INCOME TAX OFFICER -13(1)(1), MUMBAI, MUMBAI vs. NOVHO CAREERS PRIVATE LIMITED, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “B” MUMBAI BEFORE SMT BEENA PILLAI (JUDICIAL MEMBER) AND SMT RATNA DASGUPTA (ACCOUNTANT MEMBER)

ITA No. 3502/MUM/2026 Assessment Year: 2021 Income Tax Officer 13(1)(1), Novho Careers Private Limited, Room No. 225, Aayakar 101, 1st Floor Tanishka Vs. Bhavan, Mumbai, Building, Akruli, Road, Maharashtra- 400020 Kandivali East, Mumbai, Maharashtra- 400101 PAN NO. AAFCN0129F Appellant Respondent & CO No. 277/MUM/2026 Arising Out of ITA No. 3502/MUM/2026 Assessment Year: 2021 Novho Careers Private Income Tax Officer 13(1)(1), Limited, Room No. 225, Aayakar Vs. 101, 1st Floor Tanishka Bhavan, Mumbai, Building, Akruli, Road, Maharashtra- 400020 Kandivali East, Mumbai, Maharashtra- 400101 PAN NO. AAFCN0129F Appellant Respondent

Assessee by : Shri Maulik Choksi (virtually appeared) Department by : Shri Kumar C., Sr. AR

Date of Hearing : 20/08/2026 Date of pronouncement : 23/10/2026

Novho Careers Private Limited 2 ITA No. 3502/MUM/2026 & CO No. 277/MUM/2026

ORDER PER RATNA DASGPUTA, AM

The captioned appeal by Revenue is directed against order dated 27/01/2026 of National Faceless Appeals Centre [hereinafter referred to as CIT(A)] under section 250 of the Income-tax Act [hereinafter referred to as ‘the Act’] for Assessment Year 2021-22, on the following grounds of appeal :- i. Whether on the facts and circumstances of the case and in law, the Ld. CIT (A) erred in deleting the addition made u/s. 68 of the Income-tax Act, 1961 on account of unexplained unsecured loans and to delete the disallowance of interest on such loan of Rs. 95,06,849/-, without properly appreciating the facts and material available on record that during the assessment proceedings the assessee had failed to discharge the primary onus cast upon it under section 68 of the Income-tax Act, 1961 to establish the identity, creditworthiness of the lenders and the genuineness of the loan transactions?

ii. Whether on the facts and circumstances of the case and in law, the Ld. CIT (A) erred in admitting additional evidence in view of under Rule 46A(1) of Income-tax Rules, 1962 as the assessee failed to furnish details during assessment despite sufficient opportunities and did not demonstrate sufficient cause explaining why the evidence was not produced before the AO?

iii. Whether on the facts and circumstances of the case and in law, the Ld. CIT (A) erred in relying upon the additional evidences produced by the assessee during appellate proceedings without proper verification of the same and without establishing the creditworthiness of the lenders and genuineness of the transactions?

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iv. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in deleting the disallowance of Rs. 21,91,178/-made by the Assessing Officer on account of expenses of penal nature, without appreciating that the said payments were made due to violation of statutory provisions and are hit by Explanation 1 to Section 37(1) of the Income-tax Act, 1961?

v. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) failed to appreciate that payments made as a consequence of breach of law cannot be allowed as deduction under Section 37(1) in view of Explanation 1 to Section 37(1) of the Income-tax Act, 1961?

vi. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in deleting the disallowance of Rs. 8,58,984/-merely because the books of account were audited, without appreciating that the assessee had failed to produce complete bills and vouchers to substantiate the expenditure claimed and without properly considering the findings recorded in the assessment order?

vii. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) failed to appreciate that the primary onus to prove the genuineness and allowability of expenditure lies upon the assessee, which was not discharged during the assessment proceedings?

viii. "The appellant prays that the order of the CIT (A) on the grounds be set aside and that of the Assessing Officer be restored."

Novho Careers Private Limited 4 ITA No. 3502/MUM/2026 & CO No. 277/MUM/2026

Novho Careers Private Limited 5 ITA No. 3502/MUM/2026 & CO No. 277/MUM/2026

by the AO on all the grounds above. Regarding addition u/s 68 of the Act and the consequent disallowance of interest, the Ld. CIT(A) observed that the addition had been made primarily on the ground that the assessee, by not furnishing complete details, had failed to establish the identity and credit worthiness of the lenders and the genuineness of the transactions. However, during appellate proceedings, the assessee placed on record detailed, lender-wise documentary evidence explaining the nature, source and movement of each loan. He noted that the unsecured loans comprise borrowings from identified private parties, HUFS, as well as from institutional lenders such as banks and NBFCs. In his order, he has recorded a finding that it was clear that the assessee has explained the entire trail of the unsecured loans, right from receipt of funds, utilization in business, servicing of interest, and repayment of principal. The transactions were supported by documentary evidence, routed through banking channels, and reflected consistently in the books of account and audited financial statements. There was no material on record to suggest that the funds emanated from undisclosed sources or that the lenders were non-existent or accommodation entry providers. The Ld.CIT(A) concluded that in the absence of any adverse findings from the Assessing Officer, the lender-wise evidences filed by the assessee remained uncontroverted. Accordingly, he directed deletion of the addition made u/s 68 of the Act. Since the principal was held to be

