Bengaluru ITAT Restores Search Assessments Despite Repeated Non-Compliance, Subject to ₹50,000 Cost Per Appeal

Channakeshava Vs DCIT (ITAT Bangalore)

Bengaluru ITAT Restores Search Assessments Despite Repeated Non-Compliance, Subject to ₹50,000 Cost Per Appeal

The Bengaluru Bench of the ITAT held that although an assessee who repeatedly failed to appear before both the Assessing Officer and the PCIT(A) cannot be permitted to prolong proceedings through a casual approach, the interests of justice nevertheless warranted one final opportunity to contest the additions on merits. The Tribunal observed that, in the absence of effective participation by the assessee, there was no proper adjudication on merits by the lower authorities, making a fresh examination necessary.

The appeals arose from search assessments under section 153A involving substantial additions across six assessment years, including unexplained investments, unexplained expenditure under section 69C, capital gains, agricultural income treated as income from other sources, and unexplained cash credits. The assessee sought to justify his earlier non-appearance through affidavits filed by himself and his accountant. However, the Tribunal found the explanations unsatisfactory and held that the persistent non-compliance reflected a casual approach towards the assessment and appellate proceedings.

Balancing procedural discipline with the principles of natural justice, the Tribunal directed the assessee to pay costs of ₹50,000 for each appeal to the Prime Minister’s National Relief Fund within 90 days. Subject to such payment, all six appeals were restored to the file of the Assessing Officer with directions to examine the assessee’s explanations, make necessary enquiries, and pass fresh orders on all issues after granting a reasonable opportunity of hearing. The appeals were allowed for statistical purposes.

Cases Discussed

• B. Ramachandhiran v. CIT, Chennai (Madras HC), [2014] 43 taxmann.com 430 (Madras)

FULL TEXT OF THE ORDER OF ITAT BANGALORE

1. The assessee/appellant, Mr. CHANNAKESHAVA, has filed these 6 appeals against the consolidated appellate order dated 04-Nov-2025 passed by the learned Principal Commissioner of Income Tax (Appeals)-11, Bengaluru [the ld. PCIT(A)] for Assessment Years 2013-14 to 2017-18 and 2019-20. By the said order, the ld. PCIT(A) dismissed the assessee’s appeals against the assessment order dated 16.03.2016 passed by the ACIT, Central Circle 1(2), Bangalore [the AO] under section 153A read with section 144 of the Income-tax Act, 1961 [the Act].

2. For AY 2013-14, the facts, which are similar for the other assessment years, are briefly shows that search under section 132 of the Act was conducted in the case of Mr. Channakeshava at No. 530, 4th ‘C’ Cross, HRBR Layout, Kalyan Nagar, Bangalore, on 01.10.2013 in connection with M/s. Telecom Employees Co-operative Housing Society Limited Group. The case was centralized to this circle by the CIT, Bangalore-III, Bangalore, vide notification dated 25.11.2008 consequent to an earlier search on 16.09.2008. Notice under section 153A was issued on 05.11.2014 requiring the assessee to file the return of income within 30 days, but he failed to comply. A letter dated 08.12.2014 again required him to file the return. By letter dated 18.05.2015, the assessee sought copies of seized material to enable filing of the return; the copies were provided on 25.05.2015. The assessee e-filed the original return under section 139(4) on 31.03.2017 declaring income of Rs. 57,69,080/-. Another notice under section 153A was issued on 22.01.2020 requiring filing within 30 days. The assessee sought time by letter dated 19.02.2020, which was granted up to 25.03.2020. In response, he requested that the return filed under section 139 be treated as the return in response to notice under section 153A. Notice under section 143(2) dated 08.09.2021 was issued and served. On change of incumbent, notice under section 129 was issued. Notices under section 142(1), along with questionnaire dated 02.06.2021, were also issued and served. As the assessee did not respond, further notices dated 02.07.2021 and 15.07.2021 were issued requiring details by 22.07.2021. The assessee sought adjournment on 22.07.2021, which was granted up to 04.08.2021 vide notice dated 24.07.2021.

3. During the search at the residence of Shri Muddanna Chennakeshava on 03/04/2019, a sale deed for AY 2015-16 was found showing purchase consideration of Rs. 2.81 crore. In his sworn statement dated 21/05/2019, Shri Champakadhama stated that the payment source was Rs. 2 crores in cash from his mother and Rs. 80 lakhs in cash from Shri Muddanna Chennakeshava. The assessee was asked, through notice under section 142(1) dated 02/06/2021, to explain the source of Rs. 80,00,000/- advanced to Shri Champakadhama. After receiving a copy of Shri Champakadhama’s statement, the assessee stated on 21/09/2021 that the amount was advanced over time from his business activities. However, he did not furnish details of the source of funds or audited books showing the advance. Accordingly, Rs. 80,00,000/- is brought to tax as unexplained investment in the assessee’s hands for the year under consideration.

