Case Law Details
Krishna Nursing Home Vs ITO (ITAT Pune)
The Income Tax Appellate Tribunal (ITAT), Pune Bench, in the case of Krishna Nursing Home vs. Income Tax Officer (ITO), allowed the assessee’s appeal for the Assessment Year (A.Y.) 2016-17 for statistical purposes. The Tribunal condoned a significant delay of 631 days in filing the appeal and, upon finding that the prior appellate order was passed ex-parte, restored all issues back to the file of the Commissioner of Income-tax (Appeals) [CIT(A)] for de novo adjudication.
Condonation of Delay and Causal Factors
The appeal, filed against an order from the National Faceless Appeal Centre (NFAC), Delhi, was delayed by 631 days. The assessee, a partnership firm operating a nursing home, submitted an Affidavit explaining the delay, citing “reasonable cause.”
Justification for Delay
The primary reasons cited for the extensive delay were severe financial crises faced by the partners, which began in mid-2019. These crises led to:
1. Rigorous recovery actions by financial institutions (M/s Bajaj Finance Limited & M/s Siemens Financial Limited).
2. Seizure of the business premises/nursing home, which resulted in the complete denial of access to any records kept at the office.
The assessee was only allowed to retrieve documents from the seized premises in November 2024.
It took until December 2024 to compile and realize that the CIT(A) had passed an ex-parte order dismissing the appeal (dated April 27, 2023). The appeal to the ITAT was subsequently filed in March 2025.
Judicial Precedent for Condonation
The ITAT was satisfied that the delay was due to “genuine and unavoidable circumstances” and that the assessee would not have gained by filing the appeal late. The Tribunal relied on two key Supreme Court judgments to justify the condonation of the 631-day delay:
- Collector, Land Acquisition, Anantnag & Anr. Vs. Mst. Katiji & Ors. (1987): This landmark judgment established the liberal approach to condonation of delay, emphasizing that a court should take a justice-oriented approach and that refusal to condone delay can result in a meritorious matter being thrown out, whereas acceptance merely ensures a hearing on the merits.
- Inder Singh Vs. State of Madhya Pradesh (2025): The ITAT also relied on this more recent Supreme Court judgment, reinforcing the principle that delay should be condoned where a party shows “reasonable cause” and a bona fide intention to pursue the matter.
In light of these precedents and the facts presented, the ITAT condoned the delay of 631 days.
Substantive Issues and Appellate History
The original assessment for A.Y. 2016-17 was completed under Section , resulting in an assessed income of against a declared income of . The assessment was a limited scrutiny case focusing on ‘cash in hand’ following the demonetization period.
The main additions made by the Assessing Officer (AO) were:
- Disallowance of Interest under Section : An amount of was disallowed. The AO found that the assessee was paying interest on borrowed funds but had simultaneously utilized those funds to make payments to partners who had debit balances, on which no interest was charged. The AO concluded that the borrowed capital was not used for the business.
- Ad-hoc Addition for Unexplained Cash: An addition of was made, calculated at an ad-hoc rate of on the total cash in hand of .
The assessee’s first appeal before the CIT(A)/NFAC was dismissed ex-parte because the assessee failed to appear for the hearing, partly attributed to the financial crisis and lack of access to records due to the seizure of the premises (Ground 1).
ITAT’s Decision on Merits and Remand
Before the ITAT, the assessee’s counsel submitted that the impugned CIT(A) order was ex-parte and that the assessee was unable to file necessary details due to the unavoidable circumstances detailed in the affidavit. The counsel, therefore, sought to restore the matter to the file of the CIT(A) for a proper hearing on the merits of the disallowances. The Departmental Representative supported the orders of the lower authorities.
The ITAT accepted the assessee’s plea, noting the circumstances that led to the non-appearance before the CIT(A), including the timing of some hearing notices during the COVID-19 pandemic. To ensure natural justice and a fair opportunity to both parties, the Tribunal deemed it proper to grant the assessee one more opportunity.
Holding and Directions
The ITAT set aside the ex-parte order of the CIT(A) and restored all the substantive issues raised in the appeal—concerning the interest disallowance under Section and the ad-hoc addition on cash in hand—back to the file of the CIT(A) for de novo adjudication.
The Tribunal provided clear directions for the set-aside proceedings:
- The CIT(A) must grant a reasonable opportunity of being heard to the assessee.
- The assessee is directed to remain vigilant and avoid seeking adjournments unless required for reasonable cause.
The appeal was thus allowed for statistical purposes, indicating that the ITAT did not rule on the merits of the disallowances but facilitated a fresh hearing at the first appellate level.
FULL TEXT OF THE ORDER OF ITAT PUNE
The captioned appeal at the instance of assessee pertaining to A.Y. 2016-17 is directed against the order dated 27.04.2023 of National Faceless Appeal Centre (NFAC) Delhi passed u/s.250 of the Income-tax Act, 1961 (hereinafter also called ‘the Act’) arising out of Assessment Order dated 22.12.2018 passed u/s. 143(3) of the Act.
2. Registry has informed that there is delay of 631 days in preferring the instant appeal before this Tribunal. Assessee has filed an Affidavit explaining the delay by stating as under :
“3. I say that, an assessment order dated 22.12.2018 was passed u/s.143(3) of Income Tax Act, 1961 for AY 2016-17 in case of above referred Partnership firm. Aggrieved by the said order, an appeal was filed before Ld. CIT(A) on 31.03.2019. However, subsequently the Id. CIT(A) has passed an ex-parte order dismissing the appeal vide its order dated 27.04.2023.
