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Facts
The assessee, engaged in marketing dairy products, filed a return declaring a loss. The case was selected for limited scrutiny, and the Assessing Officer (AO) passed an ex-parte assessment order. The CIT(A) dismissed the assessee's appeal for non-compliance with a deficiency notice regarding advance tax payment, citing Section 249(4)(b) of the Income Tax Act.
Held
The Tribunal held that the CIT(A) dismissed the appeal without adjudicating the issues on merit. It was observed that the assessee's inability to respond to the deficiency notice was due to communication issues, as the notices were not served on the correct email address. Therefore, the matter was restored to the CIT(A) for fresh adjudication on merits.
Key Issues
Whether the CIT(A) was justified in dismissing the appeal without delving into merits due to alleged non-compliance with a deficiency notice, when the non-compliance was due to communication failures.
Sections Cited
143(1), 143(2), 142(1), 144, 69C, 115BBE, 249(4), 249(4)(b)
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Income Tax Appellate Tribunal, “A” BENCH, PUNE
Before: SHRI R.K. PANDA & MS. ASTHA CHANDRA
आदेश / ORDER
PER ASTHA CHANDRA, JM :
The appeal filed by the assessee is directed against the order dated 31.01.2024 of the Ld. Commissioner of Income Tax (Appeals)/NFAC, Delhi [“CIT(A)”] pertaining to Assessment Year (“AY”) 2018-19.
The assessee has raised the following grounds of appeal :-
1. The Ld CIT(A) failed to service a discrepancy notice related to Form 35 on the official email address of the assessee and thereby erred in dismissing the appeal based on the unserved notice and hence the order passed by Ld CIT(A) may be quashed.
2. The Ld. CIT(A) erred in considering the fact that the assessee during the year under consideration had reported a loss of Rs. 4,02,34,353/- and was not required to pay tax and as a result compliance w.r.t advance tax payment was not applicable to the appellant. The order passed by the CIT(A) is without considering the above fact and is not based on the information available on record, and may be quashed.
3. The Ld CIT has erred in confirming the order of Ld AO considering the advertisement and brand promotional expenses capitalised under head intangible asset amounting to Rs. 5,26,56,277 as unexplained investment under section 69C of the IT Act and thereby erred in disallowing depreciation amounting to Rs. 66,39,484/-
4. Without prejudice to Ground no 3, the Ld. CIT failed to appreciate the nature of expenses incurred by the assessee which is alternatively treated as revenue expenses and erred in confirming the order of Ld AO.
5. Prayer to amend Grounds of Appeal the appellant craves leave to amend, alter or delete any of the above grounds of appeal.”
3. Briefly stated, the facts of the case are that the assessee is a company engaged in the marketing of high quality dairy products and has developed its own premium dairy and gourmet brand. It manufactures dairy and gourmet products through its contract manufacturers in Europe. The assessee has filed its return of income for the AY 2018-19 on 30.10.2018 declaring a total loss of Rs.4,03,68,005/-. The return was processed u/s 143(1) of the Income Tax Act, 1961 (the “Act”). Subsequently, the case was selected for limited scrutiny under the E- assessment Scheme, 2019 on the following issues :-(i) Default in TDS & Disallowance for such Default; (ii) Investment in Intangible Assets; (iii) Lower amount disallowed u/s 40(a)(ia) in ITR in comparison to Audit Report; (iv) Introduction of high value intangible asset during the year and (v) Tax deducted or collected but not deposited with Central Government. Statutory notice(s) u/s 143(2)/142(1) of the Act were issued and served upon the assessee calling for certain information mentioned therein. Since, no response to the said show cause notice was submitted by the assessee, the Ld. Assessing Officer (“AO”) based on the ITR and the audit report concluded the assessment u/s 144 of the Act at an assessed income of Rs.3,01,14,580/- vide his order dated 08.03.2021 by making the following additions :-(i) Rs.5,26,56,277/- is added u/s 69C of the Act as unexplained investment for purchasing of Intangible Assets during the AY 2018-19 relevant to the FY 2017-18 and brought to tax u/s 115BBE of the Act and (ii) Rs.66,39,484/- is disallowed as depreciation not allowable, since the assessee did not prove that the Intangible Assets is used for the purpose of business.
