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Facts
The appellant, engaged in solar power generation, filed its return of income for AY 2017-18. The AO made several additions to the total income, including disallowance of deduction, disallowance under Section 14A, credits from shell entities, unexplained investment, and unexplained sources for loan repayment.
Held
The CIT(A) allowed deduction for bad debts, granted relief under Section 14A, restricted additions for shell entities, deleted addition for unexplained investment, and deleted addition for unexplained loan repayment. The Tribunal found flaws in the CIT(A)'s order, particularly regarding the admission of additional evidence without opportunity to the AO.
Key Issues
Whether the CIT(A) erred in admitting additional evidence and deleting additions without proper adjudication? Whether the additions made by the AO were justified?
Sections Cited
143(3), 14A
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Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI
Before: HON’BLE SHRI INTURI RAMA RAO & SHRI SS VISWANETHRA RAVI
Respondent Appellant Assessee by : None Revenue by : Mr.Bipin C.N, CIT Date of Hearing : 14.01.2026 Date of Pronouncement : 21.01.2026 O R D E R PER INTURI RAMA RAO, A.M :
These cross appeals filed by the assessee as well as Revenue are directed against the order of the Commissioner of Income Tax (Appeals)
Chennai-20 (herein after called CIT(A)’ in short], dated 19.02.2025 for the Assessment Year-2017-18.
2.0 Briefly, the facts of the case are that the appellant is a company incorporated under the provisions of the companies Act 1956. It is engaged in the business of Solar power generation. The return of income for the Assessment Year 2017-18 was filed on 30.03.2018 declaring total income of Rs.9,35,95,130/-. Against the said return of income, the assessment was completed by the Deputy Commissioner of Income Tax, Central Circle-3(4), Chennai (hereinafter called the “AO”) vide order dated 12.11.2022 passed u/s 143(3) of the Act at a total income of Rs.57,67,40,037/-. While doing so, the AO made the following additions:
Disallowance of claim for deduction of any other amount of Rs.5,24,51,699/-.
Disallowance u/s 14A of Rs.36,47,631/-.
Credits to the account of two shell entities i.e. M/s.Refex Energy Ltd of Rs.10,52,84,000/-.
Unexplained investment in M/s.Avid Green Private Ltd of Rs.22.91 Crores and 5. Unexplained sources for repayment of loan of Rs.9,12,52,887/-.
The above additions were made by the AO for alleged failure of the assessee company to explain the nature and source of the above investments and repayment of loans.
Page - 2 - of 7 3.0 Being aggrieved by the above assessment order, an appeal was preferred before the CIT(A) contending that the AO had passed the assessment order in haste and hurry without giving sufficient and reasonable opportunity to the appellant and the additions were made without properly appreciating the fact of the case. On due consideration of the submissions made on behalf of the assessee company, the learned CIT(A) held that a sum of Rs.5,24,51,699/- represents the bad debts written off in the books of account and allowed the deduction following the Supreme Court decision in the case of T.R.F. Ltd Vs CIT, 323 ITR 397. As regard to disallowance made u/s 14A, the learned CIT(A) taking into consideration the submissions of the assessee company that in the absence of any exempt income no additions can be made u/s 14A, granted relief following the decision of Madras High Court in the case of CIT Vs Chettinad Logistic Pvt Ltd 80 taxmann.com 221 and M/s.Marg Limited Vs CIT 120 taxmann.com 84.
4.0 With regard to addition of Rs.10,52,84,000/- the CIT(A) restricted the addition to extent of Rs.6,33,84,000/- by holding that only peak unexplained credit alone can be taxed as income of the appellant.
5.0 The CIT(A) deleted the addition of Rs.22.91 Crores by holding that the said amount represents the actual sales made by the assessee company to M/s.Avid Green Energy Pvt , which are duly accounted in the books of Page - 3 - of 7 account and offered to tax during the previous relevant to the Assessment Year under consideration.
6.0 The learned CIT(A) deleted the addition of Rs.9,12,52,887/- made on account of unexplained source for repayment of loan taking into consideration the submission of the appellant that the repayments were made out of explained source of income which are duly recorded in the books of account.
7.0 Being aggrieved by that part of the order of the CIT(A) which is against the interests of the revenue, the revenue is in appeal before us in CIT(A) sustaining the addition on account of credits to alleged shell companies to the extent of Rs.6,33,84,000/-.
Revenue appeal No.ITA 1491/Chny/2025, Assessment Years: 2017-18 8.0 The learned CIT(DR) submits that the CIT(A) granted the relief without affording an opportunity to the AO to rebut the additional evidences filed by the assessee company during the course of proceeding before the CIT(A). The CIT(A) also admitted the additional evidence in gross violation of the provisions of Rule-46A of the Income Tax Rules. Thus, he submits the order of the CIT(A) be set aside and remand back to file of Page - 4 - of 7 CIT(A) for de novo adjudication of issues in appeal. On the other hand, none appeared on behalf of the assessee company despite several opportunities offered to the assessee. Therefore, after hearing the learned CIT(DR), we proceed to dispose of the appeal on merits.
9.0 We heard learned CIT(DR) and perused the material on record. On mere perusal of the assessment order, it would reveal that the assessing officer made several additions for the failure of the assessee to respond to the show cause notices issued by the AO. The assessee company had not filed any information / evidence explaining the sources of the investment made by the M/s.Avid Green Pvt Ltd and similarly the assessee company had not filed any evidence explaining the true nature of the transactions, it had with M/s.TAN Solar Industries Company and TAN Industrial Corporation. Further, we find that there is nothing in the impugned order to indicate that the CIT(A) had undertaken the verification of evidence to find out that there is no exempt income, while deleting the addition made u/s 14A of the Act. The CIT(A) merely extracted the submissions made by the assessee company without giving any independent findings while deleting the addition made on account of unexplained investments of Rs. 22.91 Crores. There is no discussion in the impugned order on the application moved by the assessee company for admission of additional evidence in terms of provisions of Rule-46A of the Page - 5 - of 7 Income Tax Rules 1962. In view of the above flaws, the order passed by the CIT(A) cannot be sustained in the eyes of law, therefore the order of the CIT(A) is reversed and remand the matter back to the file of the CIT(A) for de novo disposal of the appeal in accordance with law after affording an opportunity being heard to the assessee company.
10.0 In the result, the appeal of the revenue stands partly allowed for statistical purposes.
Assessee appeal No.ITA 1154/Chny/2025, Assessment Years: 2017-18 11.0 In the appeal preferred by the revenue in CIT(A) and made order of remand to the file of CIT(A), therefore, the appeal of the assessee also stands partly allowed for statistical purpose.
12.0 In the result, both revenue’s and assessee’s appeal stands partly allowed for statistical purposes. Order pronounced on 21st , January-2026 at Chennai.