ITAT Remands Ex-Parte Assessment of Unexplained Cash Credits to AO for Fresh Consideration Subject to Payment of ₹1 Lakh Cost

By | October 9, 2026
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ITAT Remands Ex-Parte Assessment of Unexplained Cash Credits to AO for Fresh Consideration Subject to Payment of ₹1 Lakh Cost

Issue

Whether an ex-parte assessment making substantial additions for unexplained cash credits under Section 68 and ad-hoc expenditure disallowances under Section 144/144B can be remanded to the Assessing Officer for de-novo consideration when the assessee repeatedly failed to respond to multiple statutory notices, but seeks a final opportunity to produce relevant evidence.

Facts

  • Return & Scrutiny: The assessee, an individual, filed a return declaring an income of ₹3.44 crores for AY 2023-24. The case was selected for scrutiny to verify high liabilities and low profit margin.
  • Non-Compliance: The Assessing Officer (AO) issued multiple notices under Sections 143(2), 142(1), and 144. Except for submitting an audit report, the assessee failed to furnish requisitioned details or seek a personal hearing.
  • Additions & Disallowances: Due to non-furnishing of details, the AO treated unsecured loans and sundry creditors as unexplained cash credits under Section 68. Further, in the absence of bills or vouchers, the AO disallowed one-sixth of the claimed business expenses.
  • Ex-Parte Assessment: The AO completed the assessment ex-parte under Section 144 read with Section 144B, noting that the assessee’s conduct throughout the assessment proceedings was non-cooperative and unsatisfactory.

Decision

  • Satisfactory Hearing Opportunities: In favour of Revenue. The assessee repeatedly failed to utilize the multiple opportunities provided by lower authorities and only approached the appellate forum after adverse orders were passed. [Para 19]
  • Remand on Principles of Natural Justice: Matter Remanded. Considering the substantial quantum of additions involved and the plea for a final opportunity, the tribunal restored the matter to the file of the AO for de-novo assessment to ensure complete justice. [Para 20]
  • Cost Imposition: In favour of Revenue. The remand for a fresh assessment was granted strictly subject to the assessee paying a cost of ₹1 lakh to address the repeated defaults during original proceedings. [Para 20]

