N E INFRA,GUWAHATI vs. ACIT, CIRCLE-1, GUWAHATI

For that the ld. CIT(A) ought to have hold that the order of assessment dated 28.12.2022 passed under section 143(3) r.w.s. 144B of the Income- tax Act, 1961 (the Act) by the learned Assessing Officer, Income-tax Department (the AO) for the Assessment Year 2021-22 is bad in law, facts and procedure. 2. i) For that the ld. CIT(A) ought to have hold that the arbitrary disallowance of Rs. 10,25,640/- made by the ld. AO by invoking provisions of section 40A(3) of the Act, without issuing any specific show cause notice proposing disallowance by invoking provisions of section 40A(3) and without allowing any opportunity of being heard in respect of applicability of section 40A(3) of the Act, the said disallowance is not only in gross violation of the provisions of section 144B of the Act but is also in utter disregard to the principles of natural justice and therefore, the same is bad in law and untenable. ii) For that the ld. CIT(A) ought to have hold that the arbitrary disallowance of Rs. 10,25,640/- made by the ld. AO by invoking provisions of section 40A(3) being beyond the issue for which notice under section 143(2) of the Act was issued in the instant case, the same is bad in law and without juri iction. iii) For that the ld. CIT(A) ought to have hold that impugned disallowance of Rs. 10,25,640/- having been made by the ld. AO by ignoring and not appreciating the submissions of the appellant and the materials furnished by the appellant in correct perspective, the said disallowance is in gross violation of principles of natural justice and bad in law and untenable. iv) For that on the facts and circumstances of the case, the ld. CIT(A) ought to have hold that the ld. AO has erred in disallowing Rs. 10,25,640/- by arbitrarily invoking provisions of section 40A(3) of the Act. 3. i) For that the ld. CIT(A) ought to have hold that the arbitrary disallowance of Rs. 41,20,000/- made by the ld. AO out of Labour Expenses by travelling beyond the show-cause notice dated 18.12.2022 and without allowing any opportunity of being heard in respect of the reasons stated in the impugned order of assessment, the said disallowance is not only in gross violation of the provisions of section 144B of the Act but is also in utter disregard to the principles of natural justice and therefore, the same is bad in law and untenable. ii) For that the ld. CIT(A) ought to have hold that the arbitrary disallowance of Rs. 41,20,000/- made by the ld. AO out of Labour Expenses being beyond the issue for which notice under section 143(2) of the Act was issued in the instant case, the same is bad in law and without juri iction. iii) For that the ld. CIT(A) ought to have hold that the ld. AO has erred in making arbitrary ad hoc disallowance at the rate of 30% of the Labour Expenses without any basis or material. iv) For that on the facts and circumstances of the case, the ld. AO was not justified in not appreciating the facts of the case in proper perspective and arbitrarily disallowing 30% of the Labour Expenses which worked out to Rs. 41,20,000/- after making self-contradictory remarks in a casual and non- serious manner, which also amounted to double addition and the said disallowance having been made by the ld. AO by ignoring the submissions of the appellant and the materials furnished by the appellant, the said disallowance is in gross violation of principles of natural justice and bad in law and untenable. 4. i) For that the ld. CIT(A) ought to have hold that the impugned disallowance of Rs. 2,12,23,993/- having been made by the ld. AO by travelling beyond the show-cause notice issued to the appellant and by making arbitrary conjectural remarks and thereby mi irecting himself and without allowing any opportunity of being heard in respect of the reasons stated in the impugned order of assessment, the said disallowance is not only in gross violation of the provisions of section 144B of the Act but is also in utter disregard to the principles of natural justice and therefore, the same is bad in law and untenable. ii) For that the ld. CIT(A) ought to have hold that on the facts and circumstances of the case, the ld. AO was not justified in arbitrarily disallowing the entire sub-contract payment of Rs. 2,12,23,993/- merely on the basis of surmises and by ignoring the relevant materials on record and without considering the entire facts of the case in proper perspective 5. i) For that the ld. CIT(A) ought to have hold that the arbitrary disallowance of Rs. 3,68,460/- made by the ld. AO by invoking provisions of section 40(a) (ia) being beyond the issue for which notice under section 143(2) of the Act was issued in the instant case, the same is bad in law and without juri iction. ii) For that the ld. CIT(A) ought to have hold that on the facts and circumstances of the case, the ld. AO was not justified in disallowing Rs. 3,68,460/- by invoking provisions of section 40(a)(ia) of the Act, without making any verification with the payee. 6. i) For that the ld. CIT(A) ought to have hold that the impugned addition of Rs. 33,09,847/- made by the ld. AO on account of Closing Stock in absence of specific show cause notice and also by travelling beyond the show-cause notice dated 18.12.2022 issued to the assessee and without allowing any opportunity of being heard in respect of the reasons stated in the impugned order of assessment, the said addition is not only in gross violation of the provisions of section 144B of the Act but is also in utter disregard to the principles of natural justice and therefore, the same is bad in law and untenable. ii) For that the ld. CIT(A) ought to have hold that the arbitrary addition of Rs. 33,09,847/- made by the ld. AO on account of valuation of closing stock being beyond the issue for which notice under section 143(2) of the Act was issued in the instant case, the same is bad in law and without juri iction. iii) For that the ld. CIT(A) ought to have hold that the ld. AO was not justified in arbitrarily adding Rs. 33,09,847/- to the income of the appellant on the ground of valuation of closing stock, without properly appreciating the facts of the case and merely on the basis of surmises, conjectures and suspicion.