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explained, the disallowance of consequential interest was also deleted. The Ld. CIT(A) also directed deletion of disallowance of Rs. 21,91,178/- on the ground that the impugned amount mostly comprises interest and late fees paid on delayed remittance of statutory dues such as GST, Provident fund, ESIC, Professional Tax and tax deducted at source, which are compensatory and not penal in nature. Similarly, adhoc disallowance of business expenditure of Rs. 8,58,984/- was also deleted, noting that the books of account of the assessee are audited, no specific defect in the books has been pointed out by the AO, and the AO has also not identified any specific instance of non-genuine or non-business expenditure. 5. It is against the aforesaid order of the Ld. CIT(A) that Revenue is in appeal before this Tribunal. Cross-Objections have been filed by the assessee against the grounds of appeal taken by Revenue. 6. We will first consider Revenue’s appeal. Grounds Nos. (ii) and (iii) are in respect of additional evidence accepted by the Ld. CIT(A) without following due procedure laid down in Rule 46A of the Income-tax Rules. The Departmental Representative vehemently argued that the Ld. CIT(A) could not have admitted additional evidence without first recording why such evidence was being admitted by him. He referred to the wordings of Rule 46A and pointed out that sub-rule 2 provides that no evidence shall be admitted under sub-rule (1) unless the Commissioner (Appeals)

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records in writing the reasons for such admission. It is his contention that when, admittedly, the documents produced before the CIT(A) constituted additional evidence, he was required to follow the entire procedure as laid down in the said Rule. It is not enough that the Ld. CIT(A) had forwarded the documents to the Assessing Officer, calling for a remand report, it was also incumbent on him to record in writing the reasons for admitting additional evidence. The Sr. AR argued that failure of the Ld CIT(A) to do so constitutes sufficient reason for quashing his order. Reliance was placed on the order of the Hon’ble Delhi High Court in the case of Manish Build Well Pvt. Ltd (Income Tax Appeal No. 928/2011) where similar issue had come up for adjudication. 6.1 On the other hand, the Ld. AR for the assessee, appearing virtually, argued that the fact of the matter was that the Ld. CIT (A) had indeed remanded the additional evidence to the Assessing Officer, calling for a report under rule 46A. It was only when the Ld. AO failed to submit the required report that he went ahead to evaluate, independently, the evidence produced before him and take a decision on that basis. In the absence of any response from the Ld. AO, that was the only option left to him and, considering, that he had co-terminus powers with the Assessing Officer, there was no legal infirmity in his act of unilaterally taking a decision on the

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basis of evaluation of the material made available to him by the assessee. 7. We have heard the rival submissions of both the parties, and perused the material placed on record. There is no dispute about the fact that the documents produced by the assessee before the Ld. CIT(A) were technically fresh evidence, because the Ld. CIT(A) himself has referred to those documents as constituting additional evidence. It is also not in dispute that the Ld. CIT(A) had not recorded in writing his reasons for admitting such additional evidence, and nowhere in his order is there any mention as to why the assessee had failed to produce these documents before the Assessing Officer. The only issue that comes up for consideration is whether, considering that his powers are co-terminus with that of the Assessing Officer, he has the power to independently take up and consider evidence which was not considered at the assessment stage. 8. This issue, as pointed out by Revenue, was considered at length by the Hon’ble Delhi High Court in Manish Build Well Pvt. Ltd, supra, where it was, inter alia, held that once the assessee invokes Rule 46A and prays for admission of additional evidence before the CIT(A), then the procedure prescribed in the said Rule has to be scrupulously followed. The fact that section 250(4) of the Act confers powers on the CIT(A) to conduct an enquiry as he thinks

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fit, while disposing of the appeal, cannot be relied upon upon to contend that the procedural requirements of Rule 46A need not be complied with. If such a plea of the assessee is accepted, it would reduce Rule 46A to a dead letter because it would then be open to every assessee to furnish additional evidence before the CIT(A) and thereafter contend that the evidence should be accepted by virtue of his powers of enquiry under section 250(4). This would mean in turn that the requirement of recording reasons for admitting the additional evidence, the requirement of examining whether the conditions for admitting the additional evidence are satisfied, the requirement that the Assessing Officer should be allowed a reasonable opportunity of examining the evidence, etc. can be thrown to the winds, a position which is wholly unacceptable and may result in unacceptable and unjust consequences. The fundamental rule which is valid in all branches of law is that the assessee should adduce the entire evidence in his possession at the earliest point of time because this ensures full and fair inquiry and verification. The Hon’ble Court went on to observe that it is for this reason that Rule 46A starts in a negative manner by saying that an appellant before the CIT(A) shall not be entitled to produce before him any evidence, whether oral or documentary, other than the evidence adduced by him before the Assessing Officer. After making such a general statement, exceptions have been carved out that in

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certain circumstances it would be open to the CIT(A) to admit additional evidence. 9. It follows from the above that additional evidence can be produced at the first appellate stage when conditions stipulated in Rule 46A are satisfied and a finding to that effect is recorded. There is no doubt that in the present case the Ld. CIT(A) had not complied with the procedural requirements mentioned in Rule 46A inasmuch as he has not recorded the reasons why additional evidence was admitted by him. Even otherwise, the fact is that the Assessing Officer did not have occasion to examine the documents relating to fresh loans because the same had not been submitted before him. In this view of the matter, we deem it appropriate to restore this matter back to the Ld. CIT(A) with a direction to adjudicate the same afresh while complying with the requirements of Rule 46A of the Income-tax Rules. 10. In this backdrop, the other grounds raised by the Revenue on merits of the additions/disallowances are left open and do not require adjudication at this stage. 11. The cross-objections filed by the assessee are also rendered infructuous in view of our decision to remand the matter to the file of the Ld. CIT(A).

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Order pronounced in the open Court on 23/10/2026

Sd/- Sd/- (BEENA PILLAI) (RATNA DASGPUTA) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 23/10/2026 Z.U., P.S. Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. BY ORDER, ABHINAV ANANT Digitally signed by ABHINAV ANANT GAVANDE GAVANDE Date: 2026.10.28 12:14:09 +05'30' //True Copy// (Assistant Registrar) ITAT, Mumbai