Spray Engineering Devices Ltd. Vs ITO (ITAT Chandigarh)
Fresh Tax Hearing, 300 Trees: ITAT Remands ₹3.59 Crore Dispute With a Green Condition
Reasoned Adjudication Required Despite Non-Compliance
The Chandigarh ITAT restored a company’s appeal involving ₹3.50 crore added under Section 68 and ₹8.75 lakh under Section 69C to the CIT(A), holding that the assessee’s failure to respond to hearing notices did not dispense with the requirement to decide its grounds through a reasoned order.
The Tribunal also imposed an unusual condition: the company must plant 300 trees of Indian or native origin at its own cost, maintain them and furnish evidence of compliance during the fresh appellate proceedings.
The appeal was allowed for statistical purposes. The validity of reopening, genuineness of the share-sale transaction, alleged commission expenditure and adjustment against brought-forward losses remain undecided.
Share-Sale Receipts Became an Accommodation-Entry Dispute
The assessee, engaged in manufacturing and engineering activities, filed its return on 30 September 2013, declaring a loss of ₹9,50,80,496.
The original assessment under Section 143(3) was completed on 29 February 2016, determining income at nil.
Subsequently, the Assessing Officer received information from the Investigation Wing concerning Shri Pradeep Kumar Jindal, who was alleged to have provided accommodation entries through various front companies.
After recording reasons, the officer issued a Section 148 notice on 31 March 2021. The company filed a return in response on 30 April 2021, declaring the same loss.
During reassessment, the officer examined the sale of 14,75,000 equity shares of Spray Engineering Sugars Limited to Shri Prithi Paul Singh Sethi for ₹3.50 crore.
Relying on the investigation information, the officer treated that consideration as unexplained cash credit under Section 68. An additional ₹8.75 lakh, calculated at 2.5%, was treated as unexplained expenditure under Section 69C for alleged accommodation-entry commission.
The reassessment dated 31 March 2022 determined total income at ₹3,58,75,000.
Reopening and Loss Adjustment Were Specifically Challenged
Before the CIT(A), the company challenged reopening beyond four years from the end of the relevant assessment year, emphasising that an original scrutiny assessment had already been completed and that all material particulars had been fully and truly disclosed.
It also disputed the Section 68 addition, application of Section 115BBE and consequential Section 69C addition.
A further ground concerned the Assessing Officer’s failure to adjust the addition against brought-forward losses.
These were substantive grounds requiring separate consideration. However, the CIT(A) issued three hearing notices—on 3 November 2023, 6 February 2024 and 4 March 2024—to which, according to the appellate order, no response was received.
The CIT(A) then confirmed the assessment, observing that no reason was available on record to change it.
Non-Prosecution Could Not Substitute for Findings
The Tribunal found that the CIT(A) had not examined the substantive grounds on their merits.
It held that the first appellate authority must dispose of the grounds in accordance with law and on the available material, even where the assessee fails to use the opportunities provided.
This requirement was particularly significant because one ground challenged the Assessing Officer’s jurisdiction to reopen the assessment.
The share-sale controversy also required examination of facts and documents. The Tribunal therefore set aside the appellate order and directed the CIT(A) to adjudicate all grounds afresh, including reopening, Sections 68 and 69C, and brought-forward loss adjustment.
A 99-day delay in filing the Tribunal appeal was separately condoned after consideration of the company’s affidavit.
One Effective and Final Opportunity
The company was directed to produce all relevant documentary evidence and written submissions, cooperate fully and avoid unnecessary adjournments.
The Tribunal described the restored hearing as one effective and final opportunity.
The CIT(A) must consider the material already available and any further evidence admissible under law, and pass a speaking and reasoned order on each ground.
The remand does not automatically admit every proposed document or establish the company’s substantive claims.
Planting and Maintaining 300 Native Trees
As a condition attached to fresh adjudication, the Tribunal directed the company to plant 300 Indian or native trees at Nishkam Sewa Ashram Trust (Regd.), Village Daad, Pakhowal Road, Ludhiana–141001.
Planting must be undertaken at the company’s expense, in consultation or coordination with the competent local authority, Forest Department or another appropriate public authority.
Locations should, as far as practicable, permit survival and maintenance. The company must maintain the trees and take reasonable measures for their survival.
A compliance report supported by photographic or documentary evidence, and authority certification wherever feasible, must be furnished before the CIT(A), who must place it on record.
Author’s Comments
The central appellate principle is clear: non-compliance does not remove the obligation to adjudicate specific grounds through reasons. A jurisdictional objection, especially, requires an actual decision rather than automatic confirmation of the assessment.
