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Income Tax Appellate Tribunal, A BENCH : BANGALORE
Before: SHRI. LAXMI PRASAD SAHU & SHRI. KESHAV DUBEY
Per Laxmi Prasad Sahu, Accountant Member :
1. These three assessee’s appeals, all pertaining to AY 2022-23, arise from the separate three Appellate Orders passed by NATIONAL FACELESS APPEAL CENTRE [in short, “NFAC”], Delhi passed as under.
Appeal against DIN No. Date Order passed under section by NFAC [CIT(A)] NFAC/2021- ITBA/NFAC/S/250/2025-26/1076855927(1) 10.06.2025 22/10405170 under section 143(3) NFAC/2021- ITBA/NFAC/S/250/2025-26/1077155818(1) 18/06/2025 , 1420, 1457/Bang/2025 Page 2 of 35 22/10406267 under section 270A NFAC/2021- ITBA/NFAC/S/250/2025-26/1077236277(1) 19/06/2025 22/10406268 under section 271AAC1
2. The grounds raised by the assessee are as under:
1) That the learned CIT(A) erred in law and on facts in dismissing the appeal without granting adequate opportunity to the appellant, despite repeated requests for reasonable adjournment, thereby violating the principles of natural justice. 2) That the learned CIT(A) grossly erred in rejecting the condonation application for delay of 167 days without properly appreciating the facts of the case. 3) That the learned CIT(A) erred in law and on facts in upholding the addition of ₹.56,07,00,000 under Section 68 of the Income Tax Act, 1961, on account of share capital and share premium received in the earlier years and no credit was received in the current year. Hence, the same be deleted. 4) That the learned CIT(A) erred in sustaining an ad-hoc disallowance of ₹24,06,60,000, being 20% of the total expenses, without any specific findings or justification, and without properly appreciating the business facts and records produced. Hence, the same be deleted. 5) That the learned CIT(A) erred in upholding the disallowance of ₹4,00,000 relating to expenses incurred on the Employee Stock Option Scheme (ESOP), without adequate reasoning or appreciation of law. Hence, the same be deleted. 6) That the learned CIT(A) erred in confirming the disallowance of ₹9,54,000 on account of loss on sale of assets and provision for bad debts, without proper appreciation of the facts and submissions made. Hence, the same be deleted.
, 1420, 1457/Bang/2025 Page 3 of 35 7) That the impugned order passed by the learned CIT(A) is contrary to law, facts and circumstances of the case and deserves to be set aside. 8) The appellant craves leave to add, amend, alter, or withdraw any of the aforesaid grounds of appeal at the time of hearing.
1. For that the learned CIT(A) erred in law and on facts in dismissing the appeal without granting adequate opportunity to the appellant, thereby violating the principles of natural justice. Hence, the appellate order be set aside.
2. For that the Ld CIT(A) grossly erred in law and on facts in rejecting the application for condonation of delay without proper consideration of the circumstances leading to the delay of 70 days in filing the appeal duly explained. Hence, the impugned Appellate order dated 18/06/2025 be set aside.
3. For that in facts and circumstances of the case imposition of penalty of Rs.3,77,67,303 u/s 270A of the Act for under reporting of income is not justified and hence the same be deleted and or set aside.
4. For that in facts and circumstances of the case, the penalty notice issued is bad in law. Hence, the penalty order be cancelled. 5. That the impugned order passed by the learned CIT(A) is contrary to law, facts and circumstances of the case and deserves to be set aside. 6. The appellant craves leave to add, amend, alter, or withdraw any of the aforesaid grounds of appeal at the time of hearing.
1. For that the learned CIT(A) erred in law and on facts in dismissing the appeal without granting adequate opportunity to the appellant, thereby violating the principles of natural justice. Hence, the appellate order be set aside.
2. For that the Ld CIT(A) grossly erred in law and on facts in rejecting the application for condonation of delay without proper consideration of the , 1420, 1457/Bang/2025 Page 4 of 35 circumstances leading to the delay of 70 days in filing the appeal duly explained. Hence, the impugned Appellate order dated 19/06/2025 be set aside.
3. For that in facts and circumstances of the case imposition of penalty of ₹.4,37,34,600 u/s 271AAC(1) of the Income Tax Act,1961 is not justified and hence the same be deleted and or set aside.
4. For that in facts and circumstances of the case, the penalty notice issued is bad in law. Hence, the penalty order be cancelled.
5. That the impugned order passed by the learned CIT(A) is contrary to law, facts and circumstances of the case and deserves to be set aside.
6. The appellant craves leave to add, amend, alter, or withdraw any of the aforesaid grounds of appeal at the time of hearing.
3. We heard both the parties and case files perused. The above- mentioned Appeals are now being disposed off by this consolidated order.
4. We are taking first substantive appeal in for adjudication.
Briefly stated the facts of the case are that the assessee filed its return of income on 29.09.2022 declaring gross total loss of (-)Rs.97,64,90,311. The return was processed under section 143(1) of the Act and case was selected for scrutiny under limited scrutiny through CASS and subsequently, others statutory notices were issued to the assessee. During the course of scrutiny proceedings, the AO made following additions and disallowance and completed the assessment on 18.03.2024: a. Addition of share premium of Rs.56,07,00,000 as unexplained cash credit under section 68 r.w.s 115BBE of the Act.
, 1420, 1457/Bang/2025 Page 5 of 35 b. Disallowance on Ad-hoc and estimated basis by disallowing 20% of Advertisement and Business Promotion Expenses to the tune of Rs.24,06,60,000. c. Disallowance of expenses incurred on Employee Stock Option Scheme of Rs.4,00,000. d. Addition of loss incurred on sale of assets and provision of doubtful debts to the tune of Rs.9,54,000. e. Disallowance of Interest on delayed deposit of TDS of Rs.84,099/-.
6. The assessee, being aggrieved, filed appeal on 01.10.2024 with a delay of 167 days. During the appellate proceedings, the learned NFAC- CIT(A) rejected the Assessee's prayer for condonation of delay in filing appeal, being not satisfied with the explanation of the assessee with regard to delay of 167 days in filing of the appeal and he dismissed the appeal of the assessee without going into the merits of the case.
7. Aggrieved from the above Order, assessee filed appeal before us.
8. The ld. AR reiterated the submissions made before the lower authorities and submitted that the ld. CIT (A) NFAC has ignored the bonafide reasons submitted for delay in filing the appeal before him and he has not considered. There was no communication of the passing of assessment order. The assessee came to know that when the penalty notice was received and the order was not available for downloading from the e-filling portal. The assessee followed up to the jurisdictional AO to obtain the order. For the sake of convenience we are reproducing the reasons submitted before the ld. CIT (A), NFAC.
