 and Paras 7.4 and 7.5 at page 15 of the impugned appellate order), it can be seen that the Ld. CIT(A) had issued notices dated 27.01.23, 14.02.2023 and

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21.04.2023 to the AO to submit Remand Report and his comments on the application filed by the assessee under Rule 46-A and additional comments on issues raised by the assessee during appellate proceedings, but none of the notices issued by the Ld. CIT(A) were replied to or responded to by the AO for the reasons best known to him. It was submitted that the Ld. CIT(A) had given three opportunities to the AO to submit a Remand Report in relation to the queries raised by the Ld. CIT(A) and to submit his comments. The Ld. A.R. submitted that Clause (3) of Rule 46A stipulates that no additional evidence shall be admitted by the Commissioner (Appeals) without providing reasonable opportunity and here in this instant case, the Ld. CIT(A) had accorded three opportunities and a reasonable time, requiring the AO to submit his response and the same was not exercised by the AO and, thus, the Ld. CIT(A) had provided a fair chance and reasonable opportunity to the AO. He submitted that further, against the assessment order passed by the AO, the Assessee had preferred a Writ Petition bearing No. 18923 of 2021 before the Lucknow Bench of Hon'ble High Court of Judicature at Allahabad and the Hon'ble Court, vide its judgment dated 02.11.2022, had directed the Ld. CIT(A) to decide the appeal expeditiously and hence the Ld. CIT(A) was bound by the order of the Hon'ble High Court to decide the appeal expeditiously.

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4.1 It was further submitted by the Ld. A.R. that the additional evidence is liable to be admitted by the Appellate Authority in case the assessee was prevented by sufficient cause from producing the evidence before the Assessing Officer, which takes care of clause (c) of sub-rule (1) of Rule 46A. It was submitted that the observation of the CIT (A) also takes care of sub-rule (2) under which he is required to record his reasons for admitting the additional evidence and, thus, the requirement of sub-rules (1) and (2) of Rule 46A should be complied with.

4.2 Apropos Ground No.1 raised by the Department, it was submitted by the Ld. A.R. that as per Revenue and the DVO’s Report, the cost of the property for the relevant assessment year stood at Rs.3,72,87,696/- by applying CPWD rates. The Ld. A.R. submitted that this was an incorrect finding of law by the Assessing Officer for the following reasons:

(i) Assessee’s request for reworking of cost of structure was not considered despite factual discrepancies/ mismatches while proposing addition of Rs.2,74,09,696.00. (ii) The Valuation Officer has adopted CPWD Plinth Area rates, Delhi-2012, duly updated by weighted indexed cost as against UPPWD Plinth Area rates. (iii) For the F.Y. 2016-17 the Valuation Officer has estimated the cost at Rs.3,72,97,696/- while the

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building was at structure level and actual cost incurred was Rs.98.78 lacs only as valued by registered Valuer’s Report. (iv) The Valuation Officer has apportioned cost of construction for the financial year 2016-17 as percentage of complete building which is wrong as most of the extra items amounting to Rs.85.38 lacs were incurred after completion of the building or at the time of finishing. (v) The assessee is a real estate developer and is in the business of executing construction of commercial buildings/apartments for last 20 years. No architect was hired for the project. This has resulted in substantial reduction in cost. (vi) The assessee had submitted before the Valuation Officer a copy of Registered Valuer’s Report, vide letter dated 14.01.2020. However, in the Valuation Officer Report dated 21.07.2020, the points raised by the Registered Valuer were not considered while estimating the value of property. (vii) During the assessment proceedings, the assessee had submitted objections dated 27.03.2021 before the AO in rebuttal to the Report of the Valuation Officer dated 21.07.2020. However, the AO did not consider such objections and the Report of the Registered Valuer submitted before him nor did he refer the matter to the Valuation Officer for consideration of the objections item-wise.

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(viii) The issuance of Commission under section 131(1) of the Act was made without referring to any adverse material in possession of the AO. 4.3 Apropos Ground No.3 of the Revenue, the Ld. A.R. submitted that to Department’s argument that with regard to cash deposits of Rs.38,39,500/-, no evidences to substantiate identity, creditworthiness and genuineness of transactions were filed during course of assessment proceedings, is incorrect. It was submitted that during the course of assessment proceedings, the assessee had submitted detailed reply in response to the query raised regarding the cash deposits. The Ld. A.R. has placed before us the copy of the reply filed by the assessee in response to show cause notice dated 24.06.2021. It was further submitted that during the course of Appellate Proceedings also, the assessee, vide its reply dated 01.12.2022, reiterated the contents of the above reply filed before the AO, in addition to production of additional documents in support of such unsecured loans by moving an application under Rule 46-A of the Income Tax Rules. The Ld. A.R. submitted that each and every investment by the assessee was duly explained during assessment as well as appellate proceedings and the Appellate Proceedings. The Ld. A.R. submitted that the ld. CIT(A) has dealt with the issue in right perspective and rightly deleted the

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addition. The Ld. A.R. prayed that in view of these facts, the Grounds raised by the Revenue be rejected and the appeal of the Department be dismissed by confirming the order of the ld. CIT(A).

5.0 We have heard the rival submissions and have also perused the material on record. We have also carefully perused the order of the Ld. First Appellate Authority. It is seen that the main argument of Department is that the Ld. First Appellate Authority has admitted fresh evidences under Rule 46A of the Income Tax Rules and has, thereafter, given relief to the assessee without waiting for the Remand Report from the AO. We note that there are plethora of judicial precedents where the orders of the Ld. First Appellate Authority were set aside by the Tribunal for failure on the part of the Ld. First Appellate Authority to obtain Remand Report from the AO and such instances were held by the Tribunal to be in violation of the provisions of Rule 46A of the Income Tax Rules. However, there are also numerous judicial precedents wherein the Tribunal has held that where adequate opportunities were provided to the AO by the Ld. First Appellate Authority to furnish the Remand Report and the AO did not respond, the action of the Ld. First Appellate Authority in accepting the additional evidences and adjudicating on such

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evidences cannot be faulted with. This case before us clearly falls in the second category.

5.1 A perusal of the impugned order shows that the Ld. First Appellate Authority had provided as many as three opportunities to the AO to submit the Remand Report but for the reasons best known to the AO, the AO chose not to submit the Remand Report and/or comments on the application field by the assessee under Rule 46A of the Income Tax Rules. A perusal of the impugned order shows that the Ld. First Appellate Authority had issued three notices dated 27.01.2023, 14.02.2023 and 21.04.2023, requiring the AO to submit his comments on the issues raised by the assessee during the first appellate proceedings and the evidences which were sought to be admitted before the Ld. First Appellate Authority for the first time by the assessee. However, as the Ld. First Appellate Authority has noted, the AO did not respond inspite of three opportunities. The ld. CIT(A) has also noted the fact that the Hon'ble High Court of Allahabad, Lucknow Bench in Writ Petition filed by the assessee, while disposing of the Writ Petition bearing No.19823 of 2021 had directed the Ld. First Appellate Authority to dispose of the appeal and the connected interim Stay Application expeditiously in accordance with law preferably within a period of one month from the date of production of copy of the order of the Hon'ble High Court dated

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02.11.2021. Thus, it is very much evident that the Ld. First Appellate Authority was bound by the directions of the Hon'ble High Court to dispose of the appeal of the assessee expeditiously. Therefore, it is our considered view that when the Ld. First Appellate Authority had provided adequate number of opportunities to the AO to file his comments and the AO had chosen not to respond to the same, the action of the Ld. First Appellate Authority in accepting the fresh evidences filed by the assessee under Rule 46A of the Rules and, thereafter, proceeding to adjudicate the appeal cannot be faulted with.

5.2 The various Benches of the Tribunal have also held the action of the ld. CIT(A) in proceeding to adjudicate the appeal without waiting for the AO to submit the Remand Report in following precedents:

(i) In the case of ACIT vs. Ravi Lumba in ITA No.97/DDN/2024, the Dehradun Bench of the Tribunal, vide order dated 23.01.2026 held that there was no violation of Rule 46A of the Income Tax Rules where the AO ignored remand opportunities. In that case the case arose from an ex-parte order of assessment under section 144 of the Act where substantial cash deposits during the demonetization period were added as unexplained. Before

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the ld. CIT(A), the assessee furnished detailed explanations supported by audited financial details and the AO, on being called for submitting Remand Report, did not respond inspite of numerous opportunities. The ld. CIT(A) allowed the appeal of the assessee and on appeal by the Department, the Dehradun Bench of ITAT ruled that the action of the ld. CIT(A) was to be upheld.

(ii) In the case of ACIT 24(1), Mumbai vs. Ambika Trading Corporation, decided by the Mumbai ‘A’ Bench of the Tribunal, vide order dated 17.03.2026, the assessee had furnished relevant documentary evidences before the ld. CIT(A) and the ld. CIT(A) called for a Remand Report from the AO. However, the AO failed to submit the Remand Report. The Tribunal held that it is evident that adequate and reasonable opportunity was granted by the ld. CIT(A) to AO and the failure to furnish the Remand Report cannot be attributable to any lapse on the part of the ld. CIT(A).

5.3 Further, during the course of arguments before us, the Ld. CIT(DR) has vehemently placed reliance on the judgment of the Hon'ble Delhi High Court in the case of Commissioner of Income-tax-II v. Jansampark Advertising & Marketing Pvt. Ltd. (supra) and has submitted that as per this judgment, in case

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there is a failure of the AO to conduct relevant enquiries, the obligation to conduct proper enquiry shifts to the Commissioner and that the Commissioner cannot simply delete the addition made by the AO on the ground of lack of enquiry. However, after having gone through the impugned order and also the judgment of the Hon'ble High Court of Delhi, we are of the considered view that the order of the Hon'ble High Court of Delhi was entirely on a different set of facts. In the case of Commissioner of Income- tax-II v. Jansampark Advertising & Marketing Pvt. Ltd. (supra), the Ld. First Appellate Authority had provided relief to the assessee without even calling for a Remand Report from the AO on evidences filed with respect to share capital/premium and it was in this context that the Hon'ble Delhi High Court had observed that where the AO may have failed to discharge his obligation to conduct a proper enquiry to take the matter to a logical conclusion, the Ld. First Appellate Authority, having noticed want of proper enquiry, could not have closed the chapter simply by allowing the appeal and deleting the additions made. However, in the present appeal before us, it is not in dispute that the AO was afforded as many as three opportunities to counter the additional evidences submitted by the assessee and it was only on failure of the AO to respond, that he admitted the fresh evidences under Rule 46A of the Rules. Further, since the Ld.

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First Appellate Authority was bound by the directions of the Hon'ble High Court to dispose of the assessee’s appeal expeditiously, he could not have waited endlessly for the Remand Report to be submitted by the AO. In our considered view, the AO very much had a reasonable opportunity to put forth his stand when opportunities were provided to him to submit the Remand Report but the AO chose not to avail any of the opportunities and chose to remain silent. Therefore, on an overall view of the facts of the case, we are unable to disagree with the course of action taken by the ld. CIT(A) and we, accordingly, uphold his action of allowing the assessee’s appeal. The grounds raised by the Department are dismissed.

6.0 In the final result, the appeal of the Department stands dismissed.

Order pronounced in the open Court on 17/04/2026.

Sd/- Sd/- [NIKHIL CHOUDHARY] [SUDHANSHU SRIVASTAVA] ACCOUNTANT MEMBER JUDICIAL MEMBER

DATED:17/04/2026 JJ:

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