The tree-planting direction is equally material because it is an express condition of the restored opportunity. Compliance involves planting, maintenance and evidence—not merely purchasing saplings.
For the tax dispute, the company must now establish its transaction through a coherent documentary record and address the reopening and loss-adjustment grounds separately.
The decision grants fresh adjudication with conditions; it neither deletes the ₹3.59 crore additions nor validates the share-sale explanation.
FULL TEXT OF THE ORDER OF ITAT CHANDIGARH
This appeal by the assessee is directed against the order dated 14.03.2024 passed by the ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [“ld. CIT(A)”], for Assessment Year 2013-14, whereby the appeal of the assessee against the assessment order dated 31.03.2022 passed under section 147 read with sections 144 and 144B of the Income-tax Act, 1961 (“the Act”) was dismissed. The assessee is a company engaged in the business of manufacturing/engineering activities and had originally declared a loss of Rs.9,50,80,496/-.
2. At the outset, the ld. AR submitted that the appeal filed by the assessee is barred by limitation by 99 days and an affidavit explaining the delay has been placed on record. It was submitted that the delay was neither intentional nor deliberate and occurred due to unavoidable circumstances. The ld. DR did not seriously object to the condonation of delay. Considering the contents of the affidavit and the totality of facts and circumstances, we are satisfied that the assessee was prevented by sufficient cause from filing the appeal within the prescribed limitation period. Accordingly, the delay of 99 days in filing the appeal is condoned and the appeal is admitted for adjudication on merits.
3. The brief facts of the case are that the assessee filed its return of income for the year under consideration on 30.09.2013 declaring a loss of Rs.9,50,80,496/-The original assessment under section 143(3) was completed on 29.02.2016 determining the assessed income at Nil. Subsequently, information was received by the Assessing Officer from the Investigation Wing regarding the activities of Shri Pradeep Kumar Jindal, who was stated to be engaged in providing accommodation entries through various front/non-descript companies. On the basis of such information and after recording reasons, notice under section 148 was issued on 31.03.2021. In response, the assessee filed its return on 30.04.2021 declaring the same loss.
4. During the reassessment proceedings, the Assessing Officer examined the transaction relating to sale of 14,75,000 equity shares of M/s Spray Engineering Sugars Limited for a consideration of Rs.3,50,00,000/- to Shri Prithi Paul Singh Sethi. The Assessing Officer, relying upon the information received from the Investigation Wing, treated the amount of Rs.3,50,00,000/- as unexplained cash credit under section 68 of the Act. Further, an amount of Rs.8,75,000/-, being 2.5% of the alleged accommodation entry, was treated as unexplained expenditure under section 69C of the Act. Consequently, the assessment was completed under section 147 read with section 144 and section 144B on 31.03.2022 determining total income at Rs.3,58,75,000/-
5. Aggrieved, the assessee preferred appeal before the ld. CIT(A), inter alia, challenging the validity of the reassessment proceedings on the ground that notice under section 148 had been issued after expiry of four years from the end of the relevant assessment year despite the original assessment having been completed under section 143(3), and that all material particulars had been fully and truly disclosed. The assessee also challenged the addition of Rs.3,50,00,000/- under section 68 read with section 115BBE, the consequential addition of Rs.8,75,000/- under section 69C, and the failure of the Assessing Officer to adjust the addition under section 68 against brought-forward losses.
6. The ld. CIT(A) issued notices under section 250 on 03.11.2023, 06.02.2024 and 04.03.2024, providing opportunities to the assessee to furnish submissions in support of its grounds. According to the appellate order, no response was received from the assessee to any of the notices. The ld. CIT(A), therefore, proceeded to decide the appeal on the basis of the material available on record.
7. The ld. CIT(A), after referring to various judicial decisions concerning dismissal of appeals for non-prosecution, observed that despite adequate opportunities the assessee had not filed submissions in support of its grounds. The ld. CIT(A) accordingly held that there was no reason available on record for any change in the assessment order and confirmed the order passed by the Assessing Officer. All the grounds of appeal were consequently dismissed.
8. Before us, the ld. AR submitted that the impugned order of the ld. CIT(A) deserves to be set aside as the appeal has effectively been dismissed without adjudication of the substantive grounds on merits. It was submitted that the assessee had specifically challenged the jurisdiction of the Assessing Officer under section 147, particularly in view of the original assessment having been completed under section 143(3) and the notice under section 148 having been issued beyond four years. It was further submitted that the substantial addition of Rs.3,50,00,000/- under section 68 as well as the consequential addition of Rs.8,75,000/- under section 69C have not been examined by the first appellate authority on merits.
