Respondent assessee, under Rule 27 can’t raise a ground which is adverse to appellant Revenue

Respondent assesse, under Rule 27 not entitled to raise a ground which would work adversely to the appellant Revenue – ITAT

In a recent judgment, ITAT Lucknow has held that the respondent assesse, under Rule 27 is not entitled to raise a ground which would work adversely to the appellant Revenue and put it in a position that is worse than if he had not appealed at all.

ABCAUS Case Law Citation:
5180 (2026) (07) abacus.in ITAT

This appeal was filed by the Income Tax Department against the order of the CIT, NFAC wherein he had allowed the appeal of the assessee against the orders passed by the Assessing Officer under section 147 r.w.s. 144 r.w.s. 144B of Income Tax Act, 1961 (the Act) by admitting the additional evidences filed by the assessee.

Before the ITAT, the assessee sought permission to raise the additional grounds under Rule 27 of the ITAT Rules, 1963 challenging the legal validity of the reassessment proceedings u/s 147 of the Act.

In the said case, the AO had made best judgment manner adding back amount of cash deposited in bank under section 69A of the Act.

The CIT(A) deleted the addition observing that it was self-evident that the cash deposits made by the assessee during the relevant previous year was out of cash sales and business receipts of the assessee which had been duly recorded in the books of account maintained by the assessee. He, therefore, deleted the addition made by the Assessing Officer holding the source of impugned cash deposits of to be explained.

The revenue submitted that the assessee had filed his cash book, his sales register and his bank statement for the first time before the CIT(A) and the ld. CIT(A) had proceeded to consider those evidences and make them the basis for his order without calling for the remand report under section 250(4) and thus he had admitted the additional evidences filed by the assessee in contravention to the conditions laid down in Rule 46A of the Income Tax Rules thereby impeding examination of the same by the Assessing Officer in Rule 46A(3).  The assesse supported the order of the CIT(A).

With respect to the additional grounds taken, the assesse submitted that the case had been reopened on incorrect set of facts and therefore, he sought liberty to challenge opening of the reopening of the assessment proceedings by filing an application under Rule 27 of the Income Tax (Appellate Tribunal) Rules. It was submitted that under Rule 27, a legal ground which was not raised by the assessee before the lower authorities could be raised at any stage of the proceedings, particularly before the ITAT and in this regard, he placed reliance on the decision of ITAT Delhi and the ITAT Lucknow.

The ITAT observed that the assessee had not filed any objection to the issue of the said notice under section 148. Neither did the assessee raise the question of the maintainability of notice under section 148 in the appeal before the CIT(A) or while filing the grounds of appeal before ITAT. These additional grounds seeking the annulment of the assessment had been filed for the first time under Rule 27 of the ITAT Rules, 1963.

The ITAT further observed that perusal of Rule 27 show that a respondent may support the order appealed against even on any of the grounds decided against him, even though he may not have filed an appeal or cross objection against the appeal filed by the opposite party. However, the said rule can only be used to support the judgment of the first Appellate Authority on any ground. There may be a case where the party raises more than one ground before the First Appellate Authority but secures relief on only one ground. Having secured relief, it may not find it worth its while to challenge the order on a ground of appeal that was not decided in its favour or not decided at all. However, if the relief given to the party is challenged, then this rule provides the said party an opportunity to support the order of the First Appellate Authority on any ground and even raise issues before the Tribunal that had been decided against it by the First Appellate Authority.

The ITAT opined that the assessee was not entitled to raise a ground which would work adversely to the appellant Department and put it in a position that is worse than if he had not appealed at all, as the same would not be a defense to the appeal itself, but may affect the validity of the entire proceedings. Grounds raised under Rule 27 could only be entertained for the purposes of sustaining the order in appeal and dismissing the appeal and cannot be made use of to disturb or set aside the order in favour of the assessee.

The ITAT noted that such a view has been held by the Hon’ble Bombay High Court holding that the assessee could only use Rule 27 to sustain the order of the AAC, but not to get further relief and have the assessment annulled. Further the Delhi High Court held that by virtue of the said rule, a respondent before the Tribunal can support the decision appealed against not only on the grounds decided in favour of the respondent but also on grounds decided against it.

Therefore, the ITAT opined that since the assessee had not raised the issue of maintainability of proceedings of 147 in the appeal before the CIT(A), he would not be entitled to raise the same under Rule 27 of the ITAT Rules for the purposes of seeking annulment of the assessment order.

Accordingly, the additional grounds raised by the assesse under Rule 27 were dismissed as being out of the scope of Rule 27.

Regarding merit of the case, the ITAT observed that the assessee had filed its audit report along with all financial statements along with the returns which were available to the assessing officer. These demonstrated that the assessee firm had sales/turnover which was much more than the cash deposits. Had the said material been perused by the A.O. the addition could not have been made under section 69A, as the breakup and explanation for the deposits, the bank statement and the financial statements would have demonstrated that the credits were on account of cash sales and could only be regarded as unexplained money if that explanation and the financial statements were found to be defective or if the cash deposits were over and above the quantum of sales already disclosed in the return.

Accordingly, the appeal of the Revenue was dismissed.

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