, 1420, 1457/Bang/2025 Page 6 of 35 9. The learned DR relied on the Order of the lower authorities and submitted that the delay in filing appeal should not be condoned. There were no sufficient cogent reasons were given before the ld. CIT(A) NFAC Sending the order is automatic. The moment the order is signed digitally it is delivered on the registered email id of the assesse.
Considering the rival submissions and perusing the entire material available on record and Orders of the authorities below, we note that here is delay of 167 days in filing before the CIT(A) NFAC which has not been condoned. The counsel of the Assessee submitted that the delay in filing appeal was mainly due to persistent technical difficulties faced by them on the Income Tax Portal, which has been acknowledged across the country, and further non-availability and delayed accessibility of the assessment order, which directly impeded the timely filing of the appeal. The learned Counsel has furnished a detailed written note making ground wise submissions. The said written note also contains the explanation and submission of the assessee on delay. The assessee has explained the delay and submitted as follows:
“4. The appellant respectfully submits that the delay in filing the present appeal was neither deliberate nor mala fide, but arose entirely from bona fide circumstances which were genuinely beyond the appellant’s control. The appellant faced persistent technical difficulties on the Income Tax Portal, including the non-availability and delayed accessibility of the assessment order, which directly impeded the timely filing of the appeal. These portal-related issues are widely acknowledged and have been repeatedly experienced across the country, making it impossible for the appellant to act within the prescribed period despite diligent efforts. It is now a well- settled principle of law that courts and appellate authorities must adopt a liberal, pragmatic, and justice-oriented approach while considering applications for condonation of delay, ensuring that substantive justice is not defeated by technical or systemic , 1420, 1457/Bang/2025 Page 7 of 35 shortcomings. In the present case, the delay was caused purely due to the appellant’s inability to retrieve the necessary documents from the portal in time and the consequent practical difficulties in preparing the appeal. Under such circumstances, the learned CIT(A) was not justified in rejecting the condonation request. Given the widely prevalent technical issues in the IT Portal ecosystem, the appellant’s explanation ought to have been viewed with compassion and fairness, and the delay ought to have been condoned in the interest of justice.
The Hon’ble Supreme Court in its landmark decision Collector, Land Acquisition v. Mst. Katiji (1987) 167 ITR 471 (SC) held that the expression “sufficient cause” in limitation statutes is adequately elastic to enable courts to apply the law meaningfully to advance the cause of justice. The Court emphasised that a litigant does not stand to benefit by lodging an appeal late, and that refusal to condone delay may result in a meritorious matter being thrown out at the threshold, causing grave injustice. The Supreme Court further held that the doctrine of “every day’s delay must be explained” must be applied rationally and not pedantically, and that when substantial justice and technical considerations conflict, the cause of substantial justice must prevail.
6. These principles have been reaffirmed in N. Balakrishnan v. M. Krishnamurthy (1998) 7 SCC 123, where the Hon’ble Supreme Court held that the primary function of the judiciary is to adjudicate disputes and advance substantial justice. The Court held that limitation laws are not meant to destroy the rights of parties but to ensure that parties do not resort to dilatory tactics. The Supreme Court clarified that the length of delay is irrelevant and that the acceptability of the explanation is the only relevant criterion. It also stressed that an overly technical or mechanical approach in denying condonation defeats the purpose of justice.
Similarly, in Smt. Prabha v. Ram Prakash Kalra (1987 Supp SCC 339), the Supreme Court cautioned that courts should not adopt an injustice-oriented approach when considering applications for condonation. In Vedabai v. ShantaramBaburaoPatil (2001) 9 SCC , 1420, 1457/Bang/2025 Page 8 of 35 106 = 2001 (44) ALR 577, the Apex Court drew a distinction between ordinary delays, which require a liberal and pragmatic approach, and inordinate delays, where considerations of prejudice may be relevant. It was reiterated that a justice-oriented approach must guide the exercise of discretion under Section 5 of the Limitation Act.
The Supreme Court in New India Assurance Co. Ltd. v. Shanti Misra (1975) 2 SCC 840 = AIR 1976 SC 237 held that the expression “sufficient cause” must receive a liberal interpretation to advance substantial justice and that procedural technicalities should not impede adjudication on merits. In the historic Privy Council ruling Brij Inder Singh v. Kanshi Ram AIR 1917 PC 156, it was observed that the true test is whether the litigant acted with reasonable diligence in prosecuting the appeal.
The Hon’ble Supreme Court in Shakuntala Devi Jain v. Kuntal Kumari AIR 1969 SC 575 held that unless mala fides or culpable negligence is established, the benefit of Section 5 must not be denied. A bona fide lapse must be viewed leniently, as the objective of limitation is not to punish litigants. The Court in O.P. Kathpalia v. Lakhmir Singh (1984) 4 SCC 66 = AIR 1984 SC 1744 held that if refusal to condone delay results in grave miscarriage of justice, delay must be condoned regardless of its length. This principle directly applies to cases such as the present one.
Further, in State of Haryana v. Chandramani (1996) 3 SCC 132 = AIR 1996 SC 1623, the Supreme Court reviewed several earlier judgments including Binod Bihari Singh v. Union of India (1993) 1 SCC 572, Shakambari & Co. v. Union of India 1993 Supp (1) SCC 487, Warlu v. Gangotribai 1993 Supp (1) SCC 37, and Ramlal, Motilal&Chhotelal v. Rewa Coalfields Ltd. AIR 1962 SC 361, and held that the principle of “each day’s delay must be explained” cannot be applied mechanically. It must be applied pragmatically, with common sense and in a manner that advances justice.
Applying these binding judicial principles to the present case, it is evident that the appellant’s explanation for delay is bona fide and reasonable. The difficulty in accessing the assessment order, the , 1420, 1457/Bang/2025 Page 9 of 35 genuine internal belief that assessed loss entailed no adverse consequence, the immediate action taken upon becoming aware of the penalty proceedings, and the practical constraints in securing legal assistance all establish that there was no intention whatsoever to disregard the statutory timeline. The appellant derived no benefit from delay; rather, it exposed the appellant to severe prejudice. Dismissing the appeal without hearing the merits would cause grave injustice, depriving the appellant of its statutory right to challenge the assessment order. Such dismissal would run contrary to the very principles reaffirmed by the Supreme Court in Katiji, Balakrishnan, Chandramani, Shanti Misra, and others, which require courts to prioritise substantial justice over technicalities.
The revenue suffers no prejudice if the delay is condoned and the matter heard on merits, whereas the appellant suffers irreparable harm if denied the opportunity to contest the assessment. The settled jurisprudence holds that no vested right accrues to the Department merely because an appeal is delayed. Hearing the appeal on merits promotes justice, aligns with the spirit of tax administration, and fosters fairness. The refusal to condone delay would amount to legalising injustice on technical grounds—an outcome expressly disapproved by the Supreme Court in Katiji.