9. The ld. AR further submitted that the assessee should be granted an effective opportunity to place all relevant documentary evidence before the ld. CIT(A), including evidence concerning the sale of shares, consideration received, identity and genuineness of the transaction and the issue relating to brought-forward losses. It was accordingly prayed that the matter may be restored to the file of the ld. CIT(A) for adjudication afresh in accordance with law after granting reasonable opportunity of hearing to the assessee.
10. The ld. DR, on the other hand, supported the orders of the lower authorities. It was submitted that the assessee had been provided repeated opportunities by the ld. CIT(A), but failed to comply with the notices. Therefore, according to the ld. DR, there was no justification for restoring the matter merely to provide another opportunity. The ld. DR accordingly submitted that the order of the ld. CIT(A) deserved to be sustained.
11. We have heard the rival submissions and perused the material available on record. We have also carefully considered the assessment order and the impugned order of the ld. CIT(A). The undisputed position emerging from the appellate order is that the assessee’s appeal raised substantive grounds challenging both the assumption of jurisdiction under section 147 and the additions of Rs.3,50,00,000/- under section 68 and Rs.8,75,000/- under section 69C.
12. It is equally evident that the ld. CIT(A) did not examine these substantive grounds on their merits. Rather, after recording that no response had been received to the three notices issued during the appellate proceedings, the ld. CIT(A) confirmed the assessment order.
13. In our considered view, the first appellate authority is required to dispose of the grounds raised before it in accordance with law and on the basis of the material available before it. The fact that the assessee did not avail the opportunities granted by the ld. CIT(A) does not dispense with the requirement of a reasoned adjudication of the specific grounds raised by the assessee, particularly when one of the grounds goes to the very jurisdiction of the Assessing Officer to reopen the assessment.
14. In the present case, the issue relating to the validity of reopening as well as the merits of the additions under sections 68 and 69C involve examination of facts and documents. The assessment order proceeded on the basis of information received from the Investigation Wing concerning alleged accommodation entries, whereas the assessee has disputed the characterization of the share-sale transaction and the consequential commission expenditure. The grounds raised by the assessee therefore require examination by the appellate authority after considering the material placed on record and any further evidence that may be admitted in accordance with law.
15. We are, therefore, of the considered view that the ends of justice would be met if the impugned order is set aside and the matter is restored to the file of the ld. CIT(A) for fresh adjudication. The ld. CIT(A) shall adjudicate all the grounds raised by the assessee, including the legal ground challenging the validity of reassessment proceedings and the grounds relating to additions under sections 68 and 69C and adjustment against brought-forward losses, strictly in accordance with law.
16. The assessee shall be afforded one effective and final opportunity to substantiate its claims by producing all relevant documentary evidence and written submissions before the ld. CIT(A). The assessee shall also cooperate fully with the appellate proceedings and shall not seek unnecessary adjournments. The ld. CIT(A), after considering the material already available on record and such further material as may be admissible under law, shall pass a speaking and reasoned order on each ground raised by the assessee.
17. We further consider it appropriate, in the facts and circumstances of the present case and keeping in view the importance of environmental responsibility, to direct the assessee, as a condition attached to the opportunity of fresh adjudication, to plant 300 trees of Indian/native origin at Nishkam Sewa Ashram Trust (Regd.), Village Daad, Pakhowal Road, Ludhiana–141001 (PAN: AAATN2796C)Ludhiana, at its own cost, in consultation/coordination with the competent local authority/Forest Department or another appropriate public authority. The trees shall, as far as practicable, be planted at locations where their survival and maintenance can be ensured.
18. The assessee shall maintain the planted trees and take reasonable measures for their survival. A compliance report, along with reasonable photographic/documentary evidence and, wherever feasible, certification from the concerned local authority or agency, shall be furnished before the ld. CIT(A) at the time of fresh proceedings. The ld. CIT(A) shall place such compliance on record while deciding the appeal afresh.
19. We clarify that the direction contained in paragraphs 14 to 17 above is not an expression of opinion on the merits of any ground raised by the assessee. The issues are restored to the file of the ld. CIT(A) for independent adjudication in accordance with law. The observations made herein shall not prejudice either party.
20. In the result, the appeal of the assessee is allowed for statistical purposes and the matter is restored to the file of the ld. CIT(A) for fresh adjudication in the manner indicated above.
Order pronounced on 28th September,2026.
