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Facts
The assessee, engaged in civil construction, filed its return for AY 2013-14. The AO, observing non-compliance, estimated income and made a significant addition of Rs.4,35,18,530/- under section 68 for unexplained cash credits (borrowings). The CIT(A) partly allowed the appeal, upholding the estimated income but drastically reducing the section 68 addition to Rs.6,20,000/- without a complete remand exercise or a proper report from the AO on additional evidence.
Held
The Tribunal found that the CIT(A)'s procedure was not in accordance with law, as additional evidence was considered without a full remand report from the AO, violating principles of natural justice. Despite the assessee's continuous non-cooperation, the CIT(A) granted substantial relief. Therefore, the Tribunal set aside the CIT(A)'s order on the section 68 addition and remanded the matter back to the CIT(A) for fresh adjudication after obtaining a complete remand report from the AO.
Key Issues
Whether the CIT(A) erred in drastically reducing the addition under section 68 without a complete remand report from the AO regarding additional evidence, and whether this procedure violated principles of natural justice.
Sections Cited
section 115JB, section 143(2), section 144, section 68, Rule 46A of IT Rules, 1962
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Income Tax Appellate Tribunal, Hyderabad ‘A‘ Bench, Hyderabad
Before: Shri Vijay Pal Rao, Vice- & Shri Madhusudan Sawdia
(िनधा�रण वष�/Assessment Year: 2013-14) Income Tax Officer Vs. M/s. Adhithi Infra Ward-1 (1) Projects Private Limited Hyderabad Hyderabad PAN:AADCD6261E (Appellant) (Respondent) िनधा��रती �ारा/Assessee by: N O N E राज� व �ारा/Revenue by: Shri S. Arun Kumar, Sr. DR सुनवाई की तारीख/Date of hearing: 04/12/2025 घोषणा की तारीख/Pronouncement: 10/12/2025 आदेश/ORDER Per Madhusudan Sawdia, A.M.: This appeal is filed by the Revenue feeling aggrieved by the order passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (“Ld. CIT(A)”) dated 17.02.2025 for the A.Y 2013-14.
At the outset, it is seen that there is a delay of nine days in filing of the appeal before this Tribunal. Looking into the minor delay of nine days in filing the appeal before this Tribunal,
Page 1 of 10 in the interest of justice, we condone the delay of nine days and admit the appeal of the Revenue for adjudication.
The appeal was fixed for hearing for the first time on 28.07.2025. On the said date, none appeared on behalf of the assessee, and no adjournment petition was filed. The matter was again listed on 04.12.2025, yet on this date also, there was no appearance on behalf of the assessee, nor any communication explaining the reason for non-appearance. In these circumstances, and considering that sufficient opportunities had already been afforded, the Bench proceeded to hear the Learned Departmental Representative (“Ld. DR”) and to adjudicate the matter ex parte qua the assessee, on the basis of the material available on record.
The Revenue has raised the following grounds of appeal:
5. The brief facts of the case are that the assessee is a company engaged in the business of civil construction contracts. It filed its return of income for the Assessment Year 2013–14 on 30.09.2013, declaring a total income of Rs.41,79,790/- under the normal provisions of the Income Tax Act, 1961 (“the Act”) and book profit of Rs.45,03,802/- under section 115JB of the Act. The case of the assessee was selected for scrutiny under CASS and accordingly notice under section 143(2) of the Act dated 02.09.2014 was issued by the Learned Assessing Officer (“Ld. AO”). However, during the course of assessment proceedings, the assessee failed to comply with any of the statutory notices issued by the Ld. AO and did not furnish the required information or explanations. On the basis of the information available on record, the Ld. AO noted that the assessee had gross contractual receipts of Rs.6,78,44,372/- as per Form 26AS. In the absence of any details or evidence from the assessee, the Ld. AO estimated the income of the assessee at 8% of the gross contractual receipts. The estimated income at the rate of 8% on Rs.6,78,44,372/- came to Rs.54,27,550/-, which was brought to tax as business income. The Ld. AO further observed that, during the relevant previous year, the assessee had raised long-term borrowings amounting to Rs.4,24,81,284/- and short-term borrowings amounting to Rs.10,37,246/-. Since the assessee did not furnish any confirmation, explanation, or supporting documentary evidence with respect to these borrowings, the Ld. AO treated the total borrowings aggregating to Rs.4,35,18,530/- as unexplained cash credits within the meaning of section 68 of the Act and added the same to the income of the assessee. Accordingly, the assessment
Page 3 of 10 was completed by the Ld. AO under section 144 of the Act on 24.03.2016, determining the total income of the assessee at Rs.4,89,46,080/- under the normal provisions and book profit at Rs.45,03,802/- under section 115JB of the Act.
Aggrieved by the order of the Ld. AO, the assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A), after considering the submissions of the assessee, upheld the estimation of income at 8% of the gross receipts of Rs.6,78,44,372/-, resulting in business income of Rs.54,27,550/-. However, with respect to the addition made under section 68 of the Act towards unexplained cash credits amounting to Rs.4,35,18,530/-, the Ld. CIT(A) restricted the addition to Rs.6,20,000/- as against the full addition made by the Ld. AO, thereby granting partial relief to the assessee. Thus, the Ld. CIT(A) partly allowed the appeal of the assessee.
