DCIT Vs Hoysala Projects Pvt. Ltd. (ITAT Bangalore)

The appeal filed by the Revenue arose from the order of the Commissioner of Income Tax (Appeals)/NFAC dated 25.02.2025 for the assessment year 2017–18. The Revenue’s appeal was delayed by 176 days; however, the Tribunal condoned the delay after accepting the explanation as a sufficient cause and admitted the appeal for adjudication.

The assessee had originally filed its return of income declaring total income under normal provisions and book profit under Minimum Alternate Tax. The return was processed under Section 143(1), and later the case was selected for scrutiny. During assessment proceedings under Section 143(3), the Assessing Officer (AO) observed that the assessee had debited an amount of Rs. 8,89,35,310/- as “owner share of flat purchase – expenses.” The AO sought supporting documents and a detailed breakup of the expenses, but the assessee failed to furnish the required evidence. Consequently, the AO disallowed the entire expenditure and added it back to the income, determining a significantly higher assessed income.

Aggrieved, the assessee appealed before the CIT(A)/NFAC, contending that all relevant details had been submitted offline before the AO on 21.12.2019. The CIT(A) accepted this contention and noted that the AO had recognized revenue from the same projects (Ace-1 and Ace-2) while disallowing the related expenditure solely due to alleged non-compliance. It was also observed that in a subsequent assessment year (AY 2018–19), similar expenditure had been accepted. Further, the CIT(A) held that the AO’s approach of accepting income while rejecting corresponding expenditure amounted to inconsistency. The CIT(A) also relied on the fact that the books of account were audited and did not carry any qualification regarding income recognition or expense allocation. Based on these findings, the CIT(A) deleted the disallowance and allowed the assessee’s appeal.

The Revenue challenged this order before the Tribunal, arguing that the CIT(A) had accepted additional evidence without obtaining a remand report from the AO and without verifying whether the alleged offline submission was actually made. The Revenue emphasized that no documentary evidence had been furnished despite multiple opportunities.

Upon hearing the submissions and examining the record, the Tribunal noted that the core issue was the disallowance of the expenditure of Rs. 8.89 crores. It found that the CIT(A)’s decision was primarily based on the assumption that the assessee had submitted details offline, which required verification. The Tribunal also observed that the exact nature of the expenditure was not clearly understood from the records.

In view of these deficiencies, the Tribunal set aside the issue and remitted it back to the AO for fresh adjudication. The AO was directed to verify whether the assessee had indeed submitted the required details on 21.12.2019. If such details and supporting documents were already submitted, the expenditure should be allowed. Otherwise, the assessee must furnish complete details and evidence to substantiate the claim. The AO was also directed to provide a reasonable opportunity of being heard to the assessee.

Accordingly, the appeal of the Revenue was partly allowed for statistical purposes.

FULL TEXT OF THE ORDER OF ITAT BANGALORE

This appeal at the instance of the revenue is directed against the order of ld. CIT(A)/NFAC dated 25.2.2025 vide DIN & Order No. ITBA/NFAC/S/250/2024-25/1073680726(1) passed u/s 250 of the Income Tax Act, 1961 (in short “The Act”) for the assessment year 2017-18.

2. The assessee has raised the following grounds of appeal:

3. At the outset, the ld. D.R. submitted that there is a delay of 176 days in filing the appeal before this Tribunal. Further, the ld. D.R. also drew our attention to an application dated 22.10.2025 for condonation of delay in filing the appeal before this Tribunal stating therein the reason for the delay, which is reproduced below for ease of reference and convenience:

4. Perused the record and having heard the ld. D.R., it is perceived that the explanation offered in the condonation application is plausible and sufficient cause has been shown by the Revenue which prevented them from filing the appeal within the prescribed period before this Tribunal and accordingly, we are inclined to condone the delay of 176 days in filing the appeal before this Tribunal and admit the appeal filed by the revenue for adjudication.

5. Now the brief facts of the case are that the assessee company filed its return of income for the assessment year 2017-18 on 31.10.2017 declaring total income of Rs.1,24,46,600/- under the normal provisions of the Act and the book profit of Rs.1,09,95,030/-under the MAT provision u/s 115JB of the Act. Later on, the assessee company revised the return of income on 08.11.2017. The original return filed by the assessee was processed u/s 143(1) of the Act accepting the returned income of Rs.1,24,46,600/- under the normal provisions of the Act with a Nil demand. Thereafter, the case was selected for scrutiny under CASS and accordingly notices u/s 143(2) as well as 142(1) of the Act were issued and served on the assessee company calling for various details. During the course of assessment proceedings, it is seen from the financial statement that the expenses of Rs.8,89,35,310/- was debited towards “Owner share of flats purchase – expenses”. In this regard, the assessee company was asked to provide breakup of owners share of flats of Rs.8,89,35,310/- with supporting documents. The assessee company however did not furnish any supporting documents. The AO was of the view that the onus is on the assessee company to furnish the facts with supporting documents in order to claim that it had actually incurred expenditure. However, as the assessee company failed to provide the supporting documents in support of its claim, the entire amount of Rs.8,89,35,310/- debited towards “Owner share of flat purchase- expenses” was disallowed and added back to the total income of the assessee company. The AO concluded the assessment proceedings u/s 143(3) of the Act on a total assessed income of Rs.10,13,81,910/-.

