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Facts
The assessee preferred an appeal against an ex-parte order passed by the Ld.CIT(A) without hearing the assessee. The assessee claimed that they did not receive all notices and therefore could not present their case, leading to the ex-parte order.
Held
The Tribunal held that the assessee did not get a proper opportunity before the AO and therefore set aside the ex-parte order passed by the Ld.CIT(A). The assessment was restored back to the file of the AO for de novo assessment.
Key Issues
Whether the assessee was afforded a proper opportunity of being heard before the AO, and whether the ex-parte order passed by the Ld.CIT(A) was justified.
Sections Cited
147, 143(3), 69A, 44AD
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Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI
Before: SHRI ABY T. VARKEY & SHRI AMITABH SHUKLA
आदेश / O R D E R
PER ABY T. VARKEY, JM:
1. This is an appeal preferred by the assessee against the order of the Learned Commissioner of Income Tax (Appeals)/NFAC, (hereinafter referred to as “the Ld.CIT(A)”), Delhi, dated 19.12.2024 for the Assessment Year (hereinafter referred to as "AY”) 2022-23.
2. At the outset, the Ld.AR of the assessee brought to our notice that the Ld.CIT(A) has passed an ex parte order without hearing the assessee.
1. The Ld.AR submitted that the assessee had responded to three (3) notices out of five (5) notices issued by the Ld.CIT(A) and to support such a contention drew our attention to Page No.2 of the impugned order. The Ld.AR submitted that the assessee had requested for adjournments thrice and thereafter, the assessee didn’t get any of the notices, may be due to glitches in the internet, because of which, assessee couldn’t present its case before the Ld.CIT(A) which led to the passing of ex parte order wherein the Ld.CIT(A) noted that assessee didn’t file any explanation with supporting evidences to support its claim or explain the cash deposits and capital gains and hence, he was pleased to confirm the addition made in the assessment order. According to the Ld.AR, since assessee was in the dark about the last two (2) notices, the action of the Ld.CIT(A) is bad in law for violation of natural justice. Further, he also drew our attention to assessment order dated 14.03.2024 and submitted that the AO couldn’t appreciate the submissions made before him and has arbitrarily made high pitch additions without giving proper opportunity to the assessee which is also unsustainable by relying on the decision of the Hon’ble Supreme Court in the case of TIN Box Co. v. CIT reported in [2001] 249 ITR 216 (SC), and pleaded that the assessee may be granted one more opportunity before the AO.
3. Per contra, the Ld.DR doesn’t want us to give one more innings to the assessee.
4. Having heard both the parties and after perusal of the records, we note that the assessee is running hotel business under the name & style of M/s. Ananda Hotel and has been regularly filing ITR from AY 2011-12 onwards which has been declared u/s.44AD of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act‘). For AY 2022-23, assessee had shown net income of ₹5,27,260/- which was selected for scrutiny and the AO asked certain queries regarding sale consideration shown to the tune of ₹95 lakhs which assessee explained to be from sale of land. However, the AO being not satisfied, has added the entire sale consideration of ₹95 lakhs as Long Term Capital Gains (LTCG) on sale of land since assessee failed to establish that the land sold was exempt being agricultural land and also made another addition u/s.69A of the Act of ₹1,19,29,971/-.
According to the assessee, he received only one notice dated 06.03.2024 [first week of March] and immediately thereafter, he filed the reply on 08.03.2024 [within three days] and therefore, couldn’t file along with it supporting relevant materials. Hence, the AO passed assessment order on 14.03.2024 making huge addition of ₹1,19,29,971/- and ₹95 lakhs [₹2,19,57,231/-] in place of ₹5,27,260/- returned by the assessee; and in that process, the assessee couldn’t file relevant papers to establish that the land sold for a consideration of ₹95 lakhs was not exigible to tax being agricultural land. Therefore, the assessee has pleaded for one more opportunity before the AO and filed written submissions which reads as under:
The appellant submitted that, in conducting hotel business under the name of M/s ANANDA HOTEL, his income declared under section 44AD for the past several years is as follows: for 2011-12, Rs 200,814.00; for 2012-13, Rs 234,218.00; for 2013-14, Rs 222,454.00; for 2014-15, Rs 281,482.00; for 2015-16, Rs 371,212.00; for 2016-17, Rs 402,450.00; for 2017-18, Rs 456,987.00; for 2018-19, Rs 473,865.00; for 2019-20, Rs 491,293.00; for 2020-21, Rs 491,830.00; and for 2021-22, Rs 520,370.00.
The appellant submitted that the hotel income declared as Rs 5,27,260.00 is accurate and has been reported under Section 44AD of the Income Tax Act, 1961. There has been no agricultural income declared from the assessment year 2011-12 to the present; all agricultural items were consumed and utilized within his hotel business. The sale of agricultural land valued at Rs 95,00,000.00 is acknowledged by the appellant; however, his accountant was incorrectly filed, which included agricultural income of Rs 95,00,000.00 due to a procedural error made by the staff. He did not fully understand the implications but declared it as exempt income instead of Long-Term Capital Gains.
