HARYANA FINANCIAL CORPORATION,CHANDIGARH vs. DCIT, CIRCLE PANCHKULA, PANCHKULA

That on the facts and in the circumstances of the case the Ld. Addl/JCIT(A)-3 Chennai has erred in law and facts in upholding the contention of the Ld. AO and adjudicating the appeal without any merit and passing an order without service of the notice either through email OR sending the notice of fixation of appeal by post.

That the appellant reserves the right to add, amend or delete one or more of the grounds of appeal before the appeal is disposed off.

Briefly the facts of the case are that the assessee, a company engaged in the business of financial services, filed its return of income declaring a loss of Rs. 5,00,52,983/-. The case was selected for complete scrutiny and assessment proceedings were carried out u/s 143(3) of the Act.

1 During the course of assessment, the Assessing Officer observed that the assessee had earned dividend income of Rs. 20,000/- which was claimed as exempt. The Assessing Officer invoked the provisions of section 14A read with Rule 8D and held that expenditure attributable to earning exempt income is liable to be disallowed. The contention of the assessee that no expenditure was incurred for earning such income was not accepted. The Assessing Officer observed that funds are fungible in nature and the assessee had incurred interest expenditure, and therefore, disallowance under section 14A was warranted. Relying upon CBDT Circular No. 5/2014, the Assessing Officer held that disallowance under section 14A is applicable even where exempt income is minimal or not earned. Accordingly, the Assessing Officer computed disallowance @1% of the average value of investments amounting to Rs. 1,49,76,241/- and added the same to the income of the assessee. Consequently, the assessed loss was reduced to Rs. 3,50,76,740/- as against returned loss.

Against the order of the AO the assessee went in appeal before the Ld. CIT(A). The Ld. CIT(A) noted that multiple notices were issued to the assessee during the appellate proceedings; however, the assessee failed to appear or furnish any submissions or supporting evidence. The Ld. CIT(A) observed that the assessee did not avail the opportunities granted and showed no interest in pursuing the appeal. Relying on judicial precedents including the decision of the Hon’ble Supreme Court in B.N. Bhattacharjee and Another (118 ITR 461) and principles relating to dismissal for non-prosecution, the Ld. CIT(A) dismissed the appeal.

1 On merits as well, the Ld. CIT(A) held that since the assessee failed to discharge the onus of proving its claim, there was no reason to interfere with the findings of the Assessing Officer. Accordingly, the appeal of the assessee was dismissed.

Against the order of the Ld. CIT(A), assessee preferred in appeal before us.

During the course of hearing the Ld. AR submitted that the Ld. CIT(A) erred in dismissing the appeal ex-parte without providing adequate and effective opportunity of being heard. It was contended that the notices were not properly served upon the assessee, and therefore, the assessee could not present its case. The AR further submitted that the disallowance under section 14A is excessive and contrary to settled judicial principles, particularly when the exempt income earned was only Rs. 20,000/- and disallowance cannot exceed exempt income. It was also argued that the Assessing Officer mechanically applied Rule 8D without recording proper satisfaction.

1 The Ld. AR prayed that the matter be restored to the file of the CIT(A) for fresh adjudication after providing proper opportunity to the assessee.

Per contra, the Ld. DR supported the orders of the lower authorities and submitted that sufficient opportunities were granted by the Ld. CIT(A), but the assessee failed to respond. It was argued that the Ld. CIT(A) was justified in dismissing the appeal for non-prosecution. The Ld. DR further contended that the disallowance under section 14A was made in accordance with law and CBDT Circular, and therefore, no interference is warranted.

We have heard the rival submissions and perused the material available on record. In the present case, we observe that the Ld. CIT(A) has dismissed the appeal primarily on account of non-prosecution without adjudicating the grounds of appeal on merits in a detailed manner. Although the assessee failed to appear before the Ld. CIT(A), it is a settled principle of law that the appellate authority is required to decide the appeal on merits even in the absence of the assessee.

1 Further, the grounds raised by the assessee, as emanating from the record, specifically contend that the Ld. CIT(A) has erred in adjudicating the appeal without proper service of notice of hearing either through email or by post and has passed the impugned order without affording a reasonable and effective opportunity of being heard. Such grievance clearly raises an issue of violation of principles of natural justice. In these circumstances, the matter requires proper examination and adjudication after duly considering the submissions and evidences of the assessee.

2 In the interest of justice and fair play, we deem it appropriate to restore the matter to the file of the Ld. CIT(A) for fresh adjudication. The Ld. CIT(A) shall provide adequate opportunity of being heard to the assessee and thereafter decide the issues afresh in accordance with law, by passing a speaking and reasoned order. Accordingly, the appeal of the assessee is allowed for statistical purposes and the matter is remanded back to the file of the Ld. CIT(A).

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

""थ"/ The Respondent 3. आयकर आयु"/ CIT 4. आयकर आयु" (अपील)/ The CIT(A) 5. िवभागीय "ितिनिध, आयकर अपीलीय आिधकरण, च"ीगढ़/ DR, ITAT, CHANDIGARH 6. गाड" फाईल/ Guard File