Jalak Trading Private Limited Vs DCIT (ITAT Mumbai)
No Business Receipts, No Deduction? ITAT Says Examine the Expenses First
A company reported no business receipts during the year but claimed expenditure of ₹18,87,426. The Assessing Officer disallowed the entire amount, and the CIT(A) confirmed the disallowance. The Mumbai ITAT has now restored the issue for a fresh examination, observing that absence of receipts in one year does not, by itself, establish that the business has permanently ceased or that every expense is inadmissible.
The case also involved a delay in filing the appeal before the Tribunal. On that issue, the order draws a distinction between a bare claim of ignorance and an explanation supported by an identifiable event and an affidavit.
The company’s claim and the assessment
Jalak Trading filed an original return declaring a loss of ₹7,61,482 and later revised it to a loss of ₹19,27,569. During scrutiny, the Assessing Officer found that the company had shown no business receipts or income from other sources while debiting ₹18,87,426 to its profit and loss account. The expenses included salary, professional fees, repairs and maintenance, rates and taxes, bank charges, general expenses, auditor’s remuneration and an item described as penalty.
On 19 November 2022, the Assessing Officer issued a show-cause notice requiring a response by 23 November 2022. The company sought a week’s adjournment, but the request was declined on the ground that the assessment was nearing limitation. The Assessing Officer disallowed the entire expenditure under section 37(1).
The company maintained that it subsequently filed a detailed explanation on 29 November 2022. The difficulty was that it could not produce an acknowledgement, ITBA reference number or other proof of that filing before the CIT(A). It also failed to respond to notices during the first appellate proceedings. The CIT(A) therefore confirmed the disallowance without the books, ledgers, invoices and vouchers being examined.
The Tribunal noticed one unexplained feature of the record: the adjournment had been refused because the assessment was said to be getting barred by limitation on 28 November 2022, whereas the assessment order was dated 24 March 2023. The order records this inconsistency but does not decide the appeal on that basis.
How a penalty notice revived the appeal
The CIT(A)’s order was dated 3 December 2025, but the company filed its Tribunal appeal late. Its director stated on affidavit that the company was unaware of the appellate order, although it had been uploaded on the income-tax portal. According to the affidavit, the company first learnt that its quantum appeal had been dismissed when it received a section 270A penalty show-cause notice dated 28 April 2026 referring to that dismissal. It then consulted counsel and filed the Tribunal appeal by the end of May.
There was a small discrepancy in the papers: the condonation petition calculated the delay at 91 days, while the affidavit referred to 89 days. The Tribunal adopted the longer period of 91 days. It found the central explanation specific, supported by a sworn affidavit and linked to a departmental notice whose date could be verified. The company had also acted within a reasonable period after the date on which it said it acquired knowledge. The Revenue did not object to condonation.
Applying section 253(5) and the principles discussed in Collector, Land Acquisition v. Katiji, N. Balakrishnan v. M. Krishnamurthy and Senior Bhosale Estate (HUF) v. ACIT, the Tribunal held that sufficient cause had been shown and condoned the 91-day delay. The decision turns on the explanation and the company’s subsequent conduct; it is not a general rule that uploading an order on the portal has no significance for limitation.
Why the deduction was sent back
On the expenditure issue, the Tribunal found shortcomings on both sides of the proceedings. The Assessing Officer had allowed only four days to respond to the show-cause notice and refused the requested adjournment. The company, however, had not proved that its later submission reached the Assessing Officer and had failed to participate effectively before the CIT(A). Most importantly, the primary evidence supporting each expense had not been examined.
The Tribunal held that the Assessing Officer must determine whether the business had ceased or was merely dormant, whether expenditure was needed to maintain the company and its business establishment, and whether each item was genuine and had the required business nexus. A year without receipts is a relevant fact, but it cannot settle all those questions. Equally, recording an amount in the accounts does not make it deductible.
The disallowance of ₹18,87,426 was therefore restored to the Assessing Officer for fresh adjudication. The company must furnish its books and supporting documents and cooperate with the proceedings. The Tribunal expressly left the ultimate allowability of every item open.
