ITO Vs R K Industries (ITAT Jodhpur)
Addition Beyond Show-Cause Notice Cannot Stand: Jodhpur ITAT Upholds ₹15.39 Crore Relief
The Jodhpur Bench of the Income Tax Appellate Tribunal (ITAT) has upheld deletion of a ₹15,39,38,566 addition under Section 69C, finding that the Assessing Officer made the addition on an issue outside the show-cause notice and overlooked documents already furnished during assessment.
In ITO, Hanumangarh v. R K Industries, ITA No. 251/Jodh/2025, pronounced on 4 November 2026, the Tribunal dismissed the Revenue’s appeal for Assessment Year 2022-23.
The decision highlights the need to confront an assessee with the proposed addition and examine evidence already available on the assessment record.
Background: Loan Repayments Treated as Unexplained Expenditure
The assessee manufactured cotton, binola and binola delenter, besides trading in foodgrains, cereals and pulses as a wholesaler and commission agent.
It filed its return on 10 September 2022, declaring total income of ₹42,05,070. The case was selected for scrutiny, including verification of substantial loans squared up during the year.
The Assessing Officer subsequently treated loan repayments aggregating to ₹15.39 crore as unexplained expenditure under Section 69C.
The stated reason was failure to provide documentary evidence supporting repayment, including bank statements identifying payments to the lenders.
The CIT(A), National Faceless Appeal Centre, deleted the addition. The Revenue challenged that relief before the Tribunal.
Show-Cause Notice Proposed a Different Addition
A significant issue concerned the scope of the show-cause notice dated 13 March 2024.
The notice proposed an addition by applying 25% to gross receipts, following concerns about discrepancies in sales figures appearing in the audited financial statements, GST returns, tax audit report and income-tax return.
The assessee explained the discrepancies during a video-conference hearing and furnished a written response on 17 March 2024.
The Assessing Officer did not ultimately make the proposed addition on that basis.
Instead, the assessment included an addition concerning loan repayments under Section 69C, which had not formed part of the proposal in the show-cause notice.
Assessee Produced Banking and Creditor Records
The assessee disputed the allegation that supporting documents were unavailable.
It referred to creditor confirmations, lenders’ income-tax returns, ledger accounts, bank statements and tax audit records. These documents, it submitted, established the loans and their repayment through account-payee cheques or RTGS.
The assessee also pointed to compliance by creditors with notices issued under Section 133(6).
The CIT(A) examined the records and found that the repayments were legitimate and properly documented. It noted that relevant documents had already been furnished to the Assessing Officer during assessment but were overlooked or ignored.
The repayment entries were reflected in the bank statements and corresponding party ledgers.
Revenue Alleged Violation of Rule 46A
Before the Tribunal, the Revenue argued that the CIT(A) had relied on evidence submitted during appellate proceedings without allowing the Assessing Officer an opportunity to examine it.
It therefore alleged non-compliance with Rule 46A of the Income-tax Rules.
The assessee countered that the documents were not additional evidence. It relied on e-filing portal screenshots and submission acknowledgements demonstrating that the material had been placed before the Assessing Officer.
The Tribunal accepted the substance of this explanation. It noted the CIT(A)’s finding that sufficient evidence was already available during assessment and that the Revenue had not effectively rebutted that position.
Tribunal Found Addition Outside Notice Unwarranted
The Tribunal examined the show-cause notice and the assessee’s response.
It found that the Assessing Officer had not proceeded with the proposed gross-receipts addition after considering the explanation.
However, the officer then made an addition beyond the subject matter of the notice. The Tribunal held that this course was unwarranted.
The assessee had also relied on authorities supporting the principle that an adjudicating authority should remain within the allegations communicated through the show-cause notice.
The Tribunal’s conclusion reinforces the requirement that an assessee receive an effective opportunity to answer the specific case ultimately relied upon for an adverse addition.
Documentary Evidence Supported Deletion
The Tribunal also rejected the factual premise that the assessee had failed to substantiate the repayments.
