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Facts
The assessee filed an appeal against the CIT(A)'s order dismissing their appeal against the AO's addition of Rs. 1,01,54,023/- (fixed assets) and Rs. 1,42,05,000/- (treated as share premium from security deposits). The CIT(A) dismissed the appeal on grounds of limitation, without giving the assessee an opportunity to file a condonation petition.
Held
The Tribunal held that the CIT(A) was not justified in dismissing the appeal on limitation without giving the assessee an opportunity to rectify the defect. The addition on fixed assets was deleted as it went beyond the limited scrutiny scope. The addition on security deposit was restored to the AO for fresh adjudication after due compliance by the assessee.
Key Issues
Whether the CIT(A) erred in dismissing the appeal on grounds of limitation without providing an opportunity for condonation, and if the additions made by the AO were valid.
Sections Cited
143(3)
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Income Tax Appellate Tribunal, LUCKNOW ‘B’ BENCH, LUCKNOW
A.Y. 2016-17 Vani Systems Pvt. Ltd., 16, Vidhan vs. The Income Tax Officer, Ward- Sabha Marg, Lucknow-U.P. 226001 6(4), Lucknow New-226001 PAN:AABCV8657N (Appellant) (Respondent) Assessee by: Sh. Rakesh Garg, Advocate Revenue by: Sh. Manu Chaurasia, CIT (DR) Date of hearing: 23.04.2025 Date of pronouncement: 09.07.2025 O R D E R PER NIKHIL CHOUDHARY, A.M.: This is an appeal filed by the assessee against the decision of the ld. CIT(A)-2, Lucknow dismissing his appeals filed against the orders of the ld. AO under section 143(3) passed on 3.12.2018. The grounds of appeal are as under: - “1.
01. Because the CIT(A) has erred on facts and in law in upholding addition of Rs.1,01,54,023/- being addition made on account of investment in Fixed Assets, the addition is contrary to facts, bad in law and be deleted.
02. Because the CIT(A) has erred on facts and in law in upholding addition of Rs.1,42,05,000/- being amount received towards security deposit, treating it to be share capital premium, which addition being contrary to facts, bad in law and be deleted.
2. The assessee also raised additional grounds of appeal:- “1. Because the CIT(A) has erred in law in dismissing the appeal, holding the same to be defective in as much as barred by limitation, without giving any opportunity to the appellant, which dismissal of appeal is bad in law and against the principles of natural justice, the order passed by the CIT(A) be set-aside/quashed.
2. Because the CIT(A) having adjudicated the appeal on merit first, thereby condoning the delay has erred in law in dismissing the appeal as barred by limitation, the order passed by the CIT(A) be set-aside/quashed. 1 M/s Vani Systems Private Limited A.Y. 2016-17 3. Because the case was selected for the purposes of limited scrutiny and no addition/ variation has been made in the assessment as mentioned for the purpose of limited scrutiny the assessment order passed making other additions/ variations are without jurisdiction is erroneous be quashed.”
The facts of the case are that the assessee filed a return of income on 30.08.2016 declaring a total income of Rs.18,36,330/-. The case was taken up for limited scrutiny for examination of whether deduction claimed on account of depreciation was admissible and whether funds received in the form of share premium were from disclosed sources and have been correctly offered to tax. The ld. AO records that he issued as many as 15 notices vide email and speed post but no compliance was made by the assessee other than to file a power of attorney. Therefore, he effectively passed a best judgment order in which he added back a sum of Rs.1,01,54,0+23/- representing the unexplained portion of addition in fixed assets in the current assessment year. He also added back a sum of Rs.1,42,05,000/- in view of the fact that the assessee failed to provide any information with regard to the source of funds, copies of shareholder register, share application forms, share transfer register etc,. Accordingly, the income of the assessee was assessed at Rs.2,61,95,350/-.
Aggrieved with the said order, the assessee went in appeal before the ld. CIT(a)-2, Lucknow. Before the ld. CIT(A)-2, Lucknow, the assessee submitted that the amount of 1,01,54,023/- was the purchase and installation cost of automatic bus washing machines that have been procured and assembled by the assessee in F.Y. 2015-16. These machines were to be installed as per the order of the U.P. State Road Transport Corporation for washing and cleaning the buses on the OO Model for 55 locations, out of which the assessee was able to install machines in 23 places. In the previous year, the assessee had also procured similar work from the U.P.S.R.T.C. and managed to install mine machines. In the assessment year 2015-16, the assessee had created fixed assets with a closing balance of Rs.87,45,319/- and during this year added fixed assets amounting to Rs.1,01,54,023/-. It submitted the details of purchase 2 M/s Vani Systems Private Limited A.Y. 2016-17 amount. With regard to the addition of Rs. 1,42,05,000/-, it was submitted that the same was not share premium, but rather it was the refundable security receipt from its work of human resource outsourcing in respect of various orders procured by the assessee in A.Ys. 2015-16 and 2016-17. In support thereof, it purported to submit a work order of manpower outstanding in various Government Departments that supposedly contained security deposit details and security refund details in each case. The ld. CIT(A) noted that even though the assessee had submitted that it had filed copies of orders procured from UPSRTC dated 19.03.2015 and 23.05.2012, the same had not been furnished and furthermore, no work orders of manpower outsourcing had been furnished before him. However, after recording these details, the ld. CIT(A) did not decide the issue on its merits, he held that the appeal was in fact barred by limitation because there was a delay of 15 days in the filing of the appeal and the assessee had not admitted to this delay in Form No.