4. I say that, by mid of the year 2019, I along with my fellow doctors and partners started facing severe financial crises, as a result of which we were unable to re-pay the loan taken by us from the financial institution namely M/s. Bajaj Finance Limited & M/s. Siemens Financial Limited. Such financial crises continued for a long period. It is submitted that due to such non-repayments, these financial institutions have started taking rigorous recovery action against us which also included seizure of our business premises/nursing home.
5. I say that, I along with other partner were completely denied access to any record kept at the office premises for a long period. I say that, after various request and follow-up we were allowed to take the documents from the said premises in month November 2024.
6. I say that, it took us considerable period of time to compile and understand the heap of documents recovered from the seized premises. I say from these documents it was understood that the appeal way pending before the CIT(A) the ultimate fate of which was not known to us.
7. I say that, it was only in the month of December 2024, it was realized that an ex-parte CIT(A) order has been passed in the case of the partnership firm.
8. I say that, subsequently, an appeal was filed on 22.03.2025 before Hon’ble Income Tax Appellate Tribunal.
9. I say that, there is a delay of 631 days in filing the said appeal, due to aforesaid reasons as mentioned above.
10. I say that, the delay in filing the appeal before the Hon’ble Tribunal is purely due to genuine and unavoidable circumstances, and I humbly request that the same be condoned in the interest of natural justice.
11. I say that, the facts mentioned above are true and correct to the best of my knowledge and belief and are being stated herein in proper chronological order for the kind consideration of this Hon’ble Tribunal.
12. I am filing this affidavit to place the true and correct facts on record and to seek condonation of delay in the interest of justice.
3. After hearing both the sides and perusing the averments made in the Affidavit, I am satisfied that due to ‘reasonable cause’ assessee failed to file the appeal within the stipulated time. I note that the assessee would not have gained from filing the appeal with a delay. I therefore in light of judgments of Hon’ble Apex Court Court in the case of Collector, Land Acquisition, Anantnag & Anr. Vs. Mst. Katiji & Ors. reported in (1987) 2 SCC 107 and in the case of Inder Singh Vs. State of Madhya Pradesh judgment dated 21.03.2025 (2025 INSC 382) condone the delay of 631 days in filing of the instant appeal before this Tribunal.
4. Assessee has raised following grounds of appeal :
“The following grounds of appeal are without prejudice to one other:-
1. On the facts and circumstances of the Appellant’s case and in law the Id. CIT(A) erred in passing an ex-parte order without providing adequate opportunity to the appellant.
2. On the facts and circumstance of the case and in law the Id. A.O. erred in confirming the action of the Id. A O. in making a disallowance of interest amounting to Rs.29,47,283/ claimed u/s 36(1)(iii) of the Act, for the reasons stated in the impugned order otherwise.
3. On the facts and circumstance of the case and in law the Id. A.O. erred in confirming the action of the Id. A.O. in alleging that the cash in hand shown by the appellant is unexplained, for the reasons mentioned in the impugned order or otherwise.
4. On the facts and circumstance of the case and in law the Id. A.O. erred in confirming the action of the Id. A.O. in making an addition at an ad-hoc rate of 10% i.e. Rs.6,85,875/ on account of unexplained cash in hand, for the reasons stated in the impugned order or otherwise.
5. The Appellant craves leaves to alter, amend, withdraw or substitute any ground or grounds or to add any new ground or grounds of appeal on or before the hearing.”
5. At the outset, ld. Counsel for the assessee submitted that impugned order is exparte and the assessee failed to file necessary details and therefore prayed for restoring the issues raised on merits to the file of ld.CIT(A) for necessary adjudication.
6. On the other hand, ld. Departmental Representative supported the orders of the lower authorities.
7. I have heard the rival contentions and perused the record placed before me. I observe that the assessee is a partnership firm and filed its return of income for A.Y. 2016-17 on 10.05.2017 declaring income of Rs.2,52,580/-. Case selected for Limited Scrutiny through CASS followed by validly serving notices u/s.143(2) and 142(1) of the Act for verification of ‘cash in hand’ shown in the return of income on the rational the assessee has deposited cash during the period of demonetization and filed the return of income for the year after the date of demonetization. Ld. Assessing Officer (AO) after examining the balance sheet of the assessee and the submissions filed came to the conclusion that on one hand assessee is incurring expenditure in the form of interest paid on the borrowed funds but on the other hand the borrowed funds have been utilised for paying to the partners who have debit balances at the close of the year but no interest has been charged on such debit balances. Ld. AO thus concluded that said interest expenditure of Rs.29,47,283/- is disallowable u/s.36(1)(iii) of the Act. Similarly, ld. AO also made addition of Rs.6,85,875/- @10% of the cash in hand of Rs.68,58,750/-. Income assessed at Rs.38,85,739/-.
8. I further note that though the assessee preferred appeal before ld.CIT(A) but the first two notices(s) of hearing were issued during covid-19 pandemic outbreak and further assessee failed to appear on the remaining notices of hearing for the reasons mentioned in the Affidavit filed for condonation of delay. In absence of the submissions, ld.CIT(A) passed the exparte order dismissing the appeal.
9. Now before me, Ld. Counsel for the assessee has submitted that due to unavoidable circumstances assessee could not appear before ld.CIT(A) and therefore prayed to afford more opportunity to go before ld.CIT(A). I therefore in the larger interest of justice and being fair to both the parties, deem it proper to grant one more opportunity to the assessee and all the issues raised in the instant appeal are restored back to the file of ld.CIT(A) for denovo Needless to mention that ld.CIT(A) shall grant reasonable opportunity in the set aside proceedings. Assessee is also directed to remain vigilant and not to take adjournment unless otherwise required for reasonable cause. Impugned order is set aside and the effective grounds of appeal raised by the assessee are allowed for statistical purposes.
10. In the result, appeal of the assessee is allowed for statistical purposes.
Order pronounced on this 23rd day of September, 2025.
Author Bio