Key Takeaways

  1. Conditional Substantial Relief: Tax tribunals may grant a final opportunity for de-novo assessment in cases of severe non-compliance to prevent administrative injustice, provided substantial tax additions are involved.
  2. Cost as a Deterrent: To discourage repeated non-compliance with statutory notices under Sections 142(1) and 143(2), courts/tribunals will impose monetary penalties (costs) as a prerequisite for restoring ex-parte matters.
  3. Burden of Proof on Unsecured Credits: Audit reports alone do not discharge the onus of proving the identity, creditworthiness, and genuineness of creditors under Section 68; supporting vouchers and primary documents must be produced.
IN THE ITAT MUMBAI BENCH ‘G’
Shukla Bholanath Rajpati
v.
Deputy Commissioner of Income-tax
Siddhartha Nautial, Judicial Member
and Prabhash Shankar, Accountant Member
IT Appeal No. 7307 (Mum.) of 2026
[Assessment year 2023-24]
SEPTEMBER  28, 2026
Bharat Kumar, CA for the Appellant. Basavaraj Hiremath, CIT DR and Rajgopal Parthasarathi, Sr. DR for the Respondent.
ORDER
Siddhartha Nautial, Judicial Member. – This appeal is filed by the assessee against the order of Ld. NFAC / Ld. CIT(A) vide order dated 13-Mar-2025 for the Assessment Year 2023-24. The assessee has raised the following grounds of appeal:
Ground. 1. On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax Appeals Ld CITA erred in upholding the assessment framed by the Assessing Officer and in confirming various additions disallowances made therein. The appellant denies his liability to the additions disallowances so confirmed and craves leave to urge the grounds hereinafter taken without prejudice to one another.
Ground.2.On the facts and in the circumstances of the case and in law the Ld CITA erred in confirming the addition of Rs 2 179032299 made by the Assessing Officer under section 68 of the Income tax Act 1961 on account of alleged unexplained cash credits.
Ground.3.On the facts and in the circumstances of the case and in law the Ld CITA erred in confirming the disallowance addition of Rs 179104861 being 1 6th of the entire expenditure debited to the Profit Loss Account on an ad hoc and arbitrary basis without pointing out any specific defect OR instance of non genuine OR non business expenditure.
2. The brief facts of the case are that the assessee, an individual, filed his return of income for A.Y. 2023-24 on 03.10.2023 declaring total income of Rs. 3,44,12,560/-. The case was selected for scrutiny mainly to verify the high liabilities shown in the balance sheet as compared to the income and receipts declared by the assessee and also to examine the low profit shown from the business activities. The Assessing Officer issued notice under section 143(2) of the Income-tax Act, 1961 (“the Act”) on 19.06.2024. Thereafter, the Assessing Officer issued notice under section 142(1) of the Act dated 15.07.2024 asking the assessee to furnish details of his business activities, computation of income, bank statements, day-to-day cash book, expense ledgers, details of liabilities, loans and advances and details of purchases and sales. In response, the assessee filed only the audit report and did not furnish the other details called for by the Assessing Officer.
3. The Assessing Officer thereafter issued another notice on 11.09.2024 requiring the assessee to furnish a response within five days. The assessee did not respond. Since there was continued non-compliance, the Assessing Officer issued a show-cause notice under section 144 of the Act on 18.02.2025 proposing to complete the assessment to the best of judgment on the basis of the material available on record. The assessee again did not furnish any explanation or supporting evidence. The Assessing Officer issued another show-cause notice dated 28.02.2025 in respect of the proposed variations, but the assessee did not file any reply. The assessee also did not seek a personal hearing through video conference. The Assessing Officer further noted non-compliance with notice under section 142(1) of the Act dated 04.02.2025. Thus, except for filing the audit report, the assessee did not participate in the assessment proceedings despite several opportunities.
4. In the absence of the required details, the Assessing Officer proceeded on the basis of the material available on record, information available on the departmental portals, Form 26AS and ITS data. The Assessing Officer noticed that the assessee had taken unsecured loans of Rs. 15,95,05,945/- and sundry creditors of Rs. 1,95,26,354/-, aggregating to Rs. 17,90,32,299/-. Since the assessee did not furnish confirmations or any other evidence to establish the identity and creditworthiness of the creditors and the genuineness of the transactions, the Assessing Officer held that the assessee had failed to discharge the onus cast upon him. He accordingly treated the entire amount of Rs. 17,90,32,299/- as unexplained cash credit under section 68 of the Act.
