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Judgment
PER RAMIT KOCHAR, AM:
This appeal in ITA No. 6962/Del/2025for Assessment Year: 2018-19 has arisen from the learned CIT(A)’s appellate order u/s 250 of the Income-tax Act, 1961(in short “Act”) dated 21.08.2025 in Appeal No. CIT(A), Kanpur/10934/2017-18, which in turn has arisen from the assessment order dated 16.02.2021 passed by the ld. DCIT, Central Circle, Ghaziabad u/s 144of the Act.
The brief facts of the case are that the assessee filed its return of income on 31.03.2019, declaring income of Rs. 8,89,160/-. The case of the assessee was selected for framing compulsory scrutiny assessment. Statutory notices u/s 143(2) , 142(1) of the 1961 Act and SCN’s were issued by the AO to the assessee, during the course of assessment proceedings, the details of which are recorded in the assessment order. The return of income filed by the assessee was declared as invalid return of income by Revenue. The assessee did not filed any response to the notice issued seeking reply as to why the proceedings be not conducted u/s 144 of the 1961 Act. The CPC informed AO that the assessee has not regularized its defective return of income despite repeated notices. The AO concluded assessment u/s 144 of the 1961 Act.
The assessee company was asked by the AO to file details as to ‘Professional and Consultancy’ payments to the tune of Rs. 26,79,561/- as well as ‘Labour charges’ to the tune of Rs. 30,67,746/- incurred by it. The assessee did not filed any response. The AO made disallowance of 15% of these expenses.
The AO observed that the assessee has shown Revenue de-recognition of Rs. 2,19,04,787/- and balance written off of Rs. 57,50,091/-, and the same was claimed it is in Profit and Loss Account but no specific details were submitted. The AO asked assessee to explain the same and submit complete details and justification . The assessee submitted that it sold some of its flats to its clients in the Project ‘Grand Savanna; situated at Raj Nagar Extension. Ghaziabad. All the clients have taken loans from Banks/FI’s . It was submitted that the assessee is liable to pay EMI on housing loans till possession of the flats. It was submitted that if the possession of the flat is delayed or flats are not ready as per customer satisfaction , the assessee is also liable to refund housing loans to Banks/FI’s directly. It was submitted that some of the clients refused to continue with the booking of said flats. The assessee submitted it paid housing loan amount to the Bank /FIs, and cancelled these bookings. The assessee submitted names and addresses of such clients. The AO observed that the assessee has not supported its explanation with documentary evidences . The assessee has not furnished copy of agreement or cancellation agreement , and no details of revenue provisionally recognised have been furnished to verify whether the EMI’s paid by the assessee company on housing loan of the buyers have voluntarily been recovered from the respective buyers. The AO observed that no business would enter into such loss making arrangements. Thus, in view of the unsatisfactory explanation provided by assessee without any evidence despite being granted sufficient opportunities, the AO treated Rs. 2,64,54,878/- as unexplained and disallowed by the AO, which stood added to the income of the assessee.
The AO observed that the assessee has claimed interest expenses of Rs. 39,24,584/- . The assessee was asked to explain the same and submit evidences in support thereof. The assessee submitted that it has incurred penal interest in loans from Punjab and Sindh Bank and furnished bank statement and ledger account. The AO observed that the penal interest is regularly paid every month, and the assessee is habitual in delaying making payments and incurring penal interest to reduce profits. The same having not been incurred wholly and exclusively for the purposes of the business u/s 37(1) of the 1961 Act, which stood disallowed by the AO and added to the income of the assessee.
Aggrieved, the assessee filed first appeal with ld. CIT(A). The assessee filed certain additional evidences under Rule 46A of the Income-tax Rules, 1962 before ld. CIT(A) to substantiate its stand. The ld. CIT(A) called remand report from the AO on the additional evidences filed by the assessee. The AO referred to Rule 46A of the 1962 Rules, and submitted that these evidences now filed by the assessee for the first time before ld. CIT(A) be not admitted as the assessee has not submitted sufficient cause and justification for not filing these additional evidences before AO during assessment proceedings. The ld. CIT(A) accepted the additional evidences and deleted the additions as were made by the AO.
