Introduction: In a significant decision, the Income Tax Appellate Tribunal (ITAT) Ahmedabad has directed the readjudication of ex-parte assessment orders. These orders were passed without considering additional evidence filed by the taxpayer under Rule 46A of the Income Tax Rules. The case pertains to assessments for the fiscal year 2005-06 and raises crucial questions about due process and the admissibility of additional evidence.
1. Background of the Case
The case revolves around assessment orders for the assessment year 2005-06, which were passed ex-parte against the taxpayer. These orders were subsequently appealed.
2. Delay and COVID-19 Exception
The appeal faced a delay of 36 days in filing, which fell under the COVID-19 pandemic situation. The ITAT invoked the exception granted by the Supreme Court, which excluded time limits for filing appeals from March 15, 2020, to October 2, 2021, due to the pandemic.
3. Key Facts of the Case
The taxpayer, an individual earning income from salary, initially filed a return of income in 2006, declaring a total income of Rs. 61,500. The assessment was later reopened, and an ex-parte assessment was conducted. Substantial additions were made to the taxpayer’s income.
4. Reopening and Penalty Proceedings
The assessment was reopened based on unsecured loans/share application money given to another entity. Penalty proceedings were also initiated under Section 271(1)(c) of the Income Tax Act.
5. Appeal to the CIT(A) and Subsequent Developments
The taxpayer appealed the assessment order to the Commissioner of Income Tax (Appeals) (CIT(A)), who confirmed the additions made by the Assessing Officer. Subsequently, the matter was remitted back to the CIT(A) by the ITAT. During this period, the taxpayer filed detailed submissions and sought to introduce additional evidence under Rule 46A of the Income Tax Rules.
6. CIT(A)’s Decision and Grounds of Appeal
The CIT(A) rejected the additional evidence filed under Rule 46A, proceeded to decide the case on merits, and confirmed the additions. In response, the taxpayer filed grounds of appeal, challenging the legality of the order and the rejection of additional evidence.
7. Assessee’s Arguments and Request for Additional Evidence
The taxpayer’s senior counsel argued that during the set-aside proceedings before the CIT(A), protective additions in another entity’s case were deleted, highlighting the importance of producing relevant material. The taxpayer invoked Rule 46A to submit additional evidence due to the earlier ex-parte order. The counsel also emphasized that the Assessing Officer had wrongly applied Section 69 of the Act, as the investments were recorded in the taxpayer’s books.
8. Revenue’s Stand
The Departmental Representative supported the orders passed by lower authorities and contended that the taxpayer had not filed the documents before the Assessing Officer despite opportunities.
9. ITAT’s Decision and Setting Aside of the Matter
The ITAT acknowledged that this was the second round of appeal and that the substantial addition made in the taxpayer’s hands remained unaddressed. Considering the principles of natural justice, the ITAT set aside the matter back to the CIT(A) with a directive to entertain the additional evidence and decide the case on merits. It stressed that the taxpayer should cooperate in providing relevant documents for a fair adjudication.
10. Conclusion and Penalty Proceedings
The ITAT’s decision highlights the importance of due process and the admissibility of additional evidence. While the assessment orders were set aside for readjudication, the penalty proceedings under Section 271(1)(c) are open to the Assessing Officer, subject to the appellate outcome.
Conclusion: The ITAT Ahmedabad’s directive for the readjudication of ex-parte assessment orders, considering additional evidence filed under Rule 46A, underscores the significance of due process in tax matters. This decision offers the taxpayer an opportunity for a fair assessment, emphasizing the need for cooperation in providing relevant documents.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
These two appeals are filed by the assessee as against the appellate order both dated 28-02-2020 passed by Commissioner of Income Tax (Appeals)-1, Vadodara arising out of the assessment order u/s. 144 r.w.s. 147 and 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”.) relating to the assessment year 2005-06.
2. The Registry has noted that there is a delay of 36 days in filing the above appeal in ITA Nos. 302 & 303/Ahd/2020. This appeal was filed by the assessee on 08.06.2020. This period falls under COVID-Pandemic situation, thus following Hon’ble Supreme Court judgment dated 23.9.2021 in M. A. No. 665 of 2021 in suo-moto Writ Petition (Civil) No.3 of 2020, the Hon’ble Supreme Court has excluded time limit for filing appeal from 15.3.2020 till 02.10.2021. Thus, there is no delay in filing the above appeal and we take up the assessee appeal for adjudication.
3. The brief facts of the case, the assessee is an individual earning income from salary and filed his Return of Income on 0307-2006 declaring total income of Rs. 61,500/-. The return was processed u/s. 143(1) accepting returned income. Thereafter, the assessment was reopened by issuing the notice u/s. 148, on the ground that the assessee has given unsecured loan/share application money amounting to Rs. 29,04,264/- to M/s. Deshchem Technological Resources Pvt. Ltd. (DTRPL). Since the assessee has not responded to the notices issued by the Assessing Officer, the assessment resulted in an ex-parte assessment determining the total income as Rs. 29,95,764/-. The Assessing Officer also initiated penalty proceedings u/s. 271(1)(c) of the Act. It is to be noted that the substantial addition is made in the hands of the assessee and protective addition was made in the hands of the M/s. DTRPL.
