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Facts
The assessee's income tax return for A.Y. 2018-19 was assessed, leading to disallowances under Section 14A (Rs. 53,36,814 for exempt income) and Section 80G (Rs. 50,000 for donation) by the AO. The CIT(A) upheld these disallowances ex-parte, relying on Maxopp Investment Ltd., and further proposed enhancing the Section 14A disallowance without providing the assessee a proper opportunity of hearing, despite a request for virtual hearing.
Held
The Tribunal determined that the CIT(A) had issued an ex-parte order, denying the assessee a reasonable opportunity of being heard and not acceding to the request for virtual hearing, which vitiated the proceedings. Consequently, the matter was restored to the CIT(A) for fresh adjudication on merits, with a direction to grant the assessee proper and adequate opportunity of hearing, including virtual hearing if requested.
Key Issues
Whether the CIT(A) erred in passing an ex-parte order and denying reasonable opportunity of hearing, including virtual hearing, to the assessee. Whether the disallowances under Section 14A read with Rule 8D and Section 80G were validly made and enhanced without proper procedure.
Sections Cited
143(3), 143(3A), 143(3B), 250, 14A, 8D, 251, 115JB, 80G, 234C, 270A, 143(2), 142(1), 10(38), 80IA, 80IAB, 80IC, 10AA
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Income Tax Appellate Tribunal, “D” BENCH, AHMEDABAD
This appeal filed by the assessee is directed against the order passed by the Commissioner of Income-tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as “CIT(A)”] dated 13.12.2024 for A.Y. 2018–19, arising from the assessment order passed by the Assessing Officer under section 143(3) r.w.s. 143(3A) & 143(3B) of the Income Tax Act, 1961 [hereinafter referred to as “the Act”] dated 29.03.2021.
Grounds of Appeal The assessee has raised the following grounds before us:
All the grounds of appeal in this appeal are mutually exclusive and without prejudice to each other.
Ex-parte Order
1. The Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [“CIT(A)”] erred in fact and in law in passing an ex-parte order u/s 250 of the Income Tax Act, 1961 (“the Act”).
2. The learned CIT(A) erred in fact and in law in passing order without granting reasonable opportunity of being heard.
The learned CIT(A) erred in fact and in law in passing order without granting opportunity of virtual hearing despite making request in pursuance to clause 12 of Faceless Appeal Scheme, 2021. Disallowance u/s 14A r.w.r 8D
4. The learned CIT(A) erred in fact and in law in confirming the action of the learned Income Tax Officer, National e-Assessment Centre, Delhi (“the AO”) in invoking section 14A read with rule 8D of the Income Tax Rules, 1962 (“the Rules”) and thereby making disallowance of Rs. 53,36,814.
5. The learned CIT(A) erred in fact and in law in confirming the action of the learned AO and making disallowance u/s 14A of the Act without appreciating the facts on record in proper perspective.
The learned CIT(A) erred in fact and in law in confirming the action of the learned AO in making disallowance u/s 14A r.w.r 8D without properly recording satisfaction as mandated u/s 14A. 7. The learned CIT(A) erred in fact and in law in confirming the action of the learned AO in making disallowance u/s 14A r.w.r 8D despite the fact that the Appellant had sufficient owned funds for making investment. 8. The learned CIT(A) erred in fact and in law in issuing notice u/s 251 of the Act and enhancing the disallowance u/s 14A by 10% of salary paid to CFO. 9. The learned CIT(A) erred in fact and in law in directing the AO to enhance the disallowance u/s 14A by disallowing 10% of salary paid to CFO. 10. The learned CIT(A) erred in fact and in law in confirming the action of the learned AO in making disallowance of Rs. 55,36,814 u/s 14A the Act and enhancing the disallowance by 3 disallowing 10% of the salary paid to CFO based on assumption and presumptions.
The learned CIT(A) erred in fact and in law in confirming the action of the learned AO in making disallowance u/s 14A r.w.r 8D to the book profits computed u/s 115JB of the Act. Disallowance u/s 80G 12. The learned CIT(A) erred in fact and in law in confirming the action of the learned AO in making disallowance of Rs. 50,000 in respect of deduction claimed u/s 80G.
The learned CIT(A) erred in fact and in law in confirming the action of the learned AO in disallowing donation paid to Disha Charitable Trust despite the fact that donation receipt in support of claim of deduction was submitted to the learned AO.
The learned CIT(A) erred in fact and in law in confirming the disallowance of deduction u/s 80G of the Act without appreciating the facts on record in proper perspective. Other Grounds 15. The learned CIT(A) erred in fact and in law in confirming the action of the learned AO in charging interest u/s. 234C of the Act.