In light of the authoritative pronouncements of the Hon’ble Supreme Court and the bona fide circumstances explained, it is humbly submitted that the delay constitutes “sufficient cause” within the meaning of Section 249(3) of the Income Tax Act and Section 5 of the Limitation Act. The appellant has acted with reasonable diligence and good faith. Therefore, a liberal and justice-oriented approach mandates that the delay in filing the appeal be condoned and the appeal admitted for adjudication on merits.”
Considering the above submissions wherein the assessee has explained the reason for condoning the delay of 167 days by giving cogent reasons and by relying, inter-alia, on the judgments of the Hon’ble Supreme Court in the case of Collector, Land Acquisition Vs.Mst. Katiji (1987) 167 ITR 471 (SC) and N. Balakrishnan v. M. Krishnamurthy (1998) 7 SCC 123, , 1420, 1457/Bang/2025 Page 10 of 35 the delay is hereby condoned.
Since the learned CIT(A)NFAC has not decided the issue on merits and dismissed the appeal only for delay in filing appeal. On going through the Order of the AO and paper books filed by the assessee we noted that in this case no investigations are required in the facts of the case as observed from the Assessment Order and Paper Books filed by the assessee. Accordingly, we rely on the judgment of Hon’ble High Court of Orissa in the case of Orissa H.C.Shikha O Anusandhan Vs. CIT reported in 336 ITR 112 in which it has been held as “law is well settled once the materials available on record, the appellate court should have disposed off the case on merits. Taking those materials into consideration and there is no need to direct remand. Respectfully following above judgment now we are taking up this appeal for adjudication on merits.
The first issue on merits is the addition of the share premium amount of Rs.56,07,00,000/- which had been added by the Assessing Officer as unexplained cash credit under section 68 of the Act.
The counsel of the Assessee has submitted before us that during FY 2020-21 pertaining to AY 2021-22, the Assessee Company had issued 9,403 Compulsorily Convertible Debentures (CCDs) of face value Rs.100 each, aggregating to Rs.9,40,300, along with a premium of ₹56,07,13,209, totalling to Rs.56,16,53,509. During the FY 2021-22 pertaining to AY 2022- 23, the Assessee undertook the conversion of the said 9,403 CCDs into 9,403 Series-C4 Compulsorily Convertible Preference Shares (CCPS). The said transaction of allotment made on 13.01.2022 through conversion of CCD into CCPS at 1:1 ratio, made during AY 2022-23 was a non-monetary book entry effectuating the contractual conversion obligation attached to the CCDs. No fresh funds, loans, deposits, share capital, or share premium were , 1420, 1457/Bang/2025 Page 11 of 35 received by the assessee during the year in physical form. The AO, however, made addition of the share premium of Rs,56,07,00,000, which was received during previous year pertaining to AY 2021-22, under section 68 of the Act mainly on the ground that the Assessee had failed to furnish the required details in the scrutiny proceedings.
The Assessee made following submissions in its written note:
14. Grounds of Appeal no 3:-
That the learned CIT(A) erred in law and on facts in 1) upholding the addition of ₹.56,07,00,000 under Section 68 of the Income Tax Act, 1961, on account of share capital and share premium received in the earlier years and no credit was received in the current year. Hence, the same be deleted.
15. At the outset, it is respectfully submitted that the Assessing Officer has erred in invoking section 68 of the Income-tax Act, 1961 in respect of an amount of ₹56,07,00,000, being the share premium arising on allotment of 9,403 Compulsorily Convertible Preference Shares (CCPS) during the year. The learned AO has proceeded on an incorrect factual assumption that the assessee received this amount during the relevant previous year. The addition is thus fundamentally misconceived and unsustainable in law.
16. The factual matrix is undisputed and borne out from the books and records of the assessee is that during the earlier year, the Company had issued 9,403 Compulsorily Convertible Debentures (CCDs) of face value ₹100 each, aggregating to ₹9,40,300, along with a premium of ₹56,07,13,209, totalling ₹56,16,53,509.The Assessing Officer has erred in invoking section 68 of the Income-tax Act, 1961 in respect of an amount of ₹56,07,00,000, being the share premium arising on allotment of 9,403 Compulsorily Convertible Preference Shares (CCPS) during the year. These CCDs were allotted in Assessment Year 2021-22, and the entire consideration was duly received through normal banking channels in that year itself. The money was not received—either wholly or partly—during the relevant previous year pertaining to AY 2022-23.
Table A- Details of issue of CCD and date on which funds received in AY 2021-2022 Sl No. of CCD Amount received Date of receipt of Date of Allotment Name of the Investors held funds of CCD 1 JJ Family Office LLP 75,00,000 17/07/2020 20-Jul-20 (who sold it to Beeline Impex Private 108 Limited ) 2 1,00,00,000 23/07/2020 26-Jun-20 Chowdry Associates 144 3 Faisal Mohammed A Ababtain 2,05,55,259 05/06/2020 6-Jun-20 296 4 ShantaramJonnalagadda 1,12,50,000 04/06/2020 6-Jun-20 162 5 Shadows Holdings Pte. Ltd. 49,17,64,500 14/09/2020 16-Sep-20 8,344 6 GopinathAmbadithody 349 1,50,00,000 11/09/2020 16-Sep-20 7 Total 9403 56,16,53,509
Table B- Details of conversion of CCD to CCPS in AY 2022- 2023
Sl No. of Series C4 CCPS Date of Conversion of Name of the Investors No. of CCD held allotted upon CCD to CCPS Conversion 1 Beeline Impex Private 13/01/2022 108 108 Limited (who had , 1420, 1457/Bang/2025 Page 13 of 35 purchased it from JJ Family Office LLP) 2 Chowdry Associates 144 144 13/01/2022 3 Faisal Mohammed A 13/01/2022 296 296 Ababtain 4 ShantaramJonnalagadda 162 162 13/01/2022 5 Shadows Holdings Pte. Ltd. 8,344 8,344 13/01/2022 6 GopinathAmbadithody 349 349 13/01/2022 7 Total 9403 9403
The said receipt of ₹56,16,53,509in the previous year relevant to AY 2021-22 is fully evidenced in: o audited financial statements (See pages 87 to 97 of the PB), o books of account for that year, and o the bank statements of the assessee for AY 2021-22(See pages 3 to 8 of the PB), o all of which clearly establish that no amount was received during the year under consideration. Thus, the primary pre- condition for invoking section 68—i.e., a credit of money during the relevant previous year—is wholly absent.