4. Aggrieved, the assessee challenged the ex-parte order of the Ld. AO before the Ld. CIT(A). In Form No. 35, the assessee provided the justification for its inability to file reply to the notice(s) issued by the Ld. AO. The Ld. CIT(A) observed that there is a deficiency in the appeal filed in Form No. 35 and thereafter deficiency letter was issued to the assessee on 25.01.2024 for the reason “Tax on returned income not paid/particulars of payment not mentioned.” As per the deficiency letter, the assessee was required to comply within five days on receipt of the said letter. Since, the assessee did not comply and not furnished any reply to the said deficiency letter, the Ld. CIT(A) dismissed the appeal of the assessee without dwelling into the merits of the case by observing as under : “2.4. As per the assessment order under section 147 r.w.s. 144 of the Act, it is stated that the appellant has not filed the return of income and the AO has computed the total income at Rs. 3,01,14,580/- and computed the tax payable at Rs 5.57 26 180/- which includes the advance tax payable by the appellant as well as the interest on account of delayed payment of advance tax. 2.5. As per the deficiency letter, the details of deficiency is "Tax on returned income not paid/particulars of payment not mentioned, which includes two parts. First part is tax on returned income not paid, which is applicable to a case wherein return of income has been filed and the second part is particulars of payment not mentioned, applicable to a case. where no return of income has been filed. The appellant has not filed the return of income and therefore the second part of the provision is applicable to the case of the appellant and the appellant is required to pay an amount equal to the amount of advance tax payable, prior to filing of the appeal. "particulars of payment not mentioned, the second part of the details of the deficiency as per the deficiency letter pertains to Section 249(4)(b) of the Act, which is particulars of payment of advance tax as per the said provision. The appellant has not furnished any documentary evidence that the appellant has paid an amount equal to the amount of advance fax which was payable by him as required u/sec. 249(4)(b) of the Act. Further, the fact that the appellant has not responded to the deficiency letter also goes to suggest that the appellant has not paid an amount equal to the amount of advance tax which was payable by him, on or before filing the appeal. The appellant has also not made any application as per the Proviso to Section 249(4)(b). It is only in a case where the appellant has filed an application in this regard, the CIT(A) may for any good and sufficient reason to be recorded in writing, exempt him from the operation of the provisions of clause (b) of sub-section(4) of section 249. As the appellant has not filed any application in this regard, there is no opportunity for the CIT(A) to examine the reason for exemption from the operation of the provisions of clause (b) of subsection (4) of section 249. The CIT(A) is not competent to suo moto decide the issue of exemption from the operation of the provisions of clause (b) of subsection (4) of section 249, in a case where the appellant has not filed the requisite application as per the Proviso to section 249(4)(b). 2.6. In this regard, the column no.8 & 9 of Form No.35 is reproduced here under: 8 Where a return has been filed by the appellant for Not Applicable the assessment Not year in connection with which the appeal is filed, whether tax due on Applicable income returned has been paid in full 8.1 If reply to 8 is Yes, then enter details of return and taxes paid a Acknowledgement number b Date of filing c Total tax paid 9 Where no return has been filed by the appellant Not Applicable for the assessment Not year, whether an amount equal to the amount of advance tax as per Applicable section 249(4)(b) of the Income Tax Act, 1961 has been paid
As can be seen from the above, the appellant has stated "Not applicable in the above columns. Although, the provisions of column no 9 are applicable in the case of the appellant, the appellant has wrongly stated as "Not Applicable in this column, the appellant was required to mention the particulars of payment made of advance tax prior to filing the appeal, which is not mentioned. This further establishes that, the appellant has not pard an amount equal to the amount of advance tax which was payable on or before filing the appeal 2.7. As per section 249(4). No appeal shall be admitted unless at the time of filing of the appeal, the prescribed conditions are satisfied. As per section 249(4)(b) of the Act. the appeal shall not be admitted, unless the appellant has paid an amount equal to the amount of advance tax which was payable. As the applicable advance tax has not been paid by the appellant before filing of the present appeal, the present appeal shall not be admitted. Therefore, the present appeal filed is not admitted as per the provisions of Section 249(4) of the Act.”
Aggrieved by such order of the Ld. CIT(A), the assessee is before the Tribunal and all the grounds of appeal relate thereto.
