ACIT CIRCLE 15-1-2, MUMBAI, MUMBAI vs. HAFELE INDIA PRIVATE LIMITED, MUMBAI

The brief facts of the case are that the assessee, Hafele India Private Limited, is a resident company engaged in the business of trading in kitchen and home equipment, furniture and fittings, architectural hardware etc. For the Assessment Year 2018-19, the assessee filed its return of income declaring a total income of ₹37.56 crore.

During the assessment proceedings, the Assessing Officer issued various notices in response to which assessee furnished replies. However, towards the end of the assessment proceedings, the Assessing Officer issued a notice dated 11.04.2021 granting only two days' time to furnish voluminous details and supporting documents. According to the assessment records, the assessee sought an adjournment on the ground of the severe disruption caused by the COVID-19 pandemic, closure of its offices and the fact that its finance and taxation personnel were working from home. The assessee also filed a detailed reply along with available documents on 24.04.2021 and submitted that certain supporting evidences relating to fixed assets and other claims would be furnished shortly, particularly when the CBDT had extended the time limit for completion of assessments owing to the pandemic. Despite the adjournment request, the Assessing Officer completed the assessment on 28.04.2021 without granting any further opportunity of hearing and neither did the Assessing Officer issue a show cause notice along with a draft assessment order proposing the variations. The assessment was completed by assessing the total income at ₹51.31 crore after making various additions and making various disallowances viz. disallowance of deduction under section 80G of the Act, disallowance under section 40(a) of the Act, disallowance of depreciation with respect to leasehold improvements, addition towards unexplained investment in foreign fixed assets taxable under section 115BBE of the Act, and additions based on ICDS adjustments and excess depreciation.

In appeal, the CIT(A) observed that the assessee had substantially participated in the assessment proceedings and had furnished replies to the earlier notices. He further found that the final notice issued by the Assessing Officer granted only two days' time for compliance during the peak of the COVID-19 pandemic, when the assessee's offices remained closed and employees were functioning remotely. The CIT(Appeals) accepted that the assessee had sought an adjournment and had subsequently filed detailed submissions explaining the issues involved, but the Assessing Officer ignored both the adjournment request and the subsequent compliance while completing the assessment. The CIT(A) further found that the assessment was completed without providing an opportunity of hearing despite the fact that substantial additions were proposed, and the Assessing Officer did not adhere to the procedure contemplated under section 144B of the Act governing faceless assessments. Accordingly, the CIT(A) held that in the assessment proceedings, there was violation of the principles of natural justice as adequate opportunity had not been afforded to the assessee before making the impugned additions. Accordingly, instead of adjudicating the individual additions on merits, the CIT(A) considered it appropriate, in the interest of natural justice, to restore the matter to the file of the Assessing Officer with a direction to provide a reasonable opportunity to the assessee, examine all the submissions and documentary evidence and thereafter pass a fresh assessment in accordance with law. Consequently, the appeal of the assessee was allowed for statistical purposes by setting aside the matter for de novo consideration by the Assessing Officer.

The Department is in appeal before us against the order passed by CIT(Appeals).

We have heard the rival contentions and perused the material available on record. The Revenue has challenged the order of the learned Commissioner of Income-tax (Appeals) primarily on the ground that he erred in restoring the matter to the file of the Assessing Officer despite the withdrawal of the power to set aside an assessment under section 251(1)(a) of the Act and that he ought to have adjudicated the additions on merits by exercising his co-extensive powers.

We have carefully considered the rival submissions. The assessment record shows that the Assessing Officer completed the assessment after granting only two days' time to the assessee to furnish voluminous details during the COVID-19 period. It is also an undisputed fact that the assessee sought an adjournment and subsequently furnished its explanation and certain supporting documents, which were not examined before the assessment was completed. The additions made by the Assessing Officer require verification of books of account, supporting documents and other factual records, which admittedly require proper examination at the assessment stage.

In these peculiar facts, the learned Commissioner of Income-tax (Appeals) found that the assessment had been completed without affording an opportunity of hearing to the assessee and, therefore, directed the Assessing Officer to examine the issues afresh after granting adequate opportunity. In our considered view, the controversy cannot be effectively adjudicated without factual verification by the Assessing Officer. Therefore, no useful purpose would be served by interfering with the direction issued by the learned Commissioner of Income-tax (Appeals). Merely because the CIT(Appeals) has restored the matter to the Assessing Officer does not, by itself, justify interference when such restoration has been necessitated on account of violation of the principles of natural justice and the requirement of proper factual verification.

Accordingly, we find no infirmity in the order of the learned Commissioner of Income-tax (Appeals) warranting interference. The Assessing Officer shall examine the issues afresh after granting adequate opportunity to the assessee and pass a reasoned order in accordance with law. The grounds raised by the Revenue are, therefore, dismissed.

In the result, the appeal filed by the Revenue is dismissed.