ITAT Mumbai Sets Aside CIT(A) Order in Mahindra and Mahindra Financial Services Ltd vs DCIT: Natural Justice Principles Upheld

Overview of the Case

The Income Tax Appellate Tribunal (ITAT), Mumbai Bench, pronounced its order on 08.04.2026 in the matter of Mahindra and Mahindra Financial Services Ltd Vs DCIT, arising from an appeal filed against the order of the Commissioner of Income-tax (Appeals), National Faceless Appeal Centre, dated 16.07.2025, pertaining to Assessment Year 2019-20.

The assessee, operating as a registered Non-Banking Financial Company (NBFC) engaged in financial services, challenged both the original assessment order and the subsequent appellate order on multiple substantive and procedural grounds. The Tribunal ultimately sided with the assessee on the fundamental question of adequate hearing opportunity and restored the matter to the Assessing Officer for a fresh round of adjudication.

Background and Key Facts

The assessee had filed its original return of income for AY 2019-20 on 29.11.2019, declaring total income of Rs. 1595,64,44,780/-, after claiming deductions of Rs. 15,14,85,155/- under Chapter VIA of the Income Tax Act, 1961. A revised return was subsequently filed on 11.08.2020, declaring total income of Rs. 15,74,48,210/-. The case was selected for "complete scrutiny" under the E-assessment Scheme, 2019.

Additions and Disallowances Made by the Assessing Officer

During assessment proceedings, the Assessing Officer made a series of additions and disallowances, including:

  • Addition of the difference of Rs. 21,16,10,571/- between the original and revised return of income, on account of the assessee's failure to explain or furnish supporting documents for the increased deduction claim
  • Addition of Rs. 88,82,80,954/- under Section 41(1) of the Act
  • Disallowance of Rs. 94,83,750/- out of sales promotion expenses, on account of incomplete details and absence of supporting evidence
  • Disallowance of Rs. 28,54,18,000/- under Section 14A of the Act
  • Disallowance of Rs. 20,00,788/- on account of penalty expenditure
  • Disallowance of Rs. 25,26,891/- on account of club expenses
  • Upholding of the CPC adjustment of Rs. 3,07,01,090/- made under Section 143(1)(a) of the Act

As a result, the total income was assessed at Rs. 1717,48,56,254/-, as against the returned income of Rs. 15,74,48,34,210/-.

Grounds of Appeal Before the Tribunal

The assessee raised the following key grounds before the ITAT in ITA No. 5546/Mum/2025:

Procedural Grounds

  1. Violation of natural justice in assessment proceedings: The assessment order under Section 143(3) read with Section 144B was passed without issuing a show cause notice along with a draft assessment order, thereby denying the assessee an opportunity of being heard.

  2. Violation of natural justice in appellate proceedings: The CIT(A) disposed of the appeal under Section 250 of the Act without providing the assessee a final opportunity of hearing, including through video conferencing, and without issuing any intimation regarding closure of the remand proceedings.

Substantive Grounds

  1. **Ad hoc disallowance of sales promotion expenses — Rs. 94,83,750/-😗* The CIT(A) erred in sustaining the Assessing Officer's ad hoc disallowance of 20% of sales promotion expenses amounting to Rs. 94,83,750/-, especially when no show cause notice proposing such addition was issued.