ARKA LEISURE AND ENTERTAINMENTS PRIVATE LIMITED,HYDERABAD vs. DCIT., CIRCLE -1(1), HYDERABAD

Succinctly stated, the assessee company, which is engaged in the business of running resorts and theme parks, had filed its return of income for AY 2013-14 on 28/09/2013, declaring a loss of (Rs.20,07,43,276/-). Thereafter, the AO framed an assessment vide his order dated 18/03/2016, passed under section 143(3) of the Act.

Thereafter, the AO, based on information that the assessee company had during the subject year, claimed to have issued shares having a face value of Rs.10/- per share along with a premium of Rs.50/- per share to its two group entities, viz., (i). M/s. Agri God Farm Estates Pvt Ltd: Rs.15.22 crores; and (ii) M/s. Dream Land Ventures India Pvt Ltd: Rs.14.99 crores, but a perusal of the balance sheets of the said group entities revealed that their respective investments in the assessee’s company were disclosed at Rs. NIL and Rs.8.40 crores, respectively, held a conviction that the income of the assessee company chargeable to tax to the extent of Rs. 21.81 crores had escaped assessment, initiated proceedings under section 147 of the Act. Notice under section 148 of the Act, dated 18/11/2019, was issued and duly served upon the assessee company. However, the assessee company failed to file its return of income in response to the aforesaid notice.

During the course of the assessment proceedings, the AO issued notices under section 142(1) of the Act along with query letters, dated 09/02/2021, 19/02/2021, 04/03/2021 and 06/09/2021, but a perusal of 4 Accordingly, the AO based on his conviction that the assessee company had failed to discharge the onus that was cast upon it to substantiate the veracity of its claim of having received share capital and share premium of Rs. 30.21 crores from the aforementioned share applicant companies, held the same as an unexplained cash credit under section 68 of the Act and determined the income of the assessee company at Rs.10,13,56,724/-.

Aggrieved, the assessee company carried the matter in appeal before the CIT(A). However, as the assessee company had delayed in filing the appeal by 69 days before the CIT(A), the latter, not being persuaded to subscribe to the explanation of the assessee company regarding the reasons leading to the delay, declined to exercise the 5 Representative (for short, “Ld. AR”) for the assessee company, at the threshold of hearing, submitted that the present appeal involves a delay of 178 days. Elaborating on the reasons leading to the delay, the Ld. AR submitted that the same had crept in primarily for the reason that as the assessee company was seriously impacted due to the search operations conducted on all its group companies and seizure of the material/documents, which had resulted to losing all its employees and rendering it as a defunct company, had remained unaware about the disposal of its appeal by the CIT(A) vide his ex-parte order, dated 29/06/2024. Elaborating on his contention, the Ld. AR submitted that the assessee company, along with its other group entities, upon learning of the respective assessments and the CIT(A) orders passed in 6 Arka Leisure and Entertainments Private Limited vs. DCIT their cases, had thereafter engaged counsels to prefer appeals before the respective authorities. The Ld. AR submitted that the present appeal in the case of the assessee company before the Tribunal is delayed by 178 days. The Ld. AR submitted that the assessee company, as per the directions of its counsel, had collected the required documents and information for filing the appeal before the Tribunal, and, involving no further loss of time, had filed the present appeal, but the same, by the time, involved a delay of 178 days. The Ld. AR drew our attention to the application filed by the assessee company, dated 22/02/2025, seeking condonation of delay, along with a supporting affidavit of the same date. Elaborating further on his contention, the Ld. AR submitted that both the failure on the part of the assessee company to participate in the proceedings before the AO which had resulted to an ex-parte assessment vide an order passed under section 147 r.w.s 144 r.w.s 144B of the Act, dated 18/09/2021, as well as the delay in filing of the appeal before the CIT(A) and failure to participate in the proceedings before him was primarily for the reason that Shri Avva Venkata Rama Rao S/o. Late A.V. Appa Rao, Managing Director of the assessee company, having been implicated in the criminal cases, had remained lodged in jail pursuant to the order passed by the District and Sessions Judge, Eluru, in Cr. No. 03/2015 of Pedapadu PS U/s No.420, 406 r/w 120(b) IPC and Section (5) of APPDEF Act, for the period 26/02/2016 till 06/03/2019, and was released on bail on 06/03/2019. The Ld. AR

