C SQUARE HEALTHCARE PRIVATE LIMITED,BENGALURU vs. THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE 2(2)(1), BENGALURU

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ITA 682/BANG/2026Status: DisposedITAT Bangalore07 October 2026AY 2018-198 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal held that the additional evidence filed by the assessee deserves to be admitted and considered. The Tribunal found merit in the assessee's explanation regarding the limited time to respond to the show cause notice during the Covid-19 pandemic. It was noted that the assessee had provided some details during assessment, and the failure to furnish complete evidence within a short period should not prevent consideration at the appellate stage. Crucially, the Tribunal observed that the remand report, containing adverse observations, was not confronted to the assessee, denying them an opportunity to explain discrepancies. Since the evidence goes to the root of the addition under Section 68, and further evidence has been filed before the Tribunal, the matter was restored to the CIT(A) for fresh adjudication. The CIT(A) is to consider all evidence, obtain a fresh remand report if necessary, confront any adverse material to the assessee, and provide a reasonable opportunity for explanation. The Tribunal explicitly stated it had not expressed any opinion on the merits of the addition, keeping all contentions open. The grounds raised by the assessee were allowed for statistical purposes.

What were the facts?

The assessee, C Square Healthcare Private Limited, is appealing against an order of the CIT(A) for Assessment Year 2018-19. The dispute concerns an addition of Rs. 1,79,00,000/- made under Section 68 of the Income Tax Act, 1961, on account of unexplained share capital and premium. The assessee had issued equity shares to 15 applicants, receiving Rs. 3,08,00,000/-. While 9 applicants responded to notices, 6 did not, and the assessee failed to furnish complete details for these 6, from whom Rs. 1,79,00,000/- was received. The Assessing Officer (AO) treated this as unexplained credit. The assessee argued that a short response time during the Covid-19 pandemic hindered furnishing details. The CIT(A) confirmed the addition, rejecting additional evidence and a remand report.

What were the issues?

1. Whether the CIT(A) erred in refusing to admit additional evidence filed by the assessee under Rule 46A of the Income-tax Rules, 1962, concerning the addition under Section 68 of the Act. 2. Whether the CIT(A) erred in confirming the addition under Section 68 of the Act without properly considering the remand report and confronting it to the assessee. Assessee's Contentions: - The CIT(A) ought to have admitted the additional evidence filed under Rule 46A and considered it on merits. - The remand report was not confronted to the assessee before disposal. - A very short time (3 working days) was granted to respond to the show cause notice during the assessment proceedings, which coincided with the Covid-19 pandemic. - Supporting documents were filed before the CIT(A) and further documents are being placed before the Tribunal. - The matter should be restored to the CIT(A) for fresh examination. Revenue's Contentions: - Sufficient opportunities had already been granted to the assessee. - Admission of additional evidence should be opposed. - The appeal should be dismissed.

Which sections of the Income-tax Act were involved?

Section 68,Section 250,Section 133(6)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, BANGALORE BENCHES, BANGALORE

Before: WASEEM AHMED & SHRI SANDEEP SINGH KARHAIL

PER WASEEM AHMED, ACCOUNTANT MEMBER: The present appeal filed by the assessee is directed against the order under section 250 of the Income Tax Act, 1961 (hereafter the Act) passed by the learned Commissioner of Income Tax (Appeals) under the National Faceless Appeal Centre, Delhi (hereafter the Ld. CIT(A)) for A.Y. 2018-19 bearing DIN & Order No.: ITBA/NFAC/S/250/2025-26/1083989070(1).

2.

The interconnected issues raised by the assessee are that the Ld. CIT(A) erred in confirming the addition under section 68 of the Act by refusing to admit the additional evidence and further erred in considering the remand report.

3.

The relevant facts are that the assessee, a private limited company, is engaged in the business of providing healthcare services. During the year relevant to A.Y. 2018-19, the assessee issued and allotted 1,12,348 equity shares having a face value of Rs. 10 per share to 15 share applicants on premium ranging between Rs. 220 to 300 per share. Accordingly, the assessee received/credited Rs. 3,08,00,000/- in the books on account of share capital and premium.

3.1 During the assessment proceedings, the assessee provided the name, address, and PAN of the share applicants, along with the number of shares issued/allotted to each applicant and the premium received from them. The AO issued notices under section 133(6) of the Act to all 15 applicants, out of which 9 applicants responded and confirmed the transaction. However, 6 did not respond, from whom a sum of Rs. 1,79,00,000/- was received/credited. The assessee also failed to furnish the confirmation letter and other details to substantiate the genuineness and creditworthiness of these 6 applicants. The AO treated the same as unexplained credit under section 68 of the Act and added it to the total income of the assessee.

4.