The Ld. AR submitted that the assessee failed to respond to the notice(s) of hearing issued by the Ld. CIT(A) as well as the deficiency letter issued by him and the new notice(s) were not sent on the proper e-mail id of the assessee registered on e-filing portal/Form No. 35. The Ld. AR submitted written submissions before this Bench narrating a brief list of relevant date and event and its contentions in support of its claim. He prayed that an opportunity be granted to the assessee to present its case before the lower authorities so that the matter may be decided afresh on merits. The written submissions filed by the assessee are reproduced below : Date Event October 31, 2018 That the appellants had filed the Income tax return for the AY 2018-19 on October 31, 2018, declaring a total loss of Rs. 4,03,68,005. In the Income Tax Return form, the email address for communication was mentioned as virahhaha@olivetreerading.com In 2019 Mr. Viral Shah was heading the finance function of the appellant when the income tax return was filed. Mr. Viral Shah subsequently resigned in 2019. Mr. Viral Shahs email address become inactive and remained so thereafter September 17, 2019 One of the vendors of the appellant had initiated Corporate Insolvency Resolution Process (CIRP) under section 9 of Insolvency and Bankruptcy Code 2016 before the National Company Law Tribunal ("NCLT) Mumbai bench. Honorable, NCLT Mumbai bench admitted corporate insolvency resolution process and interim resolution professional was appointed September 29, 2019 The case was selected for limited scrutiny and the notice under section 143(2) was issued. December 03, 2019 Notices under section 142(1) were served and issued. (Other notices were issued on dated December 3, 2019, February 17, 2020, July 16, 2020, September 14, 2020, and December 16, 2020).
January 01, 2020 The appellant reached settlement with the vendor who had initiated CIRP. After reaching settlement, the appellant applied to National Company Law Appellate Tribunal, New Delhi ('NCLAT) requesting to set aside the matter. NCLAT accordingly set aside the order of admission of CIRP August 2020 The appellant had availed loan from Janata Sahakari Bank Ltd ('JSBL') for its business purpose. After 2018, the appellant could not repay the loan and hence the loan account become non-performing asset. JSBL. initiated proceedings under Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ("SARFAESI Act") and issued e-auction notice. The appellant approached Debt Recovery Tribunal ('DRT') Pune for relief which was granted against an auction sale subject to deposit of 30% of outstanding dues. September 23, 2020 The appellant updated its contact details on Income Tax Department's e-filing portal in profile section as follows- Email address-sukushah @olivetreetrading.com October 2020 The appellant approached Debt Recovery Appellant Tribunal (DART) Mumbai for relief against the order of DICT, but DART reduced the deposit value to 25% of outstanding dues. March 08, 2021 The assessing officer passed an order under section 144 r.w.s 143(3A) and 143(3B) of the IT Act, determining the total income of the appellant at Rs. 3,01,14,580 as against the declared loss of Rs. 4,03,68,005 January 28, 2022 The appellant preferred an appeal before CIT (A) against the order of AO and filed Form 35. The appellant while filing appeal in Form 35 provided sukushah@olivetreetrading.com as email address for communication January 25, 2024 CIT(A) observed a deficiency in Form 35 and issued deficiency notice granting 5 days to respond to the notice. The appellant never got this notice on the email address provided in profile tab of e-filing portal and Form 35 January 31, 2024 CIT(A) dismissed the appeal due to non-filing of response to the deficiency notice Submission 2. The appellant updated the communication email address on the income tax e-filing portal on its own and in Form 35 while filing the appeal before CIT(A). The notice which was supposed to be issued to the correct email address never reached the appellant.
The order passed by CIT(A) based on the deficiency notice, which was never properly served to the appellant, affected the appellant's opportunity to respond meaningfully to the deficiency notice.
The appellant, due to reasons cited in the foregoing para's could not make an effective submission before the Ld AO. If the opportunity to submit information and substantiate a claim/expenditure is denied at the CIT(A) level it would cause great hardship to the appellant. Therefore, the matter be remanded back to the file of CIT(A) for fresh adjudication.”
The Ld. DR fairly conceded to the above request of the Ld. AR.
We have heard the Ld. Representatives of the parties and perused the material on record. On the facts and in the circumstances of the case enumerated above, we deem it fit in the interest of justice and fair play to set aside the order of Ld. CIT(A)/NFAC and restore the matter back to his file to adjudicate the issue(s) raised by the assessee on merits afresh and pass speaking order on merit after allowing reasonable opportunity of being heard to the assessee who shall provide the requisite support in terms of submitting the relevant documents/evidence as may be required/called upon on the appointed date without seeking adjournment under any pretext, failing which the Ld. CIT(A)/NFAC shall be at liberty to pass appropriate order as per fact and law. We order accordingly.
In the result, the appeal of assessee is allowed for statistical purpose.
Order pronounced in the open court on 28th January, 2025.