Cost imposed for lack of diligence on part of assessee: ITAT Ahmedabad

Rajeshbhai Mohanbhai Prajapati Vs ITO (ITAT Ahmedabad)

ITAT Ahmedabad restored the matter back to AO for fresh adjudication but imposed cost of Rs. 10,000 for lack of diligence during assessment and appellate proceedings on the part of the assessee.

Facts- The assessee, an individual engaged in the business of trading in chemicals. AO reopened the assessments u/s. 147 of the Act on the basis of specific information received from the Directorate of Income Tax (Investigation) and the Directorate of Intelligence & Criminal Investigation, which flagged substantial credits in the assessee’s bank accounts during the financial years under consideration. It was observed that the assessee had received/paid amounts from M/s Orange Tradex Pvt. Ltd. and M/s Krrish Enterprise during the years under consideration. These entities were identified as “paper companies” engaged in providing accommodation entries and not carrying on genuine business activities. Accordingly, the AO initiated proceedings u/s 147 of the Act by issuing notice u/s 148 of the Act on 31.03.2021. Despite being provided multiple opportunities, the assessee did not furnish the required details or explanations for the credits in the bank account, which were central to the reassessment proceedings. This lack of response led the AO to complete the assessments ex-parte u/s 144 of the Act for both years, treating the amounts of Rs.1,07,80,41,291/- (AY 2016-17) and Rs.74,49,42,182/- (AY 2017-18) as unexplained cash credits u/s. 68 of the Act.

CIT(A) also dismissed the appeal. Being aggrieved, the present appeal is filed by the assessee.

Conclusion- Held that the assessee’s failure to respond to multiple notices issued by the AO and the CIT(A) reflects gross negligence. The e-proceedings system is designed to facilitate communication, and it is incumbent upon taxpayers to monitor the portal and comply with statutory notices. However, given the circumstances explained in the affidavit and the complexity of the matter, we believe that the assessee should be granted an opportunity to present its case. The principles of natural justice mandate that an adequate opportunity of being heard must be granted to both parties. Restoring the matter to the AO for fresh adjudication would ensure a fair assessment of income while safeguarding the rights of the assessee. However, the conduct of the assessee during the proceedings cannot be condoned. The assessee’s lack of diligence delayed the proceedings and burdened the judicial system. To emphasize the importance of compliance and deter similar conduct in the future, we impose a cost of Rs.10,000/- per appeal, payable to the Income Tax Department.

FULL TEXT OF THE ORDER OF ITAT AHMEDABAD

The present two appeals by the assessee are directed against the separate orders of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as “CIT(A)”], both dated 15.09.2023, passed under section 250 of the Income Tax Act, 1961 [hereinafter referred to as “the “Act”]. The appeals pertain to Assessment Years (AYs) 2016-17 and 2017-18, where the CIT(A) upheld the additions made by the Assessing Officer [hereinafter referred to as “AO”] under section 68 read with section 115BBE of the Act for alleged unexplained cash credits amounting to Rs.1,07,80,41,291/- (AY 2016-17) and Rs.74,49,42,182/- (AY 2017-18).

Facts of the Case:

2. The assessee, an individual engaged in the business of trading in chemicals, filed its returns of income for AYs 2016-17 and 2017-18 on 07-10-2016 and 31.10.2017, respectively. The AO reopened the assessments under section 147 of the Act on the basis of specific information received from the Directorate of Income Tax (Investigation) and the Directorate of Intelligence & Criminal Investigation, which flagged substantial credits in the assessee’s bank accounts during the financial years under consideration. It was observed that the assessee had received/paid amounts from M/s Orange Tradex Pvt. Ltd. and M/s Krrish Enterprise during the years under consideration. These entities were identified as “paper companies” engaged in providing accommodation entries and not carrying on genuine business activities. The VAT registration of these entities was cancelled by the Gujarat VAT Department due to lack of genuine activities. Chandresh Vyas, the authorized signatory of these entities, admitted in his statement dated 20.07.2018 that he acted as a dummy director/partner and that the entities were created solely for providing accommodation entries. The Inspector of Investigation confirmed that the premises of these entities remained non­operational and that no actual business activities were carried out. Accordingly, the AO initiated proceedings u/s 147 of the Act by issuing notice u/s 148 of the Act on 31.03.2021. While the assessee filed returns of income in response to the notices u/s 148, it failed to comply with subsequent notices u/s 142(1) of the Act issued by the AO. Despite being provided multiple opportunities, the assessee did not furnish the required details or explanations for the credits in the bank account, which were central to the reassessment proceedings. This lack of response led the AO to complete the assessments ex-parte u/s 144 of the Act for both years, treating the amounts of Rs.1,07,80,41,291/- (AY 2016-17) and Rs.74,49,42,182/- (AY 2017-18) as unexplained cash credits u/s. 68 of the Act.

