DILIPKUMAR PASHABHAI PRAJAPATI,AHMEDABAD vs. THE INCOME TAX OFFICER, WARD-3(3)(5), AHMEDABAD

"ी िस"ाथ" नौिटयाल, "ाियक सद" एवं "ी मकरंद वसंत महादेवकर, लेखा सद" के सम$। ] ] BEFORE SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER AND SHRI MAKARAND V. MAHADEOKAR, ACCOUNTANT MEMBER आयकर अपील सं /ITA Nos.1095 & 1096/Ahd/2024 िनधा"रण वष" /Assessment Years : 2016-17 & 2017-18 respectively Dilipkumar Pashabhai Prajapati The Income Tax Officer बनाम/ C/SF 211 Pushp Business Campus Ward-3(3)(5) v/s. Nr. Vastral Cross Road Ahmedabad SP Ring Road Vastral Ahmedabad – 382 418 "थायी लेखा सं./PAN:ATRPP 9632 R (अपीलाथ%/ Appellant) (&' यथ%/ Respondent) Assessee by : Shri Jinesh Shah, AR Revenue by : Shri R.N. Dsouza, CIT-DR सुनवाई की तारीख/Date of Hearing : 10/09/2024 घोषणा की तारीख /Date of Pronouncement: 25/09/2024 आदेश/O R D E R PER MAKARAND V. MAHADEOKAR, AM:

These two appeals filed by the assessee are directed against the order passed under section 250 read with section 251 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”), dated 21-12-2023 by the National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred to as “CIT(A)”) for the Assessment Years (AY) 2016-17 and 2017-18. The primary challenge is against the addition of Rs.1,16,49,66,875/- and Rs.90,37,67,440/-, & 1096/Ahd/2024 Dilipkumar Pashabhai Prajapati vs. ITO Asst. Years : 2016-17 & 2017-18 respectively, made by the Assessing Officer u/s 68 of the Act vide his orders passed under section 147 r.w.s 144 of the Act and upheld by the CIT(A).

Facts of the case:

2.1. The AO, on an independent enquiry, observed that M/s.Orange Tradex Pvt. Ltd. was merely a paper concern involved in routing money & 1096/Ahd/2024 Dilipkumar Pashabhai Prajapati vs. ITO Asst. Years : 2016-17 & 2017-18 without conducting actual business activities. The investigation revealed that the office premises were mostly non-operational, and the primary person associated with the entity had admitted that he was a dummy director.

2.2. Following are the details of various notices issued and the response by the assessee in case of both the assessment years:

Assessme Type of Date of Purpose of Action Assessee’s nt Year Notice Notice Notice Required Response Issued 2016-17 Notice 31/03/20 Reopening of File a No response; under 21 assessment return of assessee did Section under section income not file the 148 147 within 30 return within days from the the date of stipulated service of time. the notice. Notice 19/11/20 To call for Submit Filed return under 21 specific details on 25-08-2021 Section information such as belatedly, 142(1) and details source of declaring the regarding the income, same income transactions business as originally in question activities, filed under and return filed section substantiate under 139(1), the entries in section 148, without the books of and income providing accounts. computatio additional n. details or evidence.

ITA Nos.1095 & 1096/Ahd/2024 Dilipkumar Pashabhai Prajapati vs. ITO Asst. Years : 2016-17 & 2017-18 Show 27/03/20 To provide an Provide Submitted a Cause 22 opportunity explanatio brief letter on Notice to explain the ns for the 29-12-2021 under nature and substantial reiterating Section source of credit the filing of 147 (SCN) transactions entries and the return but with M/s documenta failed to Orange ry evidence substantiate Tradex Pvt. supporting the Ltd. the transactions transaction or provide s. the necessary evidence. Final 31/03/20 Completion - Addition of Assessme 22 of the Rs. nt Order reassessment 1,16,49,66,875 under based on /- under Section non- section 68 as 147 read cooperation unexplained with and absence credits due to Section of lack of 144B satisfactory cooperation evidence and failure to regarding the substantiate disputed the transactions. transactions. 2017-18 Notice 31/03/20 Reopening of File a No under 21 assessment return of immediate Section under section income response; the 148 147 within 30 return was days from not filed the date of within the receipt of specified the notice. period. Notice 19/11/20 To obtain Submit Filed return under 21 detailed details of belatedly on Section information business 25-08-2021, 142(1) regarding the activities, declaring the disputed total same income transactions income as in the and verify computatio original the n, and the return filed authenticity return filed under section & 1096/Ahd/2024 Dilipkumar Pashabhai Prajapati vs. ITO Asst. Years : 2016-17 & 2017-18 of the credits in response 139(1), in the books. to section without 148. additional explanations.

Show 27/03/20 To explain Furnish Filed a Cause 22 the specific response on Notice substantial documenta 29-12-2021 under credit ry evidence but did not Section transactions and provide 147 (SCN) with M/s clarificatio sufficient Orange ns evidence or Tradex Pvt. regarding clarification Ltd., flagged the source to satisfy the as and nature queries accommodati of the raised by the on entries credits. AO. without genuine business backing. Final 31/03/20 Finalization - Addition of Assessme 22 of the Rs. nt Order reassessment 90,37,67,440/ under due to failure - under Section of the section 68 as 147 read assessee to unexplained with provide credits due to Section adequate non- 144B evidence or compliance substantiate and lack of the substantiatio transactions n of the during the transactions. proceedings. & 1096/Ahd/2024 Dilipkumar Pashabhai Prajapati vs. ITO Asst. Years : 2016-17 & 2017-18 2.3. The assessee preferred appeals before CIT(A) against the orders of AO. During the course of appellate following notices were issued and there was not response by the assessee:

• 22/09/2023: Deadline for hearing/submission fixed on 03/10/2023 – No compliance nor any request for adjournment.

• 05/12/2023: Deadline for hearing/submission fixed on 12/12/2023 – No compliance nor any request for adjournment.

• 13/12/2023: Deadline for hearing/submission fixed on 20/12/2023 – No compliance nor any request for adjournment.

2.4. The repeated failure to appear or provide any submission led the CIT(A) to infer that the assessee was not interested in prosecuting the appeal. The principle that "the law aids those who are vigilant, not those who sleep upon their rights" (Vigilantibus et non dormientibus jura subveniunt) was invoked, highlighting that the assessee had not shown due diligence in pursuing the appeal. The CIT(A) emphasized that the conduct of the assessee failed on this principle of equity, as they did not take necessary actions despite the opportunities provided. The CIT(A) referred to various judicial pronouncements to substantiate the dismissal of the appeal due to non- prosecution. The CIT(A) relied on established legal principles that an assessee must effectively pursue an appeal rather than merely file it. The CIT(A) noted that due to the assessee’s non-compliance, it was extremely difficult to adjudicate on the issues raised, as there was a lack of submissions, clarifications, and counter-clarifications. The consistent non-cooperation by the assessee demonstrated a lack of interest in pursuing the appeal. The & 1096/Ahd/2024 Dilipkumar Pashabhai Prajapati vs. ITO Asst. Years : 2016-17 & 2017-18 assessee’s failure to engage in the appellate proceedings led to an adverse outcome. The CIT(A) dismissed both the appeals.

3. Aggrieved by the orders of CIT(A), the assessee is in appeal before us with following grounds of appeal:

Grounds In : “1. The order passed by U/s.250 passed on 21-12-2023 for AY 2016-17 by National Faceless Appeal Centre, CIT(A), Delhi (for short'NFAC) upholding the addition of Rs. 1,16,49,66,875/-made by A.O. as undisclosed credit bank transactions with M/s Orange Tradex Pvt. Ltd. is wholly illegal, unlawful and against the principles of natural justice.

2. The NFAC erred in disallowing the appellant's claim for alleged bogus purchases without considering that the Ld. AO had accepted the corresponding sales made by the appellant. When sales have been accepted, corresponding purchases should have been accepted too.

3. NFAC erred in treating the purchases made by the appellant as bogus u/s 69C since the same was duly supported with bills and made payments through account payee cheques.

4. NFAC failed to consider that A.O. had reopened assessment based on the CBI inquiry, which is not a judicial proceeding, hence it is unrelatable in the Income Tax Assessment Proceeding, thereby quashing the assessment proceeding.

