Jitendra M. Kitavat Vs ITO (ITAT Mumbai Bench)
Accommodation Entry Addition Cannot Rest on Documents Kept Away From Assessee: ITAT Grants Fresh Opportunity & Directs AO to Supply All Relied-Upon Material
Summary: The assessee-HUF challenged an ex parte appellate order passed by the CIT(A), NFAC, sustaining the addition made by the AO for AY 2017-18.
Before the Tribunal, the assessee explained that it could not effectively participate either in the assessment proceedings or in the proceedings before the CIT(A). Consequently, the assessment and first appellate orders were passed without considering the assessee’s complete explanation and supporting documentary evidence.
The Karta of the assessee-HUF, Shri Jitendra M. Kitavat, filed a detailed affidavit explaining the circumstances behind the non-compliance.
According to the affidavit, the HUF’s business had suffered severe financial losses, leading to an acute financial crisis. Its financial position deteriorated to such an extent that it was ultimately compelled to discontinue its business operations.
The closure of the business placed the Karta under considerable financial and mental pressure. His time and attention were occupied in dealing with creditors, settling outstanding liabilities, arranging funds for the family’s livelihood and managing the consequences of the business closure.
In these circumstances, he was unable to properly attend to the income-tax proceedings or coordinate effectively with the tax consultant for filing timely replies and supporting documents.
The Karta stated that the non-compliance was neither deliberate nor intended to disregard the statutory notices. It arose from unavoidable circumstances surrounding the collapse of the family business. He expressed regret for the earlier lapses and undertook to fully cooperate in all future proceedings.
The assessee further stated that it had a good case on merits and was now in a position to place all relevant facts, legal submissions and documentary evidence before the tax authorities. It accordingly requested that one effective opportunity be granted so that the controversy could be decided on merits rather than on account of procedural default.
Apart from the explanation for non-appearance, the assessee raised a serious grievance regarding the material relied upon by the AO. The assessment apparently proceeded on the basis that certain transactions entered into by the assessee were accommodation entries.
The assessee contended that some of the documents, information and statements relied upon by the AO for drawing this conclusion had never been supplied to it. Without access to such material, the assessee had no meaningful opportunity to explain the transactions or rebut the allegations arising from the third-party information.
The assessee particularly disputed the alleged transaction with one Shri Shripal Vora. It maintained that it had never entered into any transaction with him. Therefore, the assessee requested that the AO be specifically directed to furnish all documents and material relied upon for treating the transactions as accommodation entries.
The Departmental Representative did not raise any serious objection to restoration of the matter to the AO.
The Tribunal considered the rival submissions and examined the circumstances stated in the Karta’s affidavit. It found it appropriate to provide the assessee an opportunity to present its case properly.
The issues arising in the appeal were accordingly restored to the file of the AO. More importantly, the Tribunal directed the AO to provide the assessee with all material and documents relied upon for treating the disputed transactions as accommodation entries and assessing the corresponding amount in the assessee’s hands.
After furnishing the relied-upon material, the AO was directed to complete the assessment afresh in accordance with law and after providing the assessee an adequate opportunity of being heard.
The appeal was accordingly allowed for statistical purposes.
Legal Principle
Where an addition is founded upon documents, information or statements allegedly establishing accommodation entries, the material relied upon must be furnished to the assessee. An effective opportunity of hearing is impossible unless the assessee knows the evidence it is expected to meet.
Further, where non-compliance before the AO and CIT(A) is supported by a credible affidavit explaining severe financial distress and closure of business, the matter may be restored for fresh adjudication in the interest of substantial justice, subject to the assessee’s undertaking to cooperate.
Author’s Comment
This decision contains two distinct aspects. The first is the Tribunal’s sympathetic consideration of the circumstances that prevented effective compliance. The second—and legally more important—is the direction requiring the AO to furnish the entire material relied upon for alleging accommodation entries.
An assessment cannot be built upon evidence available only to the AO. If third-party statements, investigation reports, transaction trails or other documents are used against an assessee, those materials must ordinarily be disclosed so that the assessee can offer an explanation, point out factual inaccuracies and seek appropriate confrontation wherever legally warranted.
The phrase “adequate opportunity” means more than merely uploading another notice on the portal. The assessee must be informed of the precise allegation and given access to the evidence supporting it.
However, the order is only a remand and does not delete the addition on merits. The assessee must now use the opportunity effectively by responding to every document, reconciling the disputed transactions, producing bank statements and books, and placing evidence supporting the denial of any dealings with Shri Shripal Vora.
The affidavit succeeded in reopening the door, but it does not decide what lies behind it. The fresh result will depend upon the evidence produced and the assessee’s cooperation.
In short, financial distress may explain an earlier absence, but secret evidence can never substitute a fair hearing. Before branding a transaction as an accommodation entry, the AO must put the relevant material on the table and allow the assessee to answer it.
