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Facts
The assessee filed its Return of Income for AY 2022-23, which was processed u/s 143(1), leading to an addition of Rs. 1.50 Crore (remuneration to partners u/s 40B) and a demand of Rs. 96,88,210/-. The assessee appealed to the CIT(A), but the appeal was dismissed ex-parte due to non-compliance (repeated adjournments) without any adjudication on the merits of the case.
Held
The ITAT held that the CIT(A) erred in dismissing the appeal ex-parte without a merits adjudication, violating principles of natural justice and obligations under Sections 250(4) and 250(6) of the Income Tax Act, 1961. Citing various High Court and Supreme Court judgments, the ITAT emphasized the first appellate authority's duty to decide appeals on merits. Consequently, the ITAT remanded the case back to the CIT(A) for fresh adjudication on merits within three months, granting the assessee one final opportunity to present its case.
Key Issues
Whether the CIT(A)'s ex-parte dismissal of an appeal due to non-compliance, without adjudicating the matter on merits, violates principles of natural justice and requires a remand for fresh consideration.
Sections Cited
Section 250 of the Income Tax Act, 1961, Section 143(1) of the Income Tax Act, 1961, Section 40B of the Income Tax Act, 1961, Section 250(4) of the Income Tax Act, 1961, Section 250(6) of the Income Tax Act, 1961, Section 33(4) of the Income Tax Act, 1922, Article 14 of the Constitution of India
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Income Tax Appellate Tribunal, RAIPUR BENCH, RAIPUR
Before: SHRI PARTHA SARATHI CHAUDHURY, JM & SHRI ARUN KHODPIA, AM
आदेश / O R D E R Per Arun Khodpia, AM:
This appeal is filed by the assessee against the order of Commissioner of Income Tax (Appeal)/ Addl/ JCIT (A)-1, Mumbai [in short “Ld. CIT(A)”] dated 25.02.2025 for the Assessment Year 2022-23, under section 250 of the Income Tax Act, 1961 (in short “the Act”), which in turn arises from the intimation u/s 143(1) of the Act, dated 30.12.2023, issued by Centralized Processing Center, Bengaluru (in short “Ld. AO”).
In the facts and circumstances of the case and in law the learned commissioner of the Income Tax Appeals has erred in summarily dismissing the appeal on the ground that the appellant did not make compliance without deciding each of the grounds of appeal
set out in appeal memo, which is violation of provision of section 256(6) of the Income Tax Act, 1961.
2. In the facts and circumstances of the case the learned Commissioner of Income Tax (Appeals) erred in not following the law established by various honorable High Court and honorable Jurisdictional Tribunal by not applying the law laid down in the case of PCIT v. Prem Kumar Arjundas (2017) 297 CTR 614 (Bombay).
3. The impugned order is bad in law and on facts.
4. The appellant reserves the right to add, alter, omit all or any of the grounds of appeal with the permission of the Hon'ble appellate authority.
The concise facts of the case are that the assessee had filed its Return of Income for the Assessment Year 2022-23 on 27.03.2023. The return of assessee was, thereafter, processed u/s 143(1), effecting an enhancement of Rs.1.50 Crore in the total income of the assessee, thereby raising the demand of Rs. 96,88,210/- on the assessee.
Aggrieved with the aforesaid addition, the assessee preferred an appeal before the Ld. CIT(A).
Before Ld. CIT(A), it was the submission by assessee that the Ld. AO (CPC) had erred in making the disallowance of Rs. 1.50 Crore, which was actually the remuneration paid to the partners claimed u/s 40b of the Act, without granting any opportunity to the assessee before making the said addition u/s Madhyani Builders Vs Income Tax Officer, Circle-1(1), Bhilai 143(1) of the Act. Ld. CIT(A) had deliberated on the issue in a summary manner in absence of any submission by the assessee despite several opportunities granted. The assessee had only preferred adjournments time and again, therefore, the appeal has been dismissed assuming that the assessee has no valid explanation to offer.
Being dissatisfied with the aforesaid order of Ld. CIT(A), assessee carried the matter further, which is under consideration in the present case before us.
