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Income Tax Appellate Tribunal, “ C ” BENCH, AHMEDABAD
Before: MS. SUCHITRA KAMBLE & SHRI MAKARAND V. MAHADEOKAR
O R D E R
PER SHRI MAKARAND V. MAHADEOKAR, AM:
This appeal is filed by the Assessee as against the order dated 09/11/2022 passed by the Commissioner of Income-tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as “the Ld.CIT(A)” in short], arising out of the assessment order dated 28/12/2018 passed by the Assessing Officer (AO) under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") relevant to the Assessment Year (AY) 2016-17. Shanti Multilink Pvt.Ltd. vs. ITO Asst. Year : 2016-17 2 Condonation of delay:
The assessee has filed an application for condonation of delay of 3 days in filing the appeal before us. The assessee-company submitted that they were not aware of the conclusion of the previous appeal proceedings. The discovery of the appeal's conclusion occurred when the accountant of the assessee's group visited their chartered accountant’s office to file audit returns. It was, during this verification process, that the status of the previously pending appeal was known. Upon learning of this development, the assessee promptly instructed their accountant to take the necessary steps to address the situation.
2.1. The assessee contends that the delay in filing the second appeal was due to a lack of knowledge regarding the conclusion of the previous appeal. The assessee took prompt action upon becoming aware of the situation, thereby indicating that the delay was neither intentional nor due to negligence. The delay is attributed to sufficient cause, and it is argued that the assessee will suffer irreparable loss and injury if the delay is not condoned, whereas the respondent will not suffer any prejudice.
2.2. In light of the above submissions and the sequence of events, it is evident that the delay in filing the appeal was due to sufficient cause and not attributable to any negligence or inaction on the part of the assessee. The delay is neither intentional nor willful. Considering the facts and circumstances of the case, and in the interest of justice and equity, the delay in filing the appeal is hereby condoned. The appeal shall now be heard on merits. Shanti Multilink Pvt.Ltd. vs. ITO Asst. Year : 2016-17 Facts of the case:
The assessee-company filed its return of income on 03.10.2016 declaring total income of Rs.26,56,070/-. The case was selected under CASS for limited scrutiny. During the course of assessment proceedings, the AO observed that the assessee co has paid remuneration of Rs.24,00,000/- to one of its whole-time Director, Shri Milan Thakkar. Since Shri Thakkar is a related party to the assessee u/s.40A(2)(b) of the Act, the AO asked the assessee as to why the excessive payment of Remuneration to the Director should not be disallowed. In response to the same, the assessee filed a reply in which it was explained that there is no ceiling on payment of remuneration to the Directors in the law.
3.1. The assessee further submitted that Shri Milan Thakkar is the pioneer of the company and serving the assessee-company for the whole time. His educational qualifications are BE (Chem) & MBA which makes him the most suitable person to pursue the business of the assessee company as compared to the other directors in the company. Therefore, the assessee- company has rightly spent the amount of Rs.24 Lakhs towards remuneration to Shri Thakkar. However, the AO, after comparing the data relating to director’s remuneration of other companies, available with him, disallowed Rs.19,00,000/ - invoking provisions of Sec.40A(2)(b) of the Acrt.
Aggrieved by the order of AO, the assessee preferred an appeal before the Ld.CIT(A). Multiple notices were issued by the Ld.CIT(A) on 04-12-2019, 23-03-2020, 22-02-2021, 11-01-2022 and 09-05-2022, but no Shanti Multilink Pvt.Ltd. vs. ITO Asst. Year : 2016-17 response was received from the assessee. Therefore, based on the grounds of appeal and written submission, the Ld.CIT(A) dismissed the appeal.
Aggrieved by the order of the Ld.CIT(A), the assessee is in appeal before us with following grounds of appeal:
“1.1. The order passed u/s. 250 on 09.11.2022 for A.Y.2016-17 by National Faceless Appeal Center (NFAC), Delhi upholding the disallowance of Rs.19,00,000/- under section 40A(2)(b) made by AO and upheld by the CIT(A) is wholly illegal, unlawful and against the principles of natural justice.
1.2. The Ld. CIT(A) has grievously erred in law and or on facts in not considering fully and properly the eccentric facts and evidence available with regard to the impugned additions.
1.3. The Ld. CIT(A) has grievously erred in law and on facts in not carrying out any inquiry with regard to the applicability of the provisions of Income tax Act and thereby violated the principle of natural justice. The appellant had specifically denied at the time of filing Form No.35 to receive the notices on Email, however, the CIT(A) has kept on sending the same on Emails rather than sending physically which could not be served to the appellant. Therefore, the appellant shall be granted opportunity to produce additional evidences.
2.1. The Ld. CIT(A) has grievously erred in law and or on facts in upholding the disallowance of Rs.19,00,000/- under section 40A(2)(b) made by AO.
2.2. That the Ld. CIT(A) ought not to have upheld disallowance of Rs. 19,00,000/- under section 40A(2)(b).
It is therefore prayed that the disallowance made by Ld. AO and upheld by the CIT(A) may please be deleted.”
On the grounds of appeal: 6. The Ld.Counsel for the assessee submitted before us that the Ld.CIT(A) had issued notices on various dates which includes the most disastrous time of COVID-19. Therefore, the assessee could not file any Shanti Multilink Pvt.Ltd. vs. ITO Asst. Year : 2016-17 5 written submission. Thereafter, post COVID-19, the Ld.CIT(A) might have issued notices which might have been served on Email.
6.1. The Ld.Counsel for the assessee further submitted that in Form No.35 while answering the question 'Whether notices/communication may be sent on email?' it was specifically answered as “NO”. Therefore, the assessee was expecting physical notices. Since assessee did not check emails notices and the same were not sent physically, the assessee could not file any replies to the notices issued by the Ld.CIT(A).
We have heard the submission of the Ld.Counsel of the assessee and perused the material available on record. It is observed that the Ld.CIT(A) issued notices during a period affected by the COVID-19 pandemic, which reasonably impacted the assessee's ability to respond. Furthermore, the insistence on email communication, contrary to the assessee's preference for physical notices, has resulted in a procedural lapse, undermining the principles of natural justice.
7.1. The procedural aspects of serving notices are critical, especially when the assessee has explicitly indicated a preference for physical notices. Failure to adhere to such preferences constitutes a breach of natural justice. Therefore, such non-compliance with the procedural requirement necessitates a remand for fresh consideration.
7.2. Given the above circumstances, we are of the considered view that the assessee was deprived of a fair opportunity to present its case before the Ld.CIT(A). Shanti Multilink Pvt.Ltd. vs. ITO Asst. Year : 2016-17 7.3. The Ld.Departmental Representative agreed with us to restore the matter back to the file of CIT(A).
Therefore, in the interest of justice, we set aside the order of the Ld.CIT(A) and restore the matter back to his file for fresh adjudication on merits, ensuring that proper opportunity is granted to the assessee to present its case, including the submission of additional evidence, if necessary.