4. During scrutiny, the impounded material showed cash payments of Rs. 3,30,23,525/- supported by vouchers. By notice under section 142(1) dated 01.09.2021, the assessee was asked to explain whether these payments were recorded in the books and incurred wholly and exclusively for business. He was also required to furnish ledger extracts showing the corresponding entries. However, the assessee furnished only a tabular cash book, without audited financials, narrations, voucher numbers, or payee details, and did not establish that the impounded vouchers were recorded in the books. Accordingly, the cash expenditure of Rs. 3,30,23,525/-, not substantiated as reflected in the books and with unexplained source, is brought to tax as unexplained expenditure under section 69C for the year under consideration.

5. In his submission dated 04.08.2021, the assessee claimed agricultural income of Rs. 25,00,000/- from sale of mangoes on contract basis. However, he failed to produce any evidence supporting the claim. The RTC copy showed that the land was not owned by him individually but was common family property. Since the assessee claimed agricultural income in return, the onus was on him to prove that it arose from agricultural operations. He furnished no supporting documents for sale of mangoes or expenses incurred for growing them. Accordingly, the claim is disallowed and Rs. 25,00,000/- is added as income from other sources. Reliance is placed on B. Ramachandhiran v. CIT, Chennai [2014] 43 taxmann.com 430 (Madras), wherein exemption was denied where agricultural income was not properly explained.

6. The learned AO passed the assessment order under section 153A read with section 143(3) of the Income-tax Act, 1961, on 30.09.2021, determining the assessee’s total income at Rs. 4,92,92,605/-.7. Similarly, the assessee’s income was assessed for the remaining assessment years as follows:

8. Aggrieved, the assessee preferred appeals before the learned PCIT(A). By order dated 04.11.2025, the learned PCIT(A) dismissed the appeals, observing that despite being granted ten opportunities of hearing, the assessee neither appeared nor filed any written submissions. The learned PCIT(A) therefore held that the assessee was not interested in prosecuting the appeals and dismissed them on merits as well, holding as under: –

“6.0 I have carefully reviewed the documents available for the relevant AYs, which include Form 35, the grounds of appeal, Facts of the case, the Assessment Order, Computation sheet, and the Notice of Demand issued by the Assessing Officer. It has been observed from the Assessment Order passed for the relevant AYs, that the addition made by the Assessing Officer as the appellant has not furnished required details and documents to substantiate his claims.

7.0 The appellant contends that the Assessing Officer erred in assuming jurisdiction over the appellant’s case and in passing the orders for the relevant Assessment Years. Furthermore, the appellant stated in its grounds of appealsthat the additions made by the АO under various heads for the relevant AYs should be deleted, along with the interest levied.

7.1 However, during the current appellate proceedings, the appellant never came forward with his explanation and supporting evidences to the ground mentioned by the appellant despite being offered numerous opportunities through hearing notices issued by this office. The onus lies on the appellant to prove his case before seeking relief in the appellate proceedings. On this front, appellant miserably failed.

7.2 It is observed from the assessment order for the A.Y.2013-14 that the AO had made additions on account of agricultural income which was treated as Income from other sources and on account of the Capital Gains on entering into Agreement with a company by name Total Environment for which certain advances were received. The AO was of the opinion that there was transfer of property within the meaning of section 53A of The Transfer of Property Act. There were several properties which have been discussed in detail in the assessment order for which the appellant along with others with Total Environment Constructions Pvt Ltd. The appellant and others also entered into an irrevocable Power of attorney in favour of Nanjangud Projects Pvt Ltd on 3/12/2012 which was authorised to enter into negotiations concerning the price and other terms and finalise the same with any third party/intending purchasers. On the same day, the appellant and other co-owners entered into an Agency Agreement with Manjiri Projectsappointing them as agents to sell the property. Manjiri Projects is aa group concern of TECS. Accordingly, the AO was convinced that all the benefits and privileges of ownership of the property was conveyed to TECS on 3/12/2012 resulting in Capital gains to the appellant and coowners.