It referred to the first appellate authority’s finding that the records demonstrated legitimate, documented banking transactions.
Sufficient material was available before the Assessing Officer to examine the issue properly. The Revenue did not advance an effective rebuttal to that finding during the hearing.
Accordingly, the Tribunal found no reason to interfere with the reasoned order of the CIT(A).
Revenue’s Appeal Dismissed
The Tribunal dismissed the Revenue’s appeal, sustaining deletion of the ₹15.39 crore addition.
Although the assessee also argued that repayment of loan principal does not constitute expenditure under Section 69C, the Tribunal’s operative reasoning centred on the addition exceeding the show-cause notice and the supporting evidence already on record.
The ruling therefore supports relief where a fresh adverse issue is introduced without proper confrontation and documented transactions are rejected without examining the material furnished.
Cases Discussed
- M/s Spar Geo Infra Pvt. Ltd. — ITA No. 7304/Del/2025 (ITAT Delhi; date not stated in source)
- NDW Developement Corporation LLP — ITA No. 3817/MUM/2025, dated 01.01.2026 (ITAT Mumbai)
- CIT v. Radhika Creation — 2010 (47 DTR (Del) 60) (Delhi High Court)
- Samsung India Electronics Private Limited v. State of UP and Ors. — Writ Tax No. 777 of 2022 (Allahabad High Court)
- Ramlala v. State of UP and others — Writ C No. 31059/2023 (Allahabad High Court)
- CCE v. Krishna Wax (P) Ltd. — [2020] 113 taxmann.com 70 (SC)
FULL TEXT OF THE ORDER OF ITAT JODHPUR
The aforetitled appeal has been preferred by the revenue, arises from the order dated 17.01.2025 passed by The National Faceless Appeal Centre (NFAC), Delhi [for the sake of convenience, hereinafter referred to as CIT(A)], wherein the appeal of the assessee was allowed and deleted the addition of Rs. 15,39,38,566/- as unexplained expenditure made under the provisions of Section 69C of the Act.
2. The background facts of the case are that the assessee is a manufacture of Cotton, Binola & Binola Delenter and also deals in foodgrains, cereals & pulses as wholesaler & commission agent, filed its return of income on 10.09.2022, declaring total income at Rs.42,05,070/- and thereafter, the case of the assessee has been selected in scrutiny to verify large squared up loans during the year and made substantial purchase from suppliers who have filed non-business.
3. In the course of the assessment proceedings, the Learned AO observed that the appellant had repaid loans to various parties/entities and after the completion the assessment u/s 143(3) read with section 144B of the Act, added Rs. 15,39,38,566/- as unexplained expenditure under section 69C of the Act, because of failure of the appellant to provide documentary evidence of the loan repayments, including bank statements highlighting the payments made.
4. Aggrieved against above addition, assessee preferred an appeal before the Learned CIT(A), wherein, the assessee succeeded, as deleted the addition of Rs. 15,39,38,566/- relating to unexplained expenditure. Aggrieved by the same, the revenue is before us by way of present appeal.
5. Heard rival submissions and perused the material available on the record.
6. In the course of hearing, the Ld. DR, reiterating the grounds of appeal, submitted that the Ld. CIT(A) erroneously deleted the addition of Rs. 15,39,38,566/- made by the Learned AO u/s 69C of the Act and declined to appreciate the addition so made by the Learned AO, in the circumstances of failure of the appellant to furnish the documentary evidence regarding repayment of loan and unjustifiable relied upon evidences submitted during the appellate proceedings, without affording opportunity to the Learned AO under Rule 46A of the Income Tax Rules to examine the evidences when the Learned AO specifically mentioned in assessment order that evidences regarding repayment of loans were not furnished during assessment proceedings.
