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Facts
The assessee filed its return of income, which was processed under Section 143(1). Subsequently, the case was selected for scrutiny, and the AO made a protective addition of Rs. 2,04,33,430 as deemed dividend under Section 2(22) and dividend distribution tax under Section 115-O, observing that the assessee claimed depreciation on 'land at Alibaug' but did not offer capital gain, contending the land belonged to directors. The CIT(A) dismissed the assessee's appeal ex-parte due to non-compliance without adjudicating the merits.
Held
The Tribunal noted that the CIT(A) failed to adjudicate the appeal on merits due to the assessee's non-compliance. Considering the assessee's argument that the addition was protective and a substantive assessment was on the directors, and that such protective additions cannot be made mechanically, the Tribunal remanded all issues back to the CIT(A) for fresh adjudication on merits, with a direction for the assessee to strictly comply.
Key Issues
1. Whether the CIT(A) erred in passing an ex-parte order without adjudicating the merits. 2. The validity of a protective addition for deemed dividend under Section 2(22) when the substantive assessment is on the directors.
Sections Cited
250, 250(6), 2(22), 2(22)(a), 143(1), 143(2), 142(1), 115-O, 143(3)
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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: AND SHRI PRABHASH SHANKAR, AM Shri Prakash Jotwani
(Assessment Year: 2014-15) M/s. AJK Investments Private Assistant Commissioner of Income Limited Tax – 1(1)(1), Mumbai 3rd Floor, Camabata Building, 42 M Vs. Karve Road, South West Wing, Churchgate – 400020. PAN/GIR No. AABCA0815B (Appellant) : (Respondent) Assessee by : Shri Prakash Jotwani Respondent by : Shri Pitamber Kumar, Addl. CIT Date of Hearing : 06.08.2025 Date of Pronouncement : 29.08.2025 O R D E R Per Kavitha Rajagopal, J M: This appeal has been filed by the assessee, challenging the order of the learned Commissioner of Income Tax (Appeals) Delhi (‘ld. CIT(A)’ for short), National Faceless Appeal Centre (‘NFAC’ for short) passed u/s.250 of the Income Tax Act, 1961 (‘the Act'), pertaining to the Assessment Year (‘A.Y.’ for short) 2014-15.
The assessee has raised the following grounds of appeal: On the facts and in the circumstances of the case and in law:
1. The Ld. CIT(A) erred in passing an ex-parte order in violation of the principles of natural justice and in dismissing the appeal without considering or adjudicating the merits of the case, despite exhaustive Grounds of Appeal and Statement of Facts duly filed and available on record.
(A.Y. 2014-15) M/s. AJK Investments Private Limited 2. That the Ld. CIT(A) erred in failing to discharge his statutory duty under Section 250(6) of the Income Tax Act, 1961, by not passing a reasoned order on merits and by not adhering to the settled legal position that even an ex-parte order must reflect due consideration of the merits of the case. WITHOUT PREJUDICE TO THE ABOVE-MENTIONED GROUND OF APPEAL-
(a)
3. The Ld. CIT(A) erred in confirming a protective addition of ₹2,04,33,430 as deemed dividend under Section 2(22) of the Income Tax Act, 1961, without proper appreciation of facts and applicable laws.
4. A) The Ld. CIT(A) erred in confirming the protective addition made by the AO in the hands of the assessee company under section 2(22)(a) of substantive assessment made or proposed in the hands of any other person involved, rendering the said addition bad in law, arbitrary, and liable to be deleted. B) The Learned CIT(A) has erred in failing to apply the settled ratio laid down by various judicial authorities, Namely a. Pravinkumar Valjibhai vs. ITO, Ward-2 (ITA No. 142/2016) b. ACIT vs. Biirat Chandra Dagara (ITAT, Cuttack). Which held that in the absence of a substantive assessment protective assessment cannot survive.”
3. Brief facts of the case are that the assessee had filed its return of income dated 26.09.2014 declaring total income at Rs. 38,81,538/-. and the same was processed u/s. 143(1) of the Act. The assessee’s case was selected for scrutiny and notices u/s. 143(2) and 142(1) of the Act were duly issued and served upon the assessee. On perusal of the assessee’s audited books of account, the learned Assessing Officer ('ld. A.O.' for short) observed that the assessee has claimed depreciation on fixed assets amounting to Rs. 57,06,162/- from block of assets viz. ‘land at Alibaug’ but had not offered any capital gain on the said transaction. The assessee contended that the land was asset of directors and not the assessee company. The ld. AO had made an addition of Rs. 2,04,33,430/- (A.Y. 2014-15) M/s. AJK Investments Private Limited u/s. 115-O of the Act on account of dividend distribution tax. The ld. AO then passed the assessment order u/s. 143(3) of the Act, dated 30.12.2016, determining total income at Rs. 38,81,538/-.
4. Aggrieved the assessee was in appeal before the first appellate authority, who vide an ex parte order dated 30.05.2025 dismissed the appeal filed by the assessee on the ground that the assessee has failed to substantiate its claim and had also not filed any submission inspite of several opportunities.
5. The assessee is in appeal before us, challenging the impugned order of the ld. CIT(A).
We have heard the rival submissions and perused the materials available on record. It is observed that the assessee has challenged the addition made by the ld. AO before the first appellate authority but has been non-compliant throughout the appellate proceeding.
The learned Authorised Representative ('ld. AR' for short) for the assessee contended that the addition has been made in the hands of the assessee on protective basis and that substantiative addition has been made in the hands of the directors of the assessee. The ld. AR brought our attention to the assessment order in the case of the director of the assessee company, where no such finding has been given by the ld. AO and no addition has been made. Pertinently, the ld. AR also brought our attention to the date of the assessment order in the case of the director and in the case of the assessee, wherein it is observed that the protective addition in the hands of the assessee company was made merely one day after the assessment order of the director’s assessment order for which the ld. AR placed reliance on various decisions, wherein it has been held that protective (A.Y. 2014-15) M/s. AJK Investments Private Limited addition cannot be made prior to passing of the substantive addition and that the same has been done mechanically without application of mind. The ld. AR also contended that the assessee has got a good case on the merits and prayed that the assessee may be given one more opportunity to present its case before the ld. CIT(A).
The learned Departmental Representative ('ld. DR' for short) vehemently opposed to setting aside the issue to the file of the ld. CIT(A) for the reason that the assessee was given several opportunities by the ld. CIT(A) which was not availed by the assessee.
Though these issues have been raised before the ld. CIT(A) the same has not been adjudicated on the merits of the case for the reason that the assessee was non compliant during the appellate proceeding. We therefore remand all these issues back to the file of ld. CIT(A) to adjudicate these issues on the merits and on basis of the submission of the assessee, on merits and in accordance with law. The assessee is directed to strictly comply with the proceeding before the ld. CIT(A) without any undue delay from its side.