Author’s comment
This ruling is useful where an Assessing Officer treats nil turnover as proof that all expenses must fail. A company may have no receipts during a temporary lull yet continue to incur genuine costs connected with preserving its business or meeting corporate obligations. That proposition still has to be established expense by expense, with evidence of the business’s continued existence and the purpose of each payment.
Particular care is required with the item described as “penalty”: its description and legal character must be examined separately; it cannot be allowed merely because other establishment expenses may qualify. The strongest presentation on remand will be a clear chronology of business activity, supported by ledgers, invoices, payment records and an explanation for each disputed amount. The Tribunal has secured that examination, not granted the deduction itself.
Cases Discussed
- Collector, Land Acquisition, Anantnag v. Mst. Katiji [1987] 167 ITR 471 (SC) — relied upon for a justice-oriented construction of “sufficient cause” while considering condonation of delay.
- N. Balakrishnan v. M. Krishnamurthy [1998] 7 SCC 123 — relied upon for the principle that acceptability of the explanation, rather than merely the length of delay, is material.
- Senior Bhosale Estate (HUF) v. ACIT [2019] 419 ITR 732 (SC) — relied upon where lack of knowledge of an earlier order was supported by affidavit and the assessee acted after acquiring knowledge.
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT MUMBAI
This appeal by the assessee is directed against the order dated 03.12.2025 passed by the learned Commissioner of Income-tax (Appeals)-47, Mumbai [hereinafter referred to as “the CIT(A)”], under section 250 of the Income-tax Act, 1961[hereinafter referred to as “the Act”], for the assessment year 2020-21, arising from the assessment order dated 24.03.2023 passed under section 143(3) of the Act.
2. The assessee has raised the following grounds of appeal:
The Commissioner of Income-tax (Appeals) – 47, Mumbai (hereinafter referred to as the CIT(A)) erred in upholding the action of the Assistant Commissioner of Income-tax, Central Circle – 8(1), Mumbai (hereinafter referred to as the Assessing Officer) in making a disallowance of Rs 18,87,426, being expenses claimed by the appellants under section 37(1) of the Act, on the ground that the appellants failed to prove that the said expenses have been incurred for the purpose of business.
The appellants contend that on the facts and in the circumstances of the case and in law, the CIT(A) ought not to have upheld the action of the Assessing Officer in making the impugned disallowance inasmuch as he has not correctly appreciated the facts of the case in its entirety and hence, the said disallowance of Rs 18,87,426 is bad in law and ought to be deleted.
The appellants crave leave to add to, alter or amend the aforestated ground of appeal.
3. At the outset, it is noticed that the appeal has been filed belatedly. According to the petition for condonation of delay dated 30.05.2026, the delay is of 91 days. The accompanying affidavit of Shri Vaibhav Tukaram Markad, Director of the assessee company, however, refers to the filing of the appeal on 27.05.2026 and computes the delay at 89 days. The grounds of appeal bear digital signature dated 29.05.2026. Thus, there is a minor inconsistency in the record regarding the precise date of filing and the corresponding number of days of delay. To obviate any controversy and to consider the matter on the basis most favourable to the Revenue, we proceed by treating the delay as 91 days, being the longer period stated in the condonation petition.
4. The learned Authorised Representative (AR) submitted that there was a delay in filing the present appeal. Reiterating the averments contained in the petition for condonation of delay and the affidavit of the Director of the assessee company, he submitted that the assessee was not aware of the order dated 03.12.2025 passed by the learned CIT(A). The assessee became aware of the said order only upon receipt of the show-cause notice dated 28.04.2026 issued in connection with the penalty proceedings under section 270A of the Act, wherein reference was made to the dismissal of the quantum appeal. Immediately thereafter, the assessee obtained professional advice and took steps to prepare and file the present appeal. The learned AR submitted that the delay was neither deliberate nor attributable to any mala fide conduct and that the assessee did not derive any advantage by filing the appeal belatedly. He, therefore, prayed that the delay be condoned and the appeal be admitted for adjudication on merits.
