ITAT Varanasi Judgments — October 2026

The Tribunal held that the reopening of the assessment was vitiated in law. It noted that the assessee had, in its written submissions before the AO and in its computation of income for AY 2011-12, explicitly pointed out and added back the loss of Rs. 73,39,019/- on account of the sale of fixed assets. The AO, however, failed to take cognizance of this submission and the assessee's computation, proceeding to add back the amount again. The CIT(A) confirmed this action without observing that the assessee had already suo motu disallowed this amount. The Tribunal found that this led to a double addition of the same amount to the assessee's income. Consequently, the addition of Rs. 73,49,019/- was deleted. Furthermore, the Tribunal held that since the entire reopening was based on an incorrect appreciation of facts without recording any failure on the part of the assessee to fully and truly disclose material facts, the reopening was void ab initio. The addition and the imposition of tax at regular rates instead of MAT were quashed. The appeal was allowed.

The Tribunal held that the CIT(A) erred in restricting the adjudication of the appeal for AY 2010-11 solely to the issue of closing stock valuation. The Tribunal observed that while the ITAT's order for AY 2010-11 might not have explicitly detailed the reasons for restoration, the issues involved in AY 2009-10 were distinct from those in AY 2010-11. The use of the word "similarly" in the ITAT's order was interpreted as merely reflecting a similar approach to restoring the matter to the CIT(A) for fresh adjudication, not limiting the scope to a specific issue. Consequently, the CIT(A) was obliged to consider all grounds of appeal raised by the assessee. Since the CIT(A) failed to do so, the matter was restored back to the CIT(A) for fresh adjudication of all grounds of appeal in accordance with the law. The Tribunal explicitly noted that the method of valuation of closing stock was not an issue under consideration for AY 2010-11.

The Tribunal held that only those investments which actually yielded exempt income during the relevant previous year can be factored into the average value computation for Section 14A disallowances. This principle was supported by various High Court decisions, including Cargo Motors Private Limited vs. Dy. CIT (Delhi HC), Principal Commissioner of Income Tax, Central-1, Kolkata v. M/s. Shalimar Pellet Feeds Ltd (Cal. HC), and CIT, Chennai vs. Shriram Ownership Trust (Madras HC). The Tribunal also referred to ITAT Special Bench decision in ACIT v. Vireet Investment (P.) Ltd. (Delhi ITAT SB). Consequently, the Tribunal found that the CIT(A)'s confirmation of the disallowance based on the total investment portfolio was incorrect. Since the assessee had already suo motu disallowed Rs. 73,715 considering mutual funds that yielded dividend income, the additional disallowance of Rs. 2,14,98,928 was deleted. As the remaining grounds were consequential to this addition, they were rendered infructuous and dismissed. The appeal was partly allowed.

The Tribunal dismissed ITA No. 74/VNS/2025 (AY 2012-13) in limine due to a delay of over five years in filing the appeal, noting the absence of a death certificate to substantiate the reason for the delay. Regarding ITA No. 72/VNS/2025 (AY 2013-14), the Tribunal upheld the penalty under Section 271B. The Tribunal reasoned that Section 44AB mandates getting accounts audited and furnishing the report by the specified date. While Circular No. 03/2009 waives the condition of furnishing the audit report along with the return if the return is filed on time with relevant columns filled, in this case, no return was furnished at all before the due date. The assessee's inconsistent pleas, first blaming the counsel and then claiming income below taxable limits, did not absolve her from the obligation under Section 44AB. The Tribunal held that since the assessee neither furnished the audit report nor a return of income with filled columns before the due date, the penalty under Section 271B was leviable and rightly imposed by the AO. The appeal was dismissed.

The Tribunal held that the assessee was engaged in an adventure in the nature of trade of construction and sale of flats, and therefore, the income should be assessed under the head 'income from business or profession'. The reasoning was based on analyzing the facts in light of the Supreme Court's parameters for determining the character of a transaction. Key factors considered were the construction of 12 flats, with two-thirds sold to unrelated parties, indicating an intention to exploit the property commercially. The fact that construction was funded by customer advances before completion further supported the intention to construct for sale, consistent with real estate developers. The Tribunal noted that even a single transaction can constitute an adventure in the nature of trade, as held in Commissioner Of Income Tax vs. Sutlej Cotton Mills Supply Agency. Consequently, the assessee was not entitled to deduction under section 54. However, the proportionate cost of land and construction attributable to the sold flats would be deductible from the sale proceeds while computing taxable business income.

The Tribunal held that the CIT(A) had failed to consider the submissions and documents filed by the assessee during the appellate proceedings. While the Revenue argued that this was due to the assessee not justifying the non-furnishing of documents before the Assessing Officer under Rule 46A, the Tribunal noted that the CIT(A)'s order did not discuss this aspect. Instead, it appeared that the documents and explanations were simply not considered, as the order only made reference to the statement of facts and Form No. 35. The Tribunal found that the CIT(A) had issued notices to the assessee on 07.01.2021 and 23.09.2024 and was therefore bound to consider the submissions and documents furnished in response. The failure to do so rendered the CIT(A)'s order deficient and violative of the principles of natural justice. In the interest of justice, the Tribunal restored the matter to the file of the CIT(A) for consideration of the explanations and documents filed by the assessee and to pass a fresh order. The Tribunal allowed the appeal for statistical purposes.

The Tribunal held that while the assessee's failure to produce books of accounts justified rejecting them, the AO's addition of the entire amount of alleged suppressed sales was not sustainable. The AO's computation started with the assessee's opening stock from audited accounts, and there was no allegation of undisclosed investment in the stock sold outside the books. The Tribunal agreed with the assessee that only the profit element in such transactions could be added. Accordingly, the addition was confirmed to the extent of 2.32% of the allegedly suppressed sales, representing the profit element based on the GP rate adopted by the AO. The balance of the addition was deleted. Grounds 2 and 4 were dismissed as not pressed due to lack of arguments or material. Ground 3 was held partly allowed as the addition was substantially varied.