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Facts
The assessee's return of income for AY 2013-14, showing a loss, was finalized. Subsequently, the case was reopened under Section 148 based on information from the investigation wing. The assessee objected, claiming it was a change of opinion and that all details were provided during the original assessment.
Held
The Tribunal held that the CIT(A) order was passed ex-parte without providing an effective opportunity of hearing, thus violating principles of natural justice. The matter was restored to the CIT(A) for fresh adjudication.
Key Issues
Whether the reassessment proceedings were validly initiated and if the CIT(A) violated principles of natural justice by passing an ex-parte order without providing an effective opportunity of hearing.
Sections Cited
147, 148, 143(3), 250, 133A, 271(1)(c)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “J(SMC
Before: MS. PADMAVATHY S. & SHRI RAJ KUMAR CHAUHAN
O R D E R PER RAJ KUMAR CHAUHAN (J.M.): 1. This appeal is filed by the appellant/assessee against the order of National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as the “CIT(A)”], passed under section 250 of the Income Tax Act, 1961 Page | 1 M/s. Mississippi IT Services Private Limited. [hereinafter referred to as “the Act”] dated 28.08.2024 for the A.Y. 2013- 14, wherein the assessment order was upheld and additions made by AO to the extent of Rs. 27,47,941/- was confirmed.
The brief facts as culled out from the proceedings of lower authorities are that the return of income for AY 2013-14 was filed on 23.02.2015 declaring total loss of Rs. 82,76,266/-. The case was picked up for scrutiny assessment and the same was finalized vide assessment order dated 30.03.2016 wherein the said loss was assessed at Rs 82,76,266/-. Subsequently the case of the assessee was reopened by issue of notice u/s 148 of the Income Tax Act on 30.03.2019. In response, the assessee filed return dated 12.04.2019 in compliance of notice u/s 148 of the Act. The appellant/assessee also sought reasons recorded for reopening of the case and the same were provided vide letter dated 26.09.2019. Thereafter, the assessee filed letter of objection against the reopening of the case vide letter dated 24.11.2019. The basis of reopening was challenged on the ground that it has been reopened on the statement of director of another company which was borrowed from investigation wing. It was the case of change in opinion as all the details related to sales and purchases along with details of debtors and creditors were filed M/s. Mississippi IT Services Private Limited. by the assessee during the course of original assessment. In response to notice u/s 142(1) dated 26.11.2019 and 16.12.2019, necessary documents and submissions were made by the assessee and it was explained that the assessee company was engaged in the business of trading and manufacturing of software information technology and enables services. During the year under consideration, the assessee has made sales of Rs. 13,73,97,062/-. Further the appellant/assessee vide letter dated 18.12.2019 submitted that the addition should not be made on account of the basis of assessment being framed under 133 A of the Act i.e. during the course of survey proceeding. However, in spite of the said reply the Ld. AO went ahead and made the addition of 2 percent on entire sales done by the appellant/assessee company amounting to Rs 27,47,941/-. It is stated that during the year under assessment the assessee had carried out only trading activities where percentage of profit is very low due to stiff competition in the market i.e. less than 1 percent. But the Ld. AO had not considered the market trend and made an addition amounting to 2 percent of total sales i.e. Rs. 13,73,97,062/- and also initiated penalty proceeding u/s 271(1)(c)) of the Act.
M/s. Mississippi IT Services Private Limited. 3. Being aggrieved, the assessee preferred the appeal before Ld. CIT(A), but failed to give any submission in support of his grounds of appeal. It was observed by Ld. CIT(A) that assessee has not furnished any reply to controvert the findings of AO and has failed to produce any cogent evidence in support of its grounds of appeal, hence dismissed the appeal.
Aggrieved by the impugned order, the assessee preferred the appeal before us raising the following grounds:-
1. The Hon'ble CIT(A) / National Faceless Appeal Centre has passed its order dated 28.08.2024 without providing a proper opportunity of being heard which is against the principles of natural justice.
