PLUSH Vs ITO (ITAT Surat)
Partner Disputes Constitute Sufficient Cause: ITAT Condones 1,279-Day Delay, Remands Assessment and Penalty
The Income Tax Appellate Tribunal, Surat Bench, condoned delays of 1,279 days in the quantum appeal and 536 days in the penalty appeal, accepting that disputes between partners and related court proceedings had prevented the assessee-firm from attending to its tax matters.
In PLUSH vs. ITO, the Tribunal restored both matters to the Assessing Officer (AO) for fresh adjudication, with directions to consider additional evidence and provide an opportunity of hearing. The Bench comprised Judicial Member Suchitra Kamble and Accountant Member B.M. Biyani.
The decision emphasises that an explanation supported by evidence and remaining uncontroverted by the Revenue may establish sufficient cause for delayed filing.
Facts of the Case
The assessee, a partnership firm, did not file its income-tax return for AY 2017-18. A notice dated 29 December 2017 requiring it to file a return remained unanswered. Subsequent notices under section 142(1) and a show-cause notice under section 144 also went uncomplied with.
Consequently, the AO passed an ex parte assessment order dated 3 October 2019, determining total income at ₹8,54,93,600, comprising cash deposits and credit entries in the firm’s bank account.
The AO subsequently imposed a penalty of ₹66,04,380 under section 271AAC(1) through an ex parte order dated 20 October 2021.
A retired partner, Parul Nilesh Shah, later received a departmental communication seeking payment of outstanding demands against the firm. Following enquiries, separate appeals were filed before the Commissioner of Income Tax (Appeals) against the assessment and penalty orders in May 2023.
The CIT(A) dismissed both appeals primarily because of the filing delays, while also upholding the AO’s orders on merits.
Explanation for the Delays
The assessee explained that Parul Nilesh Shah had retired from the firm with effect from 1 April 2017 and was unaware of the assessment proceedings.
According to the explanation furnished in Form No. 35, multiple legal disputes had affected the firm after the retirement. Consequently, nobody took responsibility for responding to tax notices. Upon receiving a demand communication dated 23 February 2023, the retired partner attempted to contact the person understood to be managing the firm’s affairs, but could not reach him.
The assessee also submitted a corroborative affidavit from a present partner, Mahesh Kumar Seventilal Shah. The affidavit explained the disruption caused by disputes and confirmed support for pursuing the appeals. It also ratified the steps already taken on behalf of the firm.
The assessee submitted that these circumstances explained both the earlier non-compliance and the subsequent delays in approaching the appellate authority.
Additional Evidence Sought to Be Produced
The assessee filed an application under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963, seeking admission of additional evidence.
The documents included a Gujarat High Court petition concerning quashing of an FIR, VAT return acknowledgements, and income-tax returns and audit records for earlier assessment years.
The assessee argued that these records supported the existence and continuity of its business activities. They were also relevant to its challenge concerning the addition under section 69A and application of section 115BBE.
It explained that disputes and lack of effective access to the firm’s records had prevented production of these documents before the lower authorities.
Revenue’s Submissions
The Revenue supported the orders passed by the lower authorities. However, considering the circumstances affecting the firm, its representative did not object to remanding the matters.
The Revenue requested that the Tribunal issue strict directions requiring the assessee to participate in the fresh proceedings.
Tribunal’s Findings and Decision
The Tribunal observed that the explanation concerning partner disputes and court proceedings was supported by an affidavit and had not been controverted by the Revenue.
It therefore held that the assessee had been prevented by sufficient cause from filing its appeals within time.
Relying on the Supreme Court’s decision in Collector, Land Acquisition vs. Mst. Katiji and Others, the Tribunal adopted a justice-oriented approach, giving preference to substantial justice over technical considerations.
Accordingly, it condoned both delays and restored the assessment and penalty matters to the AO. The AO was directed to provide a hearing, consider the additional evidence and any further evidence submitted, and pass fresh orders uninfluenced by the earlier orders.
Outcome and Significance
Both appeals were allowed for statistical purposes. The Tribunal did not finally delete the assessed income or penalty; their sustainability remains subject to fresh adjudication.
The relief also carried a clear obligation: the assessee must remain vigilant, participate in hearings and avoid unnecessary adjournments. Failure to cooperate would permit the AO to proceed according to law.
Cases Discussed:
- Collector, Land Acquisition Vs Mst. Katiji and Others — Supreme Court; 1987 AIR 1353; 1987 2 SCC 387 (as cited in the judgment).
FULL TEXT OF THE ORDER OF ITAT SURAT
The captioned two (2) appeals filed by assessee involve connected/inter- related issues. Therefore, they were heard together and are being disposed of by this common order for the sake of convenience, brevity, clarity and to avoid repetition of facts. The details of these appeals are as under:
(i) ITA 608/SRT/2025 – Quantum-Appeal: This is a Quantum-Appeal directed against the order of first appeal dated 02.04.2025 passed by learned Commissioner of Income-tax (Appeals)-NFAC, Delhi [“Ld. CIT(A)”], which in turn arises out of the assessment-order dated 03.10.2019 passed by ITO, Ward-7, Vapi [“Ld. AO”] u/s 144 of the Income-tax Act, 1961 [“Act”] for assessment-year [“AY”] 2017-18.
(ii) ITA 609/SRT/2025 – Penalty-Appeal: This is a Penalty-Appeal directed against the order of first appeal dated 02.04.2025 passed by Ld. CIT(A), which in turn arises out of the penalty-order dated 20.10.2021 passed by Ld. AO u/s 271AAC(1) of the Act for AY 2017- 18.
2. Briefly stated, the facts of the case are such that the assessee is a partnership firm. For AY 2017-18 under consideration, the assessee-firm was having two partners, namely (i) Shri Parul Nilesh Shah and (2) Shri Manish Bhagwanbhai Suthar. However, Shri Parul Nilesh Shah resigned from firm w.e.f. 01.04.2017. For AY 2017-18, the assessee-firm did not file any return u/s 139. The Ld. AO issued a notice dated 29.12.2017 calling the assessee to file return but still the assessee did not comply with. The Ld. AO also issued follow-up notices u/s 142(1) and show-cause notice u/s 144 which also remained uncompiled with. Ultimately, the Ld. AO passed ex-parte assessment order dated 03.10.2019 u/s 144 assessing total income at Rs. 8,54,93,600/-, comprising of cash deposits and credit entries in bank a/c during the relevant year. Further, the Ld. AO also passed ex- parte penalty-order dated 20.10.2021 u/s 271AAC(1) imposing a penalty of Rs. 66,04,380/- qua the income of Rs. 8,54,93,600/- assessed in quantum-order. Subsequently, when Shri Parul Nilesh Shah, the retired partner of assessee-firm, got a letter from Income-tax Department for payment of demands subsisting against the assessee-firm, he enquired into the matter and filed two separate appeals to Ld. CIT(A), one on 06.05.2023 against assessment-order and other on 10.05.2023 against penalty-order. During proceedings before Ld. CIT(A), Shri Parul Nilesh Shah also made submissions. However, the Ld. CIT(A) dismissed asessee’s appeals primarily on the ground of delayed filings [Delay of 1279 days in quantum-appeal and 536 days in penalty-appeal] and also upholding the AO’s orders on merits. Now, being dis-satisfied by the orders of Ld. CIT(A), the assessee has come in present appeals before us.