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, MUMBAI BENCH
This appeal is filed by the assessee against the order of the Ld. CIT(A)-NFAC, Delhi, dated 18.02.2026 for the assessment year 2017-18 in sustaining the addition made by the Assessing Officer.
2. Ld. Counsel for the assessee, at the outset, submitted that the Ld. CIT(A) passed an order ex-parte. Ld. Counsel submitted that the assessee could not participate in the proceedings before the Assessing Officer as well as the Ld. CIT(A) as the business of the assessee-HUF suffered severe financial losses, resulting in an acute financial crisis and ultimately compelled the assessee to shut down its business operations. The assessee filed the following affidavit deposing and explaining the circumstances under which the assessee could not participate effectively in the assessment proceedings as well as the appellate proceedings, stating as under:
“I Shri Jitendra M. Kitavat, Karta of Jitendra M. Kitavat (HUF), aged about 51 years, residing at 61, Purnima Apartment, 43, B G Marg, Mumbai 400006, do hereby solemnly affirm and state as under:
1. I am the Karta of the Appellant HUF and am fully conversant with the facts and circumstances of the present case. I am competent to swear this affidavit.
2. During the course of the assessment proceedings before the learned Assessing Officer as well as the appellate proceedings before the learned Commissioner of Income-tax (Appeals), proper and effective compliance could not be made by me.
3. The non-compliance before the learned Assessing Officer as well as the learned Commissioner of Income-tax (Appeals) was neither wilful nor intentional. During the relevant period, the business of the Appellant HUF suffered severe financial losses, resulting in an acute financial crisis. The financial condition deteriorated to such an extent that the HUF was ultimately compelled to shut down its business operations.
4. The closure of the business placed me, as the Karta of the HUF, under immense financial and mental pressure. My entire time and efforts were devoted towards dealing with the financial crisis, settling outstanding liabilities, arranging funds for the family’s livelihood and coping with the consequences of the closure of the business. In these exceptional circumstances, I was unable to properly attend to the income-tax proceedings or effectively coordinate with my tax consultant for filing timely replies and necessary documents.
5. I respectfully submit that the failure to comply with the notices issued during the assessment and appellate proceedings was purely on account of the above unavoidable circumstances. There was never any intention to disregard the statutory notices or to delay the proceedings. The non-compliance was bona fide and arose solely because the HUF had ceased its business operations due to the severe financial crisis and I was under extreme financial and mental stress.
6. I sincerely regret the aforesaid non-compliance. I respectfully submit that the assessment as well as the first appellate order came to be passed without the benefit of the relevant explanations and supporting documentary evidence which the Appellant is now ready and willing to place before this Hon’ble Tribunal. I therefore humbly pray that, in the interest of substantial justice, one effective opportunity may kindly be granted to the Appellant so that the matter can be decided on merits rather than on account of the earlier procedural lapse.
7. I state that I have a good case on merits and am now in a position to place all relevant facts, documentary evidence and legal submissions before the Hon’ble Tribunal for proper adjudication.
8. I sincerely regret the earlier non-compliance and undertake to extend full cooperation in all future proceedings before the Hon’ble Tribunal. I assure this Hon’ble Tribunal that there shall be no lapse or default on my part in prosecuting the present appeal.
9. I therefore humbly pray that the earlier non-compliance may kindly be viewed sympathetically and the Appellant may be afforded one effective opportunity in the interest of substantial justice, so that the matter may be decided on merits rather than on account of procedural lapses.
10. I declare that the contents of this affidavit are true and correct to the best of my knowledge and belief.”
3. Ld. Counsel for the assessee submitted that for the reasons explained in the affidavit, the assessee could not effectively participate in the proceedings either before the Assessing Officer or before the Ld. CIT(A). Therefore, the issues in appeal may be restored to the file of the Assessing Officer.
4. Ld. Counsel for the assessee submitted that some of the material and statements which the Assessing Officer relied upon to treat the transactions as accommodation entries were never provided to the assessee and the assessee had denied any transaction with one Shri Shripal Vora, as the assessee never entered into any transaction with him. Therefore, Ld. Counsel submitted that a direction may be given to the Assessing Officer to provide all the documents / materials which the Assessing Officer is relying upon to treat the transactions entered into by the assessee as accommodation entries, especially when the assessee disputed that he never entered into any such transactions with them.
5. Ld. DR has no serious objection in restoring the appeal to the file of the Assessing Officer.
6. Considering the rival submissions and perusing the reasons explained in the affidavit, we feel it appropriate to restore the issues in appeal to the file of the Assessing Officer with a direction to provide all the materials/ documents, which were relied upon to treat the transactions as accommodation entries and assessed the same in the hands of the assessee. The Assessing Officer shall complete the assessment in accordance with law after providing adequate opportunity to the assessee.
7. In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open court on 11/09/2026