The aggrieved assessee preferred an appeal before the Ld. CIT(A) and submitted that the AO issued a show cause notice on 06-04-2021 and granted time till 12th April 2024, i.e. only 5 clear days, which included only 3 working days, to file a response. Thereafter, the assessment order was passed on 21st April 2021. The assessee contended that, at that point, there was a huge wave of covid 19. Therefore, the required confirmation letters and other details were not furnished. Accordingly, the assessee filed additional evidence comprising share allotment details to those investors, their returns of income, and bank statements, and requested that these details be admitted under Rule 46A of the Income Tax Rules, 1962 (the Rules).

4.1 The Ld. CIT(A) called for a remand report from the AO in respect of the additional evidence filed by the assessee. In the remand report, the AO observed that the assessee had not satisfactorily established the identity and creditworthiness of the investors and the genuineness of the transactions. In several cases, confirmations, ITRs and relevant bank statements were not furnished. In some cases, the payment was made by a person other than the person in whose name the shares were allotted. The AO also noticed discrepancies between the amount stated to have been received from the shareholder and the amount reflected in the bank account.

4.2 Accordingly, the AO proposed to uphold the addition in respect of share premium relating to Anupama Devdas of Rs. 25,00,000/-, Dr. Sai Lakshmi of Rs. 24,00,000/-, Prashanth Moodbidri Mallya of Rs. 5,00,000/-, T.R. Sreelakshmi of Rs. 25,00,000/-, Jayaram Mohan of Rs. 75,00,000/- and Penchala Lakshmi of Rs. 25,00,000/-. Thus, the AO proposed to sustain the total addition of Rs. 1,79,00,000 on account of share premium.

5.

However, the Ld. CIT(A), even after obtaining the remand report from the AO, rejected the assessee's application for acceptance of the additional evidence by observing that the assessment proceedings had continued from September 2019 to April 2021 and that several opportunities had been provided to the assessee during this period. According to the Ld. CIT(A), despite such opportunities, the assessee had furnished information selectively and had failed to furnish the crucial evidence required to establish the identity and creditworthiness of the concerned share applicants and the genuineness of the transactions.

5.1 The Ld. CIT(A) further observed that the six share applicants had also failed to respond to the notices issued by the AO u/s 133(6) of the Act. Even after 3 the AO issued a specific show cause notice proposing the addition, the assessee furnished no reply. The explanation of the assessee that the investors could not respond because they were doctors engaged in healthcare services during the Covid-19 pandemic was also not accepted. The Ld. CIT(A) noted that the assessment proceedings had commenced in September 2019 and continued up to April 2021 and, therefore, covered a substantial period both before and after the outbreak of the Covid-19 pandemic. Accordingly, the Ld. CIT(A) held that sufficient opportunity had been provided during the assessment proceedings, but the assessee failed to substantiate the genuineness of the credit of share capital premium from those 6 parties. Consequently, the AO's addition of Rs. 1,79,00,000/- u/s 68 of the Act was confirmed, and the assessee's appeal was dismissed.

6.

Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before us. The Ld. AR for the assessee filed a paper book running from pages 01 to 289, an application under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963 and written submissions running into 13 pages. The Ld. AR submitted that the Ld. CIT(A) ought to have admitted the additional evidence filed under Rule 46A of the Income-tax Rules, 1962 and considered the same while deciding the appeal on merits.

6.1 The Ld. AR further submitted that although the Ld. CIT(A) had called for a remand report from the AO, the said remand report was not confronted to the assessee before disposal of the appeal. It was also submitted that the assessee could not furnish a proper reply to the show cause notice issued during the assessment proceedings since only a very short time was granted. The show cause notice was issued on 06.04.2021 requiring the assessee to furnish its response by 12.04.2021, thereby effectively providing only three working days for compliance.

6.2 With regard to the six share applicants in respect of whom the addition was made, the Ld. AR submitted that one of the share applicants was a non-resident and, according to the assessee, the provisions of section 68 of the Act were not applicable in the manner invoked by the AO. In respect of the remaining five share applicants, the Ld. AR submitted that the relevant supporting documents had already been filed before the Ld. CIT(A), while certain further documents are now being placed before the Tribunal along with the application filed under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963. The Ld. AR, therefore, prayed that the additional evidence filed by the assessee be admitted and the matter be restored to the file of the CIT(A) for fresh examination in accordance with law.

7.

The Ld. DR, on the contrary, supported the orders of the lower authorities and submitted that sufficient opportunities had already been granted to the assessee. He, therefore, opposed the admission of additional evidence and prayed for dismissal of the appeal.

8.

We have heard the rival submissions of both the parties and perused the materials available on record. The short question before us is whether the additional evidence filed by the assessee deserves to be admitted and considered while deciding the addition of Rs. 1,79,00,000 u/s 68 of the Act.