7. Per contra, the Ld. AR submitted that so far as non-production of sufficient documentary evidence is concerned, during assessment proceeding the appellant fully furnished documentary evidence before both the lower authorities i.e. confirmation letters from all creditors/lenders establishing identity and creditworthiness, return of income of all lenders confirming there financial capacity, ledger accounts of all parties showing opening balance etc, bank statement highlighting each and every repayment transaction through account paying cheques/RTGS tax audits report confirming all loan transactions and repayment, notices u/s 133(6) of the Act issued to the creditors which were duly complied by the parties and it is also emphasised that by the Learned CIT(A), in impugned order, that the evidence provided by the appellant has demonstrated that the repayments were legitimate and properly documented in compliance of tax laws and furthermore, it must be noticed that all these documents were also provided to the Learned AO on 22.06.2023 and 30.01.2024 as per screenshot provided in para no. 6.1.1, but they were overlooked or ignored.
8. Relevant paras of the impugned order reproduced as under:-
6. I have gone through the facts of the case, written Submission, assessment order and case laws relied upon by the appellant. It is noted that the appellant is a manufacturer of cotton, Binola, and Binola Delenter, and also deals in food grains, cereals, and pulses as a wholesaler and commission agent. During the assessment proceedings, the appellant was asked to provide details of loan repayment along with the bank statement showing payments made to the relevant parties or entities. However, since the appellant failed to produce the required documents, the Assessing Officer made an addition of Rs. 15,39,38,366/- to the appellant’s total income as per the provisions Section 69C read with Section 115BBE of the Income Tax Act.
6.1. During the appellate proceedings, the appellant submitted that the Assessing Officer cannot make an addition on issues that were not part of the show-cause notice. The Assessing Officer had issued a show-cause notice on 13.03.2024, proposing an addition by applying a rate of 25% on the gross receipts, due to discrepancies in the sales amounts as reflected in the audited financials, GSTR-1, Clause 40 of Form 3CD, and the Income Tax Return (ITR). In response, the appellant explained these discrepancies in the Video Conferencing (VC) and also submitted a reply on 17.03.2024. Based on this, no addition, as proposed in the show-cause notice, was made. To strengthen their arguments, the appellant has relied upon certain case laws as reproduced above. Appellant further added that the Assessing Officer cannot made addition of repayment of loan under section 69C of the Act as the provisions of the said section, is only applicable when an expenditure is incurred. Thus, the repayment of loan is not an expenditure.
6.1.1. In addition to the above, the appellant stated that the loan repayments were made through account payee cheques or via RTGS. The loans in question were either taken in earlier years or during the current year, and the appellant has repaid them either fully or partially in the year under consideration. The confirmations and Income Tax Returns (ITRs) of all the persons from whom the loans were taken were also filed before the Assessing Officer on 02/03.07.2023 and 30.01.2024. Additionally, the bank statement reflecting the transactions of loan repayments made to the parties was also filed before the Assessing Officer on 22.06.2023.
6.2. Now, before the undersigned, the appellant has produced a copy of the ITR along with confirmations from the parties to whom unsecured loans were repaid during the year, as well as copies of the ledger accounts of the parties and the bank statement highlighting the repayments alongwith the written submission dated 06.01.2025. Upon perusal of these documents, it is found that the evidence provided by the appellant has demonstrated that the repayments were legitimate and properly documented, in compliance with tax laws. Furthermore, it is noted that all these documents were also provided to the Assessing Officer on 22.06.2023 & 30.01.2024 as per the screenshot provided in para 6.1.1. above, but they were overlooked or ignored. Moreover, it is observed that the Assessing Officer disputed the books of account maintained by the appellant by issuing a show cause notice. However, after considering the appellant’s submission, no addition was made as proposed by the Assessing Officer on this count. Therefore, the maintenance of books as per the relevant law, along with the source of repayment of loans and loans taken, is not in dispute in the present case. The only dispute is at hand that the appellant failed to produce documentary evidence regarding the repayment of loans which is now clearly established by the documents provided by the appellant. It is seen that all the payments were made through banking channels and duly reflected in the bank account statements. The appellant also provided the copy of ledger account of each party alongwith their copy of return of income filed, bank account statement reflecting transactions for the year under consideration. As an instance, the documents submitted by the appellant i.e. ledger, bank statement, ITR for repayment of loan and loan raised from Sh. Ashu Jain, Pilibagan.
