Ex-parte order by CIT(A) without adjudicating issues on merits not sustainable: ITAT Agra

Jain Steel Corporation Vs ITO (ITAT Agra)

ITAT Agra held that ex-parte dismissal of appeal, as notices issued by CIT(A) were not compiled, without adjudicating issues on merits is in violation of section 250(6) of the Income Tax Act. Hence, order set aside and matter remitted back to CIT(A) for fresh adjudication.

Facts- During scrutiny assessment, AO made addition to the tune of Rs. 20,90,250/- under section 68 of the Income Tax Act. CIT(A) dismissed the appeal of the assessee, as there was no compliance made by he assessee during appellate proceedings, and the assessment order was confirmed by CIT(A). Ex-parte order passed by CIT(A) is contested by the assessee as the same is stated to be in violation of section 250(6) of the Income Tax Act.

Conclusion- Held that dismissal of appeal by CIT(A) merely because the assessee did not comply with the notices issued by CIT(A) 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).

The appellate order of the CIT(A) is clearly in violation of section 250(6) of the Act and liable to be set aside. Merely stating the assessment order passed by AO is upheld, and that the assessee has not submitted details/documents is not sufficient. The ld. CIT(A) is not toothless as his powers are co- terminus with the powers of the AO., which even includes power of enhancement. The ld. CIT(A) is vested with vast powers under the 1961 Act. It is equally true that the assessee also did not complied with the notices issued by ld. CIT(A) and did not file the requisite details/documents to support his contentions. Thus, the assessee is equally responsible for its woes. Under these circumstances and fairness to 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.

FULL TEXT OF THE ORDER OF ITAT AGRA

This appeal in ITA No. 102/Agr/2023 for the assessment year 2016-17 has arisen from the appellate order dated 18.05.2023 (DIN& Order No. ITBA/NFAC/S/250/2023-14/1052959016(1)) passed by learned Commissioner of Income-tax(Appeals), NFAC, Delhi, which appeal in turn has arisen from the assessment order dated 06.12.2018 passed by Assessing Officer u/s. 143(3) of the Income- tax Act, 1961.

2. The Grounds of appeal raised by assessee in the memo of appeal filed with Income Tax Appellate Tribunal, Agra Bench, Agra, read as under :

1) That the National Faceless Appeal Centre (NFAC), Delhi has erred in law and on facts in passing the ex-parte order, without rejecting the adjournment filed by the appellant.

2) That the National Faceless Appeal Centre (NFAC), Delhi has erred in law and on facts in passing the ex-parte order without giving proper opportunity of being heard to appellant.

3) That the National Faceless Appeal Centre (NFAC), Delhi has erred in law and on facts in sustaining the assessment order passed by the Learned Assessing Officer.

4) That the National Faceless Appeal Centre (NFAC), Delhi has erred in law and on facts in mentioning wrong facts in the order

5) That the National Faceless Appeal Centre (NFAC), Delhi has erred in law and on facts in sustaining the addition of Rs 20,90,250/- u/s 68 of the Income Tax Act, 1961.

6) That the authorities below have erred in law and on facts in not accepting that the cash in hand was the money received back from the debtor.

7) That the authorities below have erred in law and on facts in sustaining the addition without falsifying the confirmations, documents submitted and the statement of debtor recorded before the department wherein they have accepted the said transaction.

8) That the authorities below have erred in law and on facts in trying to step into the shoes of appellant and to dictate it how they need to transact their business The appellant craves leave to add, alter or vary the grounds of appeal before or at the time of hearing.”

3. The brief facts of the case are that assessee is a partnership firm. The assessee filed its return of income belatedly u/s 139(4) for the impugned assessment year on 03.2017 showing income at Rs. NIL. The assessee has claimed that regular books of accounts were maintained as per provisions of Section 44A but the assessee is not liable to tax-audit u/s 44AB. Return of income was processed by the Revenue u/s. 143(1). Thereafter, case of the assessee was selected by Revenue for framing limited scrutiny through CASS. Statutory notice u/s 143(2) dated 19.09.2017 was issued and served by the AO on to the assessee. Reason for selecting the case of assessee for limited scrutiny assessment is as under :

3.2 Statutory notices u/s.142(1) of the Act were also issued by the Assessing Officer The AO observed that the assessee has shown turnover/sales of Rs. 79,85,870 with gross profit of Rs. 11,83,465/- and net profit of Nil, after claiming deduction u/s 40(b), i.e. interest on partners capital account Rs. 5,06,626/- and remuneration to partners of Rs. 1,42,858/-. The AO observed that the net profit before claiming deduction u/s 40(b) exceeds 8% of total turnover/sales of Rs. 79,85,870/-