8.1 We find that the addition was made mainly for want of supporting evidence in respect of six share applicants. During the assessment proceedings, the assessee had already furnished their names, addresses, PAN and other basic particulars. The notices issued u/s 133(6) of the Act were also responded to by nine out of fifteen share applicants. Thus, it is not a case where the assessee had furnished no details at all during the assessment proceedings.

8.2 We also find merit in the assessee's explanation regarding the opportunity available towards the end of the assessment proceedings. The specific show cause 5 notice was issued on 06.04.2021 and the assessee was required to respond by 12.04.2021. Thus, effectively only three working days were available excluding Saturday and Sunday. The assessment order was thereafter passed on 21.04.2021. This period also coincided with the Covid-19 pandemic. In these circumstances, the failure to furnish the complete supporting evidence within the short time available should not, by itself, prevent consideration of such evidence at the appellate stage.

8.3 Before the Ld. CIT(A), the assessee sought to place the relevant supporting evidence on record under Rule 46A of the Income-tax Rules, 1962. The Ld. CIT(A) forwarded the additional evidence to the AO and called for a remand report. The AO examined the documents and gave specific comments on the evidence relating to the concerned share applicants. In our view, once the evidence was forwarded to the AO and examined in the remand proceedings, it ought to have been considered while deciding the issue on merits.

8.4 There is another important aspect. The remand report contained certain adverse observations regarding the documents furnished by the assessee. However, the said remand report was not confronted to the assessee before the appeal was decided. The assessee, therefore, had no opportunity to explain the discrepancies noticed by the AO or to rebut the adverse observations made in the remand report. In our view, the addition could not have been confirmed on the basis of such adverse observations without giving the assessee a reasonable opportunity to respond.

8.5 The evidence in question goes to the root of the addition u/s 68 of the Act. The identity and creditworthiness of the share applicants and genuineness of the transactions have to be examined on the basis of the relevant documents. The assessee has also filed certain further evidence before us under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963. The Ld. AR submitted that supporting documents in respect of share applicants had already been filed before the Ld. CIT(A), while further documents have now been produced before us. These documents have a direct bearing on the issue and should be examined before deciding the addition on merits.

8.6 Considering the totality of the circumstances, we are of the view that the additional evidence deserves to be admitted. The issue should be decided on merits after examining the complete material rather than merely on account of the earlier failure to furnish certain documents. At the same time, the additional evidence requires proper verification. We, therefore, consider it appropriate to restore the matter to the file of the Ld. CIT(A).

8.7 Accordingly, we admit the additional evidence filed by the assessee under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963. The impugned order of the Ld. CIT(A) on this issue is set aside. The matter is restored to the file of the Ld. CIT(A) for fresh adjudication. The Ld. CIT(A) shall consider the evidence already filed before the Ld. CIT(A) as well as the additional evidence admitted by us. The Ld. CIT(A) may obtain a fresh remand report from the AO, if considered necessary. In case any remand report or other adverse material is relied upon, the same shall be confronted to the assessee and reasonable opportunity shall be provided to submit its explanation.

8.8 We clarify that we have not expressed any opinion on the merits of the addition of Rs. 1,79,00,000/- u/s 68 of the Act. All the contentions of both sides are kept open. The Ld. CIT(A) shall examine the issue afresh and pass a speaking order in accordance with law after providing reasonable opportunity of being heard to the assessee. Accordingly, the grounds raised by the assessee are allowed for statistical purposes.

9.

In the result the appeal of the assessee is allowed for statistical purposes.

Order pronounced in the open court on 7th October, 2026

Sd/- Sd/- SANDEEP SINGH KARHAIL WASEEM AHMED JUDICIAL MEMBER ACCOUNTANT MEMBER Bangalore Dated: 7th October, 2026 Vms

Copy to: C SQUARE HEALTHCARE PRIVATE LIMITED, SY NO. 41, PRAKRIYA HOSPITAL, RAJA 1 REDDY LAYOUT, 8TH MILE, TUMKUR ROAD, NAGASANDRA POST., BENGALURU-560073, KARNATAKA THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE 2(2)(1), BMTC BUILDING, 80 FEET ROAD, 6TH 2 BLOCK, NEAR KHB GAMES VILLAGE, KORAMANGALA, BENGALURU-560095, KARNATAKA 3 THE PCIT / CIT, 4 THE D.R., ITAT, BANGALORE BENCH 5 GUARD FILE By Order ASSISTANT REGISTRAR / I.T.A.T., BANGALORE P G Digitally signed by P G RAJANI RAJANI Date: 2026.10.21 12:22:12 +05'30'

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