5. On the substantive issue, the learned AR submitted that the Assessing Officer had issued the show-cause notice dated 19.11.2022 requiring the assessee to explain the allowability of expenditure aggregating to Rs.18,87,426/- by 23.11.2022. The assessee sought an adjournment of one week, which was declined on the ground that the assessment was getting barred by limitation. The assessee thereafter furnished a detailed submission dated 29.11.2022 explaining the nature and necessity of the expenditure, but the same was not considered by the Assessing Officer. He further submitted that, on account of non-compliance during the first appellate proceedings, the learned CIT(A) confirmed the disallowance without the supporting evidence being examined on merits.
6. The learned AR fairly submitted that the allowability of the impugned expenditure requires verification of the books of account, ledgers, invoices, vouchers and other supporting documents. He accordingly requested that, instead of adjudicating the factual controversy for the first time at the stage of the second appeal, the impugned order be set aside and the matter be restored to the file of the Assessing Officer for fresh examination. He undertook that the assessee would cooperate with the proceedings and furnish all the requisite evidence within the time allowed by the Assessing Officer.
7. The learned Departmental Representative did not object to the condonation of delay, having regard to the explanation furnished in the condonation petition and the supporting affidavit. He also did not object to the matter being restored to the file of the Assessing Officer for fresh adjudication, subject to the assessee furnishing the necessary evidence and the Assessing Officer being permitted to examine the allowability of each item of expenditure independently in accordance with law.
8. Regarding the delay in fining appeal before us, the explanation furnished by the assessee is that the impugned order dated 03.12.2025 was uploaded on the income-tax portal, but the assessee was not aware of its passing. According to the sworn affidavit of the Director, the assessee came to know about the disposal of the quantum appeal only when it received the show-cause notice dated 28.04.2026 proposing penalty under section 270A of the Act. The said notice referred to the order of the learned CIT(A) dated 03.12.2025 and recorded that the disallowance made by the Assessing Officer had been upheld. Upon becoming aware of the appellate order, the assessee forwarded the matter to its counsel for preparation and filing of the present appeal.
9. Section 253(5) of the Act empowers the Tribunal to admit an appeal after the expiry of the prescribed period where it is satisfied that there was sufficient cause for not presenting the appeal within time. The expression “sufficient cause” must receive a justice-oriented construction, while at the same time ensuring that the explanation is bona fide and does not disclose deliberate inaction, culpable negligence or want of good faith.
10. In Collector, Land Acquisition, Anantnag v. Mst. Katiji [1987] 167 ITR 471 (SC), the Hon’ble Supreme Court observed:
“When substantial justice and technical considerations are pitted against each other, cause of substantial justice deserves to be preferred…”
11. In N. Balakrishnan v. M. Krishnamurthy [1998] 7 SCC 123, the Hon’ble Supreme Court explained:
“Length of delay is no matter, acceptability of the explanation is the only criterion.”
12. More pertinently, in Senior Bhosale Estate (HUF) v. ACIT [2019] 419 ITR 732 (SC), the Hon’ble Supreme Court condoned a considerably longer delay where the assessee pleaded lack of knowledge of the earlier order and acted after acquiring such knowledge. The relevant observation reads:
“Unless that fact was to be refuted, the question of disbelieving the stand taken by the appellant(s) on affidavit, cannot arise…”
13. Applying the aforesaid principles, we find that the explanation furnished by the assessee is specific and supported by a sworn affidavit. The date on which the assessee claims to have acquired knowledge, namely 28.04.2026, is referable to a departmental penalty notice and is, therefore, capable of verification from the records of the Revenue itself. The explanation is not vague or founded merely upon an unsubstantiated assertion of inadvertence.
14. We further find that, after allegedly acquiring knowledge on 28.04.2026, the assessee took steps to obtain professional advice, prepare the appeal and file the same by the end of May 2026. The intervening period cannot, in the circumstances, be regarded as unreasonable. No advantage could have accrued to the assessee by allowing the quantum order to attain finality, particularly when penalty proceedings under section 270A had already been initiated. On the contrary, the assessee exposed itself to serious adverse consequences by not filing the appeal in time. The conduct, therefore, does not indicate a deliberate design to delay the proceedings.
15. The discrepancy between 89 days and 91 days relates to the computation and the stated filing date. It does not affect the central explanation that the assessee became aware of the impugned order only upon receipt of the penalty notice dated 28.04.2026. Even otherwise, we have considered the application by adopting the longer period of 91 days. The Revenue suffers no irreparable prejudice if the matter is heard on merits, since it will have a full opportunity to contest the claim of the assessee. Refusal to condone the delay, on the other hand, would foreclose adjudication of the substantive controversy without its merits being properly examined.