3. The assessee filed appeals before the CIT(A), National Faceless Appeal Centre (NFAC), against the reassessment orders. Despite multiple notices issued on different dates, the assessee did not file any responses, explanations, or evidence in either of the years. The CIT(A) upheld the additions made by the AO under Section 68 of the Act in full, citing the absence of any substantive response or evidence from the assessee.

4. Aggrieved by the orders of the CIT(A) the assessee is in appeal before us with following grounds of appeals which are common for both the years, except the quantum:

1. The order passed by U/s.250 passed on 15-09-2023 for AY 2016-17 by National Faceless Appeal Centre, CIT(A), Delhi (for short NFAC) upholding the addition of Rs.107,80,41,291/- (for A.Y. 2017-18 Rs.74,49,42,182/-) made by A.O. as undisclosed credit bank transactions with M/s Orange Tradex Pvt. Ltd. is wholly illegal, unlawful and against the principles of natural justice.

2. The NFAC erred in disallowing the appellant’s claim for alleged bogus purchases without considering that the Ld. AO had accepted the corresponding sales made by the appellant.
When sales have been accepted, corresponding purchases should have been accepted too.

3. NFAC erred in treating the purchases made by the appellant as bogus u/ s69C since the same was duly supported with bills and made payments through account payee cheques.

4. NFAC failed to consider that A.O. had reopened assessment based on the CBI inquiry which is not a judicial proceeding, hence it is unrelatable in the Income Tax Assessment Proceeding, thereby quashing the assessment proceeding.

5. In view of the above facts, circumstances and grounds, your honor the appellant prays that –

i. The order of the NFAC may please be quashed, set aside in totally.

ii. The upward adjustment of Rs.107,80,41,291/ – (for A.Y. 2017-18 Rs.74,49,42,182/-) made in the said order be deleted.

iii. Any other relief that your honor may deem fit is necessary.

6. Your Honor appellant craves to leave to add, amend, alter or withdraw any or more grounds of appeal or before the hearing of appeal.

5. It was observed that there was a delay of 252 days in filing appeals before us. As stated by the assessee in the affidavits, the assessee was under significant personal and professional stress due to ongoing investigations, including those related to CBI inquiries, which made it difficult to respond promptly. The assessee also stated that the assessments involved substantial additions (Rs.107.80 crores for AY 2016-17 and Rs.74.49 crores for AY 2017­18) requiring a thorough review of documentation. The assessee also stated that he faced challenges in accessing the e-filing portal to monitor notices and communications during the relevant period. The Assessee Representative (AR) argued that the delay was neither willful nor deliberate but caused by genuine hardships faced by the assessee and assessee has now produced all necessary documentation and additional evidence to support its case, demonstrating a sincere intention to pursue the appeal. The Departmental Representative (DR) opposed the condonation of delay, arguing that the assessee’s behaviour reflects gross negligence and in difference and the assessee failed to act diligently, especially considering the magnitude of the additions and the repeated issuance of notices during the assessment and appellate proceedings.

6. We have considered the contentions of the rival parties. There are many judicial precedents, where its is decided that courts must adopt a liberal approach in condoning delays where sufficient cause is shown, to ensure that substantial justice prevails over procedural technicalities. It is also settled principle that the length of the delay is irrelevant if the explanation for the delay is reasonable and plausible. The stress and technical difficulties cited by the assessee, along with the involvement of substantial financial adjustments, provide a plausible explanation for the delay. The delay does not appear to be deliberate or motivated by any intent to obstruct the proceedings. Dismissing the appeals purely on technical grounds would deprive the assessee of an opportunity to contest the substantial additions made by the AO.

6.1. In view of the above observations and considering the settled principles the delay of 252 days in filing the appeals for both AYs is condoned in the interest of justice.