5. The Assessing Officer also noticed that the assessee had claimed expenditure of Rs. 1,07,46,29,167/- in the profit and loss account. The Assessing Officer asked the assessee to furnish ledger accounts, bills, invoices and other supporting documents to establish the genuineness of the expenditure. However, the assessee did not file any details despite repeated opportunities. Since the expenditure could not be verified, the Assessing Officer disallowed one-sixth of the total expenditure amounting to Rs. 17,91,04,861/- and added the same under the head “Business and Profession”. The Assessing Officer accordingly completed the assessment under section 144 read with section 144B vide order dated 18.03.2025 and assessed the total income at Rs. 39,25,49,720/-.
6. The assessee carried the matter in appeal before the learned CIT(Appeals). The appeal was filed on 23.05.2025 against the assessment order dated 18.03.2025. The learned CIT(Appeals) noticed that the appeal had been filed with a delay of 36 days. The assessee filed an application for condonation of the delay. Considering the reasons stated in the application and taking a liberal view so that the substantive right of appeal was not defeated, the learned CIT(Appeals) condoned the delay of 36 days and admitted the appeal.
7. During the appellate proceedings, the learned CIT(Appeals) issued hearing notices on 03.10.2025, 21.10.2025 and 27.02.2026, requiring the assessee to file his submissions by 10.10.2025, 28.10.2025 and 05.03.2026 respectively. Although CIT(Appeals) noted that certain online submissions were received, the learned CIT(Appeals) found that the assessee did not furnish any written submission or documentary evidence in support of his case. The assessee had also not set out specific grounds of appeal in Column No.13 of Form No.35 and had merely stated that the grounds would be submitted at the time of hearing. However, no grounds were subsequently furnished.
8. The learned CIT(Appeals) further noticed that the assessee had stated in Form No.35 that additional evidence would be filed under Rule 46A. However, the assessee again stated that the evidence would be submitted at the time of hearing and did not file any such additional evidence. Thus, the confirmations and supporting documents relating to the unsecured loans and sundry creditors, as well as the books, ledgers, bills and vouchers relating to the expenditure claimed, which had not been produced before the Assessing Officer, were also not produced before the learned CIT(Appeals).
9. The learned CIT(Appeals) therefore observed that the additions had arisen mainly because of the assessee’s failure to comply with the assessment proceedings and the assessee had not improved his case even at the appellate stage. Despite the opportunities granted, the assessee did not prosecute the appeal by filing specific grounds, substantive submissions or supporting evidence. The learned CIT(Appeals), therefore, proceeded to decide the appeal on the basis of the material available on record.
10. The learned CIT(Appeals) referred to the decision of the Hon’ble Supreme Court in CIT v. B.N. Bhattacharjee  118 ITR 461 (SC), as well as CIT v. Multiplan India (P.) Ltd. [1991] 38 ITD 320 (Delhi), Estate of Late Tukojirao Holkar v. Commissioner of Wealth-tax [1997] 223 ITR 480 (M.P.) and New Diwan Oil Mills v. CIT [2008] 296 ITR 495 (Punj & Har), and held that an appeal is required to be effectively prosecuted and not merely filed.
11. Since the assessee had not furnished grounds, supporting submissions or documentary evidence, the learned CIT(Appeals) found no material to interfere with the assessment order. He accordingly sustained the addition of Rs. 17,90,32,299/- made under section 68 read with section 115BBE and the disallowance of Rs. 17,91,04,861/- out of business expenditure and dismissed the appeal vide order dated 13.03.2026.
12. The assessee is in appeal before us against the order passed by CIT(Appeals) dismissing the appeal of the assessee.
13. We observed that there is a delay of 12 days in filing of the present appeal. However, at the time of hearing, we observed that the assessee has not filed any application for condonation of delay of 12 days and no supporting affidavit has been filed. However, during the course of hearing, the counsel for the assessee submitted that the assessee is a senior citizen and the delay was on account of some mis-communication on part of the consultant and accordingly requested that looking into the quantum of additions involved and the minor period of delay, the delay may be condoned in the interest of justice. Ld. DR also did not object to assessee’s request for condonation of delay. Accordingly, looking into the quantum of additions and also taking into consideration the minor period of delay of 12 days in filing of the present appeal causing no prejudice to the other side, the delay is condoned in the interest of justice.
14. We have heard the learned counsel for the assessee and perused the material available on record. The learned counsel submitted that the assessment was completed ex parte and requested that one more opportunity may be granted to the assessee by restoring the matter to the file of the Assessing Officer for fresh consideration.
