KAUSHAL HAZARILAL AGRAWAL,VADODARA vs. THE DY.CIT, CENTRAL CIRCLE-1, VADODARA

The Ld. CIT (Appeals)-12, Ahmedabad has grossly erred in law and in facts in dismissing the appeal ex-parte without any speaking remarks while confirming the addition made by the Ld. AO. The order so passed without discussing the merits of the case, is prayed to be set-a-side after granting proper opportunity of being heard.

The Ld. CIT(A)-12, Ahmedabad has erred in law and in facts in upholding the action of the Ld. A.O. in disallowing the interest expense of Rs.58,51,028/- paid by the appellant to various parties towards loans taken from time to time. The disallowance of Rs.58,51,028/- being bad in law and in facts is prayed to be allowed.

Your appellant craves liberty to add, alter, amend or delete any or all the grounds of appeal stated above.”

The brief facts of the case are that the assessee had filed his return of income for the relevant assessment year declaring total income of ₹2,08,85,900/-. The case was originally selected for scrutiny and the assessment under section 143(3) of the Income-tax Act, 1961 ("the Act") was completed accepting the returned income. Subsequently, the Principal Commissioner of Income Tax examined the assessment records and noticed that the assessee had shown interest income of ₹1,12,58,938/- under the head “Income from Other Sources” and had claimed deduction of ₹58,51,028/- under section 57 of the Act towards interest expenditure comprising interest paid to partnership firms, interest paid on mortgage loans and interest paid to other parties. The Pr. CIT observed that the Assessing Officer had not carried out necessary enquiries to verify whether such interest expenditure had been incurred wholly and exclusively for the purpose of earning the interest income as required under section 57(iii) of the Act. Accordingly, the Pr. CIT invoked the provisions of section 263 of the Act and set aside the original assessment order with a direction to frame the assessment afresh after proper verification. Asst. Year –2017-18 - 3–

Pursuant to the directions issued under section 263, the Assessing Officer issued notice under section 142(1) asking the assessee to furnish necessary evidences to substantiate that the interest expenditure of ₹58,51,028/- claimed under section 57(iii) of the Act had been incurred wholly and exclusively for earning the interest income. According to the Assessing Officer, the assessee did not furnish any submissions or supporting evidences in response to the notice. In view of such non- compliance, the Assessing Officer proceeded to complete the assessment ex-parte under section 144 of the Act on the basis of material available on record and disallowed the claim of interest expenditure of ₹58,51,028/- under section 57(iii) of the Act, thereby making an addition of the said amount to the income of the assessee.

Aggrieved by the assessment order, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals). Before the learned CIT(Appeals), the assessee contended that the Assessing Officer had passed the assessment order ex-parte without providing proper opportunity of being heard and therefore the order passed under section 144 read with section 263 was liable to be set aside. The assessee further challenged the disallowance of interest expenditure of ₹58,51,028/- claimed under section 57 of the Act and also objected to the initiation of penalty proceedings under sections 270A and 272(1)(d) of the Act.

The learned CIT(Appeals), however, observed that multiple notices of hearing under section 250 of the Act were issued to the assessee during the course of appellate proceedings through the ITBA portal and adequate Asst. Year –2017-18 - 4–

After considering the submissions and the facts of the case, we are of the view that although the assessee did not properly prosecute the appeal before the CIT(Appeals), the issues involved in the present appeal require adjudication on merits after considering the evidences relating to the claim of interest expenditure under section 57(iii) of the Act. The principles of natural justice require that the assessee should be afforded one more opportunity to substantiate the claim. At the same time, it is evident that the non-prosecution of the appeal before the CIT(Appeals) has been attributable to the negligence on the part of the assessee.

Considering the totality of the facts and circumstances of the case and in the interest of justice, we deem it appropriate to set aside the impugned order of the CIT(Appeals) and restore the matter to the file of the CIT(Appeals) for de-novo adjudication of the issues raised in the appeal after providing reasonable opportunity of being heard to the assessee. However, since the assessee had failed to effectively prosecute the appeal before the CIT(Appeals), the restoration of the matter is being made subject to payment of cost of ₹10,000/-. The assessee shall deposit Asst. Year –2017-18 - 6–

In the result, the appeal of the assessee is allowed for statistical purposes. This Order is pronounced in the Open Court on 12/03/2026 (NARENDRA P. SINHA) JUDICIAL MEMBER Ahmedabad; Dated 12/03/2026