Kanishka F&B Vs ITO (ITAT Visakhapatnam)
The case of Kanishka F&B vs. ITO (ITAT Visakhapatnam) involves an appeal against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, relating to the assessment year 2018-19. The assessee, a newly incorporated firm, filed its income tax return on 29 September 2018 declaring a loss of ₹26,91,175. The case was selected for scrutiny under the Centralised Scrutiny Selection System (CASS) due to the substantial introduction of capital in the year of incorporation.
During the assessment proceedings, notices under sections 143(2) and 142(1) of the Income Tax Act, 1961 were issued to the assessee, seeking information about its financial transactions. While the assessee responded to the 143(2) notice, it failed to comply with 142(1) notice requirements. The firm reported that it had been commenced on 24 May 2017 and that its partners had introduced capital of ₹3,86,95,754 during the year. Notices under section 133(6) were also issued to the partners, who furnished details individually.
The Assessing Officer (AO) found that the assessee did not provide sufficient documentation to substantiate the source of the capital introduced by the partners, such as individual balance sheets or ledger accounts. Consequently, invoking section 68 read with section 115BBE, the AO made an addition of ₹3,86,95,754 to the firm’s income on a protective basis.
The assessee appealed before the CIT(A), which was disposed of ex-parte due to non-appearance and non-compliance with hearing notices. The CIT(A) upheld the addition made by the AO. Aggrieved, the assessee approached the ITAT, raising multiple grounds, including that: (i) the CIT(A) violated principles of natural justice by passing an ex-parte order; (ii) additions were made on a protective basis while the partners’ contributions had been substantiated in their individual assessments; and (iii) no conclusive evidence justified taxing the firm for capital already accepted in the hands of the partners.
The ITAT first addressed the issue of the delay in filing the appeal before it, which was 193 days. The delay was attributed to an unforeseen accident involving the managing partner, P. Sai Sitaram, which prevented timely signing and submission of documents. After reviewing the circumstances and the supporting medical certificate, the Tribunal condoned the delay, allowing the appeal to be heard on merits.
On examining the matter, the Tribunal observed that the CIT(A) had scheduled four hearings, but the assessee failed to attend or submit documents. The AO’s addition was on a protective basis, whereas the partners had substantiated their capital contributions in individual assessments. The ITAT noted that the ex-parte order could have been avoided if the assessee had actively participated. Considering the interest of justice and the assessee’s consistent plea, the ITAT remitted the matter to the CIT(A) for fresh adjudication, directing that the assessee be provided one more opportunity to be heard. The Tribunal emphasized that failure to cooperate in the proceedings would allow the CIT(A) to pass an order based on available materials.
In conclusion, the ITAT allowed the appeal for statistical purposes, remitting the matter to the CIT(A) for a fresh hearing and decision on merits, thereby ensuring compliance with natural justice principles. The ruling highlights the importance of active participation in appellate proceedings and the protective treatment of additions where partners’ capital contributions are already substantiated.
Judicial precedents: The decision aligns with established principles in cases such as CIT vs. Reliance Utilities and Power Ltd. [2010] 327 ITR 272 (Bom.) emphasizing the necessity of providing reasonable opportunity of hearing, and ACIT vs. M/s. R.L. Jain & Co. [2018] 90 taxmann.com 297 (ITAT Delhi), regarding protective additions and substantiated capital contributions.
FULL TEXT OF THE ORDER OF ITAT VISAKHAPATNAM