Aggrieved by the relief granted by the Ld. CIT(A), particularly the substantial reduction of the addition made under section 68 of the Act, the Revenue has now preferred the present appeal before this Tribunal. At the outset, the Ld. DR submitted that the only issue arising from the grounds of appeal of the Revenue relates to the action of the Ld. CIT(A) in reducing the addition made by the Ld. AO under section 68 of the Act from Rs.4,35,18,530/- to Rs.6,20,000/-. It was argued that such a drastic reduction was unwarranted, unjustified, and contrary to law. The Ld. DR submitted that the Ld. AO had made the addition of Rs.4,35,18,530/- as unexplained cash credits under section 68 of the Act because the assessee had failed to produce any Page 4 of 10 documentary evidence to substantiate the genuineness of the borrowings amounting to Rs.4,35,18,530/-. The assessee had not responded to any of the notices issued during the assessment proceedings, and therefore the Ld. AO had no option but to treat the entire borrowings as unexplained. The Ld. DR further contended that before the Ld. CIT(A), the assessee filed certain documents as additional evidence under Rule 46A of the Income Tax Rules, 1962 (“the Rules”). The Ld. CIT(A) called for a remand report from the Ld. AO. The first remand report of the Ld. AO, as placed at page no. 11 of the appellate order, clearly records that the assessee again failed to respond to the remand notices issued by the Ld. AO during the remand proceedings. Subsequently, the assessee had requested the Ld. CIT(A) to provide one more opportunity so that the matter could be remanded back to the Ld. AO where the assessee proposed to furnish all relevant evidence. The Ld. CIT(A) accordingly called for a second remand report from the Ld. AO. However, the Ld. AO did not furnish any reply to the second remand notice for reasons not apparent from the record. Without waiting for the second remand report, and despite the remand process being incomplete, the Ld. CIT(A) proceeded to decide the appeal and reduced the addition under section 68 of the Act from Rs.4,35,18,530/- to Rs.6,20,000/-. The Ld. DR further submitted that the Ld. CIT(A) had provided as many as nine opportunities to the assessee during the appellate proceedings, as reflected on page no. 3 of the appellate order. Out of these nine opportunities, the assessee complied only once, displaying continuous non-cooperation of the assessee before the appellate authority also. The assessee had also not complied
Page 5 of 10 during the original assessment proceedings, nor during the first remand proceedings before the Ld. AO. The Ld. DR argued that, despite continuous non-compliance from the assessee, the Ld. CIT(A) proceeded to adjudicate the appeal without awaiting the second remand report. This action, according to the Ld. DR, violates the principles of natural justice, because the Ld. CIT(A) relied upon additional evidence without obtaining the views of the Ld. AO, whose statutory right to comment on such evidence cannot be bypassed. The Ld. DR therefore prayed that the order of the Ld. CIT(A) be set aside and that the matter may be restored to the file of the Ld. CIT(A) with a direction to obtain a proper remand report from the Ld. AO and thereafter adjudicate the issue afresh on merits, in accordance with law.
We have carefully considered the submissions of the Ld. DR and have perused the material available on record. Since the assessee has chosen not to appear on both the dates of hearing, we proceed to decide the appeal on the basis of the submissions of the Ld. DR and the documents placed on record. It is evident from the appellate order that the Ld. CIT(A) had initially called for a remand report in respect of the additional evidence filed under Rule 46A of the Rules, which has been placed at page no. 11 of the order of Ld. CIT (A), which is to the following effect:
It is evident from the above that in the first remand report the Ld. AO confirms that the assessee did not respond to the notices issued by him during the remand proceedings. The assessee thereafter requested the Ld. CIT(A) to provide one more opportunity to submit the required evidence before the Ld. AO. The Ld. CIT(A) acceded to this request and called for a second remand report. However, before the Ld. AO could furnish the second remand report, the Ld. CIT(A) proceeded to decide the appeal and drastically reduced the addition under section 68 of the Act from Rs.4,35,18,530/- to Rs.6,20,000/-. The procedure adopted by the Ld. CIT(A), in our considered view, is not in accordance with law. When additional evidence is filed under Rule 46A of the Rules and the matter is remanded, it is mandatory that the Ld. AO be given an effective opportunity to examine such evidence and furnish a remand report. Deciding the issue without awaiting the remand report amounts to denying the Ld. AO his statutory right and results in violation of the principles of natural justice. Moreover, the assessee has been consistently non- compliant before the Ld. AO, during the first remand proceedings, and even before the Ld. CIT(A), as demonstrated by the fact that out of nine opportunities granted, compliance was made only once. Despite such non-cooperation, the Ld. CIT(A) proceeded to grant substantial relief without the benefit of a complete remand exercise.
In view of the above factual and procedural deficiencies, we are of the considered opinion that the appellate order cannot be sustained. In the interest of justice, the matter
Page 8 of 10 requires to be restored to the file of the Ld. CIT(A) for fresh adjudication, after obtaining a proper and complete remand report from the Ld. AO. Accordingly, we set aside the order of the Ld. CIT(A) on this issue and restore the matter to his file with the following directions: (a) The Ld. CIT(A) shall call for a fresh and complete remand report from the Ld. AO in respect of all additional evidence filed by the assessee under Rule 46A of the Rules. (b) The Ld. AO shall be provided due opportunity to examine the evidence and furnish his report within a reasonable time. (c) After receipt of the remand report, the Ld. CIT(A) shall adjudicate the issue on merits, strictly in accordance with law. (d) The assessee shall extend full cooperation and shall not seek unnecessary adjournments.