ITAT Restores Assessment Due to Non-Consideration of Submitted Evidence

Manarkattu Theatres Pvt Vs ITO (ITAT Cochin)

Income Tax Appellate Tribunal (ITAT), Cochin bench, has set aside the order of the National Faceless Appeal Centre (NFAC)/Commissioner of Income Tax (Appeals) [CIT(A)] in the case of Manarkattu Theatres Pvt. Ltd. for the Assessment Year 2018-19. The Tribunal has directed the Assessing Officer (AO) to re-adjudicate the matter, emphasizing that the lower authorities failed to consider the detailed submissions and evidence provided by the assessee during both assessment and appellate proceedings.

The assessee, Manarkattu Theatres Pvt. Ltd., a company operating two cinema theatres, had filed its return of income for A.Y. 2018-19 in response to a notice issued under Section 148 of the Income-tax Act, 1961, declaring a total income of Rs. 12,73,860. However, the AO, in an order dated March 24, 2023, passed under Section 147 read with Section 144B of the Act, determined the total income at a significantly higher figure of Rs. 1,93,97,120.

The additions made by the AO were primarily under three heads:

1. Addition for lesser Net Profit (NP) with reference to last year: 2,19,643

2. Disallowance under Section 40A(3): 6,88,911

3. Addition under Section 69C (unexplained expenditure): 1,72,14,706

Aggrieved by these additions, Manarkattu Theatres Pvt. Ltd. appealed to the CIT(A). However, the CIT(A) upheld all the additions, stating that the assessee had not produced “any substantial evidence in support of its contentions” during the appellate proceedings and had also not submitted copies of written submissions or documentary evidence filed during the assessment proceedings. The CIT(A) concluded that there was “no basis to take a contrary view” and sustained the additions on merits.

The assessee then brought the matter before the ITAT, raising three key grounds of appeal:

1. The CIT(A) erred in upholding the addition of Rs. 1,72,14,705/- as unexplained expenditure under Section 69C, without considering the nature of the cinema business, specifically that this amount was included in gross collection and expenses like entertainment tax and distributor’s share were paid from it.

2. The authorities erred in disallowing Rs. 6,88,911/- under Section 40A(3) without considering the facts of the case.

3. The authorities erred in confirming the estimated addition of Rs. 2,19,642/- towards profit margin without pointing out any defects in the accounts.

During the ITAT proceedings, the assessee’s representative presented an “e-proceedings response acknowledgement” detailing various written submissions and documentary evidence uploaded during both the assessment and appellate stages. These included audited accounts, various expenditure ledgers, and bank account statements, which the assessee contended were not considered by the lower authorities. The Departmental Representative, on the other hand, supported the orders of the AO and CIT(A).

After reviewing the submissions and material on record, the ITAT found substance in the assessee’s argument. The Tribunal specifically noted, “On a reference to the same [e-proceedings response acknowledgement], we find that the assessee had given detailed written submissions and uploaded the details including audited accounts, various expenditure ledger, bank account statements, etc.” The ITAT’s order critically observed that “on perusal of the assessment order and the CIT(A)’s order, none of the submissions and details submitted during the course of proceedings have been taken into consideration while passing the impugned orders.”

Judicial Precedents and Principles:

The ITAT’s decision to restore the matter to the AO for fresh adjudication is rooted in fundamental principles of natural justice and fair assessment, which are well-established in Indian tax jurisprudence. While the order does not explicitly cite specific judicial precedents, its rationale aligns with several key rulings:

Principle of Natural Justice (Audi Alteram Partem): A core tenet of administrative law and tax proceedings is that no person should be condemned unheard. This principle mandates that an assessee must be given a fair opportunity to present their case, including submitting evidence and explanations, and that such submissions must be duly considered by the adjudicating authority. The ITAT’s finding that “none of the submissions and details submitted…have been taken into consideration” directly violates this principle. Numerous judgments, including the Supreme Court’s pronouncements in cases like C.B. Gautam v. Union of India (1993), have consistently emphasized the importance of observing natural justice in tax assessments.

Duty of the Assessing Officer to Consider Evidence: The AO is a quasi-judicial authority and has a duty to conduct a fair and objective assessment. This includes critically examining all evidence and explanations furnished by the assessee. Disregarding submitted evidence without proper justification is a ground for vitiating the assessment. The ITAT’s observation implies a failure on the part of both the AO and the CIT(A) to discharge this fundamental duty.

Remand for Fresh Adjudication: When an appellate authority finds that the lower authority has not considered crucial evidence or submissions, or has failed to apply its mind to relevant facts, the common course of action is to “remand” the matter back for fresh adjudication. This is to ensure that a proper assessment is made after considering all relevant material. The Supreme Court in CIT v. Jawahar Lal Rastogi (1998) and various High Courts have consistently upheld the power and necessity of appellate tribunals to remand cases where there has been an inadequate inquiry or non-consideration of material evidence by the lower authorities.

Section 254(1) of the Income-tax Act: This section empowers the ITAT to pass “such orders thereon as it thinks fit.” This broad power includes the authority to set aside orders and remand cases for fresh consideration, especially when there is a clear procedural lapse or a failure to consider evidence.

In light of these principles, the ITAT concluded that “in the interest of justice and equity,” the matter should be restored to the file of the AO for fresh adjudication. The AO has been specifically directed to “afford reasonable opportunity of being heard to the assessee” and to “consider the written submission and the evidences placed on record, before a decision is taken in the matter.”