5. In view of the above facts, circumstances and grounds, your honor the appellant prays that (i) The order of the NFAC may please be quashed, set aside in totally. (ii) The upward adjustment of Rs. 116,49,66,875/ - made in the said order be deleted. (iii) Any other relief that your honor may deem fit is necessary.

6. Your Honor appellant craves to leave to add, amend, alter or withdraw any or more grounds of appeal or before the hearing of appeal.”

Grounds In - A.Y. 2017-18:

“1. The order passed by U/s.250 passed on 21-12-2023 for AY 2017-18 by National Faceless Appeal Centre, CIT(A), Delhi (for short 'NFAC) upholding the addition of Rs. 90,37,67 A40/ - made by A.O. as undisclosed credit bank transactions & 1096/Ahd/2024 Dilipkumar Pashabhai Prajapati vs. ITO Asst. Years : 2016-17 & 2017-18 8 with M/s Orange Tradex Pvt. Ltd. is wholly illegal, unlawful and against the principles of natural justice.

2. The NFAC erred in disallowing the appellant's claim for alleged bogus purchases without considering that the Ld. AO had accepted the corresponding sales made by the appellant. When sales have been accepted, corresponding purchases should have been accepted too.

3. NFAC erred in treating the purchases made by the appellant as bogus u/s 69C since the same was duly supported with bills and made payments through account payee cheques.

4. NFAC failed to consider that A.O. had reopened assessment based on the CBI inquiry, which is not a judicial proceeding, hence it is unrelatable in the Income Tax Assessment Proceeding, thereby quashing the assessment proceeding.

5. In view of the above facts, circumstances and grounds, your honor the appellant prays that (i) The order of the NFAC may please be quashed, set aside in totally. (ii) The upward adjustment of Rs. 90,37,67,440 / - made in the said order be deleted. (iii) Any other relief that your honor may deem fit is necessary.

6. Your Honor appellant craves to leave to add, amend, alter or withdraw any or more grounds of appeal or before the hearing of appeal.”

On Condonation of delay: 4. It was observed that there was delay of 155 days in filing the appeals before us. The assessee submitted an affidavit stating that – “Said delay occurred due to fact that the assessed income is very high pitched in the sense that it is approximately 371 times the returned income. This resulted in a delay in filing the appeal. There was no intention to disregard the notice/ order, and the delay was purely an oversight due to the genuine hardship being caused to the appellant. The assessment raised unexpected and substantial demands, requiring extensive documentation and a thorough review process. The involvement of the CBI further complicated and prolonged the situation, necessitating additional time. Given the complexity and the gravity of the matters involved, our preparations for the appeal were delayed. There was no wrong, intention to not file the appeal. Your honour may kindly appreciate that there was no ill motive behind not filling appeal in time It is pertinent to note that appellant has already filed the return and paid the tax for the A. Y 2016-17 (A.Y. 2017-18).” & 1096/Ahd/2024 Dilipkumar Pashabhai Prajapati vs. ITO Asst. Years : 2016-17 & 2017-18 4.1. The Affidavits filed by the assessee for both the assessment years under consideration were argumentative and not clearly explaining the delay, therefore, the assessee was asked to re-submit the affidavits with proper application of condonation of delay. The assessee resubmitted the affidavits giving the reasons as mentioned below:

“3. That I did not have any legal consultant on Immediate basis for the purpose of advising me on this matter and filing appeal before Your Honours and having regard to the quantum of addition, it took time for me to appoint the consultants for the said purpose. The orders of Ld. CIT(A) were also passed ex-parte which confirms the said fact. This resulted in a delay in filing the appeal.

4. That there was no intention to disregard the notice/ order, and the delay was inadvertent and unintentional consequent to the above discussed circumstances.

5. That having regard to the above circumstances which led to delay in filing the appeal for A.Y. 2016-17, I request your Honours to condone such delay and if such request is approved and appeal is admitted by your Honours, I assure that I & my legal representatives shall be fully cooperative in the appellate proceedings.”

4.2. The Affidavit for A.Y. 2017-18 with similar contents was also filed by the assessee.

6. We considered the contents of the Affidavits filed by the assessee. While the magnitude of the assessed income and resultant demands is acknowledged, this reasoning does not directly justify non-cooperation during the assessment and appellate proceedings. It does not adequately explain why the assessee failed to respond timely to statutory notices or provide the necessary documentation when initially required. The fact that the assessment was high-pitched should have prompted proactive engagement rather than inaction. While the CBI's involvement may indeed complicate the case, this reasoning does not address the assessee's repeated non-compliance during the assessment and appellate proceedings. The assessee had several opportunities to present relevant facts and evidence to the AO and CIT(A), but these were not utilized. Moreover, the affidavit does not provide a clear link between the CBI’s involvement and the assessee’s failure to engage with the lower authorities. This aspect of the affidavit seems more relevant to the content of the case rather than an excuse for non- cooperation.

6.1. The assessee stated that the absence of immediate legal assistance delayed the filing of the appeal. According to the affidavit, the significant additions in the assessment made it difficult to promptly secure appropriate legal advice, which is why the CIT(A) orders were passed ex-parte. This claim does not sufficiently justify the lack of cooperation during the assessment and appellate proceedings. The assessment and appellate stages are distinct from & 1096/Ahd/2024 Dilipkumar Pashabhai Prajapati vs. ITO Asst. Years : 2016-17 & 2017-18 the filing of appeals before us. The absence of legal representation does not explain why the assessee failed to respond to multiple notices issued by the AO or why no adjournments were sought during the CIT(A) proceedings. The CIT(A)’s ex-parte order clearly reflects a pattern of non-participation and disregard for procedural compliance by the assessee.

6.2. The Affidavit asserts that the delay was unintentional and not motivated by any deliberate attempt to avoid compliance. The assessee attributes the delay to genuine hardship and unforeseen challenges, emphasizing that there was no intention to disregard the authorities. While this statement attempts to mitigate the perception of deliberate non- compliance, it does not provide a factual basis that justifies the assessee’s behavior during the lower proceedings. Despite repeated opportunities to participate and present evidence, the assessee failed to do so, which directly contradicts the assertion of unintentional delay. The affidavit’s narrative lacks specific explanations for the repeated non-cooperation before the AO and CIT(A).

6.3. The Affidavit concludes with an assurance of future cooperation if the delay is condoned, and the appeals are admitted by us. This assurance is forward-looking and does not address past non-cooperation. While a commitment to cooperate in future proceedings is welcome, it cannot retroactively justify past conduct.

6.4. The law on condonation of delay is well-settled and has been liberally interpreted in favour of the assessee to advance substantial justice rather than to penalise for procedural lapses. The Hon’ble Supreme Court and various & 1096/Ahd/2024 Dilipkumar Pashabhai Prajapati vs. ITO Asst. Years : 2016-17 & 2017-18 High Courts have consistently held that while considering an application for condonation of delay, a pragmatic and judicious approach should be adopted, taking into account the bona fide reasons for the delay. The reasons given by the assessee are not reasonable however, considering the principles of natural justice and in the interest of ensuring a fair hearing, the delay is condoned with a strong caution to the assessee regarding the importance of active and timely participation in future proceedings. However, this decision should not be seen as an endorsement of the assessee’s conduct during the lower proceedings. The delay of 155 days in filing the appeal is hereby condoned, and the appeal is admitted for hearing.

On the legal grounds – additional grounds raised by way of written submissions:

7.1. The AR contended that the AO failed to issue a notice under section 143(2) after the filing of the return in response to the notice issued under section 148. The AR argued that this failure renders the entire reassessment proceedings invalid as per the settled law laid down by the Hon’ble Supreme Court in the case of GKN Driveshafts (India) Ltd. v. Income-tax Officer [2002] 125 Taxman 963 (SC). The assessee relied on the proposition that once & 1096/Ahd/2024 Dilipkumar Pashabhai Prajapati vs. ITO Asst. Years : 2016-17 & 2017-18 a return is filed in response to a notice under section 148, the AO must mandatorily issue a notice under section 143(2) of the Act to proceed with the reassessment.

7.2. The AR argued that the AO failed to provide the reasons recorded for reopening the assessment, despite the assessee’s request after filing the return in response to section 148. This, according to the AR, is against the law laid down by the Hon’ble Supreme Court in GKN Driveshafts (India) Ltd., which mandates that upon filing a return and requesting reasons for reopening, the AO must furnish the reasons to the assessee and allow them an opportunity to object.

7.3. The AR contended that the AO’s reopening of the assessment based on information from the Central Bureau of Investigation (CBI) inquiry is not a valid basis for reassessment under the Income Tax Act, as CBI inquiries are not judicial proceedings. The AR further argued that this reliance renders the reassessment invalid as the information obtained is unrelatable to the assessment proceedings under the Income Tax Act.

7.4. The AR also argued that the orders passed by the CIT(A) were ex-parte and that there was no adequate opportunity to present the case on merits. The AR claimed that this lack of hearing is against the principles of natural justice.

7.5. The AR placed reliance on several judicial precedents to argue that the failure to issue a notice under section 143(2) after the filing of a return in & 1096/Ahd/2024 Dilipkumar Pashabhai Prajapati vs. ITO Asst. Years : 2016-17 & 2017-18 response to a notice under section 148 is a fatal flaw that renders the reassessment proceedings invalid.

8.1. The DR further stated that the assessee was issued one more notice u/s. 142(1) dated 21-02-2022, requiring him to produce books of accounts and other documents specified in the annexure. In the same annexure, the AO sought clarification from the assessee that the assessee only uploaded acknowledgement of ITR and as per e-filing details the return is not against notice u/s 148. The AO also expressly wrote that he is not clear whether assessee want to submit original ITR as ITR against notice u/s.148 of the Act. The DR specifically mentioned that that the AO could not see the return filed & 1096/Ahd/2024 Dilipkumar Pashabhai Prajapati vs. ITO Asst. Years : 2016-17 & 2017-18 in response to notice u/s 148 on the e-filing portal and that is why he sought clarification from the assessee and since the same was not visible he treated it as invalid. The DR placed reliance on the decision of Allahabad Bench of the Tribunal in case of ACIT Vs. Sunshine Infraestate (P.) Ltd. [2022] 139 taxmann.com 60 and judgement of High Court of Maras in case of Swapna Manuel Vs. ACIT [2024] 160 taxmann.com 166. 8.2. The DR also pointed out that before passing the order u/s 147 r.w.s 144B of the Act, a show-cause notice dated 27-03-2022 was also issued to the assessee in which it was specifically referred to the non-cooperative attitude of the assessee and was intimated about option to pass order u/s 144 of the Act and the assessee failed to reply to the same in case of both the assessment years.

9.2. It is pertinent to note that the assessee did not raise the specific issue of non-issuance of notice under section 143(2) of the Act before the CIT(A). This omission indicates that the assessee did not prioritize this procedural ground during the earlier stage of appeal and is now raising it before this Bench, which undermines the credibility of this argument. Established legal principles dictate that issues not raised before the first appellate authority generally cannot be raised for the first time before us unless substantial reasons are provided, which is not the case here. & 1096/Ahd/2024 Dilipkumar Pashabhai Prajapati vs. ITO Asst. Years : 2016-17 & 2017-18 9.3. While the AR relied on GKN Driveshafts to argue that the reasons for reopening were not furnished, the record reflects that the assessee’s request for reasons was made belatedly and not in a timely manner after the initial filing of the return. The assessee’s lack of engagement with the reassessment process and non-cooperation further undermines this argument. The AO’s actions were consistent with the repeated non-cooperative stance of the assessee, and the procedural lapses cited by the AR are found to be attributable to the assessee’s conduct rather than any arbitrary action on the part of the AO.

9.4. The AR’s argument that CBI inquiries are not judicial proceedings and cannot form the basis for reassessment is legally unsustainable. The AO is permitted to rely on credible information from any source, including investigative agencies like the CBI, if such information reasonably leads to a belief that income has escaped assessment. The information’s origin from a non-judicial source does not automatically invalidate the reassessment if it meets the criteria for a reasonable belief under section 147. 9.5. The AR’s claim of denial of natural justice due to ex-parte orders is not tenable when the CIT(A) provided multiple opportunities to the assessee to appear and present the case, which were not availed. The record indicates consistent non-attendance and failure to comply with notices issued by the CIT(A), justifying the ex-parte decision. The principles of natural justice do not protect a party that willfully avoids participation in the proceedings.

9.6. The reliance placed by DR on the decision of Sunshine Infraestate (P.) Ltd. is related to assessment u/s 153A hence are not considered whereas & 1096/Ahd/2024 Dilipkumar Pashabhai Prajapati vs. ITO Asst. Years : 2016-17 & 2017-18 reliance on judgment of High Court of Madras in case of Swapna Manuel is well placed and considered to the extent possible.

9.7. We find that the legal grounds raised by the assessee are primarily an afterthought, driven by procedural technicalities that are not substantiated by consistent compliance during the assessment proceedings. The non- cooperative attitude of the assessee, the delayed responses, and the failure to provide clear submissions on time have collectively contributed to the procedural challenges faced by the AO. The contention that the AO failed to issue a notice under section 143(2) cannot be viewed in isolation from the broader context of the assessee’s conduct throughout the proceedings.

9.8. Furthermore, the ground of non-issuance of section 143(2) of the Act notice was not raised before the CIT(A) and is being raised for the first time before us, which weakens the validity of the legal argument.

9.9. Accordingly, the legal grounds raised by the assessee in are dismissed.

On the merits: 10. Upon examining the merits of the appeals in (AY 2016-17) and (AY 2017-18), it is observed that the assessee has produced several key-documents before us that were not previously submitted during the assessment or appellate proceedings before the lower authorities. The documents produced by the assessee include: & 1096/Ahd/2024 Dilipkumar Pashabhai Prajapati vs. ITO Asst. Years : 2016-17 & 2017-18 19 1. Confirmations from Krish Enterprise.

2. Confirmation from Orange Tradex Pvt. Ltd.

5. Sale register, purchase register for the financial year 2016-17.

10.1. These documents, along with other supporting materials like bank statements, audit reports of earlier years, and copies of assessment orders of previous years, are being presented for the first time before us. The lower authorities, including the AO and the CIT(A), did not have the opportunity to verify these documents due to the non-cooperative attitude of the assessee during the initial proceedings.

10.2. The documents submitted by the assessee are crucial for substantiating the transactions in question, particularly those involving Krish Enterprise and Orange Tradex Pvt. Ltd. The confirmations, audit reports, VAT returns, sales and purchase registers, and ledger accounts are vital pieces of evidence that directly impact the assessment of the assessee's income, and the validity of the additions made by the AO.

10.3. We acknowledge that the lower authorities did not have the opportunity to examine these documents due to the non-cooperative behaviour of the assessee during the assessment and appellate stages. However, in the interest of natural justice, every party must be given a fair & 1096/Ahd/2024 Dilipkumar Pashabhai Prajapati vs. ITO Asst. Years : 2016-17 & 2017-18 opportunity to present their case, and the evidence must be thoroughly verified by the AO. Denying the assessee an opportunity to have the documents verified would amount to a miscarriage of justice. The voluminous nature of the documents and the potential impact they could have on the outcome of the case necessitate a thorough examination by the AO. The confirmations from third parties, the financial statements, and other relevant records require a detailed scrutiny to ascertain the genuineness of the transactions and to ensure that the additions made are legally sustainable. By setting aside the order of the CIT(A) and restoring the matter to the file of the AO, both parties will have the opportunity to present their case in a comprehensive manner. The AO will have the chance to conduct a detailed verification of the documents, and the assessee will be able to address any concerns or discrepancies raised during the re-examination process.

11.1. The orders of the CIT(A) are set aside, and the matters are restored to back to the file of the AO to decide the same on merits, in accordance with the principles of natural justice and after verifying the documents submitted by the assessee. Accordingly, the appeal(s) for AY 2016-17 and AY 2017-18 are partly allowed for statistical purposes. & 1096/Ahd/2024 Dilipkumar Pashabhai Prajapati vs. ITO Asst. Years : 2016-17 & 2017-18