During the current year (AY 2022-23), the assessee merely undertook a conversion of the existing 9,403 CCDs into 9,403 Series-C4 Compulsorily Convertible Preference Shares (CCPS). This was a non-monetary book entry effectuating the contractual conversion obligation attached to the CCDs. No fresh funds, loans, deposits, share capital, or share premium were received by the assessee during the year.The allotment made on 13.01.2022 through conversion of CCD INTO CCPS at 1:1 ratio, made during AY 2022-23, is evidenced by Return of Allotment (PAS 3) along Board Resolution annexed therein.
, 1420, 1457/Bang/2025 Page 14 of 35 (See Pages 39 to 56).
19. The conversion resulted in the following accounting treatment in AY 2022-23: a. ₹9,40,300 (representing 9,403 CCPS of face value ₹100 each) was transferred to Share Capital Account; b. ₹56,07,13,209 (the premium originally received with CCDs) was transferred to Share Premium Account.
These entries were reflected in the audited financial statements along with detailed disclosures in Note No. 3 and Note No. 4 (See Pages 89 to 91 of PB) explaining the nature of the converted securities, the Series C4 structure, and the fact that this was merely a conversion of CCDs issued in the previous year.
The learned AO has failed to appreciate the legal and factual position that: a. Section 68 applies only where a “sum is found credited” in the books during the relevant previous year. b. In the present case, the only “credit” in AY 2022-23 is a non- cash reclassification from CCD Liability to Share Capital/Share Premium Accounts. c. There is no inflow of funds during the year, nor any “sum credited” representing money received. d. Therefore, the very jurisdictional requirement for invoking section 68 is absent, rendering the addition void ab initio.
It is submitted that the audited financial statements— specifically Note 3 and Note 4 (See Pages 89 to 91 of PB)— , 1420, 1457/Bang/2025 Page 15 of 35 explicitly disclose the conversion of CCDs into CCPS. These disclosures were available on the AO’s record. Despite this, the AO proceeded to treat the book reclassification as a fresh inflow of share premium in AY 2022-23, which is factually incorrect and legally untenable.
In law, section 68 cannot be invoked on account of mere accounting reclassification or conversion of one form of security into another, particularly where the consideration was received in an earlier year and already stands examined. The provision contemplates unexplained “cash credits”, not capital restructuring or conversion entries. Numerous judicial precedents affirm that no addition under section 68 can be made where: a. the credit does not represent money received during the year, or b. where the transaction is a mere conversion of an existing liability.
24. In view of the above, the addition of ₹56,07,00,000 made by the learned AO under section 68 is without jurisdiction, contrary to settled accounting principles, contrary to the evidence on record, and deserves to be deleted in full.
The foundational requirement of section 68 is that a “sum is found credited in the books of the assessee in the previous year.” In the present case, it is an admitted and fully evidenced fact that no amount whatsoever was received during AY 2022- 23 towards share capital or share premium The assessee had allotted 9,403 CCDs of ₹100 each in AY 2021-22 and received , 1420, 1457/Bang/2025 Page 16 of 35 Face value: ₹9,40,300; Share premium: ₹56,07,13,209; Total receipts: ₹56,16,53,509.
The Bank statements, ledger accounts, and audited financials of AY 2021-22 fully corroborate this. These documents were part of the regular record and were never disputed. 3. The current year only involved conversion of CCDs into CCPS — a non-monetary book entry. In AY 2022-23, the Company merely converted the 9,403 CCDs into Series C4 CCPS as per the terms of issue. No inflow of funds took place. This resulted in the following accounting treatment. Transfer to Share Capital: ₹9,40,300; Transfer to Share Premium: ₹56,07,13,209; This was a reclassification, not a receipt.
The provision of Section 68 states: “Where any sum is found credited… in the previous year… and the assessee offers no explanation… the sum so credited may be charged as income of that previous year.” The legal requirements are: A sum must be credited; It must be credited during the relevant previous year; It must represent receipt of money; the assessee’s explanation must be unsatisfactory. If any one of these fails, Section 68 cannot apply. Here, all four fail, because there is no sum, no receipt, no cash, no credit during AY 2022-23, only reclassification of earlier-year receipts. In this regards we would rely on the following decisions:
(a) The Hon’ble Madras High Court: V.R. Global Energy (binding law) V.R. Global Energy (P) Ltd. v. ITO 407 ITR 145 (Mad) affirmed by Supreme Court in ITO v. V.R. Global Energy (P)
, 1420, 1457/Bang/2025 Page 17 of 35 Ltd. (2020) 113 taxmann.com 31 (SC). The ratio of the cases was the allotment of shares in settlement of existing liability does not give rise to a cash credit. When no cash is involved, Section 68 can never apply. Conversion of liability into share capital/share premium is not a taxable credit.Theassessee’s case is identical: CCD liability converted into CCPS. There is no new receipt. Therefore, the addition is contrary to the ratio approved by the Supreme Court.
(b) The Hon’ble Calcutta High Court – Multiple recent binding decisions (i) Pr. CIT v. Alishan Steels Pvt Ltd (ITA No. 50 of 2024, Cal HC, 19.02.2024), (ii) Pr. CIT v. Abhijeet Enterprise Ltd (Cal HC, 17.11.2023) (iii). Pr. CIT v. Vishnu Distributors Pvt Ltd (ITAT/56/2025; GA/1/2025, Cal HC, 05.05.2025). In all these decisions, the Calcutta High Court held that Section 68 cannot apply to opening balances. Section 68 cannot apply where no amount is credited during the year, Section 68 applies only to fresh credits in that year. These decisions fully demolish the AO’s addition.
(c) The foundational Calcutta High Court ruling – Jatia Investment Co. (206 ITR 78) A landmark judgment holding If no real cash passes, Section 68 cannot apply. Fictional or bookkeeping entries do not constitute “cash credits”. If the AO accepts that an entry is not a real cash inflow, Section 68 is inapplicable. This applies directly where CCDs are converted into CCPS; No money enters the company; Only book entries convert a liability to capital.
(d) The jurisdictional Karnataka High Court – Sridev , 1420, 1457/Bang/2025 Page 18 of 35 Enterprises (192 ITR 165) has held that opening balances cannot be taxed in a later year, the past entries cannot be revisited without reopening past assessments, that consistency requires that earlier-year treatment cannot be disturbed. Thus in this case the amount received in AY 2021-22 cannot be taxed in AY 2022-23.
(e) The Delhi High Court – Usha Stud Agricultural Farms (301 ITR 384) has held that where the credit pertains to earlier years, Section 68 cannot be applied in the present year. The Revenue cannot tax earlier-year credits in a later year.
(f) The Bombay High Court – Ivan Singh v. ACIT (272 Taxman 36) has held that Section 68 is year-specific. A credit of an earlier year cannot be taxed in the current year. “That previous year” in Section 68 means only the relevant previous year. This ruling directly supports the assessee.