3.3 The assessee was asked by AO vide notice issued u/s 142(1) dated 22.05.2018, to explain high cash in hand shown in the balance sheet as compared to the previous year. Said notice remained un- complied with by the assessee. Further notices were also issued by the AO, but there was no compliance. Assessing Officer observed that the cash in hand as on 31.03.2016 is shown at Rs.21,82,342/- as against cash in hand of Rs.43,975/- as on 31.03.2015. The Assessee has claimed that the said cash in hand is realised from the debtors, which is increasing cash balance. The AO also observed that the debtors as at 31.03.2016 were Rs. 20,92,631/- as compared to Rs. 3,81,401/- as as at 31.03.2017. The AO observed that these debtors are name sake debtors. The Assessing Officer, being not satisfied, asked the assessee to give information as detailed hereunder :

1. give a brief note about the nature of business activities having been carried out in FY 2014-15 & 2015-16 separately and file a copy of partnership deed relevant for the subject year;

2. file copies of trading, profit and loss account and balance sheet a/w partners’ capital account for the period ending 3.2015 & 2016, with copies of audit reports and all annexurers thereto;

3. file copies of ITR-V for AYrs 2015-16 & 2016-17 a/w computation of total income;

4. file copies of all bank statements relating to FY 2014-15 & 2015- 16 a/w copies of bank account maintained in the assessee’s books of account;

5. file copy of cash book relating to AY 2015-16;.

6. file a copy of monthly purchase account, preferably day-to-day purchases with names of parties from whom purchases were made in FY 2015-16. Likewise, monthly sale account with credit or cash sales. mentioning the party name(s) as well;

7. produce stock register maintained for FY 2015-16, with quantitative details of each items with weight, including opening and closing stock in terms of value and weight and produce relevant bills/vouchers against purchases claimed have been ”

3.4 The Assessing Officer also asked the assessee to produce debtors, namely, M/s. Sudharshan Agro Industries, M/s. Sona Industria, M/s. PK engineering Works, M/s. Marina Builders for examination. The AO also asked assessee to produce books of account, otherwise assessment will be finalized keeping in view the provisions of section 145 read with section 144 of the Act. There was no compliance made by the assessee, but later, the assessee came forward and submitted that some of the debtors were realized during the year under consideration and details of realization and confirmations of debtors were submitted, while the assessee also submitted that some of the debtors are not traceable. Assessee produced 2debtors , namely, M/s. Sona Industries and M/s. P K Engineering, but failed to produce debtors namely Sudarshan Agro Industries and Marina Builders. The Assessing Officer issued summons to the aforesaid two debtors , but the summons returned back with the remarks that the firm is closed and they have refused to receive the summons in the case of Sudarshan Agro Industries, while the summons issued to Marina Builders returned with remarks which was not clear. Thus, in nutshell, the assessee could not produce these2 debtors and nature and source of credit entries in cash received from these debtors remained un-verified and unsubstantiated and therefore, genuineness of the debtors also could not be substantiated. The assessee in reply, tried to justify that the realizations were from debtors in cash and the cash in hand of Rs.21,82,342/- was on account of said realization. The AO made detailed enquiries and the assessee on its part made submissions justifying that the cash in hand was from realisation from debtors. The AO has elaborately recorded in his assessment order about the enquiries made , conclusion drawn along with submissions made by the assessee. The Assessing Officer finally rejected the contentions of the assessee that said cash was received was the realisation from the debtors and the same has remained intact. Assessing Officer, after detailed analysis, rejected the contentions of the assessee that the cash received from Sudarshan Agro Industries to the tune of Rs.20,90,250/- has remained intact during the year and has not been used, and the AO made the addition of the said amount u/s. 68 of the Act as the income of the assessee being unexplained cash credits. The AO invoked provisions of Section 68 of the 1961 Act and concluded that the alleged receipts in cash , in the case of Sudarshan Agro Industries are unexplained cash credits as the explanation offered by the assessee is not satisfactory and even nature and mode of transactions as well creditworthiness of the debtor remained unsatisfactory.

4. Aggrieved, assessee filed first appeal with the ld. CIT(Appeals) and CIT(Appeals) issued as many as 4 notices to the assessee but as per ld. CIT(A) there were no submissions being uploaded by the assessee on the ITBA Portal. The ld. CIT(A) dismissed the appeal of the assessee, as there was no compliance made by he assessee during appellate proceedings, and the assessment order was confirmed by ld. CIT(Appeals).