The learned CIT(A) erred in fact and in law in confirming the action of the learned AO in initiating penalty proceeding u/s 270A of the Act.
Your Appellant craves the right to add to or to alter, amend, substitute, delete or modify all or any of the above grounds of appeal
3. Facts in brief 3.1 The assessee, a company engaged in the business of manufacturing sheet metal and composites, moulds, components and assemblies, filed its return of income for A.Y. 2018–19 on 30.11.2018 declaring total income of Rs.37,32,33,850/-. The case was selected for complete scrutiny under CASS for verification of deductions under Chapter VI-A, ICDS adjustments, deduction u/s 80IA/80IAB/80IC/10AA and claim of other deductions in Schedule 3.2 During the course of assessment proceedings, the Assessing Officer noticed that the assessee had made investments of Rs. 62.66 crores as on 31.03.2018. From such investments, the assessee had earned dividend income of Rs. 1,30,87,797/- and long-term capital gains under section 10(38) of Rs. 20,35,547/-, both of which were claimed as exempt. The assessee, on its own, disallowed a sum of Rs. 2,00,000/- towards expenditure relatable to exempt income. The Assessing Officer, however, was of the view that indirect administrative expenditure is inevitably incurred in relation to such exempt income and that the assessee had not maintained separate accounts to demonstrate otherwise. Rejecting the explanation of the assessee, he proceeded to compute the disallowance under section 14A read with Rule 8D at 1% of the average investments, which worked out to Rs. 55,36,814/-. After adjusting the sum of Rs. 2,00,000/- already disallowed by the assessee, a net disallowance of Rs.53,36,814/- was made.
3.3 Further, on verification of the claim under section 80G, it was observed that the assessee had claimed donation of Rs. 1,00,000/- to Disha Charitable Trust but failed to furnish the relevant receipt in support of the same. The Assessing Officer therefore disallowed 50% of the amount, i.e., Rs. 50,000/-.
3.4 In view of these additions, the total income of the assessee was assessed at Rs.37,99,47,754/- under the normal provisions of the Act. Book profit under section 115JB was computed at Rs.54,84,45,854/-.
5 3.5 The assessee preferred appeal before CIT(A). The appeal was instituted on 19.04.2021 and later migrated to NFAC. Notices of hearing u/s 250 were issued on 18.11.2022 and 14.10.2024. However, no effective submissions were filed. The appeal was disposed of ex parte. The CIT(A) upheld the disallowance under section 14A by following the Supreme Court judgement in Maxopp Investment Ltd. v. CIT [TS-5170-SC-2018-O] and confirmed the addition of Rs.55,36,814/-. He further issued a show cause notice proposing enhancement under Rule 8D(2)(i) towards direct expenses and directed the AO to quantify 10% of the salary of CFO/CEO/accounts staff after verification. The disallowance of Rs. 50,000/- under section 80G was also confirmed for want of donation receipt. The other grounds relating to computation, interest and penalty were treated as consequential, and the appeal was dismissed with directions for enhancement.
At the time of hearing, the learned Authorised Representative (AR) submitted that only two notices were issued by the CIT(A) and no proper opportunity of hearing was granted. Despite request for virtual hearing as per clause 12 of the Faceless Appeal Scheme, 2021, the same was not provided. It was argued that the order of the CIT(A) is ex parte and against principles of natural justice. The AR accordingly prayed that the matter may be restored to the file of the CIT(A) for decision on merits after granting reasonable opportunity.
The learned Departmental Representative (DR) fairly submitted that he has no objection if the matter is remanded to the file of the CIT(A) for adjudication afresh.
6.1 It is evident from the record that the CIT(A) issued only two notices and disposed of the appeal. The assessee has specifically contended, by way of one of the grounds of appeal, that its request for virtual hearing was not acceded to. The CIT(A) has also proceeded to enhance the assessment by proposing disallowance under Rule 8D(2)(i) without granting adequate opportunity to the assessee to rebut the same.
6.2 It is trite law that the right of hearing is a valuable right, and denial thereof vitiates the proceedings. Considering the facts and in the interest of justice, we are of the considered opinion that the matter deserves to be restored to the file of the CIT(A) for fresh adjudication on merits. The CIT(A) is directed to grant proper and adequate opportunity of being heard to the assessee, including opportunity of virtual hearing if so requested, and thereafter pass a reasoned and speaking order dealing with all grounds of appeal.
6.3 In the result, the appeal of the assessee is allowed for statistical purposes with the direction that the matter is restored to the file of the CIT(A) for adjudication afresh in accordance with law.
Order pronounced in the Court on 17th September, 2025 at Ahmedabad.