Case Law Details
ITO Vs Bluepearl Trading Company Private Limited (ITAT Mumbai)
The Revenue filed an appeal before the Income Tax Appellate Tribunal (ITAT), Mumbai, challenging the order of the Commissioner of Income Tax (Appeals), NFAC, Delhi, dated 19.11.2025, arising from an assessment order passed under Section 144 of the Income Tax Act, 1961, for Assessment Year 2022-23.
The assessee had filed its return of income on 03.11.2022 declaring a business loss of ₹1,98,134. During assessment proceedings, the Assessing Officer issued various notices, and the assessee furnished details and submissions from time to time. The assessment order itself reproduced the synopsis and information submitted by the assessee. Despite the material being available on record, the Assessing Officer made substantial additions.
Firstly, an addition of ₹2,13,30,000 was made under Section 69 by treating investments in unlisted equity shares as unexplained investments. Secondly, the Assessing Officer made an ad hoc disallowance of 10% of short-term borrowings aggregating to ₹263,43,09,943, resulting in an addition of ₹26,34,30,994. Consequently, the total income was assessed at ₹28,45,62,860 as against the returned loss of ₹1,98,134.
Before the CIT(A), the assessee demonstrated that the investments in unlisted equity shares were duly recorded in its books of account and reflected in the financial statements. After examining the record, the CIT(A) observed that Section 69 applies to investments not recorded in the books maintained by the assessee. Since the investments were already reflected in the books, invocation of Section 69 appeared prima facie untenable. However, instead of deleting the addition outright, the CIT(A) directed the assessee to furnish details regarding the immediate source of the investments and supporting evidence relating to the financial capacity and creditworthiness of the lenders, if any. The matter was restored to the Assessing Officer for examination of the fund flow and source of finance. The CIT(A) further directed that if any discrepancy or unexplained credit was found, it could be examined in accordance with law under Section 68.
With regard to the addition relating to short-term borrowings and advances amounting to ₹263,43,09,943, the assessee submitted that these amounts had been incorrectly reflected in the return under the head “Short Term Borrowings,” whereas in earlier years they had been shown as “Other Current Liabilities.” It was also explained that most of the loans pertained to earlier years. The CIT(A) noted that the Assessing Officer had neither properly examined the ledger accounts nor verified the nature and continuity of these liabilities. The only basis cited by the Assessing Officer was that the lenders had declared business losses, leading to doubts regarding their creditworthiness. However, without conducting enquiries regarding the identity, genuineness, and creditworthiness of the lenders, the Assessing Officer proceeded to make an ad hoc disallowance of 10% of the entire amount.
The CIT(A) held that such ad hoc disallowance was unsustainable in law. The assessee was directed to furnish supporting bank statements, fund flow statements, and other evidence relating to the lenders, while the Assessing Officer was directed to examine the issue afresh in accordance with law.
Before the Tribunal, the Departmental Representative argued that since the assessment order recorded that the assessee had furnished submissions and details during the assessment proceedings, the assessment could not be regarded as ex parte in the strict sense. It was contended that the CIT(A) ought to have adjudicated the issues on merits based on the material available on record instead of restoring the matter to the Assessing Officer.
After considering the submissions and examining the record, the Tribunal held that it was unable to understand how the Revenue could be considered aggrieved by the order of the CIT(A). The Tribunal observed that substantial additions involving several crores had been made in a mechanical manner without proper verification of the material already placed before the Assessing Officer. The assessment order itself acknowledged that details and submissions had been furnished by the assessee.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The aforesaid appeal has been filed by the Revenue against the order dated 19/11/2025 passed by the learned Commissioner of Income Tax (Appeals), NFAC, Delhi, arising out of assessment order passed under section 144 of the Income Tax Act, 1961 for the assessment year 2022-23.
2. The Revenue has raised the following grounds of appeal:
“1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in setting aside the assessment order passed u/s 143(3) by wrongly treating it as passed u/s 144 and thereby violating the specific proviso to section 251(1)(a) of the Act?
2. Whether on the facts and circumstances of the case and in law, the order passed by Ld. CIT(A) requires to be set aside to the file of CIT(A) for deciding the grounds raised by the assessee on merits?”
3. The brief facts borne out from the record are that the assessee had filed its return of income on 03/11/2022 declaring a business loss of Rs.1,98,134/-. During the course of assessment proceedings, the learned Assessing Officer noted that various notices had been issued to the assessee and certain details and submissions had also been furnished from time to time. In fact, the assessment order itself contains reproduction of synopsis and details filed by the assessee. However, despite the material being available on record, the learned Assessing Officer proceeded to make substantial additions. Firstly, an addition of Rs.2,13,30,000/- was made under section 69 on account of investment in unlisted equity shares treating the same as unexplained investment. Secondly, the Assessing Officer made an adhoc disallowance at the rate of 10% of short term borrowings aggregating to Rs.263,43,09,943/- and thereby made an addition of Rs.26,34,30,994/-. Consequently, the total income was assessed at Rs.28,45,62,860/- as against the returned loss of Rs.1,98,134/-.
