The New Delhi Bench of Income Tax Appellate Tribunal (ITAT) has held in the case of Kusham Vs. ITO that upon procedural violation in the initial processing of the case, the matter shall be referred back to the Commissioner of Income Tax (Appeals) [CIT(A)]. The first reason was that the CIT(A) did not serve the physical notice to the assessee before proceeding ex-parte, which is a breach of considerable procedural aspect especially in the cases related with unexplained investments under the Income Tax Act, 1961.
Case Background:
The assessee entered into purchase of an immovable property costing Rs. 2,47,96,873 for the Assessment Year 2013-14. This particular transaction was pointed out by the Assessing Officer (AO) but the AO could not substantiate the corresponding income tax returns as the assessee did not furnish his/her PAN number. Therefore, the AO assumed powers under Section 148 of the Income Tax Act, 1961 under which the assessment can be reopened if there is a reason that some income has been missed out. A notice was then served concerning the same.
However, since the said notice was issued electronically, the assessee failed to reply within time which forced the AO to add a sum of Rs. 63,86,718 as an unexplained investment, under section 69 and the AO completed the assessment under section 147/144 of the income tax act, 1961. Section 69 provides the law when the investments made by an assessee are not properly explained and can be regarded as the income of such an assessee for the relevant financial year. The assessee got to know of the situation for the first time when she was served with a notice under section 142(1) on the 14.03.2022 by hand. In response, she approached the AO on March 21, 2022, and submitted documents. However, the AO refused to accept the request and issued ex parte order.
Proceedings Before CIT(A):
Unsatisfied with the AO’s order the assessee preferred an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. However, the appeal has been dismissed for non compliance of the notices issued by the CIT(A) .The CIT(A) upheld the AO’s order without providing the assessee an adequate opportunity to be heard, particularly without issuing a physical notice of the hearing, which is a critical procedural safeguard meant to ensure fairness in adjudication.
Appeal Before ITAT:
Aggrieved by the order of the CIT(A), assessee preferred an appeal before the Income Tax Appellate Tribunal, New Delhi. While arguing in the case before the ITAT, the assessee’s representative submitted number of averments. The main points of the assessee’s counsel was that the assessee is a homemaking lady who has no means of income other than her husband’s agricultural income. It was further submitted that the property in question was jointly purchased by the assessee and her sister in law, wherein the assessee’s share was being Rs. 63,86,718. All payments were done through banking channels.
Moreover the assessee did not received any physically notice of hearing from CIT(A), even after mentioning in Form 35 that the notice to be served through post only and not through any other way. The assessee was unaware of the notices issued by the CIT(A) and thus was not able to comply such notices which further led to an ex-parte order. The counsel requested the Tribunal to remand the matter back to the CIT(A) for fresh adjudication, allowing the assessee a proper opportunity to present her case.
Observations and Decision of the ITAT:
The Ld. Sr DR, defended the CIT(A)’s order and attributed the situation to the assessee’s own negligence. The Tribunal noted that the assessee had appeared before the AO and had submitted relevant documents during the assessment process. Despite this, the AO did not take these documents into consideration. Moreover, the Tribunal found that the CIT(A) had dismissed the appeal without issuing a physical notice of hearing to the assessee, which constituted a breach of procedural fairness.
In light of these findings, the ITAT determined that the matter required reconsideration and directed that the case be remanded back to the CIT(A) for a fresh adjudication. The Tribunal instructed that the assessee should be provided with a reasonable opportunity of being heard, including the proper issuance of notices, before any final decision is made.
Conclusion:
The ITAT’s decision underscores the importance of procedural fairness in income tax proceedings. The Tribunal’s directive to remand the case for fresh adjudication serves as a reminder that compliance with procedural requirements, such as issuing physical notices and allowing for adequate representation, is essential to ensure just and equitable outcomes in tax disputes. The appeal was ultimately allowed for statistical purposes, marking a significant step in upholding the rights of taxpayers within the legal framework of the Income Tax Act, 1961.
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