NANDYAL TRADING PRIVATE LIMITED,HYDERABAD vs. ITO, WARD -16(2), HYDERABAD

Succinctly stated, the AO, based on information that the assessee company during the demonetization period, i.e., 09/11/2016 to 30/12/2016, had made substantial cash deposits in its bank accounts, issued notice under section 142(1) of the Act calling upon it to file its return of income. However, the notices issued by the AO under section 142(1) of the Act were not complied with by the assessee company. Accordingly, the AO issued notices under section 133(6) of the Act to State Bank of India, calling upon it to furnish a copy of the assessee company's bank account.

The AO, on perusal of the bank account of the assessee company as was made available by the bank, observed that there were cash deposits/other credits aggregating to Rs.1,79,43,814/- during the subject year. As the assessee company failed to provide any explanation regarding the nature and source of the aforesaid cash deposits/other credits, the AO held the entire amount of Rs. 1,79,43,814/- as unexplained money of the assessee company under section 69A of the Act. Accordingly, the AO, vide his order passed under section 144 of the Act, dated 23/12/2019, determined the income of the assessee company at Rs.1,79,43,814/-.

Aggrieved, the assessee company carried the matter in appeal before the CIT(A) but without success.

The assessee company, aggrieved with the order of the CIT(A), has carried the matter in appeal before us.

We have heard the Learned Authorized Representatives of both parties, perused the orders of the lower authorities and the material available on record.

Shri T. Chaitanya Kumar, Advocate, Learned Authorized Representative (for short, “Ld. AR”), at the threshold of hearing of the appeal, submitted that as the assessee company was not validly put to notice about the fixation of the appeal, therefore, it had for the said reason failed to participate in the proceedings before the first appellate authority. Elaborating further on his contention, the Ld. AR submitted that though it is a matter of fact borne from record that the assessee company had not participated in the proceedings before the CIT(A), but the latter had grossly erred in law and facts of the case in not adverting to and adjudicating the specific grounds of appeal based on which the impugned order of assessment was assailed before him and had most arbitrarily approved the view taken by the AO. Carrying his contention further, the Ld. AR submitted that the assessee company had specifically assailed the framing of the assessment in its case vide an ex-parte order under section 144 of the Act on the ground that no reasonable opportunity of being heard to the assessee was given by the AO. However, the CIT(A), despite the aforesaid specific grievance of the assessee raised vide ground of appeal No. 1, did not deal with it and left it unadjudicated. Apart from that, the Ld.AR submitted that the assessee company even otherwise on merits 4 has assailed the impugned addition of Rs.1,79,43,814/- of the cash deposits/other credits appearing in the bank account of the assessee company on two grounds, viz., (i) that the entire amount of the credits in the bank account could not have been held as the assessee’s unexplained money under section 69A of the Act; and (ii) that as the entire credits in the bank account of the assessee company were part of its business receipts and recorded in its books of account, the same could not be brought within the meaning of unexplained money under section 69A of the Act. The Ld. AR submitted that as the CIT(A), without dealing with the specific grounds of appeal, has dismissed the appeal by summarily approving the view taken by the AO, the order therein passed cannot be sustained and is liable to be set aside to his file with specific direction to readjudicate the appeal after dealing with the said specific grounds raised by the assessee before him.

Per contra, Shri K Prasad, Learned Senior Departmental Representative (for short, “Ld. Sr-DR”), at the threshold of hearing of the appeal submitted that as the assessee company throughout had adopted lackadaisical approach regarding its income tax matters, wherein it had neither filed its income tax returns voluntarily or in response to notice under section 142(1) of the Act, nor participated in the assessment proceedings, which, thus, had resulted in an ex-parte order under section 144 of the Act. The Ld. DR submitted that, as the assessee company had 5 thereafter failed to prosecute the appeal before the CIT(A), the latter was left with no alternative but to dispose of the appeal vide an ex parte order. The Ld. Sr. DR submitted that the CIT(A) had, while disposing of the appeal, specifically given a reason as to why he had approved the view taken by the AO; thus, the order so passed by him cannot be held to be suffering from any infirmity, much less non-application of mind.

We have given thoughtful consideration to the contentions advanced by the Learned Authorized Representatives of both parties in the backdrop of the orders of the authorities below.

Admittedly, it is a matter of fact borne from record that the assessee company, despite having been afforded four opportunities vide notices dated 24/02/2021, 05/04/2021, 16/08/2021 and 06/09/2022, had neither responded to the same nor participated in the proceedings before the first appellate authority. Although we principally concur with the CIT(A) that, if the assessee-appellant, despite having been voluntarily put on notice, chooses not to participate in the proceedings, the same cannot be kept in abeyance ad infinitum and must be disposed of. At the same time, we are conscious of the settled position of law that even in case of non- prosecution of the appeal, the appellate authority remains under a bounden duty to dispose of the appeal based on a speaking and reasoned order in the backdrop of the specific grounds based on which the impugned order of the assessment has been assailed before him.

Coming to the facts involved in the present case, we find substance in the Ld. AR’s contention that the specific grounds of appeal based on which the impugned order of assessment was assailed by the assessee company before the CIT(A), viz., (i) the AO had erred in framing the assessment under section 144 of the Act without giving reasonable opportunity of being heard to the assessee company; and (ii) that the entire amount of credits in the bank account which were claimed to be the business sale proceeds of the assessee company could not be added by treating the same as its unexplained money under section 69A of the Act had not been adverted to and left unadjudicated. We though principally concur with the CIT(A) who had proceeded with and disposed of the appeal vide an ex-parte order for the reason that the assessee had chosen not to participate in the proceedings before him, but at the same time are unable to persuade ourselves to subscribe to the failure on this part to specifically deal with and adjudicate the specific grounds of appeal, i.e., grounds of appeal No.1 to 3 as were raised by the assessee before him assailing the impugned order of assessment before him.

We thus, in terms of our aforesaid observations, are of the considered view that the matter, in all fairness and in the interest of justice, be set aside to the file of the CIT(A) with a direction to re-adjudicate the appeal based on a reasoned and speaking order. Needless to say, the CIT(A) shall, in the course of the set-aside proceedings, afford the assessee a reasonable opportunity of being heard.

Before parting, we may herein observe that we have merely set aside the matter to the file of the CIT(A) and have not given any observation qua the merits of the case, which, thus, are left open to be decided by the CIT(A).

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