9. The Learned AR, in order to strengthen his argument, relied upon the order passed by the co-ordinate Bench in ITA No. 7304/Del/2025 (AY 2019-2020), titled as M/S Spar Geo Infra Pvt. Ltd., in which held that genuineness of the unsecured loan not been doubted by the department in the earlier assessment years in which the said loan has been obtained and without doubting the receipt of the loan, the department cannot doubt the repayment of the loan. Also submitted by placing reliance upon another order passed by co-ordinate bench of tribunal, in ITA 3817/MUM/2025, Dated 01-01-2026, titled as NDW Developement Corporation LLP, in which held that no addition u/s 69A of the Act can be made where the transaction is duly recorded in the books of account routed through banking channel and the source of funds is identifiable. Mere regrouping, reclassification, or transfer of loan balances from one account head to another does not constitute unexplained money and It is also submitted that the provisions of section 69C of the Act is not applicable in the case in hand, as the transactions relating to repayment of loan to lender from whom the assessee had obtained unsecured loans in the preceding year as well as during the year under consideration been recorded in the regular books of account and reflected in the audited financial statements and also these transactions are fully supported by valid legal and documentary evidences and carried out through proper banking channels. It is also submitted that the Learned AO made observations in a casual manner, without conducting any enquiry or brought any adverse material on record.
10. The Learned AR further submitted that the Learned AO initially raised doubts regarding the correctness of the books of account and proposed estimation of income u/s 145(3) of the Act, However, no any addition was ultimately made on that basis and so, it is equal to deemed acceptance and once the books are accepted, the transactions duly recorded therein cannot be arbitrarily disregarded or treated as unexplained in the absence of any cogent material to the contrary. It is also submitted, by referring judgement passed by the Hon’ble Delhi High Court in CIT v/s Radhika Creation 2010 (47 DTR(Del) 60), that where transactions are duly recorded in the books of account, the source stands explained and provisions of section 69C of the Act cannot be invoked in the absence of any unaccounted expenditure.
11. Further vehemently submitted that the provisions of section 69C of the Act, attracted in cases where assessee has incurred any expenditure and fails to offer satisfactory explanation regarding source of such expenditure, accordingly , this section operates in limited domain and cannot be extended beyond its clear statutory scope and in present case both the conditions not fulfilled as transaction under consideration pertains to repayment of loan which is by nature does not constitute expenditure within the meaning of section 69C of the Act, as repayment of of a loan merely capital transaction involving discharge of existing liability reflected in balance sheet and does not result in any outgo for acquiring goods services or any benefit, so may not be equated with either revenue or capital expenditure. ‘Expenditure’ denotes a payment made for purpose of acquiring benefit or meeting an obligation in the revenue field and in contrast repayment of a borrowed sum only reduces the liability of the assessee and does not give rise to any deductible or non-deductable expenditure.
11. Regarding show cause notice dated 13-03-2024, the Learned AR relied upon the judgment of Samsung India Electronics Private Limited Vs. State of UP and Ors, in the Writ Tax No. 777 of 2022, in which the Hon’ble Allahabad High Court held that any order passed by department, contrary to the grounds taken in the show cause notice, cannot be sustained and while issuing the show cause notice it is incumbent upon the department to clearly outline the specific allegation or concerned against the recipient and in no case the department can be allowed to traverse beyond confines of the show cause notice, since the same will trample upon the recipient’s rights to defend itself and any attempt by the issuing authority to expand the scope of inquiry or introduce new allegations beyond those articulated in the show cause notice would constitute a violation of the principles of nature justice. Likewise, also placed reliance upon the judgement passed by the Hon’ble Allahabad High Court in Ramlala versus State of UP and others writ C 31059/2023, in which held that going away beyond the show cause notice issued are liable to quashed and set aside.
