CHANDRA LEKHA,LUCKNOW, UTTAR PRADESH vs. INCOME TAX OFFICER-3(1), LUCKNOW NEW, LUCKNOW, UTTAR PRADESH

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW “A” BENCH, LUCKNOW BEFORE SH. SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER AND SH. NIKHIL CHOUDHARY, ACCOUNTANT MEMBER ITA No.863/Lkw/2026 A.Y. 2023-24 Chandra Lekha, vs. Income Tax Officer-3(1), House No. 558, Sector H, Pratyaksh Kar Bhawan, 57, Chhuiapurwa, Jankipuram, Ram Tirath Marg, Lucknow, Lucknow, Uttar Pradesh-226001. Uttar Pradesh-226021. PAN: AHCPL7965Q (Appellant) (Respondent) Assessee by: Shri P.K. Kapoor, C.A. Revenue by: Shri Alok Kumar Singh, JCIT-DR Date of hearing: 15.09.2026 Date of pronouncement: 29.10.2026

O R D E R PER NIKHIL CHOUDHARY, A.M.: This is an appeal filed by the assessee against the order of the ld. CIT(A) dated 29.05.2026, wherein the ld. CIT(A) has dismissed the appeal of the assessee, that was filed against the order of the ld. AO under section 143(3) r.w.s. 144B of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for the AY 2023-24 on 07.03.2025. The grounds of appeal are as under: “1. BECAUSE the ld. CIT(A) erred in law and on facts in passing the impugned order ex-parte without affording the appellant sufficient and effective opportunity of being heard. 2. BECAUSE notwithstanding the appellant's non-appearance, the Id. CIT(A), while passing the impugned ex-parte order, ought to have complied with the mandate 1

ITA No. 863/Lkw/2026 A.Y. 2023-24 Chandra Lekha of section 250(6) of the Act by adjudicating the grounds of appeal on merits through a reasoned and speaking order after considering the material and information available on record. WITHOUT PREJUDICE TO THE GROUNDS HEREINFORE 3. BECAUSE the ld. CIT(A) erred in law and on facts in confirming the addition of Rs. 38,45,700/- on account of disallowance of entire salary expense claimed in the audited profit & loss account. 4. BECAUSE the Id. CIT(A) erred in law and on facts in confirming the addition of Rs. 16,92,675/-, on account of disallowance u/s 40A(3) of the Act, out of purchases and other business expenses debited in the audited profit & loss account. 5. BECAUSE the authorities below have passed the respective orders without properly considering the submissions/evidence furnished by the assessee. 6. BECAUSE on the facts and in the circumstances of the case the initiation of penalty proceedings u/s 270A of the Act is bad in law and unwarranted. 7. BECAUSE the order appealed against is contrary to facts, law and principles of natural justice.” 2. The facts of the case are that the assessee e-filed return of income which was selected for scrutiny on account of the fact of low net profit being shown by the assessee under certain specific business codes including “other services”. Accordingly, the Ld. AO issued various notices to the assessee, which were initially not complied with but subsequent to issue of centralized communication, due compliance was made. The Ld. AO acknowledges that the assessee furnished various replies and other documents/ledgers/ invoices as per details mentioned in the table given along with the ILDP. However, the same do not appear to have been subsequently incorporated as part of the assessment order. Be that as it may the Ld. AO noted that the details/ documents furnished by the assessee had been perused and same discrepancies had been noticed. These were on account of salary expenses and expenses made in cash of more than Rs. 10,000/-. The assessee was asked to explain these discrepancies, but could not do so. Accordingly, a show-cause notice was issued to the assessee asking the assessee as to why,

ITA No. 863/Lkw/2026 A.Y. 2023-24 Chandra Lekha in the absence of complete details of employees such as PAN, salary expenses amounting to Rs. 38,45,700/- should not be disallowed and added back to her total income. Assessee was also asked to show cause as to why disallowances should not be made for violation of the provisions of section 40A(3) of the Act as the assessee had not been able to explain why she incurred expenditure in cash over the permitted limit. The ld. AO records that the assessee could only furnish names of 8 persons. He noted that PAN Numbers of six employees could not be furnished and assessee had submitted that since they had left the job, they could not be contacted. He further observed that section 133(6) had been issued to remaining employees but only one out of four such persons replied and the one who had replied had not received any salary income from the assessee as per his computation. Examination of another reply from Smt. Manju Verma also showed her Form 26AS did not reveal salary receipts and the ITR had been filed only after issuance of notice under section 133(6) of the Act. The remaining persons did not respond to the notices of the Department, therefore the ld. AO added back the amount of Rs. 38,45,700/- claimed on account of salary expenses. 3. On perusal of the various ledger/accounts furnished by the assessee, the ld. AO noticed that various amounts in excess of Rs. 10,000/- were paid in cash in a single day in respect of one person. When asked as to why the expenses had been incurred, the assessee submitted that these were due to the mistake of the Accountant. He noted that the assessee had failed to furnish her bank statement from which it could be ascertained whether the payments have been made through banking channels and to verify the genuineness of payments stated to various parties. The ld. AO issued notices under section 133(6) of the Act to three parties calling for ledgers and after

ITA No. 863/Lkw/2026 A.Y. 2023-24 Chandra Lekha receipt of replies, he noted that the ledgers so submitted prove that the assessee had incurred most of the expenses in cash in violation of section 40A(3) of the Act. Therefore, after computing the total amount of such expenses to be Rs. 16,92,675/-, he added the same back to the income of the assessee. 4. Aggrieved with the said assessment order, the assessee filed an appeal before the ld. CIT(A). A detailed statement of facts was submitted along with the appeal. However, the ld. CIT(A) noted that he issued four notices to the assessee and no compliance was made to any of them. From the same, the ld. CIT(A) concluded that when an assessee does not produce evidence, it is shown that he had nothing to submit in this regard and since there was no adequate material or evidence in support of facts, as stated in the statement of facts or an explanation with regard to the grounds raised and since the ld. AO had elaborately discussed all the issues raised by the assessee, there was no infirmity in the order under appeal. Therefore, the appeal was dismissed. 5. The assessee is aggrieved at such summary dismissal of her appeal and has accordingly came before us. 6. Shri P. K. Kapoor, CA (hereinafter referred to as ld. AR) submitted that in the income tax return filed under section 139(1) of the Act, the assessee had declared a total turnover of Rs. 70,98,05,805.61 which included sale of shares of Rs. 70,65,52,825.21 and receipts from construction business of Rs. 32,52,980.40. Against these receipts the assessee had incurred direct expenses of Rs. 70,25,24,136.12 on account of purchases of shares and purchase of raw-material for construction business. The total purchase of raw-material for construction business was valued at Rs. 10,23,382/- and expenses regarding labour and wages of Rs. 19,27,255/- had been incurred in the contractual construction business. It was submitted that the ld. AO had 4

ITA No. 863/Lkw/2026 A.Y. 2023-24 Chandra Lekha disallowed the total salary expenses amounting to Rs. 38,45,700/- and other expenses made in cash of more Rs. 10,000/- amounting in total to Rs. 16,92,625/- in the assessment order framed by him. It was submitted that during the course of hearing before the ld. AO, the assessee had provided the details of PAN of those employees who were still working with the assessee firm. The remaining employees had already left her employment and so details could not be provided as assessee was not touch. However, the assessee was still making effort to contact them and requesting them for confirmatory letters regarding salary receipt during the year 2022-23 along with their identity proof. It was submitted that in respect of those employees who had filed their confirmations, the salary ought not to have been disallowed or confirmed. With regard to disallowance under section 40A(3), it was submitted that the assessee had stated that these were on account of the mistake of the Accountant in adding up amounts due, due to which the entry had given above Rs. 10,000/- whereas in reality all payments had been made below Rs. 10,000/-. No cross checking had been done of the ledgers furnished by three parties with the assessee’s books of accounts and the assessee’s submission had been ignored. The Ld. CIT(A) had issued notices in quick succession and since the assesse required time to contact its erstwhile employees she had sought adjournment to this which had not been granted. Accordingly, it was prayed that the assesse had been denied due opportunity to prove its case by the Ld. CIT(A) and it was prayed that the matter may be restored back to the file of the Ld. CIT(A) for providing this opportunity. 7. On the other hand Shri AK Singh JCIT- DR submitted that the Ld. AO had done sufficient enquires to demonstrate that the assessee had made false claim of expenses in its returns and also made cash payments in excess

ITA No. 863/Lkw/2026 A.Y. 2023-24 Chandra Lekha of the permissible limit. Accordingly, he prayed that the additions may be confirmed on the strength of the Ld. AO’s findings. 8. We have duly considered the facts and circumstances of the case and the arguments advanced by both parties. We note that the assessee was issued 3 notices within space of one month and she sought adjournment to collect certain details but the adjournment was not granted and the Ld. CIT(A) passed the order in an ex-parte manner. From the same it becomes quite clear that the assessee has not been granted adequate opportunity to represent her case before the Ld. CIT(A). In view of the same, we deem it appropriate to restore the matter to the file of the Ld. CIT(A) for fresh consideration of the issues at hand and thereafter to consider the evidences that have been and may be furnished by the assessee in support of her contention and pass a fresh order in accordance with law. 9. In the result, appeal of the assessee is allowed for statistical purposes. Order pronounced on 29.10.2026 in the open Court.

Sd/- Sd/- [SUDHANSHU SRIVASTAVA] NIKHIL CHOUDHARY] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 29/10/2026 SK, Sr. PS Copy forwarded to: 1. Appellant – 2. Respondent – 3. CIT-DR , ITAT, 4. CIT, 5. The CIT(A) By order SHARWAN Digitally signed by SHARWAN KUMAR KUMAR Date: 2026.11.02 12:03:54 +05'30' Sr. P.S.