7. At the outset, it is noticed that the case of assessee has been dismissed on ex-parte basis, as the assessee had sought only adjournment 4 times, without making any substantive submission before the Ld. CIT(A). In the present matter, as observed from the order of Ld. CIT(A), there was no adjudication on merits even on the basis of material and facts available on record, no enquiries which could have been made by the Ld. CIT(A) so as to arrive to a logical conclusion regarding the justification of disallowance / addition made in the intimation passed by CPC u/s 143(1) of the Act. On this issue, assessee had placed its reliance on CIT vs. Premkumar Arjundas Luthra (HUF) reported in [2016] 240 taxman 133 and rightly so, as Hon’ble Bombay High Court in the said decision had enlightened about duties of First Appellate Authority with the observation that “he is obliged to make such further Madhyani Builders Vs Income Tax Officer, Circle-1(1), Bhilai inquiry that he thinks fit or direct the Assessing Officer to make further inquiry and report the result of the same to him as found in Section 250(4) of the Act. Further Section 250(6) of the Act obliges the CIT(A) to dispose of an appeal in writing after stating the points for determination and then render a decision on each of the points which arise for consideration with reasons in support”.
8. In view of aforesaid observations, respectfully following the ratio of law observed by Hon’ble Mumbai High Court, in the interest of substantial justice, as has been held by this tribunal, we find it appropriate to provide one more and the last opportunity to the assessee to represent its case before the Ld. CIT(A), accordingly, the matter deserves to be restore back to the file of Ld. CIT(A) for fresh adjudication with proper deliberation on the merits of facts.
9. Our decision is supported by the decision of this Tribunal in the case of Brajesh Singh Bhadoria Vs. Dy./ Asstt. Commissioner of Income Tax, Central Circle-2, in IT(SS) No. 1 to 6, 8 & 9/RPR/2025 dated 20.03.2025, wherein under identical facts and circumstances, it has been held to restore the matter back to the file of Ld. CIT(A), for the sake of clarity the relevant observations in the case of Brajesh Singh Bhadoria (supra), are extracted hereunder:
We have considered the submissions of the parties herein and analyzed the facts and circumstances involved in all the captioned appeals. After careful Madhyani Builders Vs Income Tax Officer, Circle-1(1), Bhilai perusal of the documents on record, we find that the assessee had assailed the legal ground as aforestated, however, the fact of the matter is that on perusal of the respective orders of the Ld. CIT(Appeals) for all the years before us, it is also evident from Para 3 that there has been no compliance by the assessee before the said authority and as such, an ex-parte order was passed for the concerned years in appeal. Admittedly, as per record, sufficient opportunities had been provided to the assessee, however, there was no compliance by the assessee. In effect, rights and liabilities of the parties herein are yet to be adjudicated substantially at the level of the first appellate authority. Though in the impugned orders, discussion has been done as per material available on record by the Ld. CIT(Appeals) but they are only Form 35, statement of facts, grounds of appeal and the assessment order. However, due to non-compliance by the assessee, there are no submissions, evidence and documents submitted for adjudication by the assessee before the Ld. CIT(Appeals). That as per Para 3 of the Ld. CIT(Appeals) order, there has been no compliance on the part of the assessee for submitting detailed explanations regarding the grounds of appeal for the years under consideration which clearly shows that the grounds of appeal raised before the first appellate authority has not been substantiated on merits through corroborative evidence /submissions.
That in such scenario we are of the considered view that the Income tax Act is within the ambit of welfare legislation which are completely different from that of the penal legislation, therefore, benefit of doubt whenever arises, it has to be interpreted in favour of the assessee tax payer within the parameters of law and facts. There may be circumstances beyond control of the assessee because of which, the assessee may not have been able to represent his case on the given dates of hearing before the Ld. CIT(Appeals). Though it is correct that there was no compliance from the side of the assessee, however, nothing is there on record which suggests any deliberate non-compliance or malafide conduct of the Madhyani Builders Vs Income Tax Officer, Circle-1(1), Bhilai assessee. That further, if one final opportunity is provided to the assessee to represent his case before the first appellate authority, the position of the revenue will also not be jeopardized.