(g) Similar view was taken by the Gujarat High Court in the case of The Hon'ble Gujarat High Court in the case of CIT vs. JagatkumárSatishkumar Patel (2014) 45 taxman.com 441 (Gujarat); The Gujarat High Court in the case of Dy. CIT vs. Amod Petro-Chem (P) Ltd. ; The Gujarat High Court in the case of ITO vs. Shri Samir J. Shah 217 CTR (Guj) 401.
(h) The Hon’ble ITAT Bangalore in the case of SRI. LEELARAM CHOUDHARY, M/S. CHAMUNDA CREATION VERSUS THE INCOME TAX OFFICER WARD 5 (2) (5) BANGALORE- 2024 (7) TMI 1421 - ITAT BANGALORE deleted the addition and held that It is well settled law that , 1420, 1457/Bang/2025 Page 19 of 35 addition u/s. 68 of the Act can be made only during the year in which such credits has been received and if the credit balances appearing in the account of the assessee is not pertaining to the year under consideration, the AO cannot make addition u/s. 68 of the Act in the subsequent assessment year. The Ld Tribunal observed that:
8.3 In the present case, we found that the addition made u/s. 68 of the Act to the extent of Rs. 81,73,804 was on account of opening balance in respect of unsecured loans taken by the assessee in earlier financial years. It is well settled law that addition u/s. 68 of the Act can be made only during the year in which such credits has been received and if the credit balances appearing in the account of the assessee is not pertaining to the year under consideration, the AO cannot make addition u/s. 68 of the Act in the subsequent assessment year. This view is supported by the decision of the ITAT Ahmedabad Benches in the case of Samir J Shah (supra), wherein the Tribunal held as under:-
“6. We have heard the rival contentions and perused the material on record. We observe that additions made u/s. 68 of the Act amounting to Rs. 4,74,88,871/- was on account of opening balance in respect of unsecured loans taken by the assessee in earlier financial years. It is a well settled law that addition u/s. 68 can be made only during the year in which such credit has been received and if the credit balance appearing in the account of the assessee is not pertaining to the year under consideration, the Assessing Officer cannot make addition u/s. 68 of the Act in the subsequent assessment year. This view is , 1420, 1457/Bang/2025 Page 20 of 35 supported by the decision of the Hon'ble Gujarat High Court in the case of CIT vs. JagatkumárSatishkumar Patel (2014) 45 taxman.com 441 (Gujarat). Similar view was also taken by the Gujarat High Court in the case of Dy. CIT vs. Amod Petro- Chem (P) Ltd. 2008 ITO vs. Shri Samir J. Shah 217 CTR (Guj) 401. The Delhi High Court in the case of CIT vs. Usha Stud Agricultural Farms Ltd. 301 ITR 384 (Del) also held that when the credit balance appearing in the account of the assessee did not pertain to the year under consideration, the Assessing Officer was not justified in making the impugned addition u/s. 68 of the Act. Again, the Delhi ITAT in the case of Mahaveer Prasad vs. ITO 40 taxman 35 (Del Trib) (Tax Magazine) held that amounts found in the books of accounts of the assessee were in existence much prior to the beginning of the accounting period and therefore the same cannot be treated as income of the assessee during the relevant previous year. Again, the Delhi ITAT in the case of Nuchem Ltd. vs. DCIT 87 TTJ (Delhi Trib) 166 held that since Revenue has failed to prove that the amounts were credited to the books of the assessee during the year and these amounts were brought forward from earlier years, therefore, it is a settled law that addition u/s. 68 could be made only if the amount was credited in the accounts of the assessee in the relevant financial year. Accordingly, the Delhi ITAT directed the addition to be deleted. Further, in the case of Shri Vardhman Overseas Ltd. vs. ACIT 24 SOT 393 (Delhi Trib.) held that since no new amount has been credited by the assessee in its account during the year under consideration, applicability of section 68 of the Act is ruled out. Therefore, in view of the above judgments, we observe that it is a settled law that opening balance o unsecured loans coming from previous financial , 1420, 1457/Bang/2025 Page 21 of 35 years cannot be added u/s. 68 of the Act to th income of the assessee. We further observe that even the PAN numbers as well as addresses of all such parities were duly furnished by the assessee to the ld. Assessing Officer during the course c assessment proceedings. The copy of chart containing details of unsecured ITO vs. Shri Samir J. Shah loans which were provided to the Assessing Officer is produced before us at pages 9 to 13 of the paper book. We observe that ld. CIT(A) also gave due consideration to the above chart giving details of party wise break up of loans (at pages 12 to 14 of the order of the CIT(A)), while giving relief to the assessee. Accordingly, so far as addition u/s. 68 of the Act on account of opening balance Rs. 4,74,88,871/- is concerned, we find no infirmity in the order of ld.CIT(A) so as to call for any interference.” 8.4 Accordingly, so far as the addition u/s. 68 of the Act on account of opening balances b/f are concerned, we are restoring this issue to the file of AO to verify/examine that out of the closing balances of Unsecured Loans amounting to Rs. 92,04,381/- as on 31/03/2017 how much were brought forward from the earlier years and accordingly delete the additions on Account of Opening Balances added u/s. 68 of the Act.
28. In summary, the statutory pre-conditions for invoking Section 68 are entirely absent in the present case. For Section 68 to operate, there must be (i) a credit of a sum in the books, (ii) during the relevant previous year, (iii) representing a receipt of money, and (iv) supported by an explanation which is found to be unsatisfactory. Here, none of these conditions are fulfilled. No money was received during AY 2022-23; no “sum” was credited; there was no inflow of funds; and the entries , 1420, 1457/Bang/2025 Page 22 of 35 appearing in the books only represent the conversion of an already existing liability—originating from receipts duly recorded and accepted in AY 2021-22—into share capital and share premium. The law is well-settled that a mere book entry which does not involve actual receipt of cash can never constitute a “cash credit” for the purpose of Section 68. When a liability is reclassified or converted into share capital, no taxable event arises because there is no fresh credit of money. Equally settled is the principle that the scope of Section 68 is confined to credits pertaining to the specific previous year under examination. Entries carried forward from earlier years, including opening balances or credits already recorded and acted upon in prior assessments, cannot be taxed again in a subsequent year without reopening the earlier assessment. The Revenue is not permitted to re-characterize a past receipt as income of a later year, nor can it disturb the accepted nature of earlier-year transactions without statutory jurisdiction. It is also a settled principle that consistency must be maintained in the assessment of running accounts and balances; the nature and character of an amount as determined in earlier years cannot be altered in a subsequent year without statutory authority. Where the credit did not arise in the relevant previous year, and where no fresh money has come into the assessee’s hands, Section 68 has no application. Non-cash entries, conversion entries, and adjustments of existing balances do not fall within the ambit of “cash credits”. This position is uniformly recognised across jurisdictions and has been repeatedly reaffirmed in the context of capital introduction, loans, advances, and conversion of instruments such as debentures into share capital.Applying these principles to the , 1420, 1457/Bang/2025 Page 23 of 35 facts of the present case, the position is unassailable the amount of ₹56.16 crore stood received in an earlier year; the entire receipt was fully explained, duly recorded, and supported by bank statements; the current year reflects only a conversion of those earlier receipts into CCPS; No fresh credit has arisen; No cash has entered the books; No jurisdictional foundation exists for invoking Section 68. Accordingly, the addition made under Section 68 is contrary to the law, contrary to the facts on record, and contrary to the well-settled principles governing the scope of unexplained cash credits. The addition cannot be sustained on first principles, and the only legally permissible conclusion is that the same deserves to be deleted in full.