6. Aggrieved by the assessment completed u/s 143(3) of the Act dated 31.12.2019, the assessee preferred an appeal before the ld. CIT(A)/NFAC.

7 The ld. CIT(A)/NFAC allowed the appeal of the assessee by observing as follows:

i. During the appellate proceedings, the assessee vide its submission dated 17.2.2021 averred that the details have been submitted offline before the AO on 21.12.2019, wherein it was clearly indicated that all the necessary information called for regarding the expenses claimed was submitted.

ii. The AO although recognized the revenue from the project consisting of two parts i.e. Ace-1 & Ace-2 but disallowed the expenses incurred amounting to Rs.8,89,35,310/- by simply quoting that due to non-compliance, he disallowed the entire expenses.

iii. The income tax authority for the AY 2018-19 on the similar issue of the assessee accepted the expenditure and the assessment was completed by accepting the income returned.

iv. The action of the AO in recognizing the income ignoring the expenditure variation on the mere pretext that the details were not furnished is nothing but blowing hot and cold at the same time.

v. The assessee was able to demonstrate that its books were subjected to statutory audit and no qualification regarding the income recognition or expenditure allocation was pointed out leading to any fatal flaw.

7.1 In view of the above, the disallowance of expenditure of Rs.8,89,35,310/- comprising of two projects from which the income was accepted and no qualification was made by AO regarding the books of accounts forming basis for such result of income, the ld. CIT(A)/NFAC held that the disallowance is not warranted more particularly in view of the income from same projects was accepted in toto and only the expenditure portion was added and accordingly allowed the appeal of the assessee.

8. Aggrieved by the order of the ld. CIT(A)/NFAC dated 25.2.2025, the revenue has filed the present appeal before this Tribunal.

9. Before us, the ld. D.R. vehemently submitted that the ld. CIT(A)/NFAC without calling for remand report from the AO and more particularly accepting the new contentions and additional evidences from the assessee had passed an order in favour of the assessee by allowing the expenditure of Rs.8.89 crores. Further, the ld. D.R. submitted that ld. CIT(A)/NFAC without examining the fact that whether assessee had submitted the information before the AO offline on 21.12.2019 had allowed the expenditure of Rs.8.89 crores and accordingly prayed that the order of ld. CIT(A)/NFAC is illegal and bad in law.

10. None appeared on behalf of the assessee.

11. We have heard the rival submissions and perused the materials available on record. The only dispute in the present case is regarding the disallowance of an expenditure of Rs.8,89,35,310/-towards “owner share of flat purchase – expenses”. Before the ld. CIT(A)/NFAC, the assessee claimed that the details have been submitted offline on 21.12.2019 before the AO, whereas the AO while completing the assessment proceedings disallowed the entire expenditure on the ground that assessee did not furnish any details along with supporting documents to substantiate its claim. We observed that the ld. CIT(A)/NFAC allowed the appeal of the assessee mainly on the ground that the details have been submitted offline on 21.12.2019, wherein all the necessary information called for regarding the expenditure was submitted before the AO. Further, we also observed that the ld. CIT(A)/NFAC believed that the action of the AO in recognizing the income ignoring the expenditure portion on the mere pretext that the details were not furnished is nothing but blowing hot and cold at the same time. In view of the above, the disallowance of expenditure of Rs.8.89 crores comprising of two projects from which the income was accepted, and no qualification was made by the AO regarding the books of accounts forming basis for such result of income. The ld. CIT(A)/NFAC was also of the view that the disallowance is not warranted, more particularly in view of the income from same projects was accepted in toto and only the expenditure portion was added. On going through the assessment order as well as order of ld. CIT(A)/NFAC, we could not understand the exact nature of expenditure claimed by the assessee towards “owner share of flat purchase – expenses”.

11.1 Before us, the Revenue vehemently submitted that the ld. CIT(A)/NFAC erred in holding that the assessee had submitted information offline on 21.12.2019 in response to notice u/s 142(1) of the Act. Further, the Revenue strongly contended that the ld. CIT(A)/NFAC failed to recognize that the assessee did not furnish any documentary proof for Rs.8.89 crores expenditure despite ample opportunities granted by the AO. This being so, we are inclined to remit the entire issue to the file of AO to decide afresh in accordance with law. The AO is also directed to verify whether the assessee had produced/submitted all the details of expenditure offline on 21.12.2019 or not. If the details along with the supporting documents were already produced by the assessee on 21.12.2019, the same may be allowed. In case the same had not been produced before the AO on 21.12.2019, the assessee is directed to produce all the details with the breakup of owner share of flats along with the supporting documents/evidence to AO to substantiate its claim. Needless to say, a reasonable opportunity of being heard must be granted to the assessee.

12. In the result, the appeal of the Revenue is partly allowed for statistical purposes.

Order pronounced in the open court on 20^th Apr, 2026