SIMCEMENT PRIVATE LIMITED,MUMBAI vs. ITO 13(2)(1), MUMBAI

Briefly stated, the facts borne out from the record are that the assessee company is engaged in the business of construction activities and had originally filed its return of income declaring Nil income. The original assessment was completed under section 144 without any addition. Subsequently, based on information received through INSIGHT Portal pursuant to FIU-IND STR alerts alleging high value debit and credit transactions not commensurate with the profile of the assessee, proceedings under section 147 were initiated and notice under section 148 dated 11.04.2022 was issued after passing order under section 148A(d).

During the course of reassessment proceedings, the Assessing Officer observed that the assessee had allegedly failed to disclose one current account in the return of income and had also claimed substantial interest expenditure without corresponding interest income and without deduction of TDS. The Assessing Officer further noticed unsecured loans aggregating to Rs.603,97,05,000/- and borrowings reflected in the balance sheet and according to him, the assessee failed to substantiate the identity, genuineness and creditworthiness of the parties with supporting documentary evidences. Since, according to the Assessing Officer, there was no effective compliance to the notices issued under sections 142(1), 144 and various show cause notices, the

Aggrieved by the aforesaid reassessment order, the assessee preferred appeal before the learned CIT(A), NFAC. However, the learned CIT(A) also proceeded to pass ex-parte order confirming the additions made by the Assessing Officer.

Before us, the learned counsel for the assessee submitted that the assessee company had become substantially non- operational owing to the liquidation proceedings of its subsidiary company, namely M/s Vadraj Cement Limited (earlier ABG Cement Limited), pursuant to orders passed by the Hon’ble Bombay High Court. It was submitted that after the liquidation proceedings, accounting records and related documents had come under the possession and control of the Official Liquidator and consequently the assessee had lost effective access to various financial records and statutory communications. It was further submitted that the Finance and Accounts Manager, namely Mr. Chandrashekhar Krishnamurthy Iyer, who was handling the entire accounting, statutory compliance and official email communications, had left employment around March 2019 without proper handover

The learned counsel submitted that the assessee was prevented by sufficient and bona fide cause from effectively participating in the reassessment proceedings as well as the appellate proceedings and therefore the entire matter deserves to be restored back to the file of the Assessing Officer so that one effective opportunity may be granted to the assessee to substantiate its case on merits. It was further submitted that the additions running into more than Rs.603 crores have been made ex-parte without proper examination of evidences and therefore, in the interest of substantial justice, the assessee may be granted one final opportunity.

After carefully considering the rival submissions and upon perusal of the material placed on record, we find that admittedly both the reassessment proceedings as well as the first appellate proceedings have culminated into ex-parte orders. From the peculiar facts placed before us, it emerges that the assessee company had undergone severe operational and administrative dislocation on account of liquidation proceedings relating to its subsidiary concern and the consequent takeover of records and documents by the Official Liquidator. The explanation furnished by the assessee that the official email IDs and statutory communications remained inaccessible after the exit of the concerned Accounts and Finance Manager also appears to be supported by affidavit and surrounding circumstances brought on record. The entire factual matrix demonstrates that the assessee was passing through extraordinary circumstances which materially impaired its ability to effectively respond to statutory notices and compliances.

It is a settled principle of law that adjudication should ordinarily be made on merits rather than by shutting out a litigant on technicalities or procedural lapses, particularly

We further find that the learned CIT(A), instead of examining whether there existed reasonable and sufficient cause for non-appearance, proceeded to confirm the additions ex-parte without proper adjudication on merits. The approach adopted by the authorities below, in the peculiar facts of the present case, has resulted in denial of effective opportunity to the assessee. The principles of natural justice, which are the foundational pillars of any quasi-judicial proceeding, require that adequate and fair opportunity should be granted before fastening such huge tax liability upon an assessee.

Accordingly, in the interest of substantial justice and fair play, we deem it fit to set aside the impugned order passed by the learned CIT(A) as well as the reassessment order passed under section 147 read with section 144 and restore the

In the result, appeal of the assessee is allowed for statistical purposes.