The Ld. AR submitted that the impugned discrepancies pointed out by the AO leading to the exorbitant additions can safely be reconciled if the matter is set aside to the file of the AO with a direction to re-decide the case after affording a reasonable opportunity of being heard to the assessee company, so that the real income of the assessee company for the subject year can be determined. Also, it was submitted that as the identity and creditworthiness of the respective investors, as well as the genuineness of the transactions, can safely be established if an opportunity is afforded to the assessee company, therefore, the matter, in all fairness and in the interest of justice, should

Per contra, Shri Wasseem UR Rehman, Learned CIT-DR vehemently objected to the seeking of condonation of the delay in filing the present appeal by the assessee company. It was submitted that, as the assessee company had failed to provide any plausible explanation for the inordinate delay in filing the present appeal, the same was thus liable to be dismissed as barred by limitation. Elaborating on his contention, the Ld. CIT-DR submitted that the lackadaisical approach of the assessee company can safely be gathered from the fact that not only it had not filed its return of income in compliance to the notice issued by the AO under section 148 of the Act, dated 18/11/2019 and also failed to participate in the assessment proceedings which, thus, had resulted to an ex-parte assessment order under section 147 r.w.s 144 r.w.s 144B of the Act, dated 18/09/2021, but also had delayed the filing of the appeal before the CIT(A) and further not participated in the proceedings before him. The Ld. CIT-DR submitted that, considering the totality of the facts involved in the present appeal, the delay in filing the same does not merit condonation.

We have given thoughtful consideration to the contentions advanced by the Learned Authorised Representatives of both parties in the backdrop of the material available on record.

Admittedly, it is a matter of fact borne from the record that the assessee company had delayed the filing of the present appeal by 178 days. Also, we cannot remain oblivion of the fact that the conduct of the assessee company right from the inception, viz., (i) non-filing of the return of income in compliance to notice issued under section 148 of the Act, dated 18/11/2019; (ii) non-participation in the assessment proceedings resulting to an ex-parte order under section 147 r.w.s 144 r.w.s 144B of the Act, dated 18/09/2021; (iii) delay of 69 days in filing of the appeal before the CIT(A); and (iv) failure to participate in the proceedings before the CIT(A), at the first blush reveals the lackadaisical and irresponsible conduct of the assessee company regarding its income tax matters. However, after considering the reasons canvassed before us by the Ld. AR, which had resulted in the aforesaid failure/omission on the part of the assessee company to effect the statutory compliances and participate in the proceedings before the lower authorities, as well as resulted in the delay in filing of the present appeal, viz., (i) that the Managing Director of the assessee company had pursuant to the order of the District and Sessions Judge, Eluru in Cr. No. 03/2015 of Pedapadu PS U/s No.420, 406 r/w 120(b) IPC and Section (5) of APPDEF Act, was remanded to prison on 12/02/2016 and 10 Arka Leisure and Entertainments Private Limited vs. DCIT as per the details furnished before us was though released on bail on various dates during the period 26/02/2016 to 06/03/2019, but was thereafter once again subjected to extension of remand over the period of 2 ¾ years (approx.). Also, we find that the Ld. AR had placed on record an affidavit, dated 08/10/2024, filed by the Chairman/Director of M/s. Agrigold Farm Estates Private Limited, i.e., a group entity, wherein it is stated that the CCS Police/APCID investigation authorities had seized records, documents, servers, and gadgets from the office of the company, as well as the offices and residences of its Directors. It is further stated that, due to the non-availability of records, the preparation and filing of the required annual accounts/balance sheets with the MCA/ROC and the Income Tax returns could not be filed since 2014-15. Also, it is stated in the said letter that pursuant to the order passed by the Tribunal in the case of Agrigold Group of Companies, wherein the assessment framed by the AO under section 144 of the Act had been set aside to his file with a direction to frame a fresh assessment, the aforesaid documents be made available, failing which the said group entities would suffer irreparable loss.

