Case Law Details
Mahidhara Projects Private Limited Vs DCIT (ITAT Hyderabad)
Summary: The ITAT Hyderabad set aside the orders of the Commissioner of Income Tax (Appeals) after finding that the assessee company was not provided a proper opportunity of being heard during the appellate proceedings. Although the assessee had specifically opted in Form 35 not to receive notices through email and had furnished an alternative address for service, the CIT(A) continued issuing notices by email, except for one notice received shortly before disposal of the appeal. The Tribunal held that the absence of valid service of notices deprived the assessee of an effective opportunity to contest various additions and disallowances, including development expenditure, employees’ PF/ESI contribution, disallowance under Section 40(a)(ia), and Section 14A. Accordingly, the Tribunal restored the quantum appeal to the CIT(A) for fresh adjudication after granting reasonable opportunity of hearing. Since the penalty under Section 270A was dependent on the quantum assessment, the Tribunal also restored the penalty appeal to the CIT(A) for disposal after deciding the quantum appeal.
Core Issue: Whether the order of the CIT(A) could be sustained when appellate notices were not served in the mode specifically opted by the assessee in Form No. 35, thereby denying a reasonable opportunity of hearing, and whether the connected penalty appeal under section 270A should also be restored.
Facts: The assessee, engaged in real estate business, filed an appeal before the CIT(A) against various additions and disallowances. In Form No. 35, the assessee expressly opted out of receiving notices through email and provided a specific address for service of notices. However, except for one notice in respect of which an adjournment was sought, the record did not establish that subsequent hearing notices were served in the manner chosen by the assessee. The CIT(A) dismissed the appeal for non-prosecution and on merits.
ITAT Findings: The Tribunal observed that the assessee had clearly declined service through email and had specified an alternate mode of communication in Form No. 35. The Department failed to demonstrate that notices fixing hearings on various dates were served in accordance with the assessee’s chosen mode. Consequently, the assessee was deprived of a fair and effective opportunity to present its case before the CIT(A). The fact that one notice was received and adjournment sought did not cure the defect, particularly when the appeal was disposed of shortly thereafter.
The Tribunal held that principles of natural justice require valid service of notice and a reasonable opportunity of hearing. Since these requirements were not satisfied, the appellate order could not be sustained.
As regards the penalty appeal under section 270A, the Tribunal held that it was consequential to the quantum proceedings. Since the quantum appeal was restored to the CIT(A), the penalty appeal was also required to be remanded for fresh adjudication after disposal of the quantum appeal.
Held: The orders of the CIT(A) in both the quantum and penalty appeals were set aside. The matters were restored to the file of the CIT(A) for fresh adjudication after granting a reasonable opportunity of hearing to the assessee.
Ratio Decidendi: Where an assessee, in Form No. 35, specifically opts for service of notices through a particular mode, failure to serve notices in that manner vitiates the appellate proceedings. An order passed without valid service of notice and without affording an effective opportunity of hearing violates principles of natural justice and is liable to be set aside. Where the quantum appeal is restored, any connected penalty proceedings under section 270A must also be remanded for fresh disposal.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
The present appeals filed by the assessee company are directed against the respective orders passed by the Commissioner of Income Tax (Appeals)-12, Hyderabad (for short, “CIT(A)”), dated 26/08/2025, which in turn arises from the respective orders passed by the Assessing Officer (for short, “AO”) under section 143(3) of the Income Tax Act, 1961 (for short, “the Act”), dated 29/12/2019 and under section 270A of the Act dated 08/02/2022, respectively. As the issues involved in these appeals are interlinked and interwoven, the same are being disposed of vide a consolidated order. We shall first take up the quantum appeal, i.e., ITA No.1690/Hyd/2025, wherein the assessee company has assailed the impugned order of the CIT(A) on the following grounds of appeal:
“1. The order of the learned Commissioner of Income Tax (Appeals) is against the law, weight of evidence and probabilities of case.
2. The learned Commissioner ought to have appreciated that the assessee opted not to communicate by email, therefore, learned Commissioner erred in issuing notices by email and further erred in confirming the order the Assessing Officer, wherein, an addition of Rs. 1,36,22,484/-.
3. The learned Commissioner erred in confirming the addition of Rs. 1,07,65,938/- out of aggregate development expenditure of Rs.8,97,16,154/- without rejecting the books of accounts u/s 145 of the IT Act.
4. The learned Commissioner ought to have appreciated that the assessee is to deal with an unorganized sector while incurring the development expenditure of Rs.8,97,16,154/-, therefore, erred in disallowing an amount of Rs. 1,07,65,938/-.
5. The learned Commissioner erred in confirming the disallowance of Rs.5,76,786/- being amount of employees contribution to PF and ESI without appreciating the facts the payments were deposited before filing of the return of income.
6. The learned Commissioner erred in confirming the disallowance of Rs.22,79,760/- u/s 40(a)(ia) of the IT Act.
7. The learned Commissioner ought to have accorded one more opportunity by issuing the notice u/s 250 manually, therefore, erred in confirming the addition of Rs.1,36,22,484/-.
8. The learned Commissioner erred in confirming the order of the Assessing Officer wherein, disallowance u/s 14A amounting to Rs.2,00,000/- is made.
9. The appellant craves leave to add to, amend OR modify the above grounds of appeal either before OR at the time of hearing of the appeal, if it is considered necessary.”
2. Succinctly stated, the assessee company, which is engaged in the business of real estate, had filed its return of income for AY 2017-18 on 18/12/2017, declaring an income of Rs.1,20,54,090/- under normal provisions and “book profit” under section 115JB of the Act of Rs.62,40,156/-. Subsequently, the assessee company’s case was selected for scrutiny under section 143(2) of the Act.
3. Thereafter, the AO vide his order passed under section 143(3) of the Act, dated 29/12/2019, determined the income of the assessee company at Rs.2,58,76,574/- after making certain additions /disallowances, viz., (i) disallowance of development and works cost: Rs.1,07,65,938/-; (ii) disallowance of the delayed deposit of the employee’s share of contribution to PF/ESI under section 36(1)(va) r.w.s 2(24)(x) of the Act: Rs.5,76,786/-; (iii) disallowance under section 40(a)(ia) of the Act: Rs.22,79,760/-; and (iv) disallowance under section 14A of the Act: Rs. 2 lakhs.
4. Aggrieved, the assessee company carried the matter in appeal before the CIT(A). However, as the assessee company/appellant, despite having been afforded sufficient opportunity, failed to participate in the appellate proceedings, the CIT(A) dismissed the appeal both on account of non-prosecution and on merits.
5. The assessee company, aggrieved with the order of the CIT(A), has carried the matter in appeal before us.
6. We have heard the Learned Authorised Representatives of both parties, perused the orders of the authorities below and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the Ld. AR to drive home his contentions.
7. Shri Mohd. Afzal, Advocate, Learned Authorized Representative, (for short, “Ld. AR”) for the assessee company, at the threshold of hearing of the appeal submitted that though the assessee company/appellant had in its Memorandum of Appeal in “Form-35” specifically opted out of receipt of notices/communications through email, but no such notice intimating the fixation of the appeal by any other mode was served upon the assessee company. The Ld. AR, to buttress his contention, had taken us through Form No. 35, which revealed that the assessee company had opted out of receiving notices/communications by email and, at Sl. No 17 had specifically provided the address to which the notices may be sent. The Ld. AR fairly submitted that, except for one occasion, i.e., 30/07/2025, wherein the hearing of the appeal was fixed on 18/08/2025, on neither of the remaining occasions any notice as per the mode requested by the assessee company was served upon it, as a consequence thereof, it had failed to effectively participate in the appellate proceedings and put forth its case. The Ld. AR submitted that as the assessee company had remained divested of a sufficient opportunity to put forth its case and assail the impugned additions/disallowances made by the AO, the matter, in all fairness and in the interest of justice, should be set aside.
8. Coming to the merits of the case, the Ld. AR submitted that the assessee company had suffered an exorbitant disallowance of 12% of its development works cost of Rs. 8.97 crores (approx.), resulting in an ad hoc addition of Rs. 1.07 crores (approx.). Elaborating further on his contention, the Ld. AR submitted that not only is the subject disallowance without any basis, but also highly exorbitant. On being queried as to why the assessee company had not substantiated its aforesaid claim of expenditure, the Ld. AR submitted that as the requisite details at the relevant point of time were not available, therefore, the needful could not be done. However, it was submitted that in case the matter is set aside to the file of the AO, the complete details to support the aforesaid claim of deduction of expenses would be placed on record.
