Ex-Parte Order Without Adjudication on Merits is Unsustainable: ITAT Ahmedabad

Sardarbhai Ramsangbhai Dhuliya Rajkamal Society Vs ITO (ITAT Ahmedabad)

ITAT Ahmedabad held that passing of ex-parte order by CIT(A) without adjudicating issues on merits, such order is not sustainable in the eyes of law keeping in view provisions of Section 250(6) of the Income Tax Act.

Facts-

The assessee is a retired government employee. The information was available in the ITS data that the assessee had made cash deposits to the tune of Rs.14,46,320/- in time deposit scheme in the Bank of India and commission income of Rs. 19,990/-was received from PACL India Ltd. Accordingly, the case of the assessee was reopened by the AO, and notice u/s. 148 dated 28.03.2018 was issued by the A.O. to the assessee.

The assessee failed to furnish return of income with the A.O. in response to notice u/s. 148 , as well no return of income was filed u/s. 139 of the Act. The assessee did not comply with the notices issued by the A.O. Accordingly, the assessment was finalized by the A.O. u/s. 144 r.w.s. 147 of the Act, vide reassessment order dated 29.12.2018.

CIT(A) dismissed the appeal of the assessee ex parte in limine wherein reassessment order passed by the AO was confirmed/upheld by the Ld. CIT(A). Being aggrieved, the present appeal is filed.

Conclusion-

Held that CIT(A) is required to pass reasoned and speaking order on merits in accordance with law, but the appellate order passed by ld. CIT(A) is a non speaking and non reasoned appellate order which is not in compliance with provisions of Section 250(6), and is liable to be set aside.

If the ld. CIT(A) simply dismiss the appeal merely because the assessee did not appear before ld. CIT(A) or did not comply with the notices, ex-parte in limine without adjudicating issues arising in the appeal on merits , such order is not sustainable in the eyes of law keeping in view provisions of Section 250(6).

FULL TEXT OF THE ORDER OF ITAT AHMEDABAD

This appeal in ITA No. 899/Ahd/2023 for assessment year 2011-12 is filed by the assessee before Income Tax Appellate Tribunal, Ahmedabad Bench, Ahmedabad , which has arisen from the appellate order dated 22-05-2023 vide DIN & Order No. ITBA/NFAC/S/250/2023-24/1053040290(1) passed by ld. CIT(A),NFAC, New Delhi u/s 250 of the Income-tax Act, 1961, which in turn has arisen from the assessment order dated 29-12-2018 passed by learned Assessing Officer u/s. 144 read with Section 147 of the Income-tax Act, 1961.

2. The grounds of appeal raised by the assessee in Memo of Appeal filed with the ITAT, Ahmedabad Bench, Ahmedabad, reads as under:-

“[1] The Hon. CIT(A) was grievously erred in confirming the addition of Rs. 20,51,500/- treating the amount as unexplained money u/s. 69A of the Act though the appellant has submitted all details and proved the identity of cash deposits and genuineness of the transaction.

2. The Hon. CIT(A) was also grievously erred in confirming the addition of Rs. 21,746/- being the interest and commission income which are not offered for taxation though the identity and proofs have been submitted during the proceedings of the assessment.

3. The Hon. CIT(A) was grievously erred in confirming the total addition of Rs. 20,73,246/-though the appellant has offered all details, hence the assessment made is bad in law and required to be cancelled.

4. The Ld. A.O. has levied the interest u/s. 234A of Rs. 4,31,423/- and interest u/s. 234B of Rs. 4,35,979/- which are required to be deleted looking to the outcome of this second appeal.

5. The appellant therefore requests your Honour to kindly delete the abovementioned addition of Rs. 20,73,246/- looking to the merits of the case.

6. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal.”

