PARESH DHIRUBHAI SHAH,MUMBAI vs. DCIT CIRCLE 17(1), MUMBAI, MUMBAI

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ITA 2794/MUM/2026Status: DisposedITAT Mumbai23 September 2026AY 2009-105 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal held that the First Appellate Authority erred in dismissing the appeal on the ground of delay without affording the assessee a specific opportunity to explain the reasons for the delay and file a petition for condonation. The Tribunal emphasized that the question of condonation of delay is a threshold issue affecting the maintainability of the appeal and that principles of natural justice require an adequate and effective opportunity of being heard. Therefore, the impugned order of the First Appellate Authority was set aside to that extent. The matter was restored to the file of the First Appellate Authority, directing the assessee to file a petition for condonation of delay with supporting material. The First Appellate Authority was directed to afford a reasonable opportunity of being heard and adjudicate the petition by passing a speaking order. If the delay is condoned, the appeal is to be disposed of on merits. The grounds raised were allowed for statistical purposes.

What were the facts?

The assessee, Paresh Dhirubhai Shah, filed an appeal before the ADDL/JCIT(A) against an assessment order for the assessment year 2009-10. The assessee's appeal was dismissed by the First Appellate Authority due to a delay of 43 days in filing, without providing an opportunity to be heard on the condonation of delay. The assessee contended that the notice under section 148 was invalid, that the mercantile system of accounting was wrongly attributed, and that disallowances under section 40A(3) and capitalization of software expenses were erroneous. The original assessment was completed under section 143(3) on 21.11.2011, and the case was reopened under section 147, with reassessment completed on 31.03.2016, making additions for commission income, cash expenses exceeding Rs. 20,000, and software expenses.

What were the issues?

1. Whether the Learned Commissioner of Income-tax (Appeal) erred in dismissing the appeal on grounds of delay without providing an opportunity of being heard to the Appellant, thereby violating principles of natural justice? 2. Whether the Notice under section 148 was invalid as the Assessing Officer had issued a notice under section 154 on the same points? 3. Whether the Learned Commissioner of Income-tax (Appeal) erred in upholding the Assessing Officer's conclusion that the Appellant followed the mercantile system of accounting, leading to an addition of Rs. 1,371,979, when the Appellant followed the cash system and offered the receipt in a subsequent year? 4. Whether the Learned Commissioner of Income-tax (Appeal) erred in upholding the Assessing Officer's action in invoking section 40A(3) and disallowing Rs. 163,875, when these were petty cash expenses accounted for in lump sum? 5. Whether the Learned Commissioner of Income-tax (Appeal) erred in upholding the Assessing Officer's action in treating software expenses of Rs. 30,000 as capital in nature? Assessee's contentions: The First Appellate Authority erred in dismissing the appeal without a hearing on delay. The notice under section 148 was invalid. The mercantile system was wrongly applied, and the income was offered on a cash basis. Section 40A(3) was not violated for petty cash expenses. Software expenses were not capital in nature. Revenue's contentions: The Learned Departmental Representative relied upon the order passed by the First Appellate Authority.

Which sections of the Income-tax Act were involved?

Section 148,Section 154,Section 40A(3),Section 143(3),Section 147,Section 250

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “C” BENCH, MUMBAI

Before: SHRI SAKTIJIT DEY & SHRI GIRISH AGARWAL

For Respondent: Shri Ajay Soneji, Sr. DR
Pronounced: 23.09.2026

IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, VICE PRESIDENT AND SHRI GIRISH AGARWAL, ACCOUNTANT MEMBER

ITA 2794/MUM/2026 िनधा�रणवष�/Assessment Year: 2009-10) DCIT CIRCLE 17(1), Paresh Dhirubhai Shah Mumbai B-33, Rameshwar, Opp. Khira Kautilya Bhavan, Bandra Nagar, S.V. Road, Santacruz (West), Mumbai 400054 Kurla Complex, Bandra Vs. East, Mumbai 400051 PAN: AAIPS6813P (अपीलाथ�/ Appellant) (��थ� /Respondent)

िनधा�रती�ारा/Assessee represented by: Shri Mehul Shah, AR राज� व�ारा/Revenue represented by: Shri Ajay Soneji, Sr. DR

सुनवाईकीतारीख/Date of conclusion of hearing: 16.07.2026 घोषणाकीतारीख/Date of pronouncement: 23.09.2026 आदेश / ORDER PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:

This appeal for the assessment year 2009-10 is preferred by the Assessee against the order dated 30.01.2026, impugned herein, passed by the ADDL/JCIT (A), Mysore, u/s 250 of the Income Tax Act, 1961 (in short ‘the Act’).

2.

Assessee has raised the following grounds of appeal: 1. On the facts, and in circumstances of the case, and in law, the Learned Commissioner of Income-tax (Appeal) erred in dismissing the appeal alleging delay of 43 days in filing appeal without giving any opportunity of being heard to the Appellant.

2.