15. We find that the conduct of the assessee during the assessment proceedings was not at all satisfactory. The Assessing Officer granted at least six opportunities to the assessee by issuing notice under section 143(2) dated 19.06.2024, notice under section 142(1) dated 15.07.2024, notice dated 11.09.2024, further notice under section 142(1) dated 04.02.2025, show-cause notice under section 144 dated 18.02.2025 and the final show-cause notice dated 28.02.2025 in respect of the proposed variations. Despite these repeated opportunities, the assessee, except for filing the audit report, did not furnish the details, explanations or supporting evidence called for by the Assessing Officer. The assessee also did not seek a personal hearing in response to the final showcause notice. The Assessing Officer was, therefore, left with no alternative but to complete the assessment under section 144 read with section 144B of the Act on the basis of the material available on record.
16. What is also relevant is that, after the assessment order dated 18.03.2025 was passed, the assessee filed the appeal before the learned CIT(Appeals) on 23.05.2025 with a comparatively short delay of 36 days, which was subsequently condoned. This shows that the assessee was always well aware of the assessment proceedings but despite this, the assessee had chosen not to participate in the assessment proceedings when repeated opportunities had been granted.
17. The conduct of the assessee before the learned CIT(Appeals) was also similar. The learned CIT(Appeals) issued hearing notices on 03.10.2025, 21.10.2025 and 27.02.2026. However, the assessee did not prosecute the appeal, did not file proper grounds of appeal and did not furnish the documentary evidence which he had stated would be produced during the appellate proceedings. The learned CIT(Appeals), therefore, decided the appeal on the basis of the material available on record and dismissed the same.
18. We further notice that, after the learned CIT(Appeals) passed the impugned order, the assessee promptly approached the Tribunal and filed the present appeal with only a minor delay of 12 days. This again shows that the assessee was well aware of the on-going appellate proceedings but chose not to participate. The sequence of events, therefore, shows that the non-compliance before the Assessing Officer as well as before the learned CIT(Appeals) was not merely accidental. The assessee repeatedly failed to avail the opportunities granted by the lower authorities and approached the next appellate forum only after adverse orders had been passed.
19. At the same time, looking into to the substantial additions involved and considering the request of the learned counsel that the assessee may be granted one final opportunity to place the relevant evidence before the Assessing Officer, we are of the view that the matter may be restored to the file of the Assessing Officer in the interest of justice. However, such indulgence cannot be granted without taking note of the assessee’s repeated and deliberate failure to comply with the proceedings before both the authorities below.
20. We, therefore, set aside the order of the learned CIT(Appeals) and restore the entire matter to the file of the Assessing Officer for de-novo consideration, subject to payment of cost of Rs. 1,00,000/-. The assessee shall deposit the said amount in the Prime Minister’s Relief Fund and furnish proof of payment before the Assessing Officer. The Assessing Officer shall thereafter decide the issues afresh in accordance with law after giving reasonable opportunity of hearing to the assessee.
21. We find that the conduct of the assessee cannot be treated as a simple or accidental lapse. The assessee was fully aware of the proceedings before the Assessing Officer and was granted several opportunities to furnish the required details and evidence. Despite this, the assessee chose not to comply. The same conduct continued before the learned CIT(Appeals), where also the assessee failed to prosecute the appeal or produce the supporting material. However, once adverse orders were passed, the assessee promptly approached the higher appellate forums. This clearly shows that the assessee was aware of the proceedings but deliberately chose not to participate when opportunities were granted. In our view, such conduct cannot be encouraged. A litigant cannot avoid the proceedings before the lower authorities, allow an adverse order to be passed and thereafter seek a fresh opportunity as a matter of course. This not only delays the proceedings but also results in unnecessary use of judicial and administrative time. We are still granting one final opportunity in the interest of justice, but such relief must come with consequences. The cost is therefore being imposed to discourage deliberate non-cooperation of this nature so that statutory proceedings cannot be ignored at will and then reopened merely because the result has gone against the assessee.
22. The counsel for the assessee has also furnished an Undertaking on behalf of the assessee dated 25.09.2026, that the assessee shall deposit the aforesaid cost of Rs. 1 lakh to the Prime Minister’s Relief Fund.
23. We make it clear that this is the final opportunity being granted to the assessee. The assessee shall fully cooperate with the Assessing Officer and shall furnish all the details, books of account, confirmations, bills, vouchers and other evidence on which he seeks to rely, within the time granted by the Assessing Officer. In case the assessee again fails to comply without sufficient cause, the Assessing Officer shall be at liberty to proceed in accordance with law on the basis of the material available on record.
24. Accordingly, the appeal of the assessee is allowed for statistical purposes.