Now, it was the turn of the Revenue to be aggrieved by the appellate order passed by the ld. CIT(A), and Revenue has now filed an appeal with the Tribunal. The Revenue has raised as many as 11 grounds of appeal. None appeared on behalf of the assessee when this appeal was called for hearing before Division Bench of the Tribunal. The Tribunal had made efforts to serve notices to the assessee directly as well through Department, but all efforts failed. The ld. Sr. DR submitted that ld. CIT(A) erred in accepting additional evidences filed before it. It was submitted that ld. CIT(A) erred in granting relief to the assessee.
We have considered contention of ld. Sr. DR and perused the material on record. We have observed that the AO made 3 additions as detailed above vide assessment order passed u/s 144 of the 1961 Act as the assessee failed to substantiate its stand with evidences during the course of assessment proceedings, wherein income was assessed by the AO to the tune of Rs. 3,33,30,720/- as against the returned income of Rs. 8,89,160/-. It is observed that the assessee filed additional evidences before ld.CIT(A). Remand report was called by ld. CIT(A) from the AO on the additional evidences filed by the assessee. The AO submitted in remand report that there was no sufficient cause and justification before the assessee in not submitting these additional evidences during assessment proceedings, and the AO requested ld. CIT(A) not to admit these evidences, as these additional evidences were not filed in accordance with Rule 46A of the 1962 Rules. The ld. CIT(A) however proceeded to admit these additional evidences and granted relief to the assessee . It is observed that ld. CIT(A) granted relief to the assessee by accepting contentions of the assessee without making any independent enquiry and verification . The ld. CIT(A) is empowered as well obligated to make enquiry u/s 250(4) of the 1961 Act, before accepting the contentions/evidences filed by the tax-payer. Even ld. CIT(A) can direct AO to make enquiry. The ld. CIT(A) powers are co-terminus with the powers of the AO, which even include power of enhancement. If the AO has refused to comment on additional evidences during remand report proceedings as was done by the AO in the instant case, the ld. CIT(A) was duty bound to make enquiry and to do necessary verifications , before accepting contentions of the assessee. The proceedings before ld. CIT(A) are merely extension of assessment proceedings, the objective being to find out income chargeable to income-tax in accordance with as well mandate of the 1961 Act. Say for instance, the assessee has derecognised revenue with respect to cancelled flats to the tune of Rs.2,19,04,787/- and charged off to Profit and Loss Account, and ld. CIT(A) granted relief to the assessee,without analysing impact on Profit and Loss account with respect to costs wrt said flats which stood charged off to Profit and Loss account while computing income chargeable to income –tax for earlier years as well during current year, which also need to be reversed accordingly on matching concept. The ld. CIT(A) failed to see whether such costs are also reversed or not in P&L A/c or merely sales are derecognized and debited to P&L A/c, or whether such costs with respect to cancelled flats are taken into inventory as at close of the year, and reflected in the asset side. The ld. CIT(A) failed to see as to what happened to such flats which assessee is claiming to be cancelled, i.e. whether they are resold or not. The ld. CIT(A) failed to see whether EMI which devolved on the assessee got finally recovered from the customers , or whether they were required to be added to the cost of inventory wrt cancelled flats instead of being charged off to P&L A/c. Similarly, on other issues , no detailed investigation or enquiry was made by ld. CIT(A), and the contentions filed by the assessee were merely accepted by ld. CIT(A). Thus, the appellate order passed by ld. CIT(A) is not sustainable. We are setting aside the appellate order passed by ld. CIT(A) and restoring the matter back to the file of the ld. CIT(A) for denovo adjudication of the appeal by ld. CIT(A). The additional evidences filed by the assessee as well which would be filed by the assessee, if any during denovo appellate proceedings in its defence, shall be admitted by ld. CIT(A)/AO , and adjudicated on merits in accordance with law. The ld. CIT(A) shall give proper opportunity of being heard to the assessee in denovo appellate proceedings. The assessee is directed to co-operate with ld. CIT(A) in set aside appellate proceedings, otherwise ld. CIT(A) shall be free to pass such appellate order as deem fit ex-parte. Thus, Revenues appeal is allowed for statistical purposes.We order accordingly
In the result, the appeal filed by the Revenue is allowed for statistical purposes.