Recently, the Hon’ble High Court of Bombay in the case of Vijay Shrinivasrao Kulkarni Vs. Income-tax Appellate Tribunal (2025) 171 taxmann.com 696 (Bom.), dated 04.02.2025 observed that in the case the Assessing Officer had passed an ex-parte order and when the matter went on appeal before the Ld. CIT(Appeals)/NFAC, it had also dismissed the matter ex- parte due to non-compliance by the assessee’s authorized representative, when the matter came up before the ITAT, it had failed to address the infirmity regarding the fact that the assessee was not afforded proper opportunity of being heard and the matter was dismissed ex-parte by the Ld. CIT(Appeals)/NFAC which amounted to violation of principles of natural justice, and instead ITAT decided the case on merits, in such circumstances, the Hon’ble High Court of Bombay held that passing of an order on merits by the ITAT even when the impugned order was passed ex-parte amounts to violation of principles of natural justice and accordingly, the said matter was remanded to ITAT for passing a fresh order in accordance with law after hearing the parties. The legal principle as enshrined in the present judgment is crystal clear that the principles of natural justice i.e. the right to be heard is to be provided and accordingly, the matter had to be substantially adjudicated by the appellate authority. Therefore, if the impugned order of the Ld. CIT(Appeals)/NFAC is an ex-parte order, the only recourse in conformity with the aforesaid judicial pronouncement is to remand the matter back to the file of the Ld. CIT(Appeals)/NFAC for fresh adjudication in terms with the principles of natural justice providing one final opportunity to the assessee.
Madhyani Builders Vs Income Tax Officer, Circle-1(1), Bhilai 10. In the aforesaid case, the Hon’ble High Court of Bombay had referred to a judgment of the Hon’ble Supreme Court in the case of Delhi Transport Corporation vs. DTC Mazdoor Union AIR 1999 SC 564, wherein the Supreme Court inter-alia held that Article 14 guarantees a right of hearing to a person who is adversely affected by an administrative order. The principle of audi-alteram partem is a part of Article 14 of the Constitution of India. In light of such decision, the petitioner ought to have been granted an opportunity of being heard which, partakes the characteristic of the fundamental right under Article 14 of the Constitution of India.
The Hon’ble High Court of Bombay in the aforesaid case had referred to a decision of the Hon’ble Supreme Court in the case of Commissioner of Income Tax Madras v. Chenniyappa Mudiliar 1969 1 SCC 591, wherein the Supreme Court in interpreting the section 33(4) of the Income Tax Act, 1922 has held that the appellate tribunal was bound to give a proper decision on question of fact as well as law, which can only be done if the appeal is disposed off on merits and not dismissed owing to the absence of the appellant. Reverting to the facts of the present case the grounds of appeal were simply filed before the Ld.CIT(Appeals) they were not substantiated or corroborated through submissions and filing of documentary evidences since the assessee had not complied before the Ld.CIT(Appeals) on the dates of hearing. Therefore, as per framework of the Act there must be adjudication on merits by the first appellate authority and one final opportunity be provided to the assessee to represent his matter on merits in the interest of natural justice.
12. There may even be a situation where the Ld. Counsel for the assessee may assail a legal ground before the Tribunal following the decision of the Hon’ble Supreme Court in the case of National Thermal Power Company Ltd. Ltd. Vs.