5. Still aggrieved, the assessee has filed second appeal with the Tribunal and ld. Counsel for the assessee at the outset submitted that this appellate order has been passed by ld. CIT(Appeals) ex parte in limine without deciding the issues arising in appeal on merits, which is in violation of section 250(6) of the Act. It was submitted that four notices were issued by ld. CIT (Appeals) on 24.10.2019, 05.01.2021, 16.08.2021 and 02.05.2023. The ld. Counsel for the assessee has placed the e-proceedings details before ld. CIT(A) as downloaded from the IT Department portal. It was submitted that notices dated 05.01.2021 and 16.08.2021 were issued during the Covid period and after a gap of two years fresh notice was issued by ld. CIT(A) on 02.05.2023 to submit reply in response thereof. It was submitted that the assessee sought adjournment through ITBA Portal on 06.05.2023 and the email communication from department to this effect is placed on record in the file ,and it was submitted that on 18.05.2023, ld. CIT(A) dismissed the appeal of the assessee exparte in limine without deciding the issues arising in appeal on merits, although the assessee has duly filed request for adjournment on 06.05.2023 while the response due date was 08.05.2023. No further notice was issued and the appeal was dismissed by ld. CIT(A) on 18.05.2023. It was submitted that in fairness to both the parties and in the interest of justice, the matter can be set aside back to the file of ld. CIT(Appeals) to adjudicate the issue arising in the appeal on merit as the appellate order passed by ld. CIT(Appeals) is not in consonance with the provisions of section 250(6) of the Act.

5.2 Ld. Sr. DR fairly submitted that the appellate order passed by ld. CIT(Appeals) is not in accordance with the provisions of section 250(6) of the Act and the matter can be restored back to the file of ld. CIT(Appeals) for denovo adjudication of the appeal of the assessee.

6. I have considered the rival contentions and have perused material on record. I observe that the ld. CIT(Appeals) has not decided the issues arising in the appeal of the assessee on merits. The ld. CIT(A) has dismissed the appeal of the assessee ex-parte in limine without deciding the issues arising in the appeal on merits , by upholding the assessment order mainly on the grounds that the assessee has not submitted any reply/response during appellate proceedings before ld. CIT(A). The ld. CIT(A) issued the notice to assessee on 02.05.2023 to submit response/reply through ITBA portal , with compliance due date of 08.05.2023 , and the assessee filed adjournment request on 06.05.2023 i.e. before the due date of response. The ld. CIT(A) did not granted the adjournment and hastened to dismiss the appeal of the assessee ex-parte in limine without deciding the issues arising in the appeal on merits, mainly on the grounds of non submission of response/reply by the assessee. The appellate order passed by ld. CIT(A) is in breach of Section 250(6). The ld. CIT(A) is obligated to state point for determination, his decision and reasoning thereof, as is required u/s 250(6) Thus, ld. CIT(A) has to apply his independent mind with his reasons for adjudicating the issues arising in the appeal, and pass a speaking and reasoned order. Merely stating that the assessee has not filed any reply/response during appellate proceedings is not sufficient. The ld. CIT(A) even did not made independent enquiries before dismissing appeal of the assessee. Reference is drawn to provisions of Section 250(4). The ld. CIT(A) even did not called for the assessment records from the AO before dismissing the appeal of the assesse. The AO has elaborately discussed in details the enquiries made and his reasoning for rejecting the contentions of the assessee. It was incumbent on the ld. CIT(A) to have called for assessment records before adjudicating the appeal of the assessee. It is observed that the notice dated 02.05.2023 was issued by ld. CIT(A) after a gap of almost 2 years as the earlier notice was dated 16.08.2021( the earlier two notices dated 16.08.2021 and 05.01.2021 were issued during Covid period). The assessee duly filed adjournment application on 06.05.2023, but ld. CIT(A) hastened to dismiss appeal of the assessee . The principles of natural justice are clearly breached. The AO has passed elaborate assessment order after detailed analysis and enquiries, but ld. CIT(A) did not even called for assessment records to see whether additions as were made by the AO were justified and warranted keeping in view elaborate submissions made by the assessee during assessment proceedings. The ld. CIT(A) is required and obligated to pass appellate 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. 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 issues 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 comply with the notices issued by ld. CIT(A) 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 . The appellate order of the CIT(A) is clearly in violation of section 250(6) of the Act and liable to be set aside. Merely stating the assessment order passed by AO is upheld, and that the assessee has not submitted details/documents is not sufficient. The ld. CIT(A) is not toothless as his powers are co- terminus with the powers of the AO., which even includes power of enhancement. The ld. CIT(A) is vested with vast powers under the 1961 Act. It is equally true that the assessee also did not complied with the notices issued by ld. CIT(A) and did not file the requisite details/documents to support his contentions. Thus, the assessee is equally responsible for its woes. Under these circumstances and fairness to 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. I clarify that I have not commented on the merits of the issues in the appeal. The appeal of the assessee is allowed for statistical purposes. I order accordingly.

7. In the result, appeal of the assessee is allowed for statistical purposes.

Order pronounced in the open court on 02.12.2024 at the conclusion of hearing in the presence of both the parties and reduced to writing and signed on 04.12.24.