16. Having regard to the totality of the circumstances, the moderate length of the delay, the sworn explanation, the identifiable event through which knowledge was acquired, the steps taken thereafter and the absence of any apparent mala fide advantage, we are satisfied that the assessee was prevented by sufficient cause from filing the appeal within the prescribed period. Accordingly, in exercise of the power conferred under section 253(5) of the Act, the delay of 91 days is condoned and the appeal is admitted for adjudication.
17. The assessee filed its original return of income on 08.02.2021 declaring a loss of Rs.7,61,482/- and thereafter filed a revised return on 30.03.2021 declaring a loss of Rs.19,27,569/-. During the assessment proceedings, the Assessing Officer noticed that the assessee had not disclosed any business receipts or income from other sources, but had debited expenses aggregating to Rs.18,87,426/- to its profit and loss account. These expenses comprised penalty, salary, professional fees, repairs and maintenance, rates and taxes, bank charges, general expenses and auditor’s remuneration.
18. The Assessing Officer issued a show-cause notice dated 19.11.2022 requiring compliance by 23.11.2022. The assessee sought an adjournment of one week on 23.11.2022. The Assessing Officer declined the request on the ground that the assessment was getting barred by limitation on 28.11.2022 and proceeded to disallow the entire expenditure under section 37(1) of the Act. The assessment order, however, bears the date 24.03.2023. This apparent inconsistency between the stated date of limitation and the actual date of the assessment order remains unexplained from the material before us.
19. The assessee maintained before the learned CIT(A) that it had furnished a detailed submission dated 29.11.2022 explaining the nature and necessity of the expenditure. The learned CIT(A), however, found that the assessee had not produced any acknowledgement, ITBA reference number or other evidence establishing that the submission dated 29.11.2022 had been filed before the Assessing Officer. It is also a matter of record that the assessee did not respond to the notices issued by the learned CIT(A). The learned CIT(A), therefore, initially dismissed the appeal for non-prosecution and thereafter confirmed the disallowance on the basis that the assessee had failed to produce the books of account, invoices, vouchers or evidence establishing the business nexus of the expenditure.
20. We do not approve of the failure of the assessee to comply with the notices issued during the first appellate proceedings. At the same time, the substantive allowability of the expenditure has not been examined with reference to the primary evidence. The Assessing Officer allowed only four days to respond to the show-cause notice and declined the request for an adjournment of one week. The alleged submission dated 29.11.2022 was not considered by the Assessing Officer and could not be verified by the learned CIT(A) in the absence of supporting material.
21. The controversy requires factual examination of the nature of each item of expenditure, the subsistence or cessation of the assessee’s business, the statutory and corporate obligations requiring the expenditure, and the nexus of each expense with the business of the assessee. The mere absence of business receipts during a particular year, though relevant, cannot by itself conclude whether the business had permanently ceased or was merely dormant and whether expenditure necessary for maintaining the corporate and business establishment was allowable. Conversely, the description of an expenditure in the accounts does not establish its admissibility unless the assessee substantiates its nature, genuineness and business nexus. These matters cannot appropriately be decided without examining the underlying evidence.
22. In these circumstances, and in the interest of substantial justice, we set aside the impugned order of the learned CIT(A) on the issue of disallowance of Rs.18,87,426/- and restore the matter to the file of the Assessing Officer for fresh adjudication in accordance with law.
23. The assessee is directed to cooperate with the assessment proceedings, furnish the complete supporting material within the time allowed by the Assessing Officer and refrain from seeking unnecessary adjournments. If the assessee fails to comply despite reasonable opportunity, the Assessing Officer shall be at liberty to decide the matter on the basis of the material available on record in accordance with law.
24. We clarify that we have not expressed any opinion on the ultimate allowability of the expenditure. All factual and legal contentions are left open for examination by the Assessing Officer.
25. Accordingly, the substantive ground raised by the assessee is allowed for statistical purposes.
26. In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open court on 22.09.2026.
