7-Day Opportunity Is NOT Effective Hearing- Mumbai ITAT Restores Credit Card Addition Made u/s 69C

Mufaddal Najmuddin Indorewala Vs ITO (ITAT Mumbai)

7-Day Opportunity Is NOT Effective Hearing- Mumbai ITAT Restores Credit Card Addition Made u/s 69C

The Mumbai ITAT held that dismissal of an appeal by the CIT(A) after granting barely 7 days’ time for compliance violated principles of natural justice and deprived the assessee of effective opportunity of hearing. Accordingly, the Tribunal restored the matter back to the CIT(A) for fresh adjudication on merits in respect of addition made towards alleged unexplained credit card payments.

The assessee, a salaried individual regularly filing returns, was subjected to limited scrutiny for verification of credit card payments. Based on SFT information, the AO observed that the assessee had made payments aggregating to ₹12.09 lakh towards various credit card dues. Since the assessee allegedly failed to explain the source of such payments during assessment proceedings, the AO treated the entire amount as unexplained expenditure u/s 69C and completed best judgment assessment u/s 144.

Before the Tribunal, the assessee contended that the credit card payments merely represented utilisation of credit facilities and repayment through banking channels and therefore could not automatically be treated as unexplained expenditure. It was also pointed out that the AO had apparently duplicated one ICICI Bank credit card entry of ₹2.59 lakh while computing the addition.

The assessee further argued that though the appeal before the CIT(A) had remained pending since 2020, only one effective notice dated 29.01.2026 was issued requiring compliance by 05.02.2026, and the appeal itself was dismissed on 06.02.2026 for non-prosecution. Due to the extremely short time granted, the assessee could not compile and furnish the required details.

Accepting the contention, the ITAT observed that the first appellate authority is duty bound to adjudicate the issues on merits after granting reasonable and effective opportunity of hearing. The Tribunal held that the short timeline granted by the CIT(A), coupled with dismissal of the appeal immediately thereafter, amounted to denial of proper opportunity.

Accordingly, the impugned order was set aside and the entire matter was restored to the CIT(A) for fresh adjudication after granting adequate opportunity to the assessee, with a direction to the assessee to fully cooperate and furnish all supporting evidences during the remand proceedings.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

This appeal filed by the assessee is directed against the order passed by the learned Addl./JCIT(A),from the Office of Commissioner of Income Tax (Appeals), Prayagraj [hereinafter referred to as “CIT(A)”]dated 06.02.2026 for Assessment Year 2017-18 arising out of the assessment order passed by the Income Tax Officer, Ward 20(2)(1), Mumbai [hereinafter referred to as “Assessing Officer or AO”]under section 144 of the Income Tax Act, 1961 [hereinafter referred to as “the Act”]dated 25.12.2019.

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

1. Erred in confirming the assessment order of the AO without affording adequate opportunity of hearing and without appreciating that the order passed by the AO was defective and unjustified.

2. Agreeing the appellant did not respond for his own reasons, the AO and the JCIT(A) should have appreciated that the appellant was a salaried person and has been a regular assessee filing his tax returns, that he had no other source of income other than salaries and he had spent through credit card to get extra time to make payments by EMI or otherwise and had paid through Bank to the Credit card account and the same could not have been held as an unexplained expenditure;

3. The learned JCIT(A) ought to have appreciated that the AO has made a simple mistake in addition in respect of the credit card payments and that was a simple obvious mistake. From the Assessment order on page 2 under the heading the Credit card expense details are given and an amount of Rs. 2,59,600 through ICICI Bank Credit card No. 4629863022646016 has been duplicated and therefore, the addition made is wrong.

4. Learned Assessing officer has erred in assessing the payment of Rs.1209000/- made through credit cards as unexplained expenditure u/s 69C of the Act, as these expenses have been incurred out of loan taken through credit cards, meaning sources of expenditure stands explained.