3. The appellant submitted that following the purchase of the land he made additional investments to enhance its utilization for agricultural activities. His past savings were fully allocated to the improvement of the land for agricultural purposes. The land was originally acquired on 24.06.2019 (Part 1) for a value of Rs.500,000.00 (233 cents of Land), with an additional piece of land purchased on the same date (Part 11) for Rs 200,000.00 on 15.07.2021. The total investment for sand and other enhancements amounted to Rs 76,70,923.00 from 2019-20 to 2020-21 and 2021-2022.
2. The appellant asserted that possessing the receipts, bills, and vouchers as supporting documents for the improvement of the land from the outset, along with the acquisition documents, the Patta, and other revenue-related documents for substantiating agricultural activities, is imperative..
The appellant submitted that, upon filing the income tax return his staff filed the return regularly; however, he submitted an erroneous return, declaring the sale of agricultural land as income from agricultural business. The appellant was not aware of the income tax procedures and policies. He maintained the filling records from the office, but the statement prepared and submitted by the staff was incorrect and completed without his knowledge’s Subsequently, he received a notice from the Income Tax Department regarding the selection for scrutiny, and the responses from the appellant included only information provided by the staff which reiterated the same details without consulting experts, resulting in unknown defects. Consequently, the order was issued without further information being requested from the Appellant.
The Appellant submitted a detailed explanation of cash flow for the financial year 2019-2020, reporting a total cash inflow of Rs 41,60,777.00 from the Appellant Cash account. This inflow comprised food sales receipts amounting to Rs 1,624,090.00, loan advances from various parties totaling Rs 7,55,287.00 (Loan given to friends and relatives from his past savings), CUB
bank withdrawals of Rs 1,581,400.00, and Rs 2,00,000.00 from capital introduction from his past savings.
The total cash outflow was Rs 4,216,522.00, which included deposits of Rs 1,884,500.00 into the CUB bank account, cash purchases of Rs 384,021.00, land purchases costing Rs 560,000.00, wages and salaries paid amounting to Rs 828,250.00, printing and stationery expenses of Rs 12,340.00, general expenses of Rs 8,189.00, vehicle maintenance of Rs 5.00, freight charges of Rs 12,430.00, capital withdrawals of Rs 472,757.00, and electricity charges of Rs 54,030.00.
Additionally, during the same year, Rs 1,633,749.00 was allocated and paid through banking channel for land-related expenses aimed at agricultural improvements. These details were included in the income tax return, along with the profit and loss account and balance sheet information in the ITR forms., The Appellant provided a detailed cash flow statement for FY 2020-21. The total cash inflow of Rs. 63,83,204.00 comprised: - Food sales revenue: Rs. 37,91,845.00 - Loan advances from various parties: Rs. 9,30,359.00 - CUB bank withdrawals: Rs. 15,61,000.00 - Capital introduction from past savings: Rs. 1,00,000.00 The total cash outflow of Rs. 62,39,580.00 included: CUB bank deposits: Rs. 46,89,300.00 Cash purchases: Rs. 1,98,328.00 Wages and salaries: Rs. 10,32,658.00 Telephone charges: Rs. 18,435.00 Electricity charges: Rs. 65,350.00 Freight charges: Rs. 32,510.00 Printing and stationery: Rs. 38,425.00 General expenses: Rs. 12,365.00 Vehicle maintenance: Rs. 10,325.00 Rent paid: Rs. 80,000.00 Capital withdrawals: Rs. 55,399.00 Payment to Sherik: Rs. 6,080.00 Payment to Mrs. Sivasubramaniam: Rs. 409.00
Additionally, Rs. 10,43,476.00 was allocated through banking channels for agricultural land improvements. All these details were reported in the income tax return, including profit and loss account and balance sheet information in the ITR forms The Appellant provided a detailed cash flow statement for FY 2021-22. The total cash inflow of Rs. 91,84,817.00 comprised: - Food sales revenue: Rs. 29,45,466.00 - Loan advances from various parties: Rs. 44,92,151.00 - CUB bank withdrawals: Rs. 17,47,200.00
The total cash outflow of Rs. 92,93,102.00 included: CUB bank deposits: Rs. 79,81,100.00 Wages and salaries: Rs. 11,46,628.00 Telephone charges: Rs. 18,435.00 Electricity charges: Rs. 65,350.00 Freight charges: Rs. 35,658.00 Printing and stationery: Rs. 3,990.00 General expenses: Rs. 7,326.00 Vehicle maintenance: Rs. 3,290.00 Rent paid: Rs. 96,000.00 Payment to Dharun: Rs. 6,951.00 Payment to Sivakumar Rs. 9,469.00
Additionally, Rs. 45,14,984.00 was allocated through banking channels for agricultural land improvements. All these details were reported in the income tax return, including profit and loss account and balance sheet information in the ITR forms.