3. In so far as the filing delays before Ld. CIT(A) is concerned, the Ld. AR drew our attention to the submission made by assessee in the space provided at S.No. 14 & 15 of Form No. 35 filed by assessee to Ld. CIT(A) wherein the assessee has given explanation about the reasoning of delay. The very same explanation has also been noted by Ld. CIT(A) in Para 9 of impugned orders; we extract below the same:
“The condonation of delay of 1279 days in filing the appeal needs to be decided. In this case, it is seen from the records that the date of assessment order is 03.10.2019 and the said order has been duly served upon on the appellant on 03.10.2019. The appeal is filed on 06.05.2023 beyond the stipulated time for filing appeal prescribed u/s 249(2) of the Income tax Act, 1961. Thus, there is a delay of 1279 days in filing the appeal. Along with the Form 35 the appellant has stated as under :-
“In AY 2017-18 there were two partners in the firm namely 1. Parul Nilesh Shah and 2. Manish Bhagwanbhai Suthar. I Parul N. Shah resigned from the Partnership from 01.04.2017 and therefore was not aware that the assessment proceedings has been initiated for the relevant AY. After 01.04.2017 there were multiple legal issues in the firm and therefore there was no one who could take the responsibility to reply to the notices. Eventually I got the letter from Income tax Department Ward 7 Vapi on 23.02.2023 asking to pay demand of Rs. 11,09,88,590/- in the name of PLUSH. I then tried to contact Manish Bhagwanbhai Suthar who was continuing partner when I retired but unfortunately he could not be reached nor does anyone have any idea where he is from past many years. I therefore decided to take the obligation to file the appeal against the order passed by LAO.”
4. Thereafter, Ld. AR also filed following corroborative affidavit from one of the present partners of assessee-firm “Mr. Mahesh Kumar Seventilal Shah”; the same is scanned and re-produced below for an immediate reference: [IMAGE 2: Original affidavit — PDF page 5; retain scanned image from source PDF] [IMAGE 3: Original affidavit — PDF page 6; retain scanned image from source PDF]
AFFIDAVIT
BEFORE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH
IN CASE OF “PLUSH”, PAN:- AAPFP6313G, AY 2017-18.
APPEL NO. 608/SRT/2025 & 609/SRT/2025
I, Mr. MAHESHKUMAR SEVENTILAL SHAH (PAN:- AEQPS7789Q), aged about 66 years, residing at 2ⁿᵈ Floor, Vardhaman Bhavan, Sneh Park, Vapi – 396 191, presently a partner of M/s. PLUSH, PAN: AAPFP6313G, do hereby solemnly affirm and state as under:
1. That I am presently one of the partners of M/s. PLUSH, a partnership firm, and I am competent to make this affidavit on behalf of the said firm.
2. That I & Mr. Jiwanbhai Kalyanbhai Tandel were introduced as a partner in the appellant firm with effect from 01/04/2017 and have continued as a partner thereafter. And on the same day, Mrs. Parul Nilesh Shah & Mr. Manish Bhagwanbhai Suthar were retired from partnership firm. They were the running the said partnership firm vide Partnership Deed dated 12/09/2014 and amended deed dated 09/12/2015.
3. That after certain disputes arose between Continuing Partners (i.e myself and Jiwanbhai Kalyanbhai Tandel) and Retired Partner Mr. Manish Bhagwanbhai Suthar, the business and affairs of the firm were substantially affected and ultimately the business activities of the firm came to a standstill. Due to the said circumstances, I was not involved in the day-to-day affairs and tax compliance matters of the firm.
4. That I was not aware of the scrutiny assessment proceedings conducted by the Income-tax Department in the case of the firm for Assessment Year 2017-18. I did not receive the notices or communications issued by Income tax Department in the name of the firm in connection with the said assessment proceedings.
5. That consequently, I was also not aware of the assessment order passed under Section 144 of the Income-tax Act, 1961 dated 03/10/2019 and the substantial demand raised against the appellant firm for Assessment Year 2017-18.
6. That upon being informed by Mrs. Parul Nilesh Shah about the aforesaid proceedings and the substantial demand raised against the firm, I have now become aware of the assessment proceedings and the consequential appellate proceedings relating to Assessment Year 2017-18.
7. That I have been informed and have understood that an appeal was earlier filed before the learned Commissioner of Income-tax (Appeals) by Mrs. Parul Nilesh Shah and thereafter before the Hon’ble Income Tax Appellate Tribunal in the name of the appellant firm, with the objective of protecting the interest of the firm against the substantial tax demand raised for Assessment Year 2017-18.
