TANVI CONSTRUCTION PRIVATE LIMITED,MUMBAI vs. DCIT, CIRCLE 13(3)(2), MUMBAI, MUMBAI

At the outset we noticed that the Assessee has placed on record an application for admission of an additional ground of appeal under Rule 11 of the Income-tax (Appellate Tribunal) Rules, 1963, and a separate application for admission of additional evidence under Rule 29 of the said Rules. The additional ground raised by the Assessee reads as under:

The additional evidence sought to be admitted by the Assessee comprises the audited financial statements and Tax Audit Report for A.Y. 2017-18 dated 27.08.2024, consent terms dated 22.08.2024 executed between the shareholders, Mr. Vijaykumar Hegde and Mrs. Sangeeta Vijaykumar, before the Hon’ble National Company Law Tribunal (NCLT), reconciliations and working statements concerning the subsequent settlements/transactions of credit liabilities added by the AO, and a copy of the letter dated 27.02.2026 addressed to the Ld. CIT(A) requesting a copy of the remand report.

The Ld. AR submitted that, during the reassessment proceedings, the Assessee could furnish only unaudited books of account owing to a genuine shareholder deadlock and corporate disputes pending before the Hon’ble NCLT, which prevented the approval and adoption of the financial statements. Consequently, the AO rejected the unaudited books of account and made various additions and estimations.

The Ld. AR further submitted that, during the appellate proceedings, the Ld. CIT(A) had called for a remand report from the AO. The Assessee responded to the AO’s notice dated 30.05.2024 on 01.06.2024. However, the remand report was not confronted to the Assessee before the impugned appellate order was passed. Meanwhile, the corporate deadlock was resolved through consent terms filed before the Hon’ble NCLT on 22.08.2024, following which the accounts were audited on 27.08.2024. The Assessee, under the bona fide belief that the remand proceedings were continuing and that an opportunity to respond to the remand report would be granted, awaited its communication. The Ld. AR accordingly contended that the failure to confront the remand report deprived the Assessee of an effective opportunity of being heard and violated the principles of natural justice.

Relying on the judgments of the Hon’ble Supreme Court in National Thermal Power Co. Ltd. v. CIT (1998) 229 ITR 383 (SC) and CIT v. Sinhgad Technical Education Society (2017) 397 ITR 322 (SC), the Ld. AR prayed for admission of the additional ground of appeal. Further, relying on Pr. CIT v. Rattanchand Rikhabdas Jain Chemical Work (2020) 273 Taxman 261 (Bom) and Braganza Construction (P.) Ltd. v. ACIT (2020) 425 ITR 115 (Bom), the Ld. AR sought admission of the additional evidence in the interest of substantial justice.

The Ld. DR, on the other hand, objected to the admission of the additional ground and additional evidence, contending that the Assessee had failed to produce the audited accounts before the AO during the assessment proceedings. However, the Ld. DR fairly conceded that, if the additional evidence were admitted, the matter would require fresh factual verification by the AO.

We have heard the counsel of both parties, perused the said applications, the material placed on record, and the orders passed by the Revenue Authorities.

We find that the additional ground raised by the Assessee challenges the validity of the assessment and appellate orders on the ground of violation of the principles of natural justice. The issue raised therein goes to the root of the matter and can be considered on the basis of the material available on record. The Hon’ble Supreme Court in National Thermal Power Co. Ltd. v. CIT (1998) 229 3 ITR 383 (SC) held that the Tribunal has jurisdiction to examine a question of law arising from the facts on record, even if such question was not raised before the lower authorities. Respectfully following the aforesaid decision, we admit the additional ground of appeal raised by the Assessee under Rule 11 of the Income- tax (Appellate Tribunal) Rules, 1963.

As regards the application for admission of additional evidence under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963, we find that the Assessee has furnished an explanation for its inability to produce the audited financial statements before the lower authorities. The Assessee has attributed the delay to the corporate deadlock and litigation pending before the Hon’ble NCLT, which were stated to have prevented the finalisation and adoption of the accounts. The consent terms were executed on 22.08.2024, and the accounts were audited on 27.08.2024. Further, the Assessee has contended that the remand report obtained by the Ld. CIT(A) was not confronted to it before the impugned appellate order was passed.

The additional evidence, comprising the audited financial statements, Tax Audit Report, NCLT consent terms, reconciliations and working statements relating to the credit liabilities, is relevant to the examination of the additions made by the AO. The same requires verification with reference to the books of account and supporting documentary evidence. Having regard to the explanation furnished by the Assessee and the nature and relevance of the documents sought to be produced, we are of the considered view that the additional evidence deserves to be admitted in the interest of substantial justice. In this regard, we draw support from the principles laid down in Pr. CIT v. Rattanchand Rikhabdas Jain Chemical Work (2020) 273 Taxman 261 (Bom). Accordingly, the application for admission of additional evidence under Rule 29 is allowed.

Since the additional evidence admitted by us was not available before the AO at the time of the original assessment and requires factual verification, and having regard to the Assessee’s contention regarding non-confrontation of the remand report during the appellate proceedings, we consider it appropriate to restore the matter to the file of the AO for fresh consideration.

Accordingly, we set aside the impugned order passed by the Ld. CIT(A) and restore the matter to the file of the AO for de novo assessment. The AO shall examine and verify the additional evidence admitted by the Tribunal, including the audited financial statements, Tax Audit Report, consent terms executed before the Hon’ble NCLT, reconciliations and working statements relating to the credit liabilities, along with the supporting books of account, vouchers and other relevant documents furnished by the Assessee.

The AO shall independently examine the additions relating to credit liabilities and the estimations of income in the light of the audited financial statements, books of account and supporting evidence and record appropriate findings in accordance with law.

The AO shall afford the Assessee a reasonable and effective opportunity of being heard, including an opportunity to furnish explanations and supporting documents and to respond to any material proposed to be relied upon against it, before passing the fresh assessment order.

The AO shall also ensure that any remand report or other material relevant to the determination of the issues is duly confronted to the Assessee, wherever relied upon, and that the Assessee is afforded an effective opportunity to respond thereto. The Assessee, in turn, shall cooperate with the assessment proceedings and furnish the requisite explanations, books of account and supporting documents as may be called for by the AO.

Needless to state, the AO shall decide the matter independently, in accordance with law and after considering the material placed on record and the submissions of the Assessee, without being influenced by any observations made herein on the merits of the additions.

Since the matter is being restored to the file of the AO for de novo consideration, we refrain from expressing any opinion on the merits of the additions. All substantive grounds of appeal are accordingly left open for adjudication in accordance with law.

In the result, the appeal filed by the Assessee stands allowed for statistical purposes.