3. At the outset, the Ld. Sr. Counsel for the assessee , Shri S.N. Divetia, Advocate submitted that this appeal filed by the assessee is belatedly filed with ITAT by 111 days beyond the time prescribed u/s 253(3) of the 1961 Act. The ld. Sr. Counsel for the assessee, Shri S.N. Divetia, Advocate drew our attention to the affidavit dated 04^th March, 2024 filed by the assessee (which is placed on record in file) praying for condonation of delay of 111 days in filing this appeal belatedly by the assessee with ITAT. It is averred in the aforesaid affidavit that the assessee is a retired employee of Taluka Vikas Kacheri, Vadgam and he was working as Circle Inspector till 30.09.2020 . It is averred that the assessee is not well versed conversant with the tax proceedings as well technological access to be made. It is averred that in the IT Portal , email registered was of the staff member of his previous tax consultant . He was not aware of the assessment proceedings going on and it is only when demand notice came, he became aware of the assessment proceedings. In form No. 35, email ID of the tax consultant was given who was looking after tax matter till his retirement. It was submitted that it is only when appeal effect order was received giving effect to the appellate order of ld. CIT(A), he came to know that the appeal was dismissed by ld. CIT(A) ex-parte for non compliances of the notices. It is further averred by the assessee in the affidavit, thereafter, he immediately approached Chartered Accountant who filed appeal with ITAT. It is averred that the delay of 111 days in filing this appeal is neither intentional nor warranted. The prayers are made to condone the aforesaid delay, otherwise the assessee will suffer irreparable injury and loss. The Ld. Sr. D.R. on the other hand submitted that department objects to the condonation, as the assessee was aware of the proceedings going on against him. After considering the entire material on record, I condone the delay as in my considered view , the assessee has shown sufficient and reasonable cause in not filing this appeal within time as stipulated u/s 253(3). The use of technology is fast making inroads in all the spheres of life, which is in-fact bringing in efficiency and effective utilization of resources for common good. The proceedings under the 1961 Act are now driven by effective use of technology and AI. The technology itself is changing very fast, and the old technology becomes obsolete in no time. In this fast changing technology driven world, some people especially old generation may not be adaptable to the newer technology at rapid pace vis-à-vis new generation. The assessee is a retired government employee, and explanation given by him is a plausible explanation, and the doors of justice cannot be shut to him merely because there is delay in filing this appeal belatedly by 111 days. Under these facts and circumstances, I am of the considered view that the assessee has shown reasonable and sufficient cause in filing this appeal belatedly with ITAT beyond the time stipulated u/s 253(3), and delay needs to be condoned and the appeal be heard on merits. When technicalities are pitted against the substantial justice, the Courts will lean towards advancement of substantial justice rather than technicalities, unless the malafide on the part of the assessee is at writ large. Under the facts and circumstances, I do not find any malafide on the part of the assessee in filing this appeal belatedly, and in the interest of justice, I condone the delay of 111 days and proceed to adjudicate this appeal on merits in accordance with law. Reference is drawn to the decision of Hon’ble Supreme Court in the case of Collector of Land Acquisition, Anantnag v. Mst. Katiji (1987 AIR 1353(SC)).

4. The brief facts of the case are that the assessee has not filed return of income for the impugned assessment year , and the name of the assessee appeared in the NMS data that the assessee has not filed return of income. The information was available in the ITS data that the assessee had made cash deposits to the tune of Rs.14,46,320/- in time deposit scheme in the Bank of India and commission income of Rs. 19,990/-was received from PACL India Ltd. After recording reasons for reopening of the assessment that the assessee had not offered for taxation amount of cash deposit and the commission income , and after obtaining approval from the learned Pr. CIT-4, Ahmedabad, the case of the assessee was reopened by the AO, and notice u/s. 148 dated 28.03.2018 was issued by the A.O. to the assessee , which was claimed by the A.O. to have been duly served upon the assessee. No return of income was filed by the assessee in pursuance to the notice u/s. 148 of the Act. The A.O. issued further notices u/s. 142(1) as well as show cause notice, as detailed hereunder:

4.2. The assessee failed to furnish return of income with the A.O. in response to notice u/s. 148 , as well no return of income was filed u/s. 139 of the Act. The assessee did not comply with the notices issued by the A.O. , and the AO proceeded to frame ex-parte best judgment assessment by invoking provisions of Section 144. The AO also issued SCN to the assessee. The assessee failed to comply with any of the notices issued by the AO including SCN. The A.O. also issued notice u/s. 133(6) of the Act to Bank of India, and the Bank of India duly submitted the bank statements for the relevant period. The A.O. observed from the bank statement of Bank of India account number 230010100024381 that there are total credits in this bank account to the tune of Rs.6,05,180/- and the interest was credited in this bank account to the tune of Rs.1,756/- , and the same were not offered for taxation. The AO observed that the total credits of Rs. 6,05,180/- and time deposits to the tune of Rs.14,46,320/- aggregating to Rs. 20,51,500/- in Bank of India, remained unexplained, which stood added by the AO to the income of the assessee u/s 69A. The assessee has also not filed any return of income. The AO Also observed that commission income received by the assessee to the tune of Rs. 19,990/- and interest income of Rs. 1,756/- were also not offered for taxation, which were also added to the income of the assessee by the AO. Accordingly, the assessment was finalized by the A.O. u/s. 144 r.w.s. 147 of the Act, vide reassessment order dated 29.12.2018.

5. Aggrieved, the assessee filed first appeal with Ld. CIT(A). The Ld. CIT(A) issued as many as ten notices to the assessee during the course of appellate proceedings , as detailed in appellate order passed by ld. CIT(A) , but there was no compliance by the assessee. The Ld. CIT(A) dismissed the appeal of the assessee ex parte in limine wherein reassessment order passed by the AO was confirmed/upheld by the Ld. CIT(A). The Ld. CIT(A) observed that the assessee has also not submitted any detailed submissions before the A.O.

6. Still aggrieved, the assessee has now filed second appeal with the Tribunal. On merits, The Ld. Senior Counsel for the assessee, Shri S N Divetia, Advocate appeared and submitted that the assessee is a Govt. Employee working at Taluka Vikas Kacheri level as Circle Inspector, and he was not aware of the reassessment proceedings going on at the A.O. level as the email id was given of the tax consultant who was filing the return of income when the assessee was working with Government, and the said tax consultant never informed assessee about the tax-proceedings. It is only when the assessment order with huge demand was received, that the assessee became aware of the proceedings, and he appointed another tax-consultant to file appeal with ld. CIT(A) , and the email id of the tax consultant was given, who never complied with the notices of ld. CIT(A) also never informed assessee about the proceedings before Ld. CIT(A) which led to the dismissal of the appeal ex parte by the Ld. CIT(A). It was submitted that when appeal effect order was received , then the assessee came to know that the appeal before ld. CIT(A) stood dismissed. It was submitted that the assessee could not file any evidences before the lower authorities, and It is submitted that the assessee is now filing additional evidences as per Rule 29 of Income Tax(Appellate Tribunal) Rules, 1963. It is submitted that the assessee has filed paper book before Tribunal containing 65 pages , which are in the form of additional evidences, and prayer were made to admit additional evidences in the interest of justice . The prayers were also made by ld. Counsel for the assessee to set aside the matter back, as the additional evidences filed before ITAT for the first time requires verification. On merits, it was submitted by Ld. Sr. Counsel for the assessee, Shri S.N. Divetia, Advocate before the Bench that the assessee has filed Statement of Facts before the Tribunal and it was submitted that the assessee received Rs.6,05,180/- as retirement benefit which are not taxable. It was also submitted that the assessee has not deposited any cash in the bank account , and A.O. erred in reopening of assessment based upon allegation of cash deposit of Rs.14,46,320/- in the bank account, and later on the A.O. made the addition of Rs.14,46,320/- with respect to time deposit. It was submitted that no fresh time deposit was taken/made by the assessee during the year under consideration , and rather these were old FDRs which were taken in the preceding years , which either matured during the year or the assessee got it renewed during the year under consideration. It was submitted that the matter may be set aside for verification of the additional evidences. Ld. Sr. D.R. also fairly agreed that the matter may be set aside for do-novo consideration of the contentions and evidences filed by the assessee.