5. The order passed by the AO and the JCIT (Appeal) is against the facts of the case and law applicable thereto.

3. Brief facts of the case are that the assessee filed return of income for the year under consideration on 30.03.2018 declaring total income at Rs. 6,00,000/-. The case of the assessee was selected for limited scrutiny under CASS for verification of credit card payments. Notice under section 143(2) of the Act was issued and served upon the assessee. Thereafter, notices under section 142(1) were also issued calling upon the assessee to furnish details regarding source of funds for payment of credit card dues. However, according to the Assessing Officer, there was continuous non-compliance on the part of the assessee.

4. The Assessing Officer observed that despite grant of various opportunities, the assessee neither attended nor furnished any details regarding the source of payment of credit card expenses. The Assessing Officer noted from the SFT information that the assessee had made payment towards credit card bills aggregating to Rs. 12,09,000/-. The details of the credit cards as reproduced in the assessment order were as under: –

5. The Assessing Officer held that since the assessee failed to explain the source of such expenditure, the aggregate amount of Rs. 12,09,000/- was liable to be treated as unexplained expenditure under section 69C of the Act. Accordingly, assessment under section 144 of the Act was completed vide order dated 25.12.2019 determining the total income at Rs. 18,09,000/- as against returned income of Rs. 6,00,000/-.

6. Aggrieved by the assessment order, the assessee preferred appeal before the learned CIT(A). The learned CIT(A) noted that the appeal was instituted on 19.02.2020 against the assessment order dated 25.12.2019. The learned CIT(A) further observed that notice under section 250 dated 29.01.2026 was issued calling upon the assessee to furnish submissions and documentary evidences on or before 05.02.2026. Since no reply was furnished by the assessee, the learned CIT(A) dismissed the appeal for non­compliance.

7. During the course of hearing before us, the learned Authorised Representative submitted that though the appeal was filed in the year 2020, only one effective opportunity was granted by the learned CIT(A) vide notice dated 29.01.2026 requiring compliance on or before 05.02.2026 and immediately thereafter the appeal was dismissed on 06.02.2026. It was submitted that due to shortage of time and inability to compile the requisite details within such short period, the assessee could not furnish reply before the learned CIT(A). The learned AR therefore requested that in the interest of justice one more opportunity may kindly be granted to the assessee and the matter may be restored back to the file of the learned CIT(A) for adjudication afresh on merits.

8. The learned Departmental Representative fairly submitted that he has no objection if the matter is restored back to the file of the learned CIT(A) for fresh adjudication.

9. We have heard the rival submissions and perused the material available on record. It is noticed that the appeal before the learned CIT(A) was filed on 19.02.2020 and remained pending for considerable period. Thereafter, the learned CIT(A) issued notice under section 250 of the Act dated 29.01.2026 granting time only upto 05.02.2026 for compliance and the impugned order came to be passed on 06.02.2026 dismissing the appeal for non-prosecution. In our considered view, the assessee was not afforded sufficient and effective opportunity of hearing before disposal of the appeal.

10. It is a settled proposition of law that the first appellate authority is duty bound to adjudicate the issues raised before it on merits after granting adequate and effective opportunity of hearing to the assessee. The principles of natural justice require that no adverse order should be passed without providing reasonable opportunity to the concerned party. In the present case, considering the short time granted by the learned CIT(A) for compliance and the fact that the appeal was dismissed without adjudicating the grounds on merits, we are of the considered opinion that the matter deserves to be restored back to the file of the learned CIT(A).

11. Accordingly, we set aside the impugned order passed by the learned Addl./JCIT(A), Prayagraj and restore the entire matter back to his file with direction to decide the appeal afresh on merits in accordance with law after granting reasonable and effective opportunity of hearing to the assessee. The assessee is also directed to cooperate in the appellate proceedings and furnish requisite details and evidences as may be called for by the learned CIT(A) without seeking unnecessary adjournments.

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

Order pronounced in the open court on 22.05.2026.