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Facts
The assessee, Mahavir Impex, a manufacturing proprietorship, faced an ex-parte assessment for AY 2021-22 under Section 144/144B due to non-compliance, leading to significant additions totaling Rs. 5,26,42,644/- for unverified purchases, sundry creditors, sundry debtors, unsecured loans, and direct expenses. The Ld. CIT(A) subsequently set aside this assessment and remanded the case back to the AO for fresh adjudication, finding that the assessee was not given a reasonable opportunity of hearing and citing the amended Section 251.
Held
The Income Tax Appellate Tribunal (ITAT) dismissed the Revenue's appeal, affirming the CIT(A)'s decision. The Tribunal noted that the Finance Act, 2024, reintroduced Section 251(1)(a) allowing the CIT(A) to set aside assessments for fresh verification of records, especially where natural justice principles were violated. The ITAT concluded that the remand ensures the assessment is based on actual evidence rather than estimates and found no illegality in the CIT(A)'s approach.
Key Issues
The core issues were whether the CIT(A) correctly exercised its power to set aside an ex-parte assessment and remand the case for fresh adjudication, particularly in light of the amended Section 251(1)(a) and alleged violation of natural justice.
Sections Cited
Section 143(2), Section 142(1), Section 144, Section 144B, Section 69C, Section 115BBE, Section 68, Section 251, Section 251(1)(a), Income Tax Act, 1961
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “A” BENCH, CHANDIGARH
Before: HON’BLE SHRI LALIET KUMAR, JM & HON’BLE SHRI KRINWANT SAHAY, AM
O R D E R Krinwant Sahay (Accountant Member) This appeal filed by the Revenue is directed against the order of the Ld. CIT(A)/NFAC, Delhi, dated 04.12.2024, pertaining to the Assessment Year 2021-22. The Revenue has challenged the action of the Ld. CIT(A) in setting aside the assessment order to the file of the Assessing Officer for fresh adjudication.
In the present appeal Revenue has raised the following grounds:
1. 1. 1. 1. 1. 1. 1. That, the Ld. Commissioner of Income Tax(Appeals) has erred in allowing the appeal of the assessee and setting aside the matter to the file of AO, without going into and discussing the merits of the case that Assessing Officer had given several opportunities to file the reply to the assessee.
2. That, the Ld. Commissioner of Income Tax(Appeals) has erred in allowing the appeal of the assessee and setting aside the matter to the file of AO, for adjudication without taking into consideration whether there were justifiable grounds for making total non-compliance by the assessee before the CIT(A) as well as AO.
3. That, the Ld. Commissioner of Income Tax (Appeals) has erred in allowing the appeal of the assessee, and setting aside the assessment order back to the file of the A.O after merely provoking the newly inserted provision 251(1)(a) to section 251 of the Income Tax Act, 1961.
4. That, the Ld. Commissioner of Income Tax (Appeals) has failed to appreciate the fact that the addition of Rs. 4,13,73,219/- made by the AO being unexplained expenditure u/s 69C r.w.s. 115BBE of the Income Tax Act, 1961 on account of 25% of the unverified purchases and the assessee had failed to furnish any explanation on this issue during the course of assessment proceedings.
5. That, the Ld. Commissioner of Income Tax (Appeals) has failed to appreciate the fact that the addition of Rs. 39,75,425/- made by the AO being unexplained cash credits u/s 68 r.w.s. 115BBE of the Income Tax Act, 1961 on account of 25% of the unverified Sundry Creditors and the assessee had failed to furnish any explanation on this issue during the course of assessment proceedings.
That, the Ld. Commissioner of Income Tax (Appeals) has failed to appreciate the fact that the addition of Rs. 39,43,312/- made by the AO being unexplained cash credits u/s 68 r.w.s. 115BBE of the Income Tax Act, 1961 on account of 25% of the unverified Sundry Debtors and the assessee had failed to furnish any explanation on this issue during the course of assessment proceedings.
That, the Ld. Commissioner of Income Tax (Appeals) has failed to appreciate the fact that the addition of Rs. 10,46,000/- made by the AO being unexplained cash credits u/s 68 r.w.s. 115BBE of the Income Tax Act, 1961 on account of unverified Unsecured Loans and the assessee had failed to furnish any explanation on this issue during the course of assessment proceedings.
8. That, the Ld. Commissioner of Income Tax (Appeals) has failed to appreciate the fact that the disallowance of Rs. 23,04,688/- made by the AO being 25% of unverified direct expenses and the assessee had failed to furnish any explanation on this issue during the course of assessment proceedings.
That, reliance is placed on the judgement of Hon'ble High Court of Gujarat at Ahmedabad in the case of Principal Commissioner of Income Tax-3, Vs. Ashokji Chanduji Thakor dated 27.06.2018 wherein the order passed by the Hon'ble ITAT was quashed & order of AO/CIT(A) were restored. 10) That the appellant craves leave to add or amend any ground of appeal before it is finally disposed off.
The facts of the case are that the assessee is engaged in the manufacturing proprietorship in the name of "Mahavir Impex." The case was selected for complete scrutiny to verify substantial purchases from non-filers and discrepancies between GSTR-1 and ITR turnover. During the assessment proceedings, the AO issued several notices under Section 143(2) and 142(1); however, the assessee failed to submit the required documents or explanations. Consequently, the AO passed an ex-parte assessment order under Section 144 read with Section 144B on 20.12.2022. In the said order, the AO made significant additions totaling Rs. 5,26,42,644/-, which included a 25% disallowance of unverified purchases of Rs. 4,13,73,219/-, 25% disallowance of sundry creditors of Rs. 39,75,425/- and debtors of Rs. 39,43,312/- as unexplained cash credits, and further additions regarding unexplained unsecured loans of Rs. 10,46,000/- and direct expenses of Rs. 23,04,688/-. The AO concluded that the assessee was attempting to evade tax by eluding the authorities.
Aggrieved by the assessment, the assessee preferred an appeal before the Ld. CIT(A). The assessee contended that the notices were not served effectively as they were sent to an old address and the e- portal contained an incorrect email ID. Upon considering these submissions, the Ld. CIT(A) observed that the assessment was completed without providing a reasonable opportunity for a hearing, thereby violating the principles of natural justice. The Ld. CIT(A) noted that the Finance Act, 2024, effective from 01.10.2024, amended Section 251 to restore the power of the Commissioner to set aside an assessment. By exercising these powers, the Ld. CIT(A) set aside the order dated 20.12.2022 and referred the case back to the AO for a fresh assessment, directing the AO to consider the documents relied upon by the appellant after affording a proper hearing.
During the proceedings before us, the Ld. Departmental Representative (DR) argued that the Ld. CIT(A) should have decided the matter on merits rather than remanding it, especially since the assessee was a habitual non-complier during the initial assessment. On the other hand, the Ld. Authorized Representative (AR) for the assessee supported the order of the Ld. CIT(A), stating that the restoration of the power to remand under Section 251(1)(a) was specifically intended for cases where the merits could not be examined due to lack of representation at the lower level, and that the assessee is now ready to produce all audited books of accounts.
6. We have carefully considered the rival submissions and perused the relevant material. The core issue revolves around the statutory power of the CIT(A) to remand a matter back to the AO. It is observed that the Finance Act, 2024, reintroduced the provision under Section 251(1)(a) enabling the CIT(A) to set aside an assessment and refer it back for fresh adjudication, effective from October 1, 2024. In the present case, the Ld. CIT(A) passed the impugned order on 04.12.2024, which is subsequent to the amendment. Since the law now explicitly permits the CIT(A) to set aside an assessment where the facts require a fresh verification of records that were not previously considered, we find no illegality in the approach adopted by the Ld. CIT(A). The remand ensures that the assessment is based on actual evidence rather than mere estimates. Consequently, we see no reason to interfere with the findings of the Ld. CIT(A).
The appeal filed by the Revenue is, therefore, dismissed.
Order pronounced on 19/03/2026