The Appellant wishes to submit that a revised rectification return has been prepared and awaits filing. As evidenced by the books of accounts, investments were made in agricultural land during the period 2019-2022. These investments were made with legitimate agricultural intent, supported by subsequent farming activities.
The financial position is summarized as follows:
1. Hotel Business
- Net Profit: Rs. 6,31,444.44 (as declared in original return as the same)
2. Agricultural Land Transactions - Purchase Price: Rs. 5,60,000.00 - Additional Investment: Rs. 76,70,923.00 - Sale Proceeds: Rs. 95,95,010.00 - Net Income from Sale: Rs. 13,64,087.00 LTCG
3. Corrections
- Agricultural Income: Rs. 95,00,000.00 (as per original return) is to be revised nil.
- Closing Cash Balance (31.03.2022): Rs. 1,09,617.00
(Previously reported incorrectly as exceeding Rs. 30 lakhs)
These discrepancies arose from inadvertent errors during the original filing and have been duly rectified in the revised return.
6. The appellant submitted that the cash deposits were properly accounted for through the cash book. Unfortunately, he did not explain this well and did not produce the complete books of accounts during the personal or appellate hearing. In the appeal hearing, the books could not be loaded into the income tax portal due to the prescribed MB limit. Therefore, the hearing was not completed or attended, and the order was passed by the First Appellate Authority.
The appellant requested one more opportunity to complete the assessment for the year 2021-2022. The appellant has enclosed all books, including cash and bank statements for 2021-2022, along with cash books for 2019-20 and 2020-21 for reference. Payment vouchers for the land from the past 3 years are also attached. There is no undisclosed income or agricultural income for the year, and the capital gains have been reworked as per the books of accounts.
PRAYER
1. Kindly to Quash impugned order passed by the adjudicating authority DIN ITBA/AST/S/143(3)/23-24/1062598691(1) dated 14.03.2024
2. Kindly to Quash impugned Demand Notice issued by the adjudicating authority DIN ITBA/AST/S/156/2023- 24/1062598881(1) dated 14.03.2024
3. To set aside the order passed by the First Appellate Authority DIN. ITBA/NFAC/S/250/2024-25/1071357092(1) dated 19.12.2024 and grant one more opportunity for completing the assessment through rectification.
4. To Pass such further orders, instructions as the may be deemed fit properly and circumstance of the present case in the interest of the appellant.
Ref:
1. "Sadhana Enviro Engineering Services vs. Joint Commissioner of Central Tax & others, where it held that in view of the amendment inserting Section 16(5) the petitioner should be given a reasonable opportunity and heard by the original authority, which should then proceed in accordance with law"
2. Sterling Tools Ltd., New Delhi vs JCIT, Special Range- 8, New Delhi on 20 December 2019 The present appeal is filed against the order of CIT(A) dismissing the appeal in limine, on the ground that the assessee had only filed the memo of appeal manually and not electronically. We find that no reasonable opportunity has been afforded to the assessee in this regard, accordingly we remit the matter back to the file of CIT(A) with directions to allow reasonable opportunity to the assessee to furnish the appeal before the CIT(A) electronically. The assessee is also directed to comply with our directions. The CIT(A) shall decide the merits of the issue raised in accordance with law, after affording reasonable opportunity of being heard. Accordingly, we set aside the matter back to the file of the CIT(A) with direction to the CIT(A) to decide the issue on merits by a reasoned order, after affording reasonable opportunity of hearing to the assessee. Further the assessee is also directed to appear before the CIT(A) and participate in the appellate proceedings. The appeal is thus decided on this preliminary issue without going into the merits of the addition. Hence this appeal is restored back to the file of CIT(A) to decide the issue on merits after affording reasonable opportunity of hearing to the assessee. The assessee is also directed to comply with notices issued by the CIT(A). The preliminary issue raised in this appeal is thus decided in favour Assessment Year: 2013-14 of assessee. Since the appeal is being decided on the preliminary issue, we are not addressing the issue raised on merit.
5. According to the Ld.AR, the aforesaid detailed explanation as well as the cash flow statement filed was not considered which resulted in passing of assessment order as well as the impugned order. Considering the overall facts & circumstances of the case, for the ends of justice & fair play, we are of the view that the assessee didn’t get proper opportunity before the AO therefore, we set aside the impugned ex parte order passed by the Ld.CIT(A) and restore the assessment back to the file of the AO for de novo assessment. The Ld.AR has undertaken to file all the relevant documents to substantiate that the land which was sold for ₹95 lakhs was agricultural land and also file the nature and source of credit in the assessee’s bank account. If necessary, the AO to make field (AY 2022-23) Panjavarnam Sivasubramanian verification to ascertain the facts in dispute and thereafter, frame assessment order in accordance to law after hearing the assessee.
In the result, appeal filed by the assessee is allowed for statistical purposes.
Order pronounced on the 22nd day of August, 2025, in Chennai.