MANSHA TEXTILES PVT. LTD.,VADODARA vs. THE ITO, WARD-2(1)(1), VADODARA

2.4 To verify, the AO issued notices under section 133(6) to the alleged deductors. Axis Bank Limited, by letter dated 07.01.2015, confirmed the rent payments and furnished the bank statement of account No. 208010200011413 maintained with its Ashok Vihar Branch, Delhi. The AO recorded that substantial transactions appeared in the said account. The AO emphasised that the assessee had not shown this bank account in its books for the year under consideration. A show cause notice dated 25.02.2015 was issued requiring the assessee to explain each transaction in that account. The assessee replied on 03.03.2015 reiterating that the Ochaney group had fraudulently opened and operated the account and had collected rent and deposits without consent of the company and its directors, that the matter was before the Company Law Board, and that no rental income had reached the company.

2.5 The AO considered the reply but found it unsatisfactory for several reasons recorded in the order. The AO observed that the assessee continued to receive TDS certificates for F.Ys. 2006-07 to 2011-12 and yet did not act to close the alleged fraudulent bank account or lodge an FIR. The AO noted there was no injunction or restraint order preventing the assessee from approaching tenants or the bank. The AO concluded that the assessee was concealing particulars of income and that the explanation of fraud was a façade. Based on the rent reflected in Form 26AS, the AO computed income from house property by taking gross rent of Rs. 57,57,850/-, allowing standard deduction under section 24(a) at 30 percent of Rs.17,27,355/- and assessing the balance of Rs.40,30,495/- as “Income from House Property”.

4 2.6 Separately, upon verification of the Axis Bank account statement, the AO tabulated credits aggregating to Rs.1,04,99,533/- during the year. Out of these, credits of Rs.54,56,750/- were identified as rent receipts relatable to the four tenants referred to at para 4.1 of the assessment order. The remaining credits of Rs. 50,42,783/- were not explained to the satisfaction of the AO. Treating the same as unexplained income under the relevant provisions, the AO added Rs.50,42,783/- as unexplained income of the assessee. The AO thus determined total income at Rs.90,73,278/-, rounded off to Rs.90,73,280/- under section 288A, and initiated penalty under section 271(1)(c). Interest as per the Act was directed to be charged.

2.7 Aggrieved, the assessee preferred appeal before the CIT(A). The appeal was instituted on 25.01.2018 against the AO’s order dated 16.03.2015, thus involving a delay of about 1012 days. The assessee’s case on condonation was that serious internal disputes between existing and former directors were pending before the Ministry of Corporate Affairs and the Company Law Board, that efforts at amicable resolution failed, and that only the present management later decided to pursue pending legal matters including the present appeal.

2.8 The CIT(A) first addressed the statutory mandate in section 249 that an appeal shall be presented within thirty days from the relevant date and the enabling power in section 249(3) to admit a belated appeal upon sufficient cause. After an extensive survey of authorities, the CIT(A) held that the explanation of internal discord, without any legal restraint or credible corroboration, did not constitute “sufficient cause”. The CIT(A) noted that the assessee had not produced any injunction, resolution or directive that prevented timely filing, and that there was absence of due diligence to protect the company’s legal 5 interests. Permitting condonation on such vague grounds, in the CIT(A)’s view, would set a precedent for misuse. For this conclusion the CIT(A) relied upon various judicial precedents and extracted passages.

2.9 On facts, the CIT(A) also recapitulated the core matrix emerging from the AO’s order, namely that Form 26AS reflected rent of Rs.57,57,850/-, that only Rs.5,75,781/- equal to TDS appeared in the accounts, that Axis Bank confirmed the account No. 208010200011413 at Ashok Vihar Branch, Delhi in the company’s name operated by one of the earlier authorised persons, that the bank statement contained substantial credits relatable to tenants, that there was no reconciliation in the assessee’s books, and that no FIR or bank-closure request was pursued. The CIT(A) recorded that even on the appellate platform the assessee’s narrative remained inconsistent and unsubstantiated.

2.10 In view of the above, the CIT(A) refused to condone the delay of 1012 days, dismissed the appeal as not maintainable, and consequently did not enter upon the merits of the additions. The CIT(A) therefore upheld the assessment as framed by the AO and the additions made by the AO were upheld.

2.11 The assessee has now preferred the present appeal before us and has raised the following grounds:

1. Ld. CIT (A) (NFAC) erred in law and on facts in dismissing the appeal holding that there was no reasonable cause advanced by the appellant for filing the appeal belatedly.

2. Ld. CIT (A) (NFAC) erred in law and on facts confirming addition made by AO of Rs. 40, 30, 495/- towards income from House property that never accrued to the assessee since it was illegally and fraudulently siphoned off by the ex-directors of the company.

3. Ld. CIT (A) (NFAC) erred in law and on facts in not adjudicating appeal on merits ignoring the submissions that the appellant was never in receipt of rental income since it had neither entered into 6 any lease agreement with the tenants nor rental amount received was deposited in its bank a/c.

4. Ld. CIT (A) (NFAC) erred in law and on facts confirming addition made by AO of Rs. 50, 42, 783/- as unexplained income of the appellant on the ground that the appellant failed to offer any explanation about credit entries in the bank account that never belonged to the appellant company.

5. Ld. CIT (A) (NFAC) erred in law and on facts in not adjudicating additional ground raised by the appellant challenging non deduction of interest of Rs. 49, 13, 862/- payable to Noida against the rental income that is allowable u/s 24(b) of the Act.

6. Levy of interest u/s 234A, 234B & 234C of the Act is unjustified.

7. Initiation of penalty proceedings u/s 271 (1)(c) of the Act is unjustified.

3. The learned Authorised Representative (AR) submitted that the delay in filing the appeal before the Ld. CIT(A) was neither deliberate nor on account of negligence but was occasioned due to extraordinary circumstances beyond the control of the assessee. It was urged that the delay of 1012 days had a reasonable and bona fide explanation which was fully substantiated with evidence placed on record, and therefore, the dismissal of the appeal by the Ld. CIT(A) without condoning the delay was unjustified.

3.1 The AR drew our attention to an affidavit sworn by Shri Ashok Khurana, Director of the assessee company, wherein it has been affirmed that the assessment order under section 143(3) read with section 147 for A.Y. 2012-13 was received on 16.03.2015. Owing to serious disputes between the existing directors and ex-directors of the company, proceedings had been initiated before the Company Law Board (now NCLT). Since both groups were in the process of negotiating and attempting amicable resolution of the disputes, the appeal remained to be filed before the first appellate authority within the prescribed period. It was further explained that only when the disputes could not be resolved, did the present directors decide to pursue pending legal matters, including the filing of appeal. This, it 7 was deposed, resulted in delay of 1012 days in approaching the CIT(A). The affidavit further states that the assessee had duly responded to all notices issued by the AO and had also furnished documentary evidences before the appellate authority; however, the Ld. CIT(A) failed to appreciate that the delay was bona fide and proceeded to dismiss the appeal without adjudicating the issues on merits, which would otherwise result in heavy additions and substantial prejudice to the assessee.

3.2 The AR thereafter invited attention to the detailed chronology of events filed in the paper book. It was submitted that the assessee company was incorporated in September 1998 by the Khurana family. In April 2002, the company applied for and was allotted a commercial plot at NOIDA and a lease deed was executed in July 2002. Since Mr. Deepak Ochhaney of Delhi was stationed at Delhi, he was authorised to sign the lease deed on behalf of the company. Subsequently, the Ochhaney Group was allotted shares and became part of the company’s management. It was pointed out that the Ochhaney Group thereafter indulged in fraudulent activities including mortgaging the NOIDA property with Punjab National Bank for raising finance for their own concerns without authority. This fact came to light in January 2006 when Punjab National Bank sought confirmation of the genuineness of a board resolution purportedly passed in December 2005. On discovery of this fraudulent act, the Khurana Group took steps for removal of the Ochhaneys from the directorship. A resolution for their removal was passed on 28.03.2006 and public notice was issued on 24.03.2006.

3.3 The AR submitted that the Ochhaney Group challenged their removal before the CLB, New Delhi, which by interim order dated 11.12.2008 directed maintenance of status quo in respect of fixed 8 assets and shareholding. Taking undue advantage of the pendency of the CLB proceedings, the Ochhaney Group unlawfully occupied the NOIDA property, inducted tenants, collected rent and deposited the rent in a fraudulently opened Axis Bank account in the name of the company, without any authorisation of the board. The company became aware of this fraudulent conduct only when TDS certificates reflecting such rent receipts were received and subsequently noticed in Form 26AS.