7.3 In the appellate proceedings, except for filing the statement of facts and grounds of appeal against the additions made, the appellant never appeared during the appellate proceedings in spite of 10 opportunities given as listed in the table in the preceding paragraphs.

7.4 The issues for the A.Y.2014-15 pertain to sale of 6000 Sq. feet of land for a sale consideration of Rs1,0,500,000/- which emanated from the seized document A/MC/T-3/04. The appellant contended that he had never received his share till date but the same was never substantiated as the appellant never maintained any books or audited financials.

7.5 For the A.Y.2015-16. it is seen from the assessment order that a sale deed was executed between Chetan Prakash and Sri. Champakadhama (Appellant’s brother who was the purchaser) Sri. Chamapakadhama when questioned about the sources for the purchases, submitted in the statement recorded u/s 132(4) that Rs2 crore was given in cash by his mother and Rs 80 lakhs was given by his brother, Sri. M. Channakesava, the appellant. The appellant, except for stating that he gave loans to his brother over a period of time from his business activities never substantiated the same with any evidence. Hence an addition of Rs 80,00,000/- was made by the AO. Further, since the agricultural income was not substantiated, the same was treated as income from Other sources.

7.6 For the A.Y.2016-17, the AO noticed from the seized documents, the appellant sold a piece of land for a sale consideration of 80,00,000/- to Sri. John Thayail which was evidenced by a sale agreement dated 30/7/2015 and the appellant received an advance of lakhs in cash. The amountof Rs65,00,0000/-was received in A.Y.2016-17 and the t appellant declared the receipt in his books of account for the A.Y.2016-17. However, the cash received of Rs20 lakhs was not reflected nor substantiated in the assessment proceedings. Hence the AO made an addition. Further, the AO made an addition of Rs 14.40 crores on account of unexplained expenditure. It was observed that cash payment of Rs14.40 crores were made by the appellant as evident from impounded vouchers. The appellant stated the same to have been incurred for layout development charges paid to various parties but no details were provided.

7.7 For the A.Y.2017-18, The AO made addition on account of unexplained cash expenditure and agricultural income which were not substantiated with documentary evidence.

7.8 For the A.Y.2019-20, The AO made addition on account of unexplained cash expenditure and unexplained cash credits which were not substantiated with documentary evidence.

7.9 In the appellate proceedings, except for filing the statement of facts and grounds of appeal against the additions made, the appellant never appeared during the appellate proceedings in spite of 10 opportunities given as listed in the table in the preceding paragraphs.

7.10 In these circumstances, and  considering the appellant’s failure to substantiate their claims, it is deemed appropriate not to interfere with the order passed by the Assessing Officer. Accordingly, the addition made by the Assessing Officer is upheld and the grounds raised by the appellant are dismissed.

8. In the result, the appeal for the relevant AYs of the appellant are dismissed.

9. Aggrieved by the above order of the learned PCIT(A), the assessee is in appeal before us, raising several grounds. During the hearing, written submissions and additional grounds were filed. It was contended that although the assessee did not appear before the learned AO or the learned PCIT(A), the reasons for such non-appearance were explained through affidavits filed by the assessee and his accountant.

10. The learned authorised representative, Shri Hemanth K. Pai, Advocate explained the reasons for the assessee’s non-appearance before the lower authorities and relied on the affidavits and written submissions filed in support thereof.

11. The learned CIT-DR vehemently opposed the submissions of the authorised representative and submitted that, since the assessee failed to appear before both the learned Assessing Officer and the learned PCIT(A), the appeals should be decided in favour of the Revenue.

12. We have carefully considered the rival contentions and perused the orders of the lower authorities. As noted above, the assessee did not appear either before the learned Assessing Officer or before the learned PCIT(A). Consequently, there is no decision by the lower authorities on merits after hearing the assessee. The reasons given by the authorised representative for such nonappearance are not satisfactory. The non-compliance appears to be due to the assessee’s casual approach. Therefore, considering the affidavits and submissions filed by the authorised representative, we impose a cost of Rs. 50,000/- for each of the above appeals on the assessee, to be paid to the Prime Minister’s National Relief Fund within 90 days from the date of receipt of this order. Subject to such payment, all these appeals are restored to the file of the learned Assessing Officer. The assessee shall file his explanation before the learned Assessing Officer, on merits as well as all other grounds raised before us, who shall, after making necessary inquiries, decide the issues afresh after giving the assessee an opportunity of being heard.

13. In view of the above, all these appeals are allowed for statistical purposes in the terms indicated above.

Order pronounced in the open court on 20th July 2026.