The facts shows that the AO has accepted the genuineness of the face value ₹100 each, aggregating to ₹9,40,300, towards issue of 9,403 Compulsorily Convertible Debentures (CCDs) and he only made addition of the amount of ₹56,07,00,000, being the share premium arising on the allotment of said 9,403 Compulsorily Convertible Preference Shares (CCPS) during the year. The said addition of only the amount of premium when the face value has been accepted as genuine is not tenable in law. Reliance is placed on the Coordinate Bench judgment of Hon’ble Kolkata Tribunal rendered in the case of JCIT(OSD),Circle-12(1), Kolkata v. M/s Wearit Global Ltd. [I.T.A. No.55/Kol/2020, Judgment dated 13.04.2021]. Reliance is also placed on the following similar judgments:
i) ITO Vs. Trend Infra Developers Pvt. Ltd. & Happy BagansPvt. Ltd.[ & 2273/Kol/2016 order dated 26.10.2018].
, 1420, 1457/Bang/2025 Page 24 of 35 ii) ITO Vs. Savera Towers Pvt. Ltd. [ITA No. 2275/Kol/2016 order dated 05.12.2018]. iii) ITO Vs. BSNL Commercial Pvt. Ltd. [ITA No.686/Kol/2017 order dated 22.11.2018]. iv) ITO Vs. Tanish Dealers Pvt. Ltd. [ITA No. 1636/Kol/2016 order dated 07.12.2018]. v) ITO Vs. Dreamz Met Construction Projects Pvt. Ltd. [ITA No. 2047/Kol/2016 orderdated 07.12.2018].
Alternatively, the law may be settled in this issue and the matter may be remanded to the AO for the limited purpose of verification with a direction that if the money was received in AY 2021-2022 the addition will stand deleted.”
We have perused and examined the details available on record and also the documents and papers enclosed in the Paper-Book furnished before us. The details viz. Bank Statements, audited financials, return of allotment, Board Resolution etc. and the said details support the claim of the Assessee that share premium of Rs,56,07,00,000/- was received during previous year pertaining to AY 2021-22 and not during the previous year pertaining to AY 2022-23, the year under appeal. We concur with the line of judicial precedents, as relied upon by the assesse cited supra which laid downs the ratio that section 68 cannot be invoked on account of mere accounting reclassification or conversion of one form of security into another, particularly where the consideration towards share premium was received in an earlier year. Only the book entry was made there was no physical movement of money. The AO has added the share premium only and face value of shares have been accepted. We also verified from the bank statement that the amount has been credited in the previous Assessment Years. This year there is only the assessee has received share premium only by way of , 1420, 1457/Bang/2025 Page 25 of 35 book entry and not in physical form. Therefore the provision of section 68 of the Act will not apply. In view of this, we delete the addition.
17. The second issue on merits of the case relates to estimated ad-hoc disallowance of expenses by disallowing expenses to the tune of Rs.24,06,60,000 being 20% of Advertisement and Business Promotion Expenses of Rs.120.33 crores.
18. The AO had disallowed the said expenses as apparently there was three-fold increase in the said expenses when compared with the previous year. The AO further recorded that the assessee did not furnish complete details, supporting documents, or justification for the substantial increase in expenditure, despite being granted adequate opportunities. The counsel of the assessee on the other hand submitted that AO has erred in making estimated/ad-hoc disallowance of expenses without pointing out any defect in the books of account of the assessee and without being able to show any defect whatsoever in the details furnished being complete particulars of advertisement and marketing expenditure, including vendor-wise details, invoice details, mode of payment, and TDS deduction records. These evidences were neither disputed nor found defective by the AO. The Assessee further highlighted that due to increase in turnover there was corresponding increase in Advertisement and Business Promotion Expenses and further it was shown that advertisement-to-sales ratio has reduced from 55.37% to 33.08%. The assessee has made following submissions in its written note:
Ground no 4:
2) That the learned CIT(A) erred in sustaining an ad-hoc disallowance of ₹24,06,60,000, being 20% of the total expenses, without any specific , 1420, 1457/Bang/2025 Page 26 of 35 findings or justification, and without properly appreciating the business facts and records produced. Hence, the same be deleted.
32. This ground concerns the ad hoc disallowance of 20% of the assessee’s advertisement expenditure. The assessee had debited a sum of ₹120.33 crores under the head “Advertisement and Business Promotion” in its Profit and Loss Account(see Page 105 of PB). The Assessing Officer observed that in the immediately preceding year relevant to AY 2021–22, the expenditure under the same head was ₹43.75 crores. Thus, the current year’s claim reflected nearly a three-fold increase over the previous year. The AO further recorded that the assessee did not furnish complete details, supporting documents, or justification for the substantial increase in expenditure, despite being granted adequate opportunities. In view of these factors, the Faceless Assessment Unit considered it appropriate to make an ad hoc disallowance of 20% of the total advertisement claim. On this basis, a sum of ₹24,06,60,000 was disallowed and added back to the assessee’s total income.
TTheassessee is engaged in the B2C jewellery e-commerce business, operating exclusively in a highly competitive digital marketplace through platforms such as Amazon, Flipkart, Myntra, Nykaa, and Tata Cliq, in addition to its own online and offline retail channels. The books of account are duly maintained on the mercantile system as per Section 145(1) of the Act and have been subjected to statutory audit and tax audit(See pages 107 to 160 of the PB), both of which were filed before the Assessing Officer. No discrepancy, qualification, or adverse remark has been recorded in the audit reports.
34. During the assessment proceedings, the assessee furnished complete particulars of advertisement and marketing expenditure, including vendor-wise details, invoice details, mode of payment, and TDS deduction records. These evidences were neither disputed nor found defective by the Assessing Officer. It is, therefore, an admitted fact that the genuineness of the expenditure is not in doubt.