8. That, after considering the facts and circumstances of the matter and upon the request of Mrs. Parul Nilesh Shah, I am now willing to support, pursue and prosecute the appeal filed by the appellant firm before the Hon’ble Income Tax Appellate Tribunal, Surat Bench in respect of Assessment Year 2017-18.
9. That I hereby confirm, ratify and adopt all bona fide acts and steps taken by Mrs. Parul Nilesh Shah in relation to the assessment and appellate proceedings of the appellant firm for Assessment Year 2017-18, including the filing and prosecution of the appeal before the learned CIT(A) and the filing of the present appeal before the Hon’ble Tribunal.
10. That I further confirm and ratify the grounds of appeal and other documents filed on behalf of the appellant firm before the Hon’ble Tribunal and state that the appellant firm intends to pursue the present appeal on merits.
11. That, in compliance with the directions of the Hon’ble Tribunal, I have signed and verified the revised Form No. 36 on behalf of the appellant firm and hereby confirm that the said revised Form No. 36 is being filed for the purpose of curing the issue relating to the earlier verification/signature.
12. That I have also authorised the learned Authorised Representative i.e. CA. MAYANK A. OGRIVALA to represent and prosecute the appeal of the appellant firm before the Hon’ble Income Tax Appellate Tribunal in relation to Assessment Year 2017-18.
5. Accordingly, the crux of Ld. AR’s submission is that impugned assessment-order and penalty-order were passed by Ld. AO against assessee-firm in ex-parte manner and because of disputes between partners of assessee-firm and certain legal matters in courts, there was no one to take the responsibility in the income-tax matters of assessee-firm. Owing to this reason, the non-prosecution during proceedings before Ld. AO as well as the delays in filing appeals before Ld. CIT(A) occurred. However, as of now, the partners have collected details and documents and are ready to make an effective representation before Ld. AO. The Ld. AR further narrated that the assessee has also moved a separate application under Rule 29 of Income-tax (Appellate Tribunal) Rules, 1963 for admission of additional evidences; contents of the application so filed is re-produced below:
From:-
CA. MAYANK A. OGRIVALA
Authorized Representative of PLUSH
PAN-AAPFP6313G
To,
INCOME TAX APPELLATE TRIBUNAL,
SURAT BENCH,
SURAT
ASSESSEE NAME: PLUSH
ASSESSEE PAN:- AAPFP6313G
SUB:- APPLICATION FOR ADMISSION OF ADDITIONAL EVIDENCE IN TERMS
OF RULES 29 OF ITAT RULES
APPEAL NO. ITA 608/SRT/2025
DATED OF HEARING:- 17/03/2026
Dear Sir,
With reference to the above referred subject, I the undersigned, Authorized Representative of above referred client humbly submit as under:-
1. The appellant humbly submits this application for admission of additional evidence under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963, as the same is necessary for proper adjudication of the present appeal and goes to the root of the matter
2. The appellant submits that the assessment as well as appellate proceedings before the learned CIT(A) were completed without proper appreciation of facts and surrounding circumstances, particularly the serious dispute between retired and continuing partners, which had a direct bearing on management of the firm and compliance with statutory proceedings.
3. It is respectfully submitted that due to the retirement of the partner who has filed the present appeal and due to serious disputes between the retired and continuing partners, there was no effective control or access to records of the firm. Because of these circumstances, the appellant could not place all the relevant documents before the Assessing Officer and the learned CIT(A).