7. I have considered the contentions of both the parties and perused the material on record as well additional evidences filed by the assessee. The facts are culled out above in the preceding para’s of this order, and are not repeated. Briefly stated, the assessee did not file its return of income u/s 139. The AO had information that the assessee has not filed its return of income u/s 139, and that there are cash deposits to the tune of Rs. 14,46,320/- in the bank account maintained by the assessee with Bank of India. The AO invoked provisions of Section 147/148 of the 1961 Act, and notice u/s 148 was issued by the AO requesting assessee to file return of income in pursuance to notice u/s. 148. The assessee did not file return of income in pursuance to notice u/s 148. The AO also issued statutory notices u/s 142(1) from time to time , but the same remained uncompiled with by the assessee. SCN was issued but still the assessee did not comply with the same. The AO called for bank statement directly from the Bank of India by issuing notice u/s 133(6), and the bank supplied bank statements for the relevant period . The AO made additions to the tune of Rs. 6,05,180/- being credits in the said bank account and also Rs. 14,46,320/- towards time deposit made by the assessee with the bank, u/s 69A of the 1961 Act, as the sources of the said deposits remained unexplained. The AO further made additions to the tune of Rs.19,990/- towards commission income as well interest income to the tune of Rs. 1,756/- , which were not offered by the assessee for taxation, as no return of income was filed. The assessee filed first appeal with ld. CIT(A) and in statement of fact , it is stated that Rs. 6,05,180/- credited in the bank account is towards retirement benefit received which is not taxable , and further the time deposits were taken in the earlier years. The assessee did not entered appearance before ld. CIT(A) who dismissed the appeal of the assessee in limine without deciding the issues on merit , by upholding/confirming the reassessment order passed by the AO. The explanation given by the assessee is that he is retired government employee and the email of the old tax consultant when he was working with government was given who never informed about the assessment proceedings going on against the assessee. The assessee appointed new tax-consultant to file appeal before ld. CIT(A), who also did not comply with the notices issued by ld. CIT(A) and never informed about proceedings before ld. CIT(A). It is submitted that it is only when the orders were received raising huge demand against the assessee, then the assessee became aware of the culmination and conclusions of the said proceedings against the assessee. The assessee has now filed second appeal with ITAT, and additional evidences running into 65 pages are filed. It is true that the assessee has not filed any return of income u/s 139 or in response to notice issued by the AO u/s148. It is equally true that the assessee did not entered appearance before authorities below. It is also true that the reassessment proceedings were initiated by Revenue against the assessee u/s 147/148 on the grounds that there was cash deposits of Rs. 14,46,320/- by the assessee in its bank account, but the assessee has stated that there was no cash deposits of Rs. 14,46,320/- made by the assessee in its bank account, rather these are time deposits made in preceding years which got encashed/matured/renewed during the year under consideration, and no such cash was deposited. With respect to additions of Rs. 6,05,180/- as made by the AO and confirmed by ld. CIT(A), it is stated by the assessee that he is retired government employee and he received retirement benefit from government which are not taxable. The assessee has explained his reasons for non appearance before the authorities below , as well the assessee has now filed additional evidences u/r 29 of Income Tax (Appellate Tribunal) Rules, 1963. These additional evidences goes to the root of the matter and I admit the same, but the same requires verification/inquiry by authorities below. The object and mandate of the 1961 Act is to bring to tax correct income in the hands of correct tax-payer for the correct assessment year so that correct income can be brought to tax at correct rates and due taxes are collected by Government from the tax­payers , as are provided and mandated under the provisions of 1961 Act. The ld. CIT(A) did not decided the issues arising in the appeal of assessee on merits as is required u/s 250(6) , and dismissed the appeal of the assessee ex parte in limine on the ground of non-prosecution by holding that the assessee is not interested in persuing its appeal. Even, ld. CIT(A) did not deem it necessary and/or appropriate to call for assessment records from the AO to verify the contentions of the assessee raised in SOF filed before ld. CIT(A) that there were no time deposits made by the assessee during the year and rather the time deposits were taken in the earlier years. No information were called by ld. CIT(A) from the bank directly, to verify the contentions and claim of the assessee that there were no cash deposits of Rs.14,46,320/- made by the assessee in its bank account during the year under consideration , but these were time deposits taken in