Consequently, the appeal filed by Manarkattu Theatres Pvt. Ltd. was allowed for statistical purposes, meaning the additions made by the lower authorities are currently set aside, and the case will now undergo a fresh assessment at the AO level. This order was pronounced on May 16, 2025.

FULL TEXT OF THE ORDER OF ITAT COCHIN

This appeal at the instance of assessee is directed against the order of the National Faceless Appeal Centre / Commissioner of Income Tax (Appeals) [hereinafter “CIT(A)”], dated 24.02.2025, passed u/s.250 of the Income-tax Act, 1961 (hereinafter “the Act”) The relevant assessment year is 2018-2019.

2. The grounds raised read as follows:-

“1. The learned Commissioner of Income Tax (Appeals), NFAC, Delhi went wrong in upholding the addition of RS.1,72,14,705 as unexplained u/s 69C without considering the nature of business. The fact that this amount is included in the gross collection and expenses towards entertainment tax, distributors share etc. were paid from this was ignored by the Officer and the CIT (A) Manarkattu Theatres Private Limited.

2.The Assessing Officer and Commissioner of Income Tax (Appeals), NFAC, Delhi has erred in disallowing Rs.6,88,911 u/s40A(3) without considering the facts of the case.

3. The Assessing Officer and Commissioner of Income Tax (Appeals), NFAC, Delhi has went wrong in confirming the estimated addition of Rs.2,19,642 towards profit margin without pointing out any defects in the accounts.”

3. Brief facts of the case are as follows:

The assessee is a company. It is running two cinema theatres. For the assessment year 2018-2019, the return of income was filed in response to notice issued u/s.148 of the Act, declaring total income to the tune of Rs.12,73,860. The assessment order was passed on 24.03.2023 u/s.147 r.w.s. 144B of the Act, determining total income at Rs.1,93,97,120. The addition made by the Assessing Officer (hereinafter “the AO”) are detailed below:-

4. Aggrieved by the assessment completed u/s.147 r.w.s. 144B of the Act, the assessee preferred appeal before the first appellate authority. The CIT(A) confirmed the additions made by the CIT(A) by holding that the assessee has not produced any evidence in support of its contentions. Consequently, the appeal of the assessee was dismissed. The relevant finding of the CIT(A), reads as follow:-

“5.1 Decision:

I have carefully considered the relevant and material facts on record, in respect of this ground of appeal, as brought out in the assessment order. During the assessment proceedings, AO observed that the assessee had unexplained expenditure of Rs. 1,72,14,706/-, the assessee had under reported the net profit to the tune of Rs. 2,19,642/- and the assessee had falsely claimed expenditure of to the tune of Rs. 6,88,911/-. Subsequently, A notice u/s 148 of the Income Tax act, 1961 dated 30.03.2022 was issued along with various other notices. The assessee failed to give a satisfactory reply and provide any required details. Hence, the A.O. completed the assessment and passed order u/s. 147/147B of the Income-tax Act dated 24.03.2023 Assessing total Income at Rs. 1,93,97,119/-.

5.2. It is further noted and as detailed in preceding para above that during the appellate proceedings, the appellant has not furnished any substantial evidence in support of its grounds of appeal. The appellant has challenged the addition in the different grounds of appeal. However, the appellant has not furnished any substantial written submission or documentary evidence in support of its grounds of appeal challenging the addition. The appellant has also not submitted any copy of its written submission or documentary evidence filed during the assessment proceedings. The onus lies on the appellant to support any claim by bringing in cogent documentary evidence. In absence of any substantial written submission or documentary evidence in support of its grounds of appeal, I have no basis to take a contrary view in the appellate proceedings as I have no reason to interfere with the assessment order. As such, I do not find any infirmity in the order of Assessing Officer. Therefore, Addition of Rs. 1,72,14,706/-, Rs. 2,19,642/- and 6,88,911/- (Assessing total Income at Rs. 1,93,97,119/-) is hereby sustained on merits.”

5. Aggrieved by the order of the CIT(A), the assessee has filed the present appeal before the Tribunal. The learned has filed a brief written submission in support of its grounds. The learned AR submitted that the AO and the CIT(A) have not considered various documents uploaded by the assessee including cash book, day book, various expenses ledger, bank accounts, etc. It was submitted that the assessee had filed detailed written submissions to all the queries raised during the course of Manarkattu Theatres Private Limited. assessment proceedings as well as appellate proceedings. However, the AO and the CIT(A) has not considered the same. The learned AR has placed on record e-proceedings response acknowledgement detailing various written submissions uploaded and the evidences in support of the submissions (both during the assessment proceedings and also appellate proceedings).

6. The learned Departmental Representative supported the orders of the AO and the CIT(A).

7. We have heard rival submissions and perused the material on record. The assessee has placed on record e-proceedings response acknowledgement. On a reference to the same, we find that the assessee had given detailed written submissions and uploaded the details including audited accounts, various expenditure ledger, bank account statements, etc. The assessee in response to the queries raised during the assessment proceedings and the appellate proceedings, had filed detailed submissions. We find on perusal of the assessment order and the CIT(A)’s order, none of the submissions and details submitted during the course of proceedings have been taken into consideration while passing the impugned orders. Therefore, in the interest of justice and equity, we restore the matter to the files of the AO for fresh adjudication of the issues raised herein. The AO is directed to afford reasonable opportunity of being heard to the assessee. The AO shall consider the written submission and the evidences placed on record, before a decision is taken in the matter. It is ordered accordingly.

8. In the result, the appeal filed by the assessee is allowed for statistical purposes.

Order pronounced on this 16^th day of May, 2025.