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Facts
The assessee filed a return of income declaring Nil income and a loss. The AO selected the case for scrutiny due to low income and high loan/investment inflows. The AO treated substantial long-term and short-term borrowings as unexplained under Section 68 of the Income Tax Act, 1961, and added it to the assessee's income. The assessee's appeal to the NFAC was dismissed in limine due to a significant delay.
Held
The Tribunal, considering the peculiar facts and circumstances, including the delay in filing the appeal, granted the assessee one more opportunity to present its case. The matter was restored to the Assessing Officer (AO) for fresh adjudication after providing the assessee with a reasonable opportunity of hearing and for producing necessary evidence.
Key Issues
Whether the dismissal of appeal by NFAC on grounds of delay was justified, and whether the additions made by the AO under Section 68 of the Income Tax Act were erroneous.
Sections Cited
68, 144, 143(3A), 143(3B), 115BBE, 270A, 272A(1)(d), 271AAC, 144B, 153, 144(1), 142, 143(2), 142(1), 69C
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Income Tax Appellate Tribunal, LUCKNOW BENCH “A”, LUCKNOW
Before: SHRI. SUDHANSHU SRIVASTAVA & SHRI NIKHIL CHOUDHARY
This appeal has been preferred by the assessee against order dated 24.01.2025, passed by the National Faceless Appeal Centre, Delhi (NFAC) for Assessment Year 2018-19.
The brief facts of the case are that the assessee filed its return of income for the year under consideration on 31.10.2018, declaring total income at Nil, claiming Current Year Loss of Rs.29,00,388/-. The case of the assessee was selected for complete scrutiny under CASS for the reasons "(1) Low income in comparison to high loans/advances/Investment in shares appearing in balance sheet and (2) Inflow of funds in an entity consistently showing loss before depreciation". The Assessing Officer (AO) issued statutory notices to the assessee. However, there was no response from the side of the assessee. On examination of the return of income filed by the assessee, the AO noticed that during the year under consideration, the assessee had shown an amount of Rs.12,31,00,000/- as total Long Term Borrowings and Rs.2,19,856/- as total Short Term Borrowings. The assessee was required to explain as to why sum of these amounts should not be assessed as unexplained credits under section 68 of the Income Tax Act, 1961 (hereinafter called “the Act’). However, there was still no response from the side of the assessee. In the absence of valid explanation and details, the amount of Rs.12,33,19,856 (Rs.12,31,00,000 + Rs.2,19,856) was treated as unexplained and added to the income of the assessee under section 68 of the Act. The AO passed the order under section 144 read with sections 143(3A) and 143(3B) of the Act, assessing the income of the assessee at Rs.12,33,19,856/-.
2.1 The AO also invoked the provisions of section 115BBE of the Act and initiated penalty proceedings under sections 270A, 272A(1)(d) and 271AAC of the Act.
Aggrieved, the Assessee preferred an appeal before the Ld. First Appellate Authority. The Ld. First Appellate Authority/NFAC dismissed the appeal of the assessee in limine for the reason of there being a delay of 745 days in filing of the appeal before the Ld. First Appellate Authority.
4. Now, the assessee has approached this Tribunal challenging the dismissal of its appeal by the NFAC by raising the following grounds of appeal:
1. BECAUSE, the Ld. CIT(A) has erred in law in dismissing the Appeal in limine on grounds of delay in filing appeal. Because the CIT(A) ought to have excluded the period until 31.05.2022 in calculating the delay in filing the appeal in compliance with the order of Supreme Court in Suo Moto WP (C) 3/2020. Therefore, the conclusion in the Impugned Order that there is a delay of over two years is incorrect.
2. BECAUSE, it is submitted that the Assessee after discovering the Assessment Order dated 16.04.2021, in view of the several precedent where similar orders had been quashed by the High Courts, approached the Hon'ble High Court at Lucknow on 22.05.2023 (Writ Tax (WTAX) 132/2023). The High court however on 25.05.2023 disposed of the appeal with liberty to the Appellant to pursue the remedy of statutory appeal. It is submitted that preparing the appeal and getting it filed also consumed over two months which should not be counted towards delay as the Appellant under bona-fide belief pursued its legal remedy.
3. BECAUSE, Ld. CIT(A) ought to have appreciated the facts under which the delay in filing appeal occasioned. It is submitted that the Assessee has been attempting to obtain
the license for production of electricity (license of 18 MW and 21 MW), which has been pending with the authorities for a long time. Because of this failure to obtain license for production of electricity, the Assessee was not doing any business activity and was effectively dormant and the shareholders were therefore looking to exit the company. Under these circumstances, KCPL (current management of the Assessee) had acquired the Assessee company with the hope of reviving the company by obtaining the license for production of electricity (license of 18 MW and 21 MW). This entire process of the purchasing the shares by KCPL from the erstwhile shareholders was carried out during the covid-19 period and therefore the notices issued by the Department went unnoticed. After the purchase of shares by the current shareholders of the Assessee company, the professionals (appointed by the erstwhile management) having access to the e-filing portal of the Assessee Company avoided handing over the log-in details to the new management. It was only in February 2022 that the present management was able to obtain the log-in details and thereafter applied for change in contact details of the Assessee to the Central Processing Center of the Income Tax Department. However, considering the company was not doing any business and was effectively dormant, the professionals inadvertently did not check the e-filing portal for any pending demand/notices until it received new notices issue under section 281 of the ITA. Upon discovering the Assessment Order and the outstanding demand, the Assessee through its current management approached the erstwhile management and shareholders to provide explanation for issuance of CCDs and short-term borrowing to make effective representation before the Income Tax Department. It was sometime in April, 2023 that bank statement and other vital information were obtained by the Assessee directly through bank as the erstwhile management was not co-operating. The present management therefore after obtaining legal advice approached the Hon'ble High Court at Lucknow in May 2023 in which over two months were consumed. After the order of liberty to file appeal by the Hon'ble High Court, the Assesee accordingly filed appeal on 31.05.2023. The Assessee submits that the delay in filing the appeal before the CIT(A) is inadvertent and not deliberate.
BECAUSE, the Assessment Order has been passed under section 143 (3A) and 143(3B) which was specifically made non-applicable from 01.04.2021. It is further settled law that when a power is given to do certain thing in a certain way, the thing must be done in that way or not at all and other methods of performance are forbidden. The Assessee relies upon the judgments of Taylor Vs. Taylor, 1875) 1 Ch.D.426; Nazir Vs. King Emperor, AIR 1936 PC 253, AIR 1975 SC 985; Babu Verghese Vs. Bar Council of Kerala, (1999) 3 SCC 422] for this submission..
BECAUSE, the Assessment Order has been passed without following the mandatory procedure prescribed under section 144B of the ITA. A new section 144B (w.e.f. 01.04.2021) was inserted by TOLA, which inter alia, provided a mandatory issuance of a prior show cause notice and a draft assessment order before issuing a final assessment order, and specifically provided that orders issued not in accordance with the procedure of section 144B shall be non-est. Therefore, the Impugned Assessment order is non-est.
BECAUSE, several High Court, including the Supreme Court has held that not following the mandatory procedure prescribed under section 144B of the ITA renders the assessment order bad in law. The Assessee relies upon the judgments of Abacus Real Estate Private Ltd. v DCIT and Ors. (Bombay High Court WP 1221/2021); Automotive Manufacturers Private Ltd. v NFAC and Ors. (Bombay High Court WP 16281/2021); Multiplier Brand Solutions Pvt. Ltd. Additional Joint Deputy Assistant Commissioner of Income Tax and Ors. (Bombay High Court WP1378/2021); Floral Realcon Pvt. Ltd v. National Faceless Assessment Centre in (Delhi High Court in W.P(C) 9071/2021); Gurgaon Realtech Limited v. National Faceless Assessment Centre (Delhi High Court in W.P(C) 5849/2021) The reasoning of the High Court in these cases that issuance of notice and draft assessment orders are mandatory, has been affirmed by the Supreme Court.
