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Facts
The assessee, engaged in electrical contract works, filed its return for AY 2016-17 declaring income of Rs.9,60,250/-. The Assessing Officer (AO) passed an ex-parte order under Section 144 of the Income-tax Act, 1961, disallowing interest expenses of Rs. 25,33,916/- due to non-compliance and lack of documentary evidence. The CIT(A) upheld the AO's decision.
Held
The Tribunal noted that the assessee made part compliance but failed to furnish documentary evidence for the claimed interest expenses. Although the non-compliance was attributed to the death of the original CA, the Tribunal, considering the principles of natural justice, decided to grant one more opportunity to the assessee.
Key Issues
Whether the ex-parte assessment order and disallowance of interest expenses were justified without providing a reasonable opportunity of hearing; whether the disallowance of interest expenses as unexplained expenditure was correct.
Sections Cited
144, 250
AI-generated summary — verify with the full judgment below
Before: SHRI SANJAY GARG & SHRI BIJAYANANDA PRUSETH
आदेश / O R D E R
PER BIJAYANANDA PRUSETH, AM:
This appeal by the assessee emanates from the order passed under section 250 of the Income-tax Act, 1961 (in short, ‘the Act’), dated 13.07.2024, by the Commissioner of Income-tax (Appeals), National Faceless Appeal Centre, Delhi [in short ‘CIT(A)’] for the Assessment Year (AY) 2016-17.
Grounds of appeal
raised by the assessee are as under: “1. On the facts and circumstances of the case as well as law on the subject, the learned Commissioner of Income Tax (A), NFAC has erred in confirming the action of Assessing Officer in making best judgement assessment/s 144 of the I.T. Act, 1961 without providing reasonable opportunity of hearing to assessee.
2. On the facts and circumstances of the case as well as law on the subject, the learned Commissioner of Income Tax (A), NFAC has erred in confirming the action of Assessing Officer in making disallowance of interest expenses of Rs.25,33,916/- as unexplained expenditure.
/AY.2016-17 Sh. Ramdada Electric Works 3. It is therefore prayed that above addition made by Assessing Officer and confirmed by Commissioner of Income-tax (Appeals) may please be deleted.
Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal.”
Brief facts of the case are that the assessee filed its return of income for AY.2016-17 on 03.12.2016, declaring total income of Rs.9,60,250/-. Th assessee was engaged in the business of electrical contract works. The case was selected for scrutiny. Various notices u/s 143(2), 142(1) r.w.s. 129 and 142(1) of the Act were issued to the assessee. In response, the assessee failed to comply with all the notices and made only part compliance through e- compliance module. Subsequently, the AO issued a show cause notice dated 19.11.2018 and asked the assessee to furnish its reply/explanation. Again, the assessee failed to furnish any details/documents/reply. Hence, on the basis of material available on record, the AO passed an ex-parte order u/s 144 of the Act. The AO observed that the assessee has debited total interest expenses of Rs.25,33,916/- [18,52,446 + Rs.6,81,470] in its profit and loss account for the year under consideration. Since, the assessee had failed to furnish any documentary evidence, the genuineness of the interest expenditure claimed in profit and loss account remained unverified. Accordingly, the AO disallowed the above interest expenditure and added it to the total income. The AO assessed total income of Rs.34,94,170/- against the returned income of Rs.9,60,250/-.
4. Aggrieved by the order of AO, the assessee filed appeal before the CIT(A). The CIT(A) observed that the AO had disallowed Rs.18,52,446/- towards /AY.2016-17 Sh. Ramdada Electric Works the interest paid to Bank of Baroda and Rs.6,81,470/-, being the interest paid to the partner. For the entire dispute of allowability of such claim, the AO held that the assessee had failed to establish the genuineness by furnishing of the relevant documentary evidences. The CIT(A) noticed that multiple notices were issued to the assessee, but the assessee made only part compliance, which was not helpful for finalization of the assessment. The CIT(A) upheld the findings of the AO and held that there was no details/evidence to establish that the loan was used for the purposes of its business.
Further aggrieved by the order of CIT(A), the assessee has filed present appeal before the Tribunal. The ld. AR of the assessee has filed a paper book containing written submission before AO and CIT(A), bank statement of Bank of Baroda CC A/c, capital a/c of partners and working of interest paid to partners. He submitted that the AO passed an ex parte order. The appellant could not file all the details/documents before the AO, because the earlier AR of the assessee, who was taking care of the tax matter, passed away. Therefore, the ld. AR of the assessee requested that one more opportunity may be given to the assessee to plead its case on merit before the AO in the interests of justice. He undertakes that the appellant will make all the compliances and help to get the appeal disposed of expeditiously.
On the other hand, learned Senior Departmental Representative (ld. Sr. DR) for the revenue submitted that the assessee was totally non-cooperative before the AO and did not comply to the notices u/s 142(1) and show cause /AY.2016-17 Sh. Ramdada Electric Works notices. Hence, AO has rightly disallowed the interest expenses and dismissed the appeal. The CIT(A) has also passed a detailed order confirming the addition made by AO.
We have heard both the parties and perused the materials available on record. It is undisputed that the assessee had debited interest expenses of Rs.18,52,446/- and Rs.6,81,470/- aggregating to Rs.25,33,916/- in its profit and loss account for the year under consideration. We find that the assessee made part compliance before the AO and failed to furnish documentary evidence regarding the genuineness of the interest expenditure claimed in profit and loss account. In absence of proper details/evidence/ reply, the AO was constrained to disallow the total interest expenses paid to the bank and partners The ld. AR submitted that the non-compliance was due to death of the original CA of the appellant. The ld. AR requested that another opportunity may be granted to the assessee to submit all the required explanations and details and plead its case on merit. Considering the facts and peculiar circumstance of the case, we are of the view that the principles of natural justice would call for giving another opportunity of hearing to the appellant. Accordingly, the order of CIT(A) is set aside and the matter is restored back to the file of AO because the original order was passed u/s 144 of the Act. The assessee is directed to be more vigilant and diligent in future and furnish all the details called for by the AO by not seeking adjournment without any valid /AY.2016-17 Sh. Ramdada Electric Works reasons. For statistical purposes, the appeal of assessee is treated as allowed in above terms.
In the result, appeal of the assessee is allowed for statistical purposes. Order is pronounced under provision of Rule 34 of ITAT Rules, 1963 on 28/07/2025.