3.4 It was further submitted that the company approached the CLB seeking directions against the Ochhaney Group. The CLB passed various orders, including those dated 06.02.2014 and 21.09.2015, appointing mediators and Chartered Accountants to look into the accounts and to facilitate settlement between the two groups. Despite such efforts, the disputes could not be resolved due to lack of cooperation by the Ochhaney Group. The assessee, under the bona fide belief that the disputes including rental income issues would be settled through CLB mediation, refrained from pursuing appellate remedies simultaneously. Only when no settlement materialised during 2017, the present management decided to pursue pending matters with the tax authorities, which led to delayed filing of appeal before the CIT(A).

3.5 In support of condonation, the AR placed reliance on the order of the Co-ordinate Bench in assessee’s own case for A.Ys. 2008-09 to 2011-12 and 2014-15 in to 228/Ahd/2018 dated 28.09.2022. In those years, though the delay was in filing appeals before the Tribunal, the Tribunal, after considering the affidavit of the Director and the very same set of disputes between the Khurana and Ochhaney groups, held that there was sufficient cause for condonation of delay. The Tribunal observed, following Collector, Land 9 Acquisition v. Mst. Katiji (167 ITR 471) and N. Balakrishnan v. M. Krishnamurthy (AIR 1998 SC 3222), that substantial justice should prevail over technicalities, and delay occasioned by bona fide reasons must be liberally condoned. The Tribunal accordingly condoned the delay and restored the appeals to the CIT(A) for adjudication on merits.

3.6 The AR emphasised that the facts of the present year are identical, except that here the delay occurred before the CIT(A). Hence, applying the same reasoning and judicial principles, the delay of 1012 days ought to have been condoned and the appeal should have been heard on merits.

5.2 We find that the explanation offered cannot be brushed aside as vague or casual. The disputes between the promoter groups are borne out by abundant documentary evidence, including notices, CLB orders, affidavits and public announcements, which lend credibility to the assessee’s plea. The assessee has therefore established that the delay was occasioned by circumstances beyond its control and not due to deliberate inaction or negligence.

5.3 The Ld. CIT(A), in paras 5 to 5.21 of his order, declined to condone the delay relying on several judicial precedents. We have carefully examined each of those authorities in the light of the present facts. While the propositions laid down in those decisions are unexceptionable, their application to the present case is misplaced. The present case stands on a different footing. Here, the delay is fully explained by reference to contemporaneous events – namely, removal of ex-directors, initiation of proceedings before the CLB, interim orders of status quo, appointment of mediators, and fraudulent siphoning of income – all of which are substantiated by documentary evidence. This is not a case of casual inaction but of incapacitation due to circumstances beyond the assessee’s control. Unlike the cases 5.4 On the other hand, the ratio of the Hon’ble Supreme Court in Collector, Land Acquisition v. Mst. Katiji (167 ITR 471) and N. Balakrishnan v. M. Krishnamurthy (AIR 1998 SC 3222) squarely applies. The Hon’ble Apex Court has held that the expression “sufficient cause” should receive a liberal construction so as to advance substantial justice, that ordinarily a litigant does not stand to benefit by lodging an appeal belatedly, and that refusing to condone delay results in meritorious matters being thrown out on technicalities.

5.5 At this stage, it is pertinent to note that an identical issue came up before the Co-ordinate Bench in assessee’s own case for A.Ys. 2008-09 to 2011-12 and 2014-15 in to 228/Ahd/2018, order dated 28.09.2022. In those appeals, there was also a delay in filing appeals, though before the Tribunal, arising out of the same disputes between the Khurana group and the Ochhaney group. After considering the affidavit of the Director, the chronology of events, and the supporting evidence including CLB orders and public notices, the Co-ordinate Bench held that sufficient cause had been made out. Following the ratio of Katiji (supra), the Co-ordinate Bench condoned the delay and restored the matters to the file of the CIT(A) for adjudication on merits.

5.6 The factual matrix of the present year is identical. The only distinction is that the delay here occurred at the stage of filing appeal before the CIT(A) rather than before the Tribunal. The underlying cause – prolonged corporate disputes, fraudulent siphoning of income, pendency of CLB proceedings, and the bona fide expectation 12 of settlement – remains the same. On the principle of consistency and judicial discipline, the view taken by the Co-ordinate Bench in assessee’s own case must be applied here as well.

5.7 We therefore hold that the assessee was prevented by sufficient cause from filing the appeal within the prescribed period before the Ld. CIT(A). The delay of 1012 days is accordingly condoned, and the matter is restored to the file of the Ld. CIT(A) for decision on merits in accordance with law, after affording due opportunity of hearing to the assessee.

5.8 We make it clear that we have not expressed any opinion on the merits of the additions made by the Assessing Officer, and all contentions are left open for adjudication by the Ld. CIT(A).