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Facts
The assessee filed a return of income, which was initially assessed under Section 143(3). The Principal CIT invoked Section 263, directing a fresh assessment due to insufficient verification of interest expenditure. The Assessing Officer, disallowing the interest expenditure, made an ex-parte assessment under Section 144.
Held
The Tribunal held that while the assessee failed to properly prosecute the appeal before the CIT(A) due to the search operation in the Darshanam Group, the issues require adjudication on merits. Principles of natural justice necessitate affording another opportunity.
Key Issues
Whether the CIT(A) was justified in dismissing the appeal ex-parte without affording reasonable opportunity, and if the matter should be remanded for de-novo adjudication on merits after imposing costs.
Sections Cited
148, 143(3), 57, 263, 142(1), 144, 270A, 272(1)(d), 250
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Income Tax Appellate Tribunal, “A” BENCH, AHMEDABAD
Before: SHRI SIDDHARTHA NAUTIYAL & SHRI NARENDRA PRASAD SINHA
O R D E R
PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER:
This appeal has been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals)-12, (in short “Ld. CIT(A)”), Ahmedabad vide order dated 11.12.2025 passed for A.Y. 2017- 18.
The assessee has taken the following grounds of appeal:
“1. The Ld. CIT (Appeals)-12, Ahmedabad has grossly erred in law and in facts in dismissing the appeal ex-parte without affording reasonable opportunity of being heard. The appellant is connected with Darshanam Group, where in search operation was carried out by the Income Tax Department on 24,02.2022. In consequence to search operation, the re-assessment proceedings were commenced u/s. 148 of the I.T Act in number of group cases. Accordingly, all the staff of the Darshanam Group and counsel of the Darshanam Group were preoccupied with the analysing the voluminous seized documents and compiling the details / information for completion of assessment proceedings of various group cases. Due to these reasons, the appellant missed the attention and through oversight his case remained unattended. Therefore, the appeal of the appellant may kindly be restored to the file of the Ld. CIT (Appeals)-12, Kaushal Hazarilal Agrawal vs. DCIT Asst. Year –2017-18 - 2– Ahmedabad and may please be directed to afford reasonable opportunity of being heard.
2. 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.”
3. 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.
Kaushal Hazarilal Agrawal vs. DCIT Asst. Year –2017-18 - 3– 4. 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 Kaushal Hazarilal Agrawal vs. DCIT Asst. Year –2017-18 - 4– opportunities were provided to furnish submissions and supporting evidences. The CIT(Appeals) noted that on some occasions adjournments were sought by the assessee whereas on several other occasions there was complete non-compliance. According to the learned CIT(Appeals), despite repeated opportunities, the assessee failed to place on record any written submissions or documentary evidence to substantiate the grounds of appeal. The learned CIT(Appeals) placed reliance on several judicial pronouncements viz. the decisions of the Hon’ble Supreme Court and High Courts to hold that when a litigant fails to prosecute the appeal despite adequate opportunity, the appellate authority is justified in deciding the matter on the basis of material available on record. Accordingly, in view of the continued non-compliance by the assessee and in absence of any evidence to rebut the findings of the Assessing Officer, the learned CIT(Appeals) declined to interfere with the assessment order and dismissed the appeal of the assessee.
The assessee is in appeal before us against the order passed by CIT(Appeals) dismissing the appeal of the assessee.
We have carefully considered the rival submissions and perused the material available on record. The learned counsel for the assessee submitted that the appeal before the CIT(Appeals) could not be effectively pursued due to peculiar circumstances that the assessee was associated with the Darshanam Group wherein search proceedings were carried out by the Income Tax Department on 24.02.2022. It was submitted that consequent to the search proceedings, multiple reassessment proceedings Kaushal Hazarilal Agrawal vs. DCIT Asst. Year –2017-18 - 5– were initiated in various group cases and the entire staff as well as professional advisors of the group were occupied with compilation of voluminous details and analysis of seized documents relating to several group entities. Due to these circumstances, the present appeal remained unattended inadvertently and the assessee could not effectively present his case before the CIT(Appeals). It was therefore requested that one more opportunity may be granted to the assessee to present the case on merits.
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 Kaushal Hazarilal Agrawal vs. DCIT Asst. Year –2017-18 - 6– the said amount with the Prime Minister’s Relief Fund and produce proof of such payment at the time of hearing before the CIT(Appeals). Upon production of such proof, the CIT(Appeals) shall proceed to decide the appeal afresh on merits in accordance with law after affording adequate opportunity to the assessee.
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