Since no application for condonation of delay had been filed, the ld. CIT(A) did not admit the appeal and dismissed the same on account of limitation. Accordingly, the additions were confirmed due to this dismissal.
The assessee is aggrieved and has accordingly come before us in appeal. Sh. Rakesh Garg, Advocate (hereinafter referred to as the ld. AR) argued that the ld. CIT(A) was totally unjustified in dismissing the appeal of the assessee in the manner that he had done. He filed copies of following orders on which he placed reliance for this proposition. i. Smt. Sadhna Agarwal vs. ITO (ITAT Lucknow) ii. K. Hemlatha vs. ACIT (ITAT Chennai) iii. Malani Trading Company vs. CIT 252 ITR 670 (Bombay) iv. Harilelas vs. First Income Tax Officer 16 ITD 356 (Mumbai) v. Haryana State Roads and Development Corporation Limited vs. The DCIT ITA No.582/CHD/2016 (ITAT Chandigarh). 3 M/s Vani Systems Private Limited A.Y. 2016-17 The ld. AR pointed out that in the case of Smt. Sadhna Agarwal, the ITAT had held that the ld. CIT(A) was duty bound to point out to the assessee that a condonation petition had not been submitted and could not simply dismiss the appeal. In the case of K. Hemlatha, the ITAT Chennai Bench had pointed out that when technicalities and substantial justice were pitted against each other, substantial justice deserved to prevail over technicalities and therefore, the minor delay should be condoned. In the case of Malani Trading Company, the Hon’ble Bombay High Court had held that it was the duty of the Registrar to point out defects in application and give the assessee reasonable time to cure these defects. Similarly, it was the duty of the ld. CIT(Appeal’s) office to point out any defect in the assessee’s appeal and give the assessee an opportunity to rectify it. In the case of Harilelas vs. ITO, the ITAT Mumbai had held that assessee must be given reasonable opportunity to rectify any errors in its appeal. In the case of Haryana State Roads and Development Corporation Limited, the Hon’ble Chandigarh Bench of the Tribunal had held that without issuing of defect notice to the assessee, the ld. CIT(A) was not justified in dismissing the appeal. Relying upon these case laws, the ld. AR submitted that the ld. CIT(A) was unjustified in dismissing the appeal of the assessee without giving the assessee an opportunity to file a condonation petition stating the reasons for the delay. He, therefore, prayed that the order of the ld. CIT(A) was bad in law. He also submitted that once the ld. CIT(A) had already discussed the issues involved, he should have decided the issue on merits rather than dismissing it on account of delay. The ld. AR further argued that the case had been selected for limited scrutiny on two points which was spelt out in the assessment order and by making the addition on account of additions to fixed assets, without following the due procedure as laid down by the CBDT i.e. seeking written permission from the PCIT, the ld. AO had stepped outside his jurisdiction and therefore, the addition was not sustainable on this count also. For the same, he placed reliance on the following case laws.
M/s Vani Systems Private Limited A.Y. 2016-17 i. Chaitanya Bansibhai Nagori vs. PCIT dated 23.05.2022 (ITAT Ahmedabad) ii. Dev Milk Foods Pvt. Ltd. vs. Additional CIT, Delhi (ITAT Delhi) iii. Ravi Prakash Khandelwal vs. Dy. CIT in ITA No.665/LKW/2017. Finally, the ld. AR submitted that the books of the assessee company had been audited and the Hon’ble Delhi in the case of Addl CIT vs. Jai Engineering Works Limited (1978) 113 ITR 389 (Delhi) had held that where the relevant books of the assessee had been destroyed in a fire, the Tribunal could rely upon the Auditor’s report in concluding that deductions had been properly claimed and argued that in the instant case his audit report showed that all the submissions made by the assessee were in order.
On the other hand, Sh. Manu Chaurasia, ld. CIT DR (hereinafter referred to as the ld. DR) arguing on behalf of the Revenue, submitted that the assessee had been non-compliant before both the ld. AO and the ld. CIT(A). Furthermore, he had been negligent in pursuing his appeals before the ld. CIT(A) and therefore, the ld. CIT(A) had no option but to dismiss his appeal. He argued that even otherwise, since the assessee had not furnished any information before the ld. AO, the additions that were made could not be faulted. He, therefore, prayed that the orders of the ld. AO may be confirmed or, if the Tribunal in its wisdom decided to send the matter back, then the assessee should be asked to make necessary compliances so that the facts of the case could be ascertained.
We have duly considered the facts and circumstances of the case. We are in complete agreement with the ld. AR, that the ld. CIT(A) ought not to have dismissed the appeal of the assessee, without giving the assessee an opportunity to rectify the defect noticed in Form No.35 i.e. the failure to file a condonation petition. Additional ground of appeal no. 1 is accordingly allowed. Furthermore, it is observed that while the case had been selected for scrutiny on limited issues, one of which was whether 5