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Facts
The assessee filed a Nil income return for AY 2017-18, but the AO disallowed Rs. 2,04,84,570/- as interest expense u/s 57, completing assessment u/s 143(3). The CIT(A) dismissed the assessee's appeal without adjudication due to non-compliance. The assessee then filed an appeal with the ITAT with a delay of 512 days, seeking condonation.
Held
The ITAT condoned the delay in filing the appeal, holding that a meritorious case should not be dismissed on limitation grounds, but was not convinced by the assessee's explanation for non-compliance before lower authorities. It imposed a cost of Rs. 10,000/- on the assessee and remanded the matter to the CIT(A) for fresh adjudication on merits of the interest expense claim, allowing another opportunity to establish the nexus between interest expense and income.
Key Issues
Condonation of delay in filing the appeal; Disallowance of interest expense claimed under Section 57; Non-compliance by the assessee before lower authorities.
Sections Cited
143(3), 270A, 57
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Income Tax Appellate Tribunal, “B” BENCH, AHMEDABAD
Before: SHRI SANJAY GARG & SHRI NARENDRA PRASAD SINHA
PER NARENDRA PRASAD SINHA, ACCOUNTANT MEMBER:
This appeal is filed by the assessee against the order of National Faceless Appeal Centre(NFAC), Delhi [hereinafter referred to as ‘CIT(A)’], dated 31.10.2023 for the Assessment Year (A.Y) 2017-18 in the proceeding u/s 143(3) of the Income Tax Act.
There was a delay of 512 days in filing of this appeal. The assessee has filed a condonation application along with affidavit of the assessee. It is explained that in Form No. 35, e-mail Id of the consultant C.A was mentioned, who neither attended the proceedings before the Ld. CIT(A) nor informed the assessee about the passing of order by him.
Sweetyben Ankitkumar Shah vs. ITO AY2017-18 2 It is explained that the assesse came to know about the appellate order only after penalty proceedings u/s 270A of the Act was initiated. The assessee has explained that the delay was due to unawareness about the passing of order by the CIT(A), and therefore, she requested to condone the delay.
Shri. Abhijit Ld. Sr. DR, on the other hand, opposed the request of the assessee to condone assessee. He submitted that the notices were duly sent on the e-mail id as mentioned in Form No. 35. The Ld. Sr. DR also brought on record certain newspaper reports as per which the assessee was party to massive financial scam in the nature of ponzi scheme. He submitted that considering the conduct of the assessee no lenient view was required to be taken to condone the delay.
We have considered the rival submissions. As regarding irregular financial activities of the assessee, that conduct cannot be a relevant factor to decide the condonation of delay in filing the present appeal. The consequences of irregular financial activities will take its own course and the request for condonation of delay has to be considered on the basis of the present facts. It is found from Form No. 35 that the e-mail id mentioned therein was caalpeshoffice@gmail.com which belonged to the counsel. It is further noticed that no compliance was made before the Ld. CIT(A), who had dismissed the appeal without adjudicating the grounds taken by the assessee on merits. Though we are not fully convinced with the explanation of the assessee regarding the delay in filing of the appeal, we are guided by the judgment of Hon’ble Gujarat High Court in the case of Varleli Taxtiles Limited (284 ITR 238), Sweetyben Ankitkumar Shah vs. ITO AY2017-18 3 (Gujarat), wherein it was held that the meritorious case should not be thrown out on the ground of limitation. Since the addition made in the present case was not adjudicated on merits, we deem it proper to condone the delay in filing the present appeal.
The brief facts of the case are that the assessee had filed return of income for A.Y 2017-18 on 25.12.2017 declaring Nil income. The case was selected for limited scrutiny to examine the deduction claimed against income from other source. The A.O. noticed that the assessee had claimed deduction of Rs. 2,04,84,570/- on account of interest paid u/s 57 of the Act. In the course of assessment no explanation was given by the assessee in this regard and the nexus between the interest income earned and the interest expense was not established. Therefore, the A.O disallowed the claim for deduction of interest payment of Rs. 2,04,84,570/-. The assessment was completed u/s 143(3) on 28.12.2019 at total income of Rs. 8594470/-.
Aggrieved with the order of the Assessing Officer, the assessee had filed an appeal before the First Appellate Authority which was decided by the Ld. CIT(A) vide impugned order and the appeal of the assessee was dismissed.
Now the assessee is second appeal before us. The assessee has raised the following grounds of appeal:
1. The order passed by the Ld. CIT(A) is against the law, equity and principle of natural justice.
3. The CIT(A) has erred in law and on facts in upholding disallowance made by ld. AO not allowing interest expense of Rs. 85,94,470/- from interest income.
4. The appellant craves liberty to add, amend, alter or modify all or any grounds of appeal before final appeal.
8. Shri. M S Chhajed, Ld. A.R of the assessee explained that the Ld. CIT(A) had dismissed the appeal of the assessee for the reason that no compliance could be made before him and the matter was not adjudicated on merits. He therefore, requested that the assessee may be allowed another opportunity to explain the claim for interest made u/s 57 of the Act, by setting aside the matter to the file of Ld. CIT(A).
Per contra, Shri. Abhijit, Ld. Sr. D.R supported the order of the lower authorities.
We have considered the rival submissions. We are not convinced with the explanation of the assessee for non-compliance before the ld. CIT(A). It is found that no compliance was made by the assessee before the Assessing Officer and the nexus of interest expense claimed as deduction u/s 57 of the Act with the interest income earned, was not established. Before the Ld. CIT(A) also, the assessee did not make any compliance in spite of five opportunities provided by him. The assessee cannot escape by placing the blame for non-compliance on the counsel. It is a settled law that there is no general proposition that mistake of counsel by itself is always a sufficient ground. When the Assessing Officer had passed ex-parte order because of total non-compliance Sweetyben Ankitkumar Shah vs. ITO AY2017-18 5 before him and the assessee had filed first appeal before the Ld. CIT(A), the assessee should have been careful enough to ensure that proper compliance was made before the appellate authority. It was the duty of the assessee to watch his affairs before the AO and the CIT(A). The assessee was aware of the ex-parte order passed by the AO and the pending appeal, still no care was exercised to enquire about the status of appeal and the assessee has tried to shift the responsibility on her counsel. The assessee was certainly negligent and we are not convinced with the explanation regarding non-compliance before the lower authorities. Therefore, we deem it proper to impose a cost of Rs.10,000/- on the assessee which should be deposited to the Prime Minister’s National Relief Fund within a period of 15 days from the date of receipt of this order. Subject to the payment of cost, we deem it proper to set aside the matter to the file of the Ld. CIT(A) with a direction to allow another opportunity to the assessee to explain the nature of interest expense and to establish the nexus of this expense with earning of interest income. The assessee is free to produce the evidences in this respect before the CIT(A), who may call for remand report of the AO, if found necessary. In case the assessee does not make compliance in the course of set aside appeal proceeding, the Ld. CIT(A) will have liberty to pass the order on the basis of the materials available on record.
In the result, the appeal of the assessee is allowed for statistical purpose.
Order pronounced in the Court on 20/01/2026 at Ahmedabad.
Sd/- Sd/- (SANJAY GARG) (NARENDRA PRASAD SINHA) Judicial Member Accountant Member True Copy Dated – 20th January, 2026 Neelesh Kumar आदेश क� आदेश क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order forwarded to : आदेश आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबंिधत आयकर आयु� / Concerned CIT 4. आयकर आयु�(अपील) / The CIT(A) 5. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण / DR, ITAT, 6. गाड� फाईल /Guard file.