7. BECAUSE, the Assessment Order has been passed after the limitation prescribed under section 153 of the ITA has already expired. In the present case the income was first assessable in AY 2018-19 which ended on 31.03.2019. Therefore, the Assessment Order ought to have been passed within eighteen months from 01.04.2019 (i.e. 01.10.2020). However, the Assessment Order came to be passed much beyond the time limitation and on 16.04.2021.
8. BECAUSE, even under the pre-existing law, the ITA under section 144 mandated an opportunity of being heard by issuance of notice under section 144(1) of the ITA calling upon the Assessee as to why best judgment assessment should not be made.
BECAUSE, it is Assessee's submission that all notices issued under section 142 and 143 of the ITA prior to passing the Impugned Order has been issued by the jurisdictional assessing officer and not the face-less assessing officer as mandate under the ITA. Therefore, the foundation notices of jurisdiction have been passed by the non-jurisdictional officer.
BECAUSE, the AO must have had access to the balance sheet and audited accounts of the Assessee for the relevant Assessment Year from which it is evident that credit in the books of the Assessee is on account of issuance of 1,23,00,000 Compulsorily Convertible Debentures, with face value of Rs. 10 per CCD and issue price of Rs.10 per CCD, with no coupon rate to IVF Trustee Company Private Limited for a consideration of INR 12,30,00,000 in order to pay its outstanding loan and interest amount as part of One Time Settlement offer letter from its lenders. Despite such clear explanation for the identity and creditworthiness of the person subscribing to the CCDs, and the genuineness of the transaction, the Respondent has made an arbitrary addition. Further, the AO has committed gross error in making the addition under section 68 of the ITA but terming it as "unexplained expenditure in the books of assessee assessable under section 68 of the Act" when the section dealing with unexplained expenditure is section 69C and not section 68 of the ITA.
BECAUSE, the Assessing Officer should have issued notices under the ITA to the creditors who subscribed the CCDs to verify the identity and creditworthiness of the person subscribing to the CCDs, and the genuineness of the transaction. The Assessing Officer made no attempt despite specific powers and requirement to do so under the ITA. The Assessee prays that this Hon'ble Tribunal issue notices to the creditors and verify the identity and creditworthiness and genuineness of the transaction.
BECAUSE, the Assessee has clear explanations for the short-term borrowing and the source thereof, duly supported by documentary evidence as submitted before this authority and therefore this addition should be dropped.
BECAUSE, the Impugned Order ought to have appreciated the clear explanation on the source of additions made which are as follows. i. Assessee is a private company, incorporated in India on 30.05.1989 under the provisions of the Companies Act, 1956 and is engaged in the business of development, operation and production of hydro power projects. ii. The Assessee (prior to change in its management) for the purpose of raising capital issued and allotted 1,23,00,000 Compulsorily Convertible Debentures ('CCDs'), with face value of Rs.10 per CCD and issue price of Rs.10 per CCD, with no coupon rate to IVF Trustee Company Private Limited for a consideration of INR 12,30,00,000 in order to pay its outstanding loan and interest amount as part of One Time Settlement offer letter from its lenders. iii. The Assessee paid INR 10,20,00,000 to its creditors, accepting the One Time Settlement (OTS) offer letter from its creditors towards full and final payment against the outstanding loan and interest. The Assessee received a "No dues certificate" dated 24.07.2018 and release of charge certificate from the lenders (Lead consortium Bank Punjab National Bank and Oriental Bank of Commerce). iv. Assessee filed its return of income for AY 2018-19 declaring NIL income and showing a loss of Rs.29,00,388 for the A.Y. 2018-19. v. It appears that a notice under section 143(2) of the Income Tax Act, 1961 ("ITA") was issued to the Assessee on 22.09.2019. It appears that a notice under section 142(1) of the ITA was issued to the Assessee on 19.11.2020. Apparently, another notice under section 142(1) of the ITA was issued to the Assessee on 23.12.2020. The present management does not have access to any of these notices because they cannot