ITAT Delhi Judgments — September 2024

The ITAT Delhi bench held that the CIT(A) is statutorily obliged to dispose of appeals on their merits and cannot dismiss them solely for non-prosecution. Citing relevant sections and precedents, the Tribunal set aside the CIT(A)'s order and remitted the matter back for fresh adjudication on all grounds, including the jurisdictional issue, after providing an adequate opportunity of hearing to the assessee.

The ITAT condoned the delay in filing the appeal, noting that while there was negligence, there was no mala fide intention and sufficient cause existed. Without commenting on the merits of the disallowance, the ITAT set aside the CIT(A)'s ex-parte order and remitted the issue of EDC charges back to the CIT(A) for a fresh decision on merits.

The ITAT condoned the six-month delay in filing the appeal, citing 'sufficient cause' and the principle of substantial justice. It found that the CIT(A) summarily disposed of the appeal without a speaking order on all grounds, specifically failing to address the brought forward losses and lacking reasoning for confirming commitment charges disallowance. The matter was remitted back to the CIT(A) for fresh adjudication on merits.

The ITAT held that the CIT(A) erred by dismissing the appeal for non-prosecution without adjudicating on the merits of the case. Consequently, the ITAT remitted the issues back to the CIT(A) for a fresh decision after providing the assessee with an adequate opportunity of being heard.

The Tribunal accepted the assessee's contention, noting that Coordinate Bench orders in the assessee's own case for earlier assessment years had already allowed the entire purchase cost of paintings as revenue expenditure under Section 37. Consequently, the present appeals regarding depreciation on the same paintings were held to be infructuous.

The Tribunal noted that a Coordinate Bench, in the assessee's own case for AYs 2008-09 to 2010-11, had already held the purchase costs of paintings to be revenue expenditure allowable under Section 37. Given this precedent and the allowance of the entire purchase costs as expenditure in earlier years, the current appeals regarding depreciation on the same paintings became infructuous and were dismissed.

The ITAT held that the CIