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Facts
During a search operation, unaccounted cash receipts of the assessee company over various years were quantified. The Assessing Officer rejected the books of accounts and made an addition based on the seized documents and profit margin. The CIT(A) confirmed this addition ex parte.
Held
The Tribunal held that the CIT(A) dismissed the appeal ex parte without providing an effective opportunity of hearing, which violates the principles of natural justice. The dismissal ex parte resulted in a miscarriage of justice.
Key Issues
Whether the CIT(A) erred in dismissing the appeal ex parte without granting an effective opportunity of hearing. Whether the addition made by the AO and confirmed by CIT(A) is sustainable.
Sections Cited
250, 28, 132, 65B
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH ‘A’: NEW DELHI
Before: SHRI RAJ KUMAR CHAUHAN & SHRI MANISH AGARWAL
O R D E R PER RAJ KUMAR CHAUHAN (J.M.): 1. This appeal is filed by the assessee /appellant against the order of Learned Commissioner of Income Tax (Appeals)-27, Jhandewalan Extension, New Delhi [hereinafter referred to as the “CIT(A)”], passed under section 250 of the Income Tax Act, 1961 [hereinafter referred to as “the Act”] dated 09.10.2024 for the A.Y. 2022-23, wherein the M/s. Adrem India (P) Ltd. assessment order dated 31.03.2023 was upheld and the addition of Rs. 1,49,16,300/- made under section 28 of the Act was confirmed.
The facts in brief as culled out from the order of the authorities below are that the appellant/assessee is a private limited company engaged in the business of sale, purchase, trading, manufacture, installation, consultation and designing of furniture, fittings and modular kitchens etc. The assessee company has two directors namely Sh. Hardesh Chawla and his wife Smt. Monica Chawla. During the search and seizure operation under section 132 of the Act conducted on the assessee company on 9th February, 2022 by the Investigation Wing, Delhi, a hand-written note was found and seized from E-40, South City-1, Block E, Sector-40, Gurugram Haryana. The Contents of the said note revealed that the unaccounted cash receipts of the company over the various years have been quantified and tabulated as mentioned in para 6.2 of the order which is extracted as under:
“6.2 On perusal of the contents of Picture-1, above, it is seen that there are details of unaccounted cash receipts under the heading “Receipts in cash, which have not been accounted for”. The contents of the sheet are reproduced below for clarity: Financial Unaccounted Receipts (in Payments in cash not Year Rs.) accounted 2014-15 25-30 lacs M/s. Adrem India (P) Ltd. 2015-16 30-35 lacs 2016-17 7.5 lacs 2017-18 1.25 cr. 2018-19 1.5 cr. 2019-20 1.5 cr. 2020-21 1.5-2 cr. 2021-22 2 cr.
The assessee was asked vide notice dated 16.03.2023 to explain the contents of the above sheet wherein the assessee submitted that the said sheet merely contains rough estimates/ projections pertaining to the business of trading in food grains which Sh. Hardesh Chawla was contemplating to venture but the said business could not start. The assessee further submitted that the statement recorded on oath of Sh. Hardesh Chawla on 9th February, 2022 and 9th April, 2022 wherein he has admitted to making unaccounted cash sales, has been duly retracted by him by filing an affidavit on 17.10.2022. Hence, the said statement regarding cash sales and contents of the document cannot be considered as legally admissible evidence against the assessee. The Assessing Officer was not convinced of the submissions/ reply of the Assessee. The AO therefore, concluded that the assessee during the M/s. Adrem India (P) Ltd. relevant year under consideration i.e. A.Y. 2022-23 has received unaccounted cash of Rs. 7,94,42,000/-. Hence, the books of accounts of the assessee were rejected to the extent of unaccounted sales of Rs. 9,94,42,000/- and on the basis of rejected books of accounts and the seized document during the search, it was held that the assessee has earned profit of 10 to 15% i.e. an amount of Rs. 1,49,16,300/- calculated at the Net Profit Margin of 15%, as per the total income of the assessee under the head “Income from business & Profession” and was added under section 28 of the Act.
Aggrieved by the assessment order, assessee filed appeal before the Ld. CIT(A) who by passing the impugned ex parte order has dismissed the same and confirmed the addition made in the assessment order.
Aggrieved by the impugned order, assessee is in appeal before us and raised following grounds of appeal:
“1. That having regard to the facts and circumstances of the case, Ed. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making estimated addition of Rs.30,00,000/- (i.e. and that too @15% of Rs.2,00,00,000/-) on the basis of material allegedly found during the course of search and that too by recording incorrect facts and findings and in violation of principles of natural justice and without considering the facts and circumstances of the case and without following the procedure laid down under the Act and has M/s. Adrem India (P) Ltd. further erred in confirming the action of Ld. AO in rejecting the books of accounts of the assessee company.
2. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in making estimated addition of Rs.30,00,000/-, is illegal, bad in law and against the facts and circumstances of the case and the same is not sustainable on legal and factual grounds.
3. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making estimated addition of Rs.1,19,16,300/- (i.e. and that too @15% of Rs.7,94,42,000/-) on the basis of digital data and that too by recording incorrect facts and findings and in violation of principles of natural justice and without considering the facts and circumstances of the case and without following the procedure laid down under the Act and has further erred in confirming the action of Ld. AO in rejecting the books of accounts of the assessee company and impugned addition has been made without following the procedure laid down u/s 65B of the Indian Evidence Act, 1872.
4. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in making estimated addition of Rs.1,19,16,300/- on the basis of digital data, is illegal, bad in law and against the facts and circumstances of the case and the same is not sustainable on legal and factual grounds.
5. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in rejecting the books of accounts of the assessee company and that too without any basis and without appreciating the facts and circumstances of the case.
That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other.”
M/s. Adrem India (P) Ltd. 6. We have heard the Ld. AR and Ld. DR. The Ld. AR on behalf of the assessee, at the very outset, submitted that the impugned order passed by the ld. CIT(A) is in ex parte order as no effective opportunity of hearing has been given which has resulted into miscarriage of justice and therefore prayed for setting aside the impugned order and restoring the matter to the file of the Ld. CIT(A).
The Ld. DR on behalf of the Revenue has opposed the arguments of the Ld. AR stating that despite seeking 8 adjournments, the assessee has failed to file any reply before the Ld. CIT(A) and in these circumstances of the case, Ld. CIT(A) has proceeded ex parte and dismissed the appeal on merit. It is therefore, submitted that the appeal is devoid at merit and liable to be dismissed.
We have considered the rival submissions and examine the record.
Section 250 sub section 2(a) of "the Act" provides as under:
Section 250 (2) The following shall have the right to be heard at the hearing of the appeal: - a. The appellant, either in person or by an authorized representative; M/s. Adrem India (P) Ltd. 10. It is evident from the provision that the hearing to be given is not a formality but an effective hearing is sine qua non for the purpose of upholding the principal of natural justice. 11. We have considered the rival submissions and have noticed that the impugned order has been passed without offering the effective opportunity of hearing which is evident from para 5 to 5.2 of the impugned order extracted below as under:
“5. In consequence to the appeal filed, appellant was given various opportunities to the present the case before CIT(A)-27 Delhi vide various notices (tabulated below) to serve the principle of natural justice.
Sr. No. Date of Notice Date of hearing Date of issued Adjournment Letter 1. 09.06.2023 10.07.2023 2. 24.11.2023 06.12.2023 06.12.2023 3. 07.12.2023 26.12.2023 26.12.2023 4. 27.12.2023 11.01.2024 11.01.2024 5. 31.01.2024 12.02.2024 6. 15.03.2024 20.03.2024 20.03.2024 7. 02.04.2024 16.04.2024 8. 13.09.2024 23.09.2024 23.09.2024 5.1 Despite several opportunities provided to the appellant, the Appellant/ AR neither appeared for the hearing nor filed any written submission except for seeking adjournment after adjournment without specifying any valid, reasonable and convincing reason duly supported by the documentary evidence. From the above table it apparent that appellant has been given more than fair opportunities to present its' case. Appellant has failed to justify the inordinate delay M/s. Adrem India (P) Ltd. as it has neither filed any cogent reason for seeking repeated adjournment nor submitted any documentary evidence. 5.2 The aforesaid circumstances show that the appellant is not interested in pursuing its appeal. In the absence of any reply from the appellant, the matter is being decided ex-parte based on material on record. Keeping in view the aforesaid factual position, the appeal filed by the appellant is therefore decided on merits.
It is evident from the impugned order, as extracted above, that the Ld. CIT(A) has dismissed the appeal on merit ex parte without offering any effective opportunity of hearing as contemplated by Section 250(2) of the Act. We have noticed that there is nothing to show that the adjournment were taken on false grounds and seeking adjournment for justifiable cause is within the legitimate right of the assessee/appellant. Hence, the assessee cannot be penalized for seeking adjournment by deciding the appeal ex parte without giving opportunity of hearing. In these facts and circumstances, we are convinced that the disposal of the appeal on merit and ex parte has resulted into miscarriage of justice. The impugned order is therefore, not sustainable and accordingly set aside and the matter is restored to the file of the Ld. CIT(A) for deciding it afresh after giving effective opportunity of hearing. The assessee/appellant shall present its case before the Ld. CIT(A) within 60 days of this order.