be downloaded once the assessment order is passed. vi. Pursuant to an MoU dated 14.08.2020 between True North Trusteeship Private Limited (("TNTPL") IVF Trustee Company Private Limited underwent name change on 19.06.2018) and Kundan Care Products Limited ("KCPL"), on 11.12.2020 sold to KCPL the CCDs along with 1,78,73,603 equity shares of the Assessee (face value of Rs. 10 each) for a total consideration of Rs. 1,50,00,000/. With purchase of the equity shares, KCPL became 78.90 percentage equity shareholder of the Assessee and effectively a majority shareholder and promoter of the Assessee Company. It is important to emphasize that during the process of negotiations for purchase of shares, which was carried entirely during the period of COVID- 19, the erstwhile promoters of the Assessee did not disclose any information about any notice issued by the Respondents pertaining to AY 2018-19. KCPL was assured that there are no tax proceedings pending against the Assessee. The Assesee upon discovery of the Assessmemt Order has made all attempts and has provided all explanation that is in its possession as explanation for entries into its bank account. It is submitted that the AO was also under obligation to make further enquiry which it has failed to carry out.
BECAUSE, the CIT(A) has concurrent powers and it ought to have carried out the exercise of fact finding before confirming the additions made in the Assessment Order under section 68 of the Income Tax Act.
5. The Ld. Authorized Representative for the assessee (Ld. A.R.) submitted that the NFAC was not justified in dismissing the appeal of the assessee for the reason of delay in filing the appeal before it. It was further submitted that against the assessment order dated 16.04.2021, assessee had approached the Hon'ble jurisdiction High Court, which disposed of the appeal of the assessee with the liberty to the assessee to pursue the remedy of statutory appeal. Due to this reason, the assessee could not file the appeal before the NFAC within the prescribed period. In this view of the matter, the dismissal of assessee’s appeal by the NFAC for the reason of delay in filing the appeal was not justified. The Ld. A.R. further submitted that the assessee had commissioned the plant for production of electricity (license of 18MW and 21 MW). However, because of failure to obtain the requisite license for production of electricity, the assessee was not doing any business activity and, therefore, the shareholders were planning to exit the company. Under these circumstances, KCPL (current management of the assessee) had acquired the assessee-company with the hope of reviving the company by obtaining the license for production of electricity (license of 18MW and 21 MW) and the entire process for purchasing the shares by KCPL from the erstwhile shareholders was carried out during the Covid-19 pandemic period and that, therefore, the notices issued by the Department went unnoticed. It was further submitted that the present management did not have access to any of the notices issued by the Department and the erstwhile promoters of the assessee-company had not disclosed any information about any notice/s issued by the Department. Therefore, the assessee could not be represented effectively in the proceedings before the AO. The Ld. A.R. prayed that the orders of the lower authorities may be set aside and matter be restored to the file of the AO for deciding the same de novo, after providing reasonable opportunity of hearing to the assessee.
6. The CIT (D.R.) had no objection to the restoration of appeal to the file of the Assessing Officer as requested by the Ld. A.R.
We have heard both the parties and have also perused the material on record. Looking into the peculiar facts of this case, we are of the considered view that the assessee deserves one more opportunity to present its case and, therefore, we restore this file to the Office of the AO with the direction to provide one more opportunity to the assessee to present its case and produce the necessary evidences in support of its case. We also caution the assessee to fully comply with the directions of the AO in the set-aside proceedings when called upon to do so, failing which, the Assessing Officer would be at complete liberty to pass the order in accordance with law, based on the material available on record even if it is ex-parte qua the assessee.
In the result, the appeal of the assessee stands allowed for statistical purposes.
Order pronounced in the open Court on 30/06/2025.