A comparison of business data placed on record shows the following: For the year ended 31.03.2021, the assessee reported turnover of ₹79.01 crore, against which advertisement and marketing expenses , 1420, 1457/Bang/2025 Page 27 of 35 were ₹43.75 crore, resulting in an advertisement-to-sales ratio of 55.37%. The gross profit margin for the year was 20.28%. For the year under appeal (AY 2022–23), turnover drastically expanded to ₹364.56 crore, registering nearly a 360% growth. Against this enlarged scale of operations, advertisement and marketing expenditure was ₹120.61 crore, resulting in a significantly lower advertisement-to-sales ratio of 33.08%. The gross profit margin for the year stood at 20.05%, broadly consistent with the preceding year.
These figures demonstrate two crucial facts:
(i) The advertisement expenditure, when benchmarked to turnover, declined by more than 40% compared to the preceding year; and (ii) The gross profit margin remained stable despite a fourfold surge in turnover, thereby proving that the expenditure directly contributed to revenue expansion and is wholly and exclusively for business purposes under Section 37(1).
37. It is pertinent that the assessee operates primarily in the digital-first e- commerce jewellery segment, where customer acquisition costs, online visibility, platform listing fees, influencer marketing, and digital advertising constitute the backbone of business operations. In such industries, advertisement-to-sales ratios are naturally high and fluctuate sharply depending on growth cycles. Therefore, mere quantum increase in absolute expenditure cannot justify any disallowance, particularly when turnover has increased proportionately and when expenditure as a percentage of turnover has actually reduced.
Despite all factual data being on record, the AO has made an ad hoc disallowance of 20%, solely on the ground that expenditure was higher in absolute terms compared to the preceding year. Notably: The AO did not reject the books of account under Section 145(3); The AO did not doubt any particular bill, vendor, or transaction; The AO did not bring on record any instance of bogus, inflated, or non-business expenditure; The AO has accepted the sales, the gross profit, and the entire , 1420, 1457/Bang/2025 Page 28 of 35 audited P&L account. In such circumstances, an ad hoc disallowance has been consistently held to be impermissible in law. Courts have repeatedly ruled that where books are audited, not rejected, and expenses are supported by vouchers and TDS records, no arbitrary or percentage-based disallowance is justified. While not citing case names here as per your earlier instruction, judicial precedents have consistently affirmed that unless specific defects are identified, additions cannot be made on mere suspicion, conjecture, or comparative analysis.
The present disallowance falls squarely within the category of arbitrary estimation. It ignores the fundamental principles that: Business expenditure must be judged from the perspective of a prudent businessman; The revenue cannot sit in the armchair of the businessman to dictate the quantum or necessity of expenditure; Fluctuations in commercial expenditure, especially in digital businesses, are normal and must be viewed in the context of industry dynamics and turnover growth.
Moreover, the AO’s reasoning fails the test of commercial logic: If the expenditure was allegedly excessive or non-genuine, the AO ought to have identified the specific item(s) of expenditure responsible for such excess. Instead, he chose a mechanical 20% disallowance—without any basis in facts, law, or comparable industry data. Given that (i) the books were not rejected; (ii) the AO accepted the business results; (iii) the advertisement ratio actually declined; (iv) turnover grew fourfold; and (v) the AO has not brought any adverse material on record—no disallowance is sustainable. It is respectfully submitted that the ad hoc disallowance of ₹24,06,60,000 is wholly unjustified, contrary to settled principles, and deserves to be deleted in full.
In this regard we rely on the following judgments:
a) The Hon’ble Supreme Court in its judgment reported in PCIT v.R.G. Buildwell Engineers Ltd.[2018] 99 taxmann.com 284 (SC) had dismissed the SLP filed by the revenue against the decision of the Hon’ble Delhi High Court reported in Pr. CIT v. R.G. Buildwell Engineers Ltd. [2018] 99 taxmann.com 283 , 1420, 1457/Bang/2025 Page 29 of 35 (Delhi) wherein the Hon’ble Delhi High Court had held that ITAT was justified in deleting the ad-hoc disallowances of expenses when books of account were not rejected and when consistently such expenses were allowed in scrutiny assessments of the earlier year. b) The aforesaid judgment of Hon’ble Supreme Court in PCIT v.R.G. Buildwell Engineers Ltd.[2018] 99 taxmann.com 284 (SC) has been followed and relied upon by the Hon’ble Jurisdictional Bangalore Tribunal in the case of TE Connectivity India Pvt. Ltd., vs DCIT [IT(TP)A No.2346/Bang/2024, Order dated 09.10.2025, Bangalore ITAT]. The Hon’ble Tribunal has deleted the ad-hoc disallowance of expenses on the ground that the AO has not rejected the books of account nor pointed out any defect in them and the Assessee has submitted documents in support of the expenses. c) The Hon’ble Karnataka High Court in its judgment reported in Sri Ganesh Shipping Agencyv. ACIT [2021] 128 taxmann.com 106 (Karnataka)wherein the Hon’ble High Court had followed its earlier judgments, rendered in the case ofCIT v. Clifford D'Souza [IT Appeal No. 22 of 2011, dated 24-2-2015] and CIT v. Konkan Marine Agencies [2009] 313 ITR 308 (Kar.), and deleted the ad-hoc disallowance of expenses on the ground that no challenge was made by revenue authorities to the entries made in the books of account. d) The Hon’ble Calcutta High Courtin its judgment reported in Ashok Surana vs. CIT[2017] 79 taxmann.com 318 (Calcutta)had deleted the ad- hoc disallowance which were disallowed merely on the ground that the same were not verifiable. The Hon’ble Calcutta High Court had held that when appropriate evidence has been adduced, it is not in the power of the assessing officer to arbitrarily disallow any item of expenditure on the ground that the sums are not verifiable. If the assessing officer takes no pains to have the expenses verified he cannot resort to disallowing any portion of the expenditure on the ground that they are not verifiable.
The ld. Dr relied on the order of the AO and submitted that the Brand value was created. The assessee itself submitted during the assessment proceedings that the amount was incurred for brand promotion.
, 1420, 1457/Bang/2025 Page 30 of 35 20. We have considered the rival submissions and we are in agreement with the stand of the assessee that no part of the ad hoc disallowance of 20% of the assessee’s advertisement and business promotion expenditure can be sustained. The disallowance made by the AO was only based on suspicions, surmises and conjectures and there was no basis with him to deny the claim of expenses on estimated and ad-hoc basis. If the AO was not satisfied with claim of the assessee he was required in law to first reject the books of accounts of the assessee and pin-point the exact mistake in the details which were filed before him. We find support from the decision of Hon’ble Jurisdictional Karnataka High Court in its judgment reported in Sri Ganesh Shipping Agency v. ACIT [2021] 128 taxmann.com 106 (Karnataka) and also from the recent decision of Co-ordinate bench in the case of TE Connectivity India Pvt. Ltd., vs DCIT [IT(TP)A No.2346/Bang/2024, Order dated 09.10.2025, Bangalore ITAT]. The arguments of the ld. DR will not support to the revenue since the AO has not disallowed towards capital expenditure. The Grounds of Appeal raised by the assessee on the said issue stands allowed.