4. Before the learned CIT(A), the assessee had demonstrated that the investment in unlisted equity shares was duly recorded in the books of account and also reflected in the financial statements. After examining the record, the learned CIT(A) observed that once the investments are duly recorded in the books of account, invocation of section 69 itself becomes prima facie untenable because section 69 contemplates investments which are not recorded in the books maintained by the assessee. The learned CIT(A), however, instead of deleting the addition outright, directed the assessee to furnish details regarding the immediate source of investment and supporting evidence in respect of the financial capacity and creditworthiness of the lenders, if any, from whom funds had been arranged. Thereafter, the matter was restored to the file of the learned Assessing Officer with a direction to examine the fund flow and source of finance and, if any discrepancy or unexplained credit is found, the same may be examined in accordance with law under section 68 of the Act.
5. In so far as the issue relating to short term borrowings and advances aggregating to Rs.263,43,09,943/- is concerned, it was submitted before the authorities below that the amounts had been wrongly reflected in the return of income under the head “Short Term Borrowings”, whereas in earlier years similar amounts were shown as “Other Current Liabilities”. It was further explained that most of these loans pertained to earlier years and the learned Assessing Officer had neither properly examined the ledger accounts nor verified the nature and continuity of these liabilities. The only observation made by the Assessing Officer was that the lenders had declared business losses and therefore their creditworthiness was doubtful. However, instead of carrying out any enquiry or verification with regard to identity, genuineness and creditworthiness, the learned Assessing Officer proceeded to make an adhoc disallowance of 10% of the entire amount, which, on the face of it, had no rational or legal basis. The learned CIT(A), therefore, held that such adhoc disallowance was unsustainable in law and directed the assessee to furnish supporting bank statements, fund flow statements and other evidence regarding the lenders, and simultaneously directed the Assessing Officer to examine the issue afresh in accordance with law.
6. Before us, the learned Departmental Representative strongly relied upon the assessment order and submitted that once the assessment order itself records that the assessee had furnished submissions and details from time to time during the course of assessment proceedings, then the assessment cannot be treated as an ex-parte order in the strict sense. He thus contended that the learned CIT(A), instead of restoring the matter back to the file of the Assessing Officer, ought to have adjudicated the issues on merits based on the material already available on record and rendered a final decision thereon.
7. After hearing the parties and upon perusal of the material placed on record, we are unable to appreciate as to how the Revenue can be said to be aggrieved by the impugned order of the learned CIT(A). From the plain reading of the assessment order, it is manifest that huge additions running into several crores of rupees have been made in a highly mechanical manner without proper verification of the records and material already placed before the Assessing Officer. The assessment order itself records that details and submissions had been furnished by the assessee. However, despite such details being available on record, no proper enquiry or factual verification appears to have been undertaken. The addition under section 69 has been made despite the admitted factual position that the investments were reflected in the books of account and financial statements. Likewise, even the addition sought to be made in respect of loans and advances is wholly unsustainable in the manner in which it has been approached by the Assessing Officer. As pointed out by the learned counsel for the assessee before the authorities below, most of these loans were continuing balances brought forward from earlier years and this factual aspect itself required proper verification from the records. Instead of carrying out any meaningful enquiry regarding identity, genuineness and creditworthiness of the lenders in terms of section 68, the Assessing Officer has simply resorted to an adhoc disallowance at the rate of 10% of the entire amount, which is completely alien to the scheme of section 68 because there is no concept either of adhoc addition or estimation at a flat rate while examining the issue of unexplained cash credit. Either the ingredients of section 68 are satisfied or they are not satisfied, but an arbitrary disallowance at the rate of 10% without any cogent basis cannot be sustained in law.
8. The learned CIT(A), instead of granting outright relief to the assessee, has restored the matter to the file of the Assessing Officer with specific directions to examine the source of funds, fund flow, bank statements and creditworthiness of the lenders and thereafter pass an order in accordance with law. Thus, the impugned order does not cause any prejudice whatsoever to the Revenue. On the contrary, sufficient opportunity has been granted to the Assessing Officer to carry out proper verification and bring to tax any amount which may ultimately be found to be unexplained in accordance with the provisions of the Act. Further, the assessee itself has not challenged the order of the learned CIT(A) and has accepted the remand direction issued therein. Under such circumstances, we fail to understand as to why and how the Revenue can be aggrieved by such an order of the learned CIT(A), especially when the matter has merely been restored for proper verification and fresh adjudication in accordance with law.
9. We thus do not find any infirmity in the order passed by the learned CIT(A). Accordingly, the grounds raised by the Revenue are dismissed.
10. In the result, appeal of the Revenue is dismissed.
Order pronounced on 27th May, 2026.
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