9. Apropos the disallowance of the delayed deposit of the employee’s share of contribution of ESI/PF of Rs.5,76,786/- made by the AO under section 36(1)(va) r.w.s 2(24)(x) of the Act, the Ld. AR fairly submitted that the said issue as on date is squarely covered by the judgment of the Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. v. Commissioner of Income Tax-I (2022) 448 ITR 518 (SC). Coming to the disallowance under Section 40(a)(ia) of the Act of the interest expenditure of Rs.22,79,760/- (30% of Rs.75,99,199/-) that was paid by the assessee company to NBFCs, the Ld. AR submitted that as the respective payees had paid the tax on the aforesaid interest in their respective hands and the certificates in Form-26A evidencing the said fact are available with the assessee, therefore, in case the matter is set aside to the file of the AO, the same shall be filed before him. Apropos the disallowance made by the AO under section 14A of the Act of Rs.2 lakhs, the Ld. AR submitted that, as the assessee company had not earned any exempt income during the subject year, no disallowance under section 14A was called for in its case.
10. Per contra, Ms Uppaluri Meena, Learned Senior Departmental Representative (for short, “Ld. Sr-DR”), relied upon the orders of the authorities below. It was submitted that, as the assessee company, despite having been afforded sufficient opportunities, had failed to participate in the proceedings before the CIT(A), the latter had rightly dismissed the appeal.
11. We have given thoughtful consideration to the facts involved in the present appeal in the backdrop of the contentions advanced by the Learned Authorised Representatives of both parties.
12. We find that it is a matter of fact borne from the record that though the assessee company in “Form-35” had opted not to receive the notices/communications from the CIT(A)’s office through email, but a perusal of the CIT(A) order apparently reveals that neither of the said notices was served in the manner as was opted by the assessee company, i.e., otherwise than through email. At the same time, we find that the Ld. AR had fairly admitted that the assessee company had received a notice dated 30/07/2025, wherein the hearing of the appeal was fixed on 18/08/2025, and an adjournment was sought.
13. Be that as it may, we are of firm conviction that, as the assessee company had not been validly put to notice about the fixation of the appeal on 22.01.2021, 11.05.2021, 23.08.2021, 10.06.2025, and 25.08.2025, it had remained divested of a sufficient opportunity to participate in the said proceedings and effectively put forth its case before the CIT(A). Although, we find that the assessee company was in receipt of notice, dated 30/07/2025 (fixing the appeal for hearing on 18/08/2025), wherein it is stated to have sought for an adjournment, but we find that the appeal had thereafter been disposed of within a short span, i.e., on 26/08/2025. In our view, the assessee company, in the absence of valid service of notices intimating the fixation of the hearing of the appeal, was not afforded a sufficient opportunity in the proceedings before the First Appellate Authority, despite no fault on its part.
14. We thus, in terms of our aforesaid deliberations, set aside the matter to the file of the CIT(A) with a direction to re-adjudicate the matter afresh after affording a reasonable opportunity of being heard to the assessee company.
15. In the result, the appeal filed by the assessee company is allowed for statistical purposes in terms of our aforesaid observations.
ITA No.1691/Hyd/2025
AY: 2018-19
16. We shall now take up the appeal filed by the assessee against the order of the CIT(A)-12, Hyderabad, dated 26/08/2025, which in turn arises from the order passed by the AO under section 270A of the Act, dated 08/02/2022, for the AY 2018-19.
17. As we have set aside the order passed by the CIT(A) while disposing of the quantum appeal in ITA No.1690/Hyd/2025, therefore, the present appeal wherein the impugned penalty imposed by the AO under section 270A of the Act, dated 08/02/2022 is on the same terms set-aside to the file of the CIT(A) who is directed to dispose of the same after deciding the quantum appeal.
18. In the result, the appeal filed by the assessee company is allowed for statistical purposes in terms of our aforesaid observations.
19. Ex consequenti, both the appeals filed by the assessee company are allowed for statistical purposes in terms of our aforesaid observations.
Order pronounced in the open court on 17th June, 2026.
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