Madhyani Builders Vs Income Tax Officer, Circle-1(1), Bhilai CIT (1998) 229 ITR 383 (SC) with a contention that irrespective of the order of the Ld. CIT(Appeals) being ex-parte, the Tribunal may decide the legal issue that has been raised by the Ld. Counsel. In our view, the decision of the Hon’ble Supreme Court in the case of National Thermal Power Company Ltd. Ltd. Vs. CIT (supra) provides that any legal issue which goes to the root of the matter and is established through legal principles, the assessee can take up and raise such legal issue at any appellate forum irrespective of whether the assessee had raised such legal issue at the sub-ordinate level or not, however, it always depends on facts and circumstances of each case whether the Tribunal would decide the legal ground or in a case where the question is of natural justice and ex-parte order by the Ld. CIT(Appeals) the Tribunal would remand it back to Ld. CIT(Appeals) providing final opportunity to a bonafide assessee. The Tribunal as the highest fact finding authority must be certain enough that the impugned order before it has been passed on merits and is a speaking order where the assessee has also complied during the process of litigation. In case, where the order of the Ld. CIT(Appeals) itself is ex-parte and some legal ground is raised and if the Tribunal decides such legal ground where in fact principles of natural justice is left unanswered due to the fact that the impugned order before the Tribunal is ex- parte and there was no compliance by the assessee in such scenario the Tribunal would also be usurping the power of the Ld. CIT(Appeals) which is also a statutory authority as per the Act. This is due to the reason that as per framework of the Act, Ld. CIT(Appeals) is the first appellate authority where an appeal by assessee it would be substantially decided through a speaking order by the Ld. CIT(Appeals). When this part is over and either party is aggrieved second appeal lies before the ITAT. Now if for every ex-parte order passed by the Ld. CIT(Appeals), of course due to non-compliance by the assessee, if the Tribunal adjudicates a legal ground, for instance validity of assessment or reassessment order and answers it in favour of the assessee then it would create an easy route Madhyani Builders Vs Income Tax Officer, Circle-1(1), Bhilai for assessee getting redressal from Tribunal even without bothering to comply with hearing notices before the Ld. CIT(Appeals). This would dismantle the structure of the Act which is definitely not the intention of the legislature. Here in this situation, where the benefit of doubt is given to the assessee since he had not complied with the hearing notices before the Ld. CIT(Appeals) which resulted in passing of an ex-parte order by the Ld. CIT(Appeals), in such scenario, as per the scheme of the Act and following the principles of natural justice, the only course of action is to remand the matter back to the file of the Ld. CIT(Appeals) for adjudication on merits providing one final opportunity to the assessee.
In view thereof, we set aside the respective orders of the Ld. CIT(Appeals) for all the years and remand the same to their file for denovo adjudication on merits. At the same time, we direct the assessee that this being the final opportunity, there must be compliance on merits before the first appellate authority. Needless to say, the Ld. CIT(Appeals) shall provide reasonable opportunity of being heard to the assessee and pass an order in terms of Section 250(4) and (6) of the Act within three months from receipt of this order.
In terms of our aforesaid observations, as agreed by both the parties herein, it would be fair and just that the matter to be set aside to the file of Ld. CIT(A) to allow one more opportunity to the assessee and decided the issue raised in the appeal afresh in accordance with the provisions of law, within a period of 3 months from receipt of this order. Consequently, the present appeal is restored back to the file of Ld. CIT(A).
Madhyani Builders Vs Income Tax Officer, Circle-1(1), Bhilai 11. Needless to say, the assessee shall be afforded with reasonable opportunity of being heard in the set aside appellate proceedings. The assessee as conceded through its authorized representative before us, also directed to cooperate and assist proactively in the set aside proceedings, failing which the Ld. CIT (A) would be at liberty to decide the case in accordance with the mandate of law.
In result, appeal of the assessee is allowed for statistical purposes, in terms of over aforesaid observations.
Order pronounced in the open court on 20/05/2025.
Sd/- Sd/- (PARTHA SARATHI CHAUDHURY) (ARUN KHODPIA) �ाियक सद� / JUDICIAL MEMBER लेखा सद� / ACCOUNTANT MEMBER रायपुर/Raipur; िदनांक Dated 20/05/2025 Vaibhav Shrivastav आदेश की �ितिलिप अ�ेिषत/Copy of the Order forwarded to : अपीलाथ� / The Appellant- Madhyani Builders 1. 2. ��थ� / The Respondent- Income Tax Officer, Circle-1(1), Bhilai 3. The Pr. CIT, Raipur (C.G.) िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, रायपुर/ DR, ITAT, 4. Raipur 5. गाड� फाईल / Guard file. // स�ािपत �ित True copy //
(Senior Private Secretary) आयकर अपीलीय अिधकरण, रायपुर/ITAT, Raipur