In our view, considering the totality of the facts that have been culled out by us herein above, there is substance in the Ld. AR’s contention that there were justifiable reasons due to which the present appeal could not be filed by the assessee company within the prescribed time limit. We say so, for the reason that, as stated by the 11 Arka Leisure and Entertainments Private Limited vs. DCIT assessee company, in pursuance of the search and seizure operation conducted on its group companies, which had lost all its employees and had become defunct, the assessee company could not participate in the proceedings before the CIT(A), who had thereafter disposed of the appeal in its case vide his order dated 29/06/2024. The assessee company supported its aforesaid reason for the delay, as stated in its application for condonation, dated 25/02/2025, by an affidavit dated 25/02/2025 of Shri Venkata Rama Rao Avva, Managing Director of the assessee company. In our view, as there is substance in the assessee’s explanation regarding the reason leading to the delay in filing of the present appeal, the same, in all fairness and in the interest of justice, merits to be condoned. Our aforesaid view that a liberal approach should be adopted for condoning the delay involved in an appeal is supported by the recent decision of the Hon'ble Supreme Court in the case of Vidya Shankar Jaiswal vs. The Income Tax Officer, Ward-2, Ambikapur in Special Leave Petition (Civil) Nos. 26310-26311/2024, dated 31st January, 2025. The Hon'ble Apex Court, while setting aside the order of the Hon'ble High Court of Chhattisgarh, which had approved the declining of the condonation of the delay of 166 days by the Income-Tax Appellate Tribunal, Raipur Bench, had observed that a justice-oriented and liberal approach should be adopted while considering the application filed by an appellant seeking condonation of the delay involved in filing the appeal.

Coming to the dismissal of the assessee’s appeal by the CIT(A) vide his order, dated 29/06/2024, we find that the same had been dismissed in limine on the ground that it involved a delay of 69 days. As observed by us herein above, the CIT(A), not finding favour with the explanation of the assessee company regarding the delay in filing of the appeal before him, had declined to exercise the powers vested with him under section 249(3) of the Act and dismissed the appeal as barred by limitation.

We have given thoughtful consideration and find that as stated by the assessee company in its application, dated 25/02/2025, the failure on its part to prefer the appeal before the CIT(A) within the prescribed time period had crept in for the reason, viz., (i) that due to the raid/search conducted on its group companies the requisite material having been seized had resulted in the delay in filing the appeal; (ii) that as the Managing Director and Director of the assessee company were arrested and remained behind bars, thus it was difficult to collate the requisite information, which too had contributed to the delay in filing the appeal with the First Appellate Authority within the prescribed time period, i.e., on or before 18/10/2021; and (iii) that the COVID pandemic had also delayed the filing of the appeal before the CIT(A). We find that the assessee company had at Sl No.15 of its Memorandum of Appeal in “Form-35” submitted before the CIT(A) that all its group companies were subjected to raid by the State Police Authorities based on the 13 Finance Managers were arrested and sent to judicial remand and had thereafter remained behind bars, therefore the activities of the said companies had literally came to a standstill and all of its employees had left their jobs. Elaborating further, it was stated by the assessee company that there were no responsible persons available to respond to the legal matters of the assessee company and its email was also blocked by the Police Authorities, and as its Finance Manager was arrested, thus, there was no authorized person who had the knowledge to open the ITBA portal to verify the notices issued and carry out necessary compliance to the same. It was further stated that the assessment order and the demand notice uploaded on the ITBA portal could not be downloaded, as the skeletal staff at the assessee company were unaware of how to operate the portal. Further, it was stated that the Managing Director of the assessee company, after being released on bail, had appointed a Manager/Accountant, having knowledge of legal matters and operating the ITBA portals, pursuant to which it was noticed by the said persons that the assessment had been finalized by the AO vide an ex-parte order and a huge demand was raised in the hands of the assessee company. Elaborating further, the assessee company stated that its Managing Director, upon learning of the aforesaid ex parte order passed in its case, had, as per the advice of its 14

We find that the CIT(A), in the backdrop of the aforesaid multi- facet facts leading to the delay in filing of the appeal by the assessee company, ought to have adopted a liberal view and condoned the delay of 69 days involved in the appeal filed by the assessee company before him. We are thus unable to persuade ourselves to concur with the summary dismissal of the appeal filed by the assessee company as barred by limitation by the CIT(A), who we find had declined to condone the delay in exercise of the powers vested in him under section 249(3) of the Act. We, thus, set aside the order passed by the CIT(A) and restore the matter to his file with a direction to condone the delay and redecide the appeal on the specific grounds of appeal based on which the impugned order of assessment passed by the AO under section 147 r.w.s 144 r.w.s 144B of the Act, dated 18/09/2021 has been assailed by the assessee company before him. Needless to say, the CIT(A) shall, in the course of the set aside proceedings, afford a reasonable opportunity of being heard to the assessee appellant.

In the result, the appeal filed by the assessee company is allowed for statistical purposes in terms of our aforesaid observations.

The Principal Commissioner of Income Tax, Hyderabad.

"वभागीय""त"न"ध, आयकरअपील"यअ"धकरण /DR,ITAT, Hyderabad.

The Commissioner of Income Tax 6. गाड"फ़ाईल / Guard file