6.2. The AR submitted that during the course of assessment proceedings, the assessee could not appear before the AO due to Covid-19 outbreak and in such a situation, the assessee was unable to concentrate on the proceeding conducted u/s.148 of the Act and consequent upon the best judgement order u/s.144 of the Act. The AR further submitted that, the assessee was also unable to attend, before the Ld.CIT(A), during the course of appellate proceedings, due to inadvertent mistake on the part of himself while mentioning the email-id in filing Form No.35 [the correct email-id of the assessee is rajeshprajapati305@gmail.com, whereas mistakenly mentioned by the assessee as Rajeshprajapati3050@gmail.com] and, resultantly, the notices were issued by the Ld.CIT(A) on the incorrect email-id. The assessee has admitted the mistake committed by him and requested for granting one opportunity of hearing.

6.3. During the course of hearing before us, the assessee filed substantial additional evidences in support of his case. The additional evidences comprised the following:

• Ledger Accounts of M/s Orange Tradex Pvt. Ltd. and M/s Krrish Enterprise from the assessee’s books for the relevant years.
• Signed Confirmations from M/s Orange Tradex Pvt. Ltd. and M/s Krrish Enterprise, certifying the transactions.
• Copies of Sales and Purchase Registers, Invoices, and Delivery Challans related to the transactions in question.
• Stock Register showing the details of goods purchased and sold during the year under consideration.
• Copies of VAT Assessment Orders and VAT Returns (Forms 304 and 201A) for the relevant years.
• Bank Statements of the assessee for the relevant financial years.
• MCA Status Report of M/s Orange Tradex Pvt. Ltd., indicating the legal status of the company.
• Statements recorded under oath from Mr. Chandresh C. Vyas, a key individual associated with M/s Orange Tradex Pvt. Ltd., highlighting the background of the transactions.

6.4. The assessee submitted that the additional evidence was not produced earlier due to genuine hardships and stress caused by ongoing investigations and personal difficulties, as explained in the affidavit filed for condonation of delay. The AR argued that the failure to respond to notices issued by the AO and CIT(A) was unintentional and caused by genuine difficulties, including involvement in other investigations and personal stress. It was emphasized that the assessee had filed its returns of income and that the credits in question related to legitimate business transactions. The AR requested that the matters be restored to the file of the AO for a fresh assessment, allowing the assessee an opportunity to submit all necessary documents and explanations.

7. The DR opposed the admission of additional evidence, citing the non­cooperative behaviour of the assessee throughout the proceedings. The DR highlighted that despite multiple opportunities provided by the AO and CIT(A), the assessee failed to comply with notices or provide any substantive response. It was argued that the assessee’s negligence should not be condoned, and the appeals should be dismissed.

8. We have carefully considered the submissions made by both parties, the records before us, and the additional evidence filed by the assessee. The assessee’s failure to respond to multiple notices issued by the AO and the CIT(A) reflects gross negligence. The e-proceedings system is designed to facilitate communication, and it is incumbent upon taxpayers to monitor the portal and comply with statutory notices. However, given the circumstances explained in the affidavit and the complexity of the matter, we believe that the assessee should be granted an opportunity to present its case. The principles of natural justice mandate that an adequate opportunity of being heard must be granted to both parties. Restoring the matter to the AO for fresh adjudication would ensure a fair assessment of income while safeguarding the rights of the assessee.

8.1. However, the conduct of the assessee during the proceedings cannot be condoned. The assessee’s lack of diligence delayed the proceedings and burdened the judicial system. To emphasize the importance of compliance and deter similar conduct in the future, we impose a cost of Rs.10,000/- per appeal, payable to the Income Tax Department.

8.2. In view of the above, the orders of the CIT(A) for AYs 2016-17 and 2017­18 are set aside, and the matters are restored to the file of the AO for a de novo assessment. The AO is directed to provide the assessee a reasonable opportunity of being heard and to consider all submissions and evidence filed during the fresh proceedings. The assessee is directed to cooperate fully with the AO and comply with all notices and proceedings without fail. Failure to do so may result in adverse consequences.

8.3. In the result, both appeals of the assessee are partly allowed for statistical purposes, subject to the levy of costs.

Order pronounced in the Open Court on 11th December, 2024 at Ahmedabad.