For that the appellant craves leave of your honours to take additional ground(s) of appeal and/or to modify or resign any ground(s) of appeal before or at the time of hearing."

Brief facts of the case are that the assessee is a partnership firm engaged in the construction business and had filed its return of income for AY 2021-22 on 12.03.2022 declaring total income of ₹2,27,68,090/- . The case was selected for scrutiny under Computer Assisted Scrutiny Selection (in short 'CASS') to verify large contract payments made u/s 194C of the Act to the persons who had not filed their returns of income. During the assessment proceedings, the Assessing Officer (hereinafter referred to as Ld. 'AO') rejected the assessee's explanations and finalized the assessment on 28.12.2022 u/s 143(3) r.w.s. 144B of the Act at the total income of ₹5,28,16,030/- by making five distinct additions: (a) disallowance of ₹10,25,640/- u/s 40A(3) of the Act for cash payments to a labour contractor exceeding the statutory limit; (b) ad-hoc disallowance of ₹41,20,000/- (representing 30% of claimed cash labour expenses) treated as non-genuine due to lack of ESI compliance and contradictory muster-roll evidence; (c) addition of ₹2,12,23,993/- for unexplained sub-contract expenses directed to a defunct company; (d) disallowance of ₹3,68,460/- u/s 40(a)(ia) of the Act for non-deduction of TDS on lift installation charges; and (e) addition of ₹33,09,847/- on account of the incorrect disclosure and understatement of closing stock/work-in-progress. Aggrieved with the assessment order, the assessee filed an appeal before the Ld. CIT(A), who proceeded ex-parte as the assessee failed to furnish any submission or documentary evidence despite the Ld. CIT(A) providing multiple opportunities of being heard. On the merits of the case, the Ld. CIT(A) upheld the disallowance of ₹10,25,640/- u/s 40A(3) of the Act, noting that the assessee failed to explain the cash payments or establish any exception under Rule 6DD of the Income Tax Rules, 1962. The 30% disallowance of ₹41,20,000/- on labour expenses was upheld as reasonable due to absence of ESI contributions and irregular payment patterns. The Ld. CIT(A) also affirmed the disallowance of ₹2,12,23,993/- for sub-contract expenses because the sub-contractor was identified as a defunct company with no construction experience, and the material on record proved that the work was executed by the assessee itself. Furthermore, the disallowance of ₹3,68,460/- u/s 40(a)(ia) of the Act was confirmed as the lift installation constituted the works contract requiring TDS and the addition of ₹33,09,847/- for understated closing stock was also sustained because materials purchased on the last day of the financial year were not properly accounted for in the work-in-progress. Accordingly, the Ld. CIT(A) confirmed the action of the Ld. AO and dismissed the appeal of the assessee.

Aggrieved with the order of the Ld. CIT(A), the assessee has filed the appeal before the Tribunal.

The assessee sought adjournment vide application filed but since there was no justification for seeking the adjournment, therefore, the same was rejected. None appeared on behalf of the assessee and the case was heard with the assistance of the Ld. DR.

The Ld. DR submitted that there were 5 additions made by the Ld. AO, one of them being the subcontract awarded to a defunct company and the contract being carried out by the assessee. The Ld. DR relied upon the order of the Ld. CIT(A) and requested that the same may be upheld as despite notices for hearing being issued, the assessee chose not to attend. The Bench, however, noted that the assessee contends that the additions related to section 40A(3), labour expenses, sub- contract payments, section 40(a)(ia), and closing stock were either beyond the scope of limited scrutiny or made without a specific show- cause notice proposing such additions. The Ld. CIT(A) does not appear to have addressed this issue properly.

We have considered the submissions made, gone through the facts of the case and perused the record and the order of the Ld. CIT(A). We find that at both the stages of assessment order before the Ld. AO as well as before the Ld. CIT(A) in the appeal, proper representation was not made on behalf of the assessee. While the assessee contends that the assessment order is made exceeding the scope of scrutiny parameters, the appeal has also been decided ex parte, primarily on account of non-prosecution on behalf of the assessee. Therefore, we deem it appropriate in the interest of justice and fair play that another opportunity needs to be provided to the assessee to represent its case properly before the Ld. CIT(A). We, therefore, set aside the order of the Ld. CIT(A) and restore the appeal to him to be decided afresh on merits, who shall allow one more opportunity of being heard to the assessee and also grant an opportunity of representing the case and be heard to the Ld. AO as per rule 46A of the Income Tax Rules, 1962, if required, and thereby pass an order on merits in accordance with law. Hence, the grounds of appeal are allowed for statistical purposes.

In the result, the appeal filed by the assessee is partly allowed for statistical purposes. Order pronounced in the open Court on 3rd June, 2026. [Sonjoy Sarma] [Rakesh Mishra] Judicial Member Accountant Member Dated: 03.06.2026 Bidhan (Sr. P.S.)

CIT-

CIT(DR), Guwahati Benches, Guwahati.

Guard File. //// By order