ITAT Mumbai: Faceless Additions Set Aside – Salaried Assessee Deserves Fair Opportunity

Sankathaprasad Shyamraj Rajbhar Vs ITO (ITAT Mumbai)

ITAT Mumbai: Faceless Additions Set Aside – Salaried Assessee Deserves Fair Opportunity

In this case, the ITAT Mumbai addressed additions made in a best judgment assessment u/s 147 r.w.s. 144 against a salaried employee, primarily due to non-furnishing of documents during faceless proceedings. The additions related to HRA exemption, PF withdrawal, interest income, and salary components.

The CIT(A) had mechanically confirmed the additions solely because documentary evidence was not filed, without examining the explanations offered during appellate proceedings.

The Tribunal observed that:

• The assessee was a salaried taxpayer with TDS deducted, and issues involved were routine and verifiable
• The failure to submit documents appeared to be due to lack of proper opportunity and understanding of faceless proceedings
• Principles of natural justice require fair opportunity, especially where claims relate to statutory exemptions and identifiable receipts

The ITAT held that the CIT(A)’s approach of confirming additions without verification defeats the cause of justice.

Final Outcome:

• CIT(A) order set aside
• Matter restored for fresh adjudication
• Direction to examine evidence relating to HRA, PF withdrawal, interest, and salary components

This ruling underscores that procedural lapses in faceless assessments cannot override substantive justice, particularly for small salaried taxpayers

FULL TEXT OF THE ORDER OF ITAT MUMBAI

This appeal by the assessee is directed against order dated 25.09.2025, passed by the Learned Commissioner of Income Tax Appeals – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for Assessment Year (in short `A.Y1 2017-18, arising following grounds: –

“1. That the order passed by the learned Commissioner of Income-tax (Appeals) is bad in law, contrary to the facts on record, and liable to be set aside.

2. That the learned CIT(A) erred in confirming the assessment framed under section 147 read with section 144 without granting the appellant an effective opportunity of being heard, thereby violating the principles of natural justice.

3. That the learned CIT(A) failed to adjudicate the issues on merits and mechanically confirmed the additions solely on the ground that documentary evidence was not filed before the Assessing Officer, despite the appellant having furnished explanations during appellate proceedings.

4. That the learned CIT(A) erred in law and on facts in confirming the disallowance of exemption claimed in respect of House Rent Allowance, without appreciating that the appellant was a salaried employee, the allowance was reflected in Form 16, and tax was deducted at source under section 192 by the employer.

5. That the learned CIT(A) erred in confirming the addition of f1,00,000 by treating the Provident Fund withdrawal/ employer settlement as income from other sources, without examining the nature of the receipt, applicable exemptions, or the settled legal position that such receipts are not taxable under that head.

6. That the learned CT(A) erred in sustaining the addition of interest income without granting the eligible statutory deduction and without appreciating that the interest was within the permissible exemption limits, rendering the addition revenue-neutral and unsustainable.

7. That the learned CIT(A) erred in treating salary-related receipts such as leave encashment and refund of income-tax of earlier year as income from other sources, without examining the true nature and character of the receipts and without correlating the same with employer records and statutory provisions.

8. That the learned CT(A) failed to appreciate that the appellant is a salaried taxpayer with income subjected to tax deduction at source, and that there was no concealment of income or furnishing of inaccurate particulars, and the additions arose solely due to procedural and technical lapses.

9. That the learned CIT(A) erred in not admitting and considering additional evidence which goes to the root of the matter, and which could not be filed earlier due to absence of effective personal hearing and limitations of the faceless proceedings.

10. That the appellant respectfully submits that in the appellant’s own case for earlier assessment year(s) involving identical facts and issues, the learned Commissioner of Income-tax (Appeals) had restored the matter to the file of the Assessing Officer for fresh adjudication after considering documentary evidence, and the same approach deserves to be adopted in the present year in the interest of consistency and fairness.

11. That the appellant prays that the Hon’ble Tribunal be pleased to admit the additional evidence under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963, and adjudicate the issues on merits or restore the matter to the file of the Assessing Officer with appropriate directions.

12. That the appellant prays for deletion of all additions and for grant of consequential relief in respect of tax, interest and penalty.

13. That the appellant craves leave to add to, amend, alter or withdraw any of the above grounds at the time of hearing.

2. At the outset, it is observed that there is a delay of 76 days in filing the present appeal. The assessee has explained that upon receipt of the impugned order, he approached his tax consultant; however, due to the consultant’s absence for a certain period, the appeal could not be filed within the prescribed limitation. Having considered the explanation and the material on record, we are satisfied that the delay was occasioned by a reasonable and bona fide cause. In the interest of substantial justice, the delay of 76 days is condoned, and the appeal is admitted for adjudication.