12. It is further submitted that the addition made by the Learned AO is completely beyond the scope of the show cause notice dated 13.03.2024, which is placed at page no. 1 to 15 of the Paper Book, as the Learned AO had only proposed addition u/s 145(3) by applying 25% on gross receipts, and nowhere mention of repayment of loans or invocation of Section 69C of the Act and while passing the assessment order, the Learned AO, being satisfied with the response of the assessee on the SCN issue, dropped that addition, but despite this, the Learned AO travelled beyond the SCN and made a fresh addition u/s 69C, which is wholly without jurisdiction and illegal. It is a settled legal position that the Learned AO is not supposed to travel beyond the show cause notice and any addition made on a new issue without confronting the assessee is in clear violation of principles of natural justice and renders the assessment order invalid and relied upon the decision of the Hon’ble Supreme Court in CCE v. Krishna Wax (P) Ltd. [2020] 113 taxmann.com 70 (SC), in which laid down the principle that adjudication authorities cannot travel beyond the scope of the Show Cause Notice and rights and liabilities of parties must be confined strictly to the allegations and issues contained therein and since there had been no assessment or computation of duty and the matter had not travelled beyond the stage of the Show Cause Notice, the dispute could not be examined with reference to issues outside the Show Cause Notice or beyond the framework contemplated therein. It is also submitted that it is settled principles of natural justice that a person must be put to prior notice of the exact case he is required to meet and must be afforded effective opportunity to rebut the same.
2. So far ground number 2 is concerned, relating to additional evidence under rule 46A, the Learned AR submitted that it is factually incorrect to say, as is evident from the screen-shots of the e-filing portal and acknowledgements, all relevant documents were filed before the Learned AO during assessment proceedings, i.e. bank statements reflecting repayment of loans filed vide letter dated 02.07.2023 and confirmation of parties along with return of income filed vide letter dated 30.01.2024 and also the Learned CIT(A), specifically observed that all these documents were also provided to the Learned AO on 22.06.2023 & 30.01.2024 as per the screenshot provided, but they were overlooked or ignored. Since all relevant evidence was already on record before the Learned AO, there is no question arises of any ‘additional evidence’ within the meaning of Rule 46A.
12. In case in hand, it is crystal clear that the Learned AO issued show cause notice on 13-03-2024, in which the books of account been rejected u/s 145(3) of the Act, by presuming that the same does not depict the actual business of the proprietor concern and acordingly, Rs. 25% of the total gross receipt i.e. Rs. 8,71,62,292/- proposed to add back to total income of the assessee/respondent, in which the assessee/respondent responded via e-portal on 17-03-2024 and explained discrepancies, as placed at page 16-17 of the Paper Book. It is well understood that the Learned AO, by satisfying with reply of the assessee/respondent as above, not pursuaded himself to make addition on proposal mentioned in SCN dated 13-03-2024, which was enumerated in show cause notice supra and made additon beyond the subject matter of notice as above, which is quite unwarranted in the eye of law. So far observations regarding, non supplying relevant evidence by assessee/respondent in assessement proceedings is concerned, it is quite baseless as first appellate authority clearly stated that the evidence provided by the assessee/respondent demostrated that the repayments were legitimate and properly documented in compliance with tax laws, and sufficient evidence was before Learned AO to decide properly issue on its merit and also in the course of hearings., there is no any rebuttable argument advaced on behalf of the Revenue in this behalf and accordingly, we find material substance in the submissions advanced on behalf of the assessee/respondent.
13. On the basis of above fact situation, we find that there is no any ground exist to interfere with the well reasoned and justified order of the Ld. CIT(A) and so, we declined to do and revenue appeal is liable to be dismissed.
14. Consequently, the appeal of the revenue is hereby dismissed.
Order pronounced in Open Court on 04/11/2026