21. The Third and Fourth issue on merits relates to disallowance of ₹4,00,000 relating to expenses incurred on the Employee Stock Option Scheme (ESOP) and disallowance of ₹9,54,000 on account of loss on sale of assets and provision for bad debts.
22. The counsel of the assessee submitted before us that the said issues could not be presented properly during the assessment proceedings and involved require factual verification and thus he prayed for restoring the said issues to the file of the AO for allowing proper opportunity of hearing to the Assessee and consider the submissions and material and then pass a reasoned order as per law. The ld. DR did not object to the said prayer of the counsel of the Assessee.
, 1420, 1457/Bang/2025 Page 31 of 35 23. In the light of aforesaid scenario, we are remitting these two issues back to the file of AO for fresh consideration. The AO is directed to give reasonable opportunity of being heard to the assessee and decide the issue as per law. The assessee is directed to produce necessary documents to substantiate its case and not to seek unnecessary adjournments for early disposal of the case. Accordingly, the grounds on this issue are considered allowed for statistical purposes. We make it clear that in case of failure no second leniency shall be granted.
In the result the appeal is allowed for statistical purpose.
This is an appeal filed by the assessee against Order passed by the NFAC vide DIN and Order NoITBA/NFAC/S/250/2025-26/1077155818(1) dated 18.06.2025. The said appeal arises out of the Penalty order passed u/s 270A of the IT Act 1961 for AY 2022-2023 dated 01/07/2024. The AO has imposed a penalty on grounds of under reporting of income @ 50% of the tax i.e. Rs.3,77,67,303. The same was based on the disallowance of Rs.24,20,98,099. The said disallowance comprises of the following items:
Sl Description Amount (Rs.) No 1 Disallowance of Doubtful Debts 9,54,000 2 Disallowance of Advertisement Expenses 24,06,60,000 3 Disallowance of ESOP Expenses 4,00,000 4 Interest Expenses on TDS 84,099 5 Total 24,20,98,099 , 1420, 1457/Bang/2025 Page 32 of 35 26. The assessee, being aggrieved, filed appeal on 01.10.2024 with a delay of 70 days. During the appellate proceedings, the learned NFAC (CIT(A) rejected the Assessee's prayer for condonation of delay in filing appeal, being not satisfied with the explanation of the assessee with regard to delay of 70 days in filing of the appeal and he dismissed the appeal of the assessee without going into the facts of the case. Aggrieved from the above Order, assessee filed appeal before us.
27. The learned DR relied on the Order of the lower authorities and submitted that the delay in filing appeal should not be condoned.
Considering the rival submissions and perusing the entire material available on record, Orders of the authorities below and submissions of the assessee, we note that the assessee has given sufficient and reasonable reasons to explain the delay of 70 days in filing the appeal before the CIT(A) NFAC. Thus, we condone the delay and proceed to consider the case on merits.
29. In the substantive appeal, bearing we have the deleted the disallowance of Advertisement and Business Promotion expenses to the tune of Rs.24,06,60,000 and thus no penalty can be levied on the same. Further, we have set aside the other two issues of disallowance of expenses of Rs.4,00,000 and addition of loss of Rs.9,54,000 to the file of AO for fresh consideration. The issue of Interest on delayed deposit of TDS of Rs.84,099 has not been disputed by the assessee but he submits that the said issue is a debatable issue and thus no penalty could be levied.
30. It is also an undisputed fact that in the penalty proceedings the assessee did not make any submissions and rather prayed for keeping the penalty proceedings in abeyance till the disposal of the assessment appeal.
, 1420, 1457/Bang/2025 Page 33 of 35 However, the assessing officer without waiting for the outcome of the assessment appeal passed the penalty order.
In the light of aforesaid facts, we are of the opinion that Penalty Order dated 01.07.2024 passed under section 270A should be set aside to the file of the AO for fresh adjudication as per law and after considering our decision in the substantive appeal, bearing ITA No. 1419/Bang/2025. The AO is directed to give reasonable opportunity of being heard to the assessee and decide the issue as per law. The assessee is directed to produce necessary documents to substantiate its case and not to seek unnecessary adjournments, for early disposal of the case.
In the result, appeal of the assessee is partly allowed on merits and partly allowed for statistical purposes.
This is an appeal filed by the assessee against Order passed by the NFAC vide DIN and Order No. ITBA/NFAC/S/250/2025- 26/1077236277(1) dated 19.06.2025. The said appeal arise out of the Penalty order passed u/s 271AAC of the IT Act 1961 for AY 2022-2023 dated 01/07/2024. The AO has imposed a penalty, on the addition of Rs.56,07,00,000 made under section 68 of the Act, @ 10% of the tax and surcharge which comes to Rs.4,37,34,600.
The assessee, being aggrieved, filed appeal on 08/10/2024 with a delay of 70 days. During the appellate proceedings, the learned NFAC rejected the assessee's prayer for condonation of delay in filing appeal, being , 1420, 1457/Bang/2025 Page 34 of 35 not satisfied with the explanation of the assessee with regard to delay of 70 days in filing of the appeal and he dismissed the appeal of the assessee without going into the facts of the case. Aggrieved from the above Order, assessee filed appeal before us.
35. The learned DR relied on the Order of the lower authorities and submitted that the delay in filing appeal should not be condoned.
36. Considering the rival submissions and perusing the entire material available on record, Orders of the authorities below and submissions of the assessee, we note that the assessee has given sufficient and reasonable reasons to explain the delay of 70 days in filing before the CIT(A). Thus, we condone the delay and proceed to consider the case on merits.
In the substantive appeal, bearing we have the set aside the issue of addition of share premium of Rs.56,07,00,000 made under section 68 of the Act. It is also an undisputed fact that in the penalty proceedings the assessee did not make any submissions and rather prayed for keeping the penalty proceedings in abeyance till the disposal of the assessment appeal. However, the assessing officer without waiting for the outcome of the assessment appeal passed the penalty order. Since this penalty order is arises due to quantum proceedings towards addition of share premium and this issue has been decided in favour of the assesse in ITA No. 1419/Bang/2025. In the light of aforesaid facts, the Penalty Order dated 01.07.2024 passed under section 271AAC is set aside Therefore, this issue is also decided in favour of the assesssee and penalty imposed is deleted. is partly allowed for statistical purposes, is also partly allowed on merits and 1420, 1457/Bang/2025 Page 35 of 35 allowed for statistical purposes and is allowed. A common order passed shall be kept in respective case files.