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Facts
The assessee, a private limited company, failed to file its return of income. Upon receiving information about bogus bad debts, the Assessing Officer (AO) initiated proceedings under Section 148A and 148 of the Income Tax Act. Despite notices, the assessee did not file its return, leading to additions by the AO. The CIT(A) upheld the AO's order.
Held
The Tribunal held that principles of natural justice require the assessee to be given an adequate opportunity to substantiate its claim, especially when partial compliance was made and an extension was requested. The CIT(A) failed to provide this opportunity before passing the impugned order.
Key Issues
Whether the CIT(A) erred in upholding the addition without granting the assessee a proper opportunity to present evidence, thereby violating principles of natural justice.
Sections Cited
148A, 148, 142(1)
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Income Tax Appellate Tribunal, MUMBAI BENCH “F” MUMBAI
Before: SHRI OM PRAKASH KANT & MS. SUCHITRA RAGHUNATH KAMBLE
ORDER PER OM PRAKASH KANT, AM
This appeal by the assessee is directed against order dated 26.06.2025 passed by the Ld. Commissioner of Income-tax (Appeals) – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2019-2020, raising following grounds:
The Id AO was not justified in passing the order, which is badinlaw, void ab initio, barred by limitation, illegal, contrary to the facts and circumstances of the case, liable to be annulled.
The Id CIT(A) was not justified in confirming the order, The Id CIT(A) was not justified in confirming the order, The Id CIT(A) was not justified in confirming the order, which, is bad which, is bad-in-law, void ab initio, barred by limitation, law, void ab initio, barred by limitation, illegal, contrary to the fa illegal, contrary to the facts and circumstances of the case, cts and circumstances of the case, liable to be annulled. liable to be annulled.
3. The Id CIT(A) was not justified in confirming the addition The Id CIT(A) was not justified in confirming the addition The Id CIT(A) was not justified in confirming the addition without giving proper opportunities of being heard. without giving proper opportunities of being heard. without giving proper opportunities of being heard.
The Id CIT(A) was not justified in confirming the addition The Id CIT(A) was not justified in confirming the addition The Id CIT(A) was not justified in confirming the addition of Rs. 73,45,19,941/ of Rs. 73,45,19,941/- on account of disallowance of bad account of disallowance of bad debts debts debts without without without considering considering considering the the the facts facts facts and and and circumstances circumstances of the case. 2. Briefly stated, the facts of the case are that the assessee, a Briefly stated, the facts of the case are that the assessee, a Briefly stated, the facts of the case are that the assessee, a Private Limited Company, did not file its return of income for the Private Limited Company, did not file its return of income for the Private Limited Company, did not file its return of income for the year under consideration year under consideration within the due date prescribed under the within the due date prescribed under the provisions of the Income provisions of the Income-tax Act, 1961 (hereinafter referred to as tax Act, 1961 (hereinafter referred to as ‘the Act’). Upon receipt of specific information indicating that the ‘the Act’). Upon receipt of specific information indicating that the ‘the Act’). Upon receipt of specific information indicating that the assessee had derived benefit of bogus bad debts through entities assessee had derived benefit of bogus bad debts through entities assessee had derived benefit of bogus bad debts through entities allegedly controlled and managed by the ‘Ruchi Group’, the rolled and managed by the ‘Ruchi Group’, the rolled and managed by the ‘Ruchi Group’, the Assessing Officer recorded reasons to believe that income Assessing Officer recorded reasons to believe that income Assessing Officer recorded reasons to believe that income chargeable to tax had escaped assessment. After duly following the chargeable to tax had escaped assessment. After duly following the chargeable to tax had escaped assessment. After duly following the amended procedure contemplated under section 148A of the Act, amended procedure contemplated under section 148A of the Act, amended procedure contemplated under section 148A of the Act, notice under section 148 notice under section 148 of the Act was issued. However, despite of the Act was issued. However, despite such notice, the assessee failed to file its return of income. such notice, the assessee failed to file its return of income. such notice, the assessee failed to file its return of income. Thereafter, statutory notices under section 142(1) of the Act were Thereafter, statutory notices under section 142(1) of the Act were Thereafter, statutory notices under section 142(1) of the Act were also issued from time to time. also issued from time to time.
2.1 Upon consideration of the submissions advanced by Upon consideration of the submissions advanced by Upon consideration of the submissions advanced by the assessee, the Assessing Officer, finding no merit in the claim of bad assessee, the Assessing Officer, finding no merit in the claim of bad assessee, the Assessing Officer, finding no merit in the claim of bad debt, rejected the same and added a sum of Rs.73,45,19,941/– to debt, rejected the same and added a sum of Rs.73,45,19,941/ debt, rejected the same and added a sum of Rs.73,45,19,941/ the total income of the assessee under the head ‘Profits and Gains the total income of the assessee under the head ‘Profits and Gains the total income of the assessee under the head ‘Profits and Gains of Business or Profession’. of Business or Profession’.