On the facts, and in circumstances of the case, and in law, the Learned Commissioner of Income-tax (Appeal) erred in not appreciating that, the Notice under section 148 was invalid as the Assessing Officer had issued Notice under section 154 proposing rectification on the same very points, which were duly replied and considered by him.

3.

On the facts, and in circumstances of the case, and in law, the Learned Commissioner of Income-tax (Appeal) erred in upholding action of the Assessing Officer in concluding that Your Appellant was following mercantile system of accounting merely relying on the remark in tax auditors' report and adding Rs. 1,371,979 to income. without appreciating that Your Appellant in fact was following cash system of accounting as submitted during the original assessment as well as reassessment proceedings, and the alleged receipt was offered for taxation ion the subsequent year on receipt basis.

4.

On the facts, and in circumstances of the case, and in law, the Learned Commissioner of Income-tax (Appeal) erred in upholding action of the Assessing Officer in invoking provision of section 40A (3) and disallowing Rs.. 163,875 without appreciating that these were petty cash expenses accounted for in lump sum aggregating small expenses; and thus there was no violation of section 40A (3).

5.

On the facts, and in circumstances of the case, and in law, the Learned Commissioner of Income-tax (Appeal) erred in upholding action of the Assessing Officer in treating software expenses of Rs. 30,000 as capital in nature.

3.

Brief facts of the case are that assessee filed its return of income on 30.09.2009, reporting total income at Rs. 89,68,570/-. Assessment u/s. 143(3) was completed on 21.11.2011, determining total income at Rs. 95,74,813/- Subsequently, case was reopened u/s. 147 and the assessment was completed on 31.03.2016 by making the following additions.

- Commission Income Rs. 13,71,979/- Expenses incurred in cash exceeding Rs. 20,000/- in violation of Section - Rs. 1,63,875/- 40A(3) - Software expenses treated as capital Rs 30,000/- expenditure

4.

Aggrieved by the assessment order, assessee filed an appeal before the First Appellate Authority who mentioned in the appellate order that even though there was a delay of 43 days in filling of the appeal by the assessee, it was wrongly furnished in Form No. 35 that there was no delay in filling of the appeal. It was mentioned that assessee failed to furnish any reason for the delay even after providing multiple hearing opportunities. The appeal was dismissed on the ground that the appeal has not been filed within prescribed time.

5.

On perusal of the order passed by the First Appellate Authority, it is seen that assessee was provided adequate opportunities of being heard by way of issue of notices dated 05.03.2020, 06.01.2021, 07.06.2024, 03.11.2025 and 05.12.2025, but the order does not indicate whether these notices are simple hearing notices or notices issued for granting opportunities to the assessee with regard to the condonation of the delay in filling the appeal. During the course of hearing, the Learned Authorized Representative (‘Ld. AR’) of the assessee mentioned that the First Appellate Authority had dismissed the appeal without providing opportunity on condonation of delay in filling of the appeal. The Ld. Departmental Representative (‘Ld. DR’) relied upon the order passed by the First Appellate Authority.

6.

We have heard the rival submissions and perused the material available on record. We find that the appeal before the Ld. ADDL/JCIT (A) came to be dismissed on the ground of delay in filing the appeal. However, from the records, it is evident that no specific opportunity was afforded to the assessee to explain the reasons for the delay by filing a petition seeking condonation of delay. The question of condonation of delay is a threshold issue which directly affects the maintainability of the appeal. Therefore, before declining to entertain the appeal on the ground of limitation, the appellate authority is required to afford the assessee an adequate and effective opportunity of being heard in accordance with the principles of natural justice. It is well settled that the principles of natural justice require that no person should be condemned unheard. In our considered view, since the assessee was not granted a specific opportunity to explain the delay in filing the appeal, the impugned order cannot be sustained to that extent. Accordingly, in the interest of justice, we deem it appropriate to set aside the impugned order and restore the matter to the file of the Ld. Addl./JCIT(A).

6.1. The assessee is directed to file a petition for condonation of delay, setting out the reasons constituting sufficient cause for the delay in filing the appeal, along with such supporting material as may be considered necessary. The Ld. Addl./JCIT(A) shall thereafter afford a reasonable opportunity of being heard to the assessee and adjudicate the petition for condonation of delay by passing a speaking order in accordance with law. In the event the delay is condoned, the Ld. Addl./JCIT(A) shall proceed to dispose of the appeal on merits by adjudicating the grounds raised by the assessee in accordance with law after providing adequate opportunity of hearing to both the parties. Grounds raised are accordingly allowed for statistical purposes.

7.

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

Order pronounced in the open court on 23 September, 2026.

Sd/- Sd/- SAKTIJIT DEY GIRISH AGRAWAL VICE PRESIDENT ACCOUNTANT MEMBER

Mumbai, Dated: 23.09.2026 Aditi Pandare, PS

Copy to: The Appellant The Respondent The PCIT / CIT (Judicial); The DR, ITAT; and Guard file.

//True Copy// By Order

Dy/Asstt. Registrar, ITAT, Mumbai

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