4. The appellant further submits that the learned AO as well as the learned CIT(A) proceeded to make and sustain additions by doubting the existence of business activity, without appreciating the statutory records and past compliance of the assessee, which clearly establish that the assessee was engaged in genuine business
5. In order to substantiate the above facts and to assist this Hon’ble Tribunal in proper adjudication of the appeal, the appellant seeks to place the following documents on record as additional evidence:
a) Copy of the petition filed before the Hon’ble Gujarat High Court by the continuing partners for quashing of FIR lodged by the retired partner, along with annexures, evidencing serious inter-se disputes and disruption of the affairs of the firm,
b) VAT return acknowledgement summary, evidencing regular statutory compliance and existence of business activity much prior to initiation of income-tax proceedings;
c) Copy of ITR-V for A.Y. 2016-17 along with audited financial statements, evidencing declaration of business income in the immediately preceding year,
d) Copy of ITR-V for A.Y. 2015-16 along with Form No. 3CB-3CD, evidencing audited business activity and continuity of operations.
6. The appellant submits that the above additional evidence is highly relevant and directly supports the grounds raised before this Hon’ble Tribunal, particularly with respect to wrongful rejection of business activity, unjustified addition under section 69A, and incorrect application of section 115BBE of the Act. 7. It is further submitted that the non-submission of the above documents before the lower authorities was neither deliberate nor intentional, but was solely due to bona fide reasons and circumstances beyond the control of the appellant.
8. The appellant respectfully submits that admission of the above additional evidence is necessary in the interest of natural justice and for rendering substantial justice, and no prejudice will be caused to the Revenue if the same is admitted.
9. In view of the above facts and circumstances, the appellant humbly prays that this Hon’ble Tribunal may kindly admit the additional evidence under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963, and pass such other order(s) as may be deemed fit in the interest of justice.”
6. Therefore, Ld. AR prayed that in the interest of justice, the delays occurred in filing appeals before Ld. CIT(A) be condoned and these matters be remanded back to the file of Ld. AO for adjudication afresh after hearing assessee. He acknowledged that the assessee shall definitely make a proper and effective representation before Ld. AO.
7. Ld. DR for revenue though dutifully supported the orders of lower authorities but considering the facts and circumstances prevailing in assessee-firm, did not raise any objection against remanding back. He, however, requested the bench to give stricter direction to asseseee to ensure participation in set aside proceedings.
8. Upon careful consideration of the facts and material on record, we note that both assessment-order and penalty-order were passed by Ld. AO as ex-parte on account of non-compliances with the notices issued and, thereafter, the appeals before Ld. CIT(A) were also filed belatedly. The assessee has attributed both the non-compliance before Ld. AO and the filing delays before Ld. CIT(A) to the disputes between the partners and certain legal matters in courts, as explained in Form No. 35 and supported by the affidavit of a present partner. This explanation has not been controverted by revenue and Ld. DR has not raised any objection to the matter being restored. In these circumstances, we find that the assessee was prevented by “sufficient cause” from filing appeals before Ld. CIT(A) within time. It is a settled position by Hon’ble Supreme Court in Collector, Land Acquisition Vs Mst. Katiji and others 1987 AIR 1353, 1987 2 SCC 387 that whenever “substantial justice” and “technical considerations” are opposed to each other, the cause of “substantial justice” must be preferred by adopting a justice-oriented approach. Thus, taking into account the facts of case and the decision of Hon’ble Supreme Court, we take a judicious view, condone the delays occurred in filing appeals before Ld. CIT(A).
9. Further, considering the above submissions of parties; having regard to the principle of natural justice and also bearing in mind that no prejudice would be caused to revenue if the present matters are restored at the level of Ld. AO, we restore these matters to the file of Ld. AO for adjudication afresh, at the risk and responsibility of assessee. The Ld. AO shall give necessary opportunity of hearing to assessee and pass appropriate orders uninfluenced by his earlier orders. The Ld. AO shall also consider the additional evidences filed by assessee before us and further evidences, if any, the assessee may file to Ld. AO. The assessee is also directed to remain vigilant and ensure participation in the hearings as may be fixed by Ld. AO without seeking unnecessary adjournments failing which the Ld. AO shall be at liberty to proceed in accordance with law. Ordered accordingly.
10. In result, both of these appeals are allowed for statistical purposes.
Order pronounced in open court on 30/10/2026.