3. Briefly stated, facts of the case are that the assessee is a salaried employee working as a mechanic with Mahanagar Telephone Nigam Limited (MTNL). The employer had deducted tax at source amounting to R44,500/-, and the assessee filed his return of income declaring a total income of 85,01,375/-. The return of income filed by the assessee was selected for scrutiny and statutory notices under the Income-tax Act, 1961 (In short the Act) were issued but same were complied only partly. During the course of assessment proceedings, the Assessing Officer noted several discrepancies: (i) Claim of exemption towards House Rent Allowance (HRA) amounting to 289,635/- without furnishing supporting evidence such as rent receipts, PAN of landlord, or proof of payment; (ii) Non-disclosure of interest income of 25,294/-; (iii) Unexplained credit of Z1,00,000/- in the bank account; and (iv) Certain salary-related components including gratuity, leave encashment, and allowances. The assessee before the learned AO submitted that rent was paid in cash to the Shri Munna Prasad Dinanath Verma but PAN of the owner/landlord was not submitted. In the absence of adequate compliance and supporting evidences, the Assessing Officer completed the assessment under section 147 read with section 144 of the Act on 18/04/2023 and assessed the total income at 27,61,356/-.

4. On further appeal to the learned CIT(A), it was submitted that the assessee had been staying in a rented accommodation during the year, accordingly exemption to HRA was claimed while filing return of income. It was also submitted that while passing the assessment order, the AO had not given credit for the deduction though details for eligibility was provided to the Employer and accordingly tax was deducted by the Employer. It was submitted that receipt of Rs. 1,00,000/- in bank was from provident fund withdrawal. It was submitted that the assessee was not well versed with tracking of online faceless assessment, therefore some of the submission could not be made in time and that was an honest and unintended error. However, the Learned CIT(A) dismissed the appeal primarily on the ground that no documentary evidence was furnished to substantiate the claims, and consequently confirmed the additions made by the Assessing Officer. The relevant finding of ld CIT(A) is reproduced as under:-

“7. Findings & Decision:

In this case, the appellant has taken one ground of appeal. This ground of appeal is about completion of assessment u/s 147 r.w.s 144 and about merit of addition of Rs. 1,40,694/- by disallowance out of deduction u/s 80C & 10(13) of the Act without considering the exemption limit. The appellant has contended that the additions made by the Assessing Officer be deleted.

On perusal of records, it is seen that in this case, assessment was completed ex-parte as appellant did not submit complete explanation before the Assessing Officer. In absence of explanations by the appellant, the assessment was completed ex-parte at total income of Rs. 7,61,356/ -, making additions of Rs. 35,400/- on account of difference in gross salary, of Rs 5,294/- on account of interest income & Rs. 1,00,000/ – on account of credit entry in bank account, raising demand of Rs. 99,900/ -.

During the appellate proceedings, the appellant has tried to rebut the finding of the Assessing Officer by submitting explanation on bank interest and RD interest being within the exemption limit and deposit in bank account from PF withdrawal and Rs. 35,400/- being gratuity / leave encashment. However, no documents have been submitted to substantiate its claim.

Further, vide reply dated 21.09.2023, the appellant has submitted that

“….. For the Assessment Year 2017-18, refund of Rs. 18,470/- was issued to me wrongly. I have deposited back the refund amount in Government Account vide challan number 00137 dated

17.09.2025…. “

Accordingly, it is evident that the appellant has no explanation to offer about the additions made by the Assessing Officer even during appellate proceedings. Accordingly, the additions made by the Assessing Officer are confirmed and these grounds of appeal are decided against the appellant.”

5. Before none represented the assessee. The appeal was heard ex parte qua the assessee. The Learned Departmental Representative was heard, and the material available on record was carefully perused.

5.1 It is evident that the assessment as well as the first appellate order has proceeded substantially on account of non-furnishing of documentary evidence by the assessee. At the same time, the explanation offered by the assessee indicates that he is a salaried individual and lacked adequate opportunity and assistance in effectively presenting his case, particularly in the faceless proceedings. In our considered view, the principles of natural justice require that a litigant be afforded a fair and reasonable opportunity to substantiate his claims, especially when the additions pertain to routine salary components, statutory exemptions, and identifiable receipts such as provident fund withdrawals. The Learned CIT(A), instead of examining the explanations on merits or calling for necessary verification, has summarily confirmed the additions solely on account of absence of documentary evidence. Such an approach, in the facts of the present case, does not subserve the cause of justice.

5.2 Accordingly, in the interest of justice, we deem it appropriate to set aside the impugned order of the Learned CIT(A) on the issues under consideration and restore the matter to his file for fresh adjudication. The Learned CIT(A) shall afford adequate opportunity of being heard to the assessee and decide the issues afresh in accordance with law, after considering all relevant submissions and evidences that may be furnished. The assessee is also directed to cooperate in the proceedings and file all necessary documentary evidence in support of his claims, including but not limited to: (i) Evidence in support of HRA claim, (ii) Proof of provident fund withdrawal, and (iii) Details of interest income and eligible deductions.

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

Order pronounced in the open Court on 20/04/2026.