4. Aggrieved against the assessment order, the assessee filed an appeal before the ld. CIT(A) who confirmed the above addition made by the Assessing Officer on the unexplained investment and dismissed the assessee’s appeal. On further appeal, before this Tribunal in ITA No. 552/Ahd/2012 dated 25-10-2016 SMC Bench of this Tribunal set aside the matter back to the file of ld. CIT(A) since the Tribunal in the case of DTRPL vide order dated 29-102010 was remitted matter back to the file of ld. CIT(A). Pursuant to the direction of this Tribunal, before the ld. CIT(A), assessee filed detailed written submissions and also filed an application under Rule 46A of the IT Rules for admission of additional evidences, since the assessment order was an ex-parte order, the assessee could not produce the relevant documents/evidences before lower authorities. The ld. CIT(A) vide this impugned order rejected the claim of admission of additional documents under Rule 46A of the I.T. Rules, however, decided the case on merits and confirmed the addition made u/s. 69 of the Act.
5. Aggrieved against the same, the assessee is in appeal before us raising the following grounds of appeal:-
“1.00 ORDER PASSED IS BAD IN LAW.
1.01 On the facts and circumstances of your appellant’s case and in law, the Id. CIT (A)-1, Vadodara has erred in disposing the appeal in vague manner without considering fact that the matter was set aside by Hon’ble ITAT, Ahmedabad for passing the Order denovo.
1.02 While doing so, the ld. CIT (A) has erred in not considering additional ground of appeal as well as additional evidences furnished to substantiate source of credit.
1.03 While doing so, the ld. CIT (A) has taken contrary views in as much manner that on one side, the additional ground of appeal as well as additional evidences were not admitted and on other hand, decision was given on merits of the case.
1.04 Your appellant prays that the Order be treated as Bad in Law.
2.01 Addition of Rs.29,04,264/- towards the unexplained Investment.
2.01 On the facts and circumstances of your appellant’s case as well as in law, the ld CIT(A)-1,Vadodara has grievously erred in confirming addition of Rs.29,04,264/- as unexplained investment though source of the same is explainable from evidences on records. 2.02 Your appellant therefore prays Your Honor to hold so now and direct the ld AO to deleted the addition.”
6. The ld. Sr. Counsel, Shri Tushar Hemani, appearing for the assessee submitted before us a paper book running to 99 pages which contain the application made under Rule 46A of the I. T. Rules and various other documents. The ld. Sr. counsel for the assessee further submitted in the set aside proceedings before ld. CIT(A) in the case of DTRPL, protective addition made in the hands of DTRPL was deleted, since substantial addition made in the hands of the assessee herein. It is in the above circumstances, the assessee was required to produce all the relevant material before ld. CIT(A) and therefore invoked Rule 46A of the IT Rules and filed additional evidences before ld. CIT(A). The ld. senior counsel, Shri Tushar Hemani, also submitted before us the confirmation of DTRLP ledger of the assessee in the books of DTRPL, bank statements of the assessee etc. as additional evidences which are forming part of paper book. Without appreciating the same, the ld. CIT(A) rejected the additional evidences and decided the case on merits without giving proper opportunity to the assessee which is gross violation of Principle of Natural Justice. Even on merits, the DTRPL in confirming the impugned addition asking for source of source which is settled principle of law by the jurisdictional High Court in the case of DCIT vs. Rohini Builders 256 ITR 360 (Guj), Murlidhar Lahorimal vs. CIT 280 ITR 512 (Guj) and other case laws. Even on merits, the Assessing Officer is not correct in invoking section 69 of the Act, where the assessee has made investments which are duly recorded in the books of accounts of the assessee. In the interest of justice, the matter be set aside back to the file of ld. CIT(A) with a direction to entertain the additional evidences filed under Rule 46A of the Act.
7. Per contra, the ld. Departmental Representative, Ms. Saumya Pandey Jain, appearing for the Revenue supported the orders passed by lower authorities and strongly pleaded that the documents were never filed by the assessee before the Assessing Officer in spite of proper opportunity given to the assessee. Therefore, the Assessing Officer was compelled to pass an ex-parte assessment order. Thus, the order passed by lower authorities does not need any interference and the appeal filed by the assessee is liable to be dismissed.
8. We have given thoughtful consideration and perused the material available on record including the Paper Book and case laws filed by the assessee. This is the second round of appeal filed by the assessee before this Tribunal. In the first round of appeal, this Hon’ble Tribunal has set aside the matter back to the file of ld. CIT(A), since in the case of DTRPL this Tribunal set aside the matter back to the file of ld. CIT(A), wherein the protective addition was made in the hands of the DTRPL. Now, in the hands of DTRPL, the ld. CIT(A) deleted the additions made on protective basis. Thus, the substantial addition made in the hands of the assessee remains adjudication. During the set aside proceedings, the ld. CIT(A) ought not have rejected the additional evidences filed by the assessee for the first time, therefore, in the interest of Principle of Natural Justice, substantial additions made in the hands of the assessee, we deem it fit to set aside the matter back to the file of ld. CIT(A) with a direction to entertain the additional evidences filed by the assessee and decide the case on merits. Needless to say the assessee should co-operate with the appellate proceedings for proper adjudication of the appeal by filing addition relevant documents.
9. In the result, the appeal filed by the assessee is allowed for statistical purpose.
ITA No. 303/Ahd/2020 A.Y. 2005-06
10. ITA No. 303/Ahd/2020 is against penalty levied u/s. 271(1)(c) of the Act. Since the quantum appeal is set aside back to the file of Assessing Officer, it is open to the Assessing Officer to proceed with penalty proceedings u/s. 271(1)(c) subject to the outcome of the appellate order and also in accordance with law.
11. In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced in the open court on 25-08-2023