2. On the facts and circumstances of the case and in law, the Hon'ble CIT(A)/National Faceless Appeal Centre has erred in upholding the decision of the Ld.AO in not considering the facts of the case that assessment in this case was completed u/s 143(3) of the Act wherein, the appellant had made adequate disclosures on account of purchase, sale, sundry debtors and sundry creditors and hence, requirement of first proviso to section 147 of recording of failure on the part of the assessee to disclose fully and truly all materials facts necessary for assessment does not get satisfied.
The proceedings were initiated solely on the basis of opinion/borrowed satisfaction of the investigation wing without forming a reasonable belief under Section 148 of the Act that income of the appellant had escaped taxation; M/s. Mississippi IT Services Private Limited. The proceedings were initiated on the basis of change of opinion without forming a reasonable belief under Section 148 of the Act that income of the appellant had escaped taxation; and
On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A)/National Faceless Appeal Centre has erred in upholding the decision of the Ld.AO in making addition of Rs. 27,47,941/-i.e. @2% of the total sales amounting to Rs.13,73,97,062/-. The appellant prays that the said additions may please be deleted.
4. On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A)/National Faceless Appeal Centre has erred in upholding the decision of the Ld.AO in making addition on the basis of assumptions i.e. market trend which may differ as per the industry circumstances. The appellant prays that the said ground may be taken into consideration.
5. On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A)/National Faceless Appeal Centre has erred in upholding the decision of the Ld.AO of rejecting the business loss amounting to Rs. 92,69,919/-. The appellant prays that the said rejection/disallowance may please be deleted.
6. On the facts and circumstances of the case the Hon'ble CIT(A)/National Faceless Appeal Centre has erred in upholding the decision of the Ld.AO in initiating penalty proceedings sec 271(1)(c) of the Income Tax Act, 1961. The appellant company prays that the said proceeding may please be deleted.
We have heard Ld. AR and Ld. DR and examined the record. At the very outset, Ld. AR submitted on behalf of the assessee that the impugned order has been passed ex-parte and the Ld. CIT(A) has failed to offer effective opportunity of hearing to the assessee and has dismissed the M/s. Mississippi IT Services Private Limited. appeal in a hurried manner and as such the assessee was prevented from presenting its case before the Ld. CIT(A). Therefore, the impugned order suffers from illegality and miscarriage of justice and liable to be set aside. Ld. AR further submitted that the assessee be given proper opportunity of hearing and the matter be restored to the file of Ld. CIT(A) for fresh adjudication of the case. The Ld. DR on the other hand supported the judgment of the Ld. CIT(A) stating that there is no merit in the appeal and same is liable to be dismissed.
We have considered the rival submissions and examined the record. It is evident from the contents of affidavit filed by the assessee that the assessee had sought adjournment till 22.09.2024 for replying to the notice dated 13.08.2024, but the Ld. CIT(A) without waiting for the reply dismissed the appeal on 28.08.2024 by passing the impugned order on merit. We have considered section 250 sub section 2(a) of "the Act" which provides as under:
“Section 250 (2) The following shall have the right to be heard at the hearing of the appeal: - a. The appellant, either in person or by an authorised representative;”
M/s. Mississippi IT Services Private Limited. 7. It is evident from the provision that the hearing to be given is not a formality but an effective hearing is sine qua non for the purpose of upholding the principal of natural justice. It is thus evident from the contents of the impugned order extracted above that no effective opportunity of hearing has been given by the Ld. CIT(A) while passing the impugned order.
For these reasons, we are of the considered opinion that matter needs to be restored to the file of the Ld. CIT (A) for giving effective hearing to the assessee who shall present its case before the Ld. CIT(A) within 60 days. The impugned order is accordingly set aside and appeal filed by the assessee is allowed in above terms.
In the result, appeal filed by the assessee is allowed for statistical purposes.
Order pronounced in the open court on 30.04.2025.