On appeal, the Learn On appeal, the Learned Commissioner of Income Tax (Appeals) ed Commissioner of Income Tax (Appeals) [‘Ld. CIT(A)’] issued notices of hearing. The assessee partly complied [‘Ld. CIT(A)’] issued notices of hearing. The assessee partly complied [‘Ld. CIT(A)’] issued notices of hearing. The assessee partly complied but did not furnish complete details. In the absence of full but did not furnish complete details. In the absence of full but did not furnish complete details. In the absence of full compliance, the Ld. CIT(A) confirmed the findings of the Assessing compliance, the Ld. CIT(A) confirmed the findings of the Assessin compliance, the Ld. CIT(A) confirmed the findings of the Assessin Officer and recorded as under ded as under:
5.4.3 The AO’s observation is that fictitious debts were created 5.4.3 The AO’s observation is that fictitious debts were created 5.4.3 The AO’s observation is that fictitious debts were created and written off. The burden of proving the genuineness of these and written off. The burden of proving the genuineness of these and written off. The burden of proving the genuineness of these debts lies on the assessee as per established judicial precedents. debts lies on the assessee as per established judicial precedents. debts lies on the assessee as per established judicial precedents. In absence of: In absence of: • Evidence to prove the • Evidence to prove the genuineness of the trade transactions genuineness of the trade transactions • Ledger accounts of debtors • Ledger accounts of debtors • Party-wise details of the provisions wise details of the provisions • Any proof of write • Any proof of write-off in debtor accounts …the AO was justified in disallowing the same. Since the entire …the AO was justified in disallowing the same. Since the entire …the AO was justified in disallowing the same. Since the entire business activity appears dubious, the add business activity appears dubious, the addition is upheld. ition is upheld.
4. Before us, Learned Counsel for the assessee has submitted Before us, Learned Counsel for the assessee has submitted Before us, Learned Counsel for the assessee has submitted that the Ld. CIT(A), vide letter dated 09.06.2025, adjourned the that the Ld. CIT(A), vide letter dated 09.06.2025, adjourned the that the Ld. CIT(A), vide letter dated 09.06.2025, adjourned the hearing of the appeal to 19.06.2025. In response thereto, the hearing of the appeal to 19.06.2025. In response thereto, the hearing of the appeal to 19.06.2025. In response thereto, the assessee filed part reply on 12.06.2025 and sought further time to assessee filed part reply on 12.06.2025 and sought assessee filed part reply on 12.06.2025 and sought furnish the remaining details. However, without affording such furnish the remaining details. However, without affording such furnish the remaining details. However, without affording such further opportunity, the Ld. CIT(A) proceeded to dispose of the further opportunity, the Ld. CIT(A) proceeded to dispose of the further opportunity, the Ld. CIT(A) proceeded to dispose of the appeal and passed the impugned order on 26.06.2025. It is further appeal and passed the impugned order on 26.06.2025. It is further appeal and passed the impugned order on 26.06.2025. It is further contended that the assessee is now in a position to furnish contended that the assessee is now in a positi contended that the assessee is now in a positi complete evidences to substantiate its claim, and therefore prays complete evidences to substantiate its claim, and therefore prays complete evidences to substantiate its claim, and therefore prays that the matter may be remanded back for fresh consideration. that the matter may be remanded back for fresh consideration. that the matter may be remanded back for fresh consideration.
4.1 Having considered the rival submissions and upon perusal of Having considered the rival submissions and upon perusal of Having considered the rival submissions and upon perusal of the material on record, we find that the disallowance has been the material on record, we find that the disallowa the material on record, we find that the disallowa sustained essentially for want of supporting evidences such as sustained essentially for want of supporting evidences such as sustained essentially for want of supporting evidences such as trade confirmations, debtor ledgers, party trade confirmations, debtor ledgers, party-wise details and proof of wise details and proof of actual write-off. The principles of natural justice demand that the off. The principles of natural justice demand that the off. The principles of natural justice demand that the assessee be afforded adequate and reasonabl assessee be afforded adequate and reasonable opportunity to e opportunity to substantiate its claim, particularly when partial compliance was substantiate its claim, particularly when partial compliance was substantiate its claim, particularly when partial compliance was made and a request for extension of time was on record. made and a request for extension of time was on record. made and a request for extension of time was on record.
4.2 In view of the foregoing, and in the larger interest of justice, In view of the foregoing, and in the larger interest of justice, In view of the foregoing, and in the larger interest of justice, we deem it appropriate to set aside the impugned we deem it appropriate to set aside the impugned order of the Ld. order of the Ld. CIT(A) on the issue in dispute and restore the matter to his file with CIT(A) on the issue in dispute and restore the matter to his file with CIT(A) on the issue in dispute and restore the matter to his file with a direction to adjudicate the same afresh, after granting due a direction to adjudicate the same afresh, after granting due a direction to adjudicate the same afresh, after granting due opportunity to the assessee to file all relevant evidences in support opportunity to the assessee to file all relevant evidences in support opportunity to the assessee to file all relevant evidences in support of its claim. The assessee, on its of its claim. The assessee, on its part, is directed to extend full part, is directed to extend full cooperation and furnish all requisite documents without fail. cooperation and furnish all requisite documents without fail. cooperation and furnish all requisite documents without fail.
4.3 The ground No. 3 of the appeal of the assessee is allowed. The ground No. 3 of the appeal of the assessee is allowed. The ground No. 3 of the appeal of the assessee is allowed. As we have already restored the matter back to the file of the Ld. CIT(A) we have already restored the matter back to the file of the Ld. CIT(A) we have already restored the matter back to the file of the Ld. CIT(A) for deciding afresh, t for deciding afresh, the other grounds raised on the merit of the raised on the merit of the appeal are rendered academic. appeal are rendered academic.
In the result, the appeal of the assessee is allowed for In the result, the appeal of the assessee is allowed for In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open Court. Order pronounced in the open Court.