the earlier years. With respect to deposit of Rs. 6,05,180/- in bank account , the claim made by the assessee in SOF filed with ld. CIT(A) is that these are retirement benefits and the same is not taxable. The AO had all the details of the employment of the assessee in its data base that in ay:2010-11, income tax of Rs. 5,900/- was deducted by the employer u/s 192(page 40/PB), but no attempt was made by ld. CIT(A) to verify the contentions of the assessee by calling information from the employer Taluka Panchayat Office, Vadgam. The ld. CIT(A) did not issued any summons to the assessee u/s 131 to enforce attendance, nor verified the facts directly from the bank rather dismissed the appeal of the assessee ex-parte in limine without deciding the issues arising in the appeal on merits in accordance with law. The power of ld. CIT(A) are co-terminus with the power of Assessing Officer which even includes power of enhancement(Section 251(1)(a)). The ld. CIT(A) is required to adjudicate the issues on merit in accordance with law , as is provided u/s. 250(6). The ld. CIT(A) has to state point for determination, his reasons for decision and the decision thereof as provided u/s 250(6). The CIT(A) has power to make such inquiries as he thinks fit and may also direct AO to make such enquiries and report to ld. CIT(A), as is provided u/s 250(4), and to adjudicate issues arising in the appeal before him on merits in accordance with law. There are other powers vested with ld. CIT(A) as is provided under the 1961 Act. The ld. CIT(A) has not rebutted the claim of the assessee, but dismissed the appeal of the assessee on ground of non compliance with the notices issued by ld. CIT(A) by holding that the assessee is not interested in prosecuting its appeal , and simply upheld the additions as were made by the AO. The ld. CIT(A) is required and obligated to pass order in compliance with the provisions of section 250(6), as ld CIT(A) is required to pass reasoned and speaking order on merits in accordance with law, but the appellate order passed by ld. CIT(A) is a non speaking and non reasoned appellate order which is not in compliance with provisions of Section 250(6), and is liable to be set aside. The appellate order passed by ld. CIT(A) is subject to further appeal with ITAT u/s 253. The appellate order passed by ITAT is subject to further appeal before Hon’ble High Court u/s 260A. The judgment and order passed by Hon’ble High Court is also subject to challenge before Hon’ble Supreme Court. Thus, the appellate order passed by ld. CIT(A) is not a final order, as it is subject to challenge before higher appellate authority. Thus, Reasons which weighed in the minds of the adjudicating authority while adjudicating appeal on merits of the issue are cardinal as the higher appellate authority can then adjudicate appeal on the issues arising in appeal before them, based on decision and reasoning of ld. CIT(A) in deciding the issues. If the ld. CIT(A) simply dismiss the appeal merely because the assessee did not appear before ld. CIT(A) or did not comply with the notices, ex-parte in limine without adjudicating issues arising in the appeal on merits , such order is not sustainable in the eyes of law keeping in view provisions of Section 250(6) , and also higher appellate authorities will be deprived to see what weighed in the mind of the ld. CIT(A) while adjudicating appeal as it will be an order passed without reasoning on the issues on merits . It is equally true that the assessee also did not complied with the notices issued by the AO as well by ld. CIT(A) , and did not file the requisite details/documents to support his contentions. The assessee is also equally responsible for its woes. Now that the assessee has filed additional evidences u/r 29, which stood admitted by me in the interest of justice. Under these facts and circumstances and fairness of both the parties, in the interest of justice, the appellate order of CIT(A) is set aside and the matter can go back to the file of ld. CIT(A) for fresh adjudication of the appeal of the assessee on merit in accordance with law after giving opportunities to both the parties. The ld. CIT(A) shall pass the appellate order in compliance with the provision of section 250(6) of the Act on merit in accordance with law, in set aside proceedings ,after giving opportunity to both the parties in compliance with principles of natural justice. The assessee on his part is also directed to comply with the direction/notices of CIT(A) , and in case of failure of the assessee, the ld. CIT(A) shall be free to pass such appellate order as deemed fit ex-parte in accordance with law on merits and after complying with the provisions of section 250(6) of the Act. Thus, the matter is restored back to the file of ld. CIT(A) for fresh adjudication of the appeal of the assessee on merit in accordance with law. I clarify that I have not commented on the merits of the issues in the appeal. Thus, the appeal of the assessee is allowed for statistical purposes. I order accordingly.

8. In the result, the appeal of the assessee in ITA No. 899/Ahd/2023 for assessment year 2011-12 is allowed for statistical purposes.

9. Order pronounced on 02^nd August, 2024 in accordance with Rule 34(4) of the Income-tax Appellate Tribunal Rules, 1963 at Ahmedabad.