DY. COMMISSIONER OF INCOME-TAX, CIRCLE-2, NAGPUR, NAGPUR vs. MOTHERS PET KINDERGARTEN, NAGPUR

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ITA 197/NAG/2025Status: DisposedITAT Nagpur15 June 2026AY 2018-201914 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the CIT(A) correctly determined that the assessment was made on a best judgment basis, despite the AO quoting Section 143(3). The CIT(A) was empowered to set aside the assessment order under the amended Section 251(1) as the assessee was not fully responsive.

What were the facts?

The Revenue appealed against the CIT(A)'s order which set aside the assessment order. The assessee, a partnership firm, had a partner transfer assets worth ₹15.55 crores. The Assessing Officer (AO) made additions for unexplained capital and liabilities and interest paid on capital.

What were the issues?

Whether the CIT(A) erred in setting aside the assessment order when the assessee was responsive, and whether the assessment was a best judgment assessment despite being framed under Section 143(3).

Which sections of the Income-tax Act were involved?

Section 251(1),Section 143(3),Section 144B,Section 68,Section 142(1),Section 144

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, NAGPUR BENCH :: NAGPUR

For Appellant: Shri K.P. Dewani, Adv
For Respondent: Shri Pankaj Kumar, CIT DR
Hearing: 09.06.2026Pronounced: 15.06.2026

PER ANUBHAV SHARMA, JM:

This appeal filed by the revenue is directed against the order of Ld. Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre, Delhi, (for short, “CIT(A)”), dated 23/01/2025 passed under

ITA No. 197/NAG/2025 (Mothers Pet Kindergarten) section 250 of the Income Tax Act, 1961 (for short, “Act”), for the Assessment Year (AY) 2018-19.

2.

Heard and perused the record and the gist of written submissions filed by Ld. DR are reproduced below as the same sufficiently capture the facts and the issue raised by the Department ;–

1.

In present case the assessee is partnership firm with three partners viz. Mrs. Arundhati Arundev Upadhyay, Mrs. Radhika Jaisingh Rajwade and Mrs. Aparna Abhijit Sanyal engaged in business of education. 2. Return of income was filed by the assessee on 26/10/2018 declaring income of Rs. 79,187,145/-. 3. On perusal of information furnished by assessee during assessment proceedings it was noticed that one of the partners Arundhati Upadhyay transferred assets worth 15.55 crores and liabilities of 3.05 CR stating net capital transferred at Rs. 12.15 CR. To verify the same various notices were issued upon the assessee calling for information. 4. After verifying details furnished by assessee by the AO, assessment order was passed by the assessing officer under section 143(3) r.w.s 144B on 07/06/2021 after making various additions. 5. The assessee filed appeal before CIT (A) against said additions wherein the CIT(A) passed an order setting aside the matter to file of AO.

ITA No. 197/NAG/2025 (Mothers Pet Kindergarten) 6. It is to be noted that the Finance Act, 2024 amended Section 251(1) w.e.f. 01.10.2024, giving power of set- aside to CIT (A) only in cases of exparte order. 7. The Ld.CIT (A) had erred in facts and the circumstances of the case in setting aside assessment order as per the provisions of section 251(1)(a) of the Income Tax Act, when the assessee was responsive during the course of assessment proceedings. 8. The relevant page of the assessment order is reproduced as below:-

ITA No. 197/NAG/2025 (Mothers Pet Kindergarten)

9.

Thus assessee was responsive during the assessment proceedings and furnished reply on various dates i.e. 03/03/2021, 04/03/2021, and 19/03/2021, therefore CIT(A) was not empowered to set aside the matter when assessee was responsive during assessment proceedings. 10. In view of the detailed reasons given above, this is requested to allow the grounds of appeal filed by the Department and confirm the additions, amounting to Rs. 12,40,42,906/-being unexplained capital and liabilities and Rs. 70,17,778/-being interest paid on capital, made by the A.O. in the assessment order passed u/s 143(3) r.w.s. 144B of the Act dated 07.06.2021.

3.

On behalf of the assessee, Ld. Counsel had submitted that in the assessment framed income as shown in the return has been accepted after examining the details,

ITA No. 197/NAG/2025 (Mothers Pet Kindergarten) considering the submission made in the assessment proceedings. The additions made in the original assessment order have been examined in detail and it is concluded to accept returned income. He thus contended that in view of returned income having been accepted by Assessing Officer there remains nothing for Revenue Authorities to pursue in appeal.

3.1. Ld. Counsel has also submitted that the impugned assessment order though shown to be passed under Section 143(3) of the Act, as it was passed on the basis of Assessing Officer’s own conclusion drawn, in the absence of sufficient response of the assessee, the judgment was in fact one under Section 144 of the Act.

4.

We have given thoughtful consideration the material on record and observe from the impugned assessment order that Ld. Assessing Officer mentions of notice being used under Section 142(1) on various occasions and special reference is of notice dated 29.01.2020 wherein assessee was asked to furnish 5

ITA No. 197/NAG/2025 (Mothers Pet Kindergarten) relevant information. In para 5, Assessing Officer mentions that the assessee neither filed information called for nor furnished explanation for failure to furnish the same, but adjournment was requested. Thereafter, fresh notice was issued and assessee filed information partly on 03.02.2021 and balance information was filed on 04.03.2021. The information furnished has been thereafter reproduced and based upon that, Assessing Officer had made certain observations about the transfer of assets by one of the partners for which further notice was issued on 12.03.2021 in which the assessee had filed certain information. Thereafter, again notice under Section 142(1) was issued on 19.03.2021 and the assessee was asked to respond before 26.03.2021. Assessing Officer observes, again notice was issued on 21.03.2021, but assessee had not responded. Assessing Officer, thereafter, records that ;–

Accordingly, the assessment is completed basing on the information furnished so far and the information available on 6

ITA No. 197/NAG/2025 (Mothers Pet Kindergarten) record and with the department as under in view of time limits to complete the assessment and as per procedure introduced the assessment has to go for approval in various stages.

(a) During the year, the asessee has reported the assets and liabilities as under:

Liabilities Amount(`.) Assets Amount(`.) Partner 12,97,48,694/– Fixed Assets 5,13,61,566/– Capital Current 3,91,31,214/– Current 11,75,18,341/– Liabilities assets & and Loans and Provisions Advances 16,88,79,908/–

and filed profit and loss account, wherein, the assessee has claimed major expenditures out of the fee receipts of `. 7.14 Crores as under:–

Salaries `. 2.32 Crores, Rent rates and taxes `. 63.60 Lakhs Pol & Conveyance `. 55.67 Lakhs Depreciation `. 22.95 Lakhs Interest to partners `. 70.17 lakhs Salary to Partners `. 60 Lakhs

As per the information furnished by the assessee, the assessee has not received properties from the partner of the firm as per the partnership deed and still the properties appears to be in the name of the partner. Further, Entire capital was stated to be introduced by only one partner and the assessee was not

ITA No. 197/NAG/2025 (Mothers Pet Kindergarten) furnished any documentary evidence as the properties are transferred in the name of the assessee. As per the partnership deed that the PARTNERS referred above shall continue the business of Educational Services in the PARTNERSHIP FIRM under the name and style of Mothers pet Kindergarten (hereinafter referred to as the FIRM), with the head office of the Partnership Firm at Behind Saraf Chambers, Mount Road, Sadar, Nagpur - 440001.

(b) the returns of income furnished by the assessee pertaining to the one of the partners of the firm Ms.Arudhati Upadhyaya and noticed that the rental receipts received or reported or income admitted in the ITR's are as under:

Nature of income A.Y. 2017–18 A.Y 2018–19 admitted (`.) (`.) House Property at 5,70,96,000 6,08,04,582 Dabha Nagpur Maharashtra Income from business 3,22,22,944 3,13,03,409 (Mothers pet Kindergarten) Income from other 9,343,408 499,261 sources Salary from Mothers –– 9,00,000 Pet Education Society Interest on Capital –– 70,17,778 from Mothers Pet Education Society

b. As seen from the Audited report in Form 3CB, in column no. 18, the assets are reported as under:

1.

Building @ 10% `. 1,34,86,845 (Purchase rate) 2. Plant & Machinery @ 40% `. 63,89,893 (Purchase rate)

ITA No. 197/NAG/2025 (Mothers Pet Kindergarten) 3. Furnitures & Fittings @ 10%- `. 68,53,867/– (Purchase rate) The assets stated to be transferred to the assessee firm by the partner is more than the assets reported and in the return of income the assessee Ms. Arudhati Upadhyaya has not admitted capital gains arosed on account of assets transferred in her return of income filed for the A.Y.2018-19. As per the capital accounts, the assets stated to be transferred is of Rs.5.29 crores, which is differed by of Rs.2,62,33,179/-.

c. As seen from the Form 3CB, during the year, the assessee has paid rent to Particulars of any payment made to persons specified under section 40A(2)(b), in which the partner is director, is of Rs.55,68,000/-.

d. It is out of place to mention here that initially, it was presumed that the capital introduced during the year is o fRs.12.97 Crores and after considering the explanation of the assessee that the income admitted by the assessee during the year and the same is carried to the capital accounts of the partners, the actual capital introduced is only of Rs. 12.50 Crores. The same is considered.

From the above, it is not known whether the partner has transferred the assets in the name of the Firm or not and the assets reported in the Form No. 3CB are differ with the capital assets stated to be transferred. As per the ITR, the partner of the assessee has not admitted capital gains on transfer of assets. Further, the actual value of the assets are not known. In this regard, the differential receipts in assets of Rs.2,62,33,179/- considering that the assessee has purchased

ITA No. 197/NAG/2025 (Mothers Pet Kindergarten) the assets only to this extent and failure to explain the sources for making advance of Rs.9,78,09,727/-, are treated as unexplained and added to the total income returned by the assesee. Further, considering the fact that the addition on account of unexplained capital assets, the interest expenditure claimed of Rs.70,17,778/- will be disallowed and added to the total income returned by the assessee.

Income returned by the assessee `. 79,18,745/– Add: Unexplained Capital and liabilities U/s. 68 `. 12,40,42,906/– (`. 2,62,33,179 + 9,78,09,727) Add: Interest paid on capital `. 70,17,778/– Total income determined `. 13,89,79,429/–

This order is being issued u/s.143(3) read with section 144B of the IT Act, 1961. Demand notice and challan will be issued accordingly. Penalty proceedings U/s.270A are being initiated separately for under-reporting of income & Penalty proceedings U/s. 271AAC will be initiated on account of addition made U/s.68 r.w.s. 115 BBE. Further, finally, another show cause letter was addressed to the assessee along with the draft assessment order was served through electronic mode and asked him to file his objections if any along with the supporting evidences. However, the assesse has not responded even after expiry of the time allowed. Hence, it is presumed that the assessee has no objection for the proposed assessment or has no explanation and accordingly, the assessment is completed accordingly.

ITA No. 197/NAG/2025 (Mothers Pet Kindergarten) 5. Ld. CIT(A) has taken the aforesaid facts and circumstances of the proceedings conducted by the Assessing Officer to conclude that the assessment order has been passed on best judgment as assessee has failed to submit the categoric details about nature/source of deposits, cost incurred and details/proof/sources of investments. Thereupon, Ld. CIT(A) has invoked the powers introduced by way of Finance Bill, 2024 wherein proviso has been added to Section 251(1) and Ld. First Appellate Authority has been given power to set aside the assessment order and refer the case back to Assessing Officer for afresh assessment in case an order of assessment has been made under Section 144 of the Act.

6.

Ld. DR has vehemently argued that as Assessing Officer mentions the assessment order has been passed under Section 143(3) of the Act, therefore, Ld. First Appellate Authority has erroneously considered the assessment order to be one passed under Section 144 of

ITA No. 197/NAG/2025 (Mothers Pet Kindergarten) the Act. However, we are of the considered view that merely quoting a particular section by Tax Authorities, is not sufficient to conclude as to what powers have been, actually invoked. As for this proposition, we rely decision of Hon'ble Madras High Court in M/s Super Spinning Mills Ltd. vs. Additional Commissioner of Income Tax T.C.A. No. 1334 of 2009, order dated 30.07.2025 wherein Hon'ble High Court has in para 16 held as follows:–

“16. It is well settled that wrong quoting of a provision or quoting a provision in addition to the right provision under which the order was passed would not invalidate any proceeding, if from an order of proceeding it is clear that it has been done in exercise of a power conferred under a particular provision.” 7. The settled proposition is that the issue as to whether assessment orders are made on best judgment basis or otherwise is a factual issue to be gone into by examining the assessment orders and the background facts and this can be done by Appellate Authority. Reliance for this proposition can be placed on the decision of Hon'ble Madras High Court in Writ Petition

ITA No. 197/NAG/2025 (Mothers Pet Kindergarten) no. 23341 and 23342 of 2025 order dated 05.07.2016 in case titled Prathyusha Educational Trust vs. ACIT Chennai & Ors.

8.

In the light of aforesaid facts, we have taken note of from the assessment order about how Ld. Assessing Officer has issued notices and proceeded to adjudicate the issue without response of assessee, we endorse the view that Ld. First Appellate Authority, which too has duly applied its mind to the nature of proceedings conducted by Ld. Assessing Officer to hold that it was a best judgment order. The conclusion arrived by Ld. CIT(A) require no interference. Accordingly, grounds have no substance.

9.

The appeal of the Department is dismissed.

Order pronounced in open Court on 15.06.2026 Sd/– Sd/– ANUBHAV SHARMA KHETTRA MOHAN ROY ACCOUNTANT MEMBER JUDICIAL MEMBER Nagpur: Dated: 15/06/2026 Z.U, P.S

ITA No. 197/NAG/2025 (Mothers Pet Kindergarten) Copy to: 1. The Assessee 2. The Revenue 3. The Pr.CIT concerned. 4. The DR, ITAT, Nagpur 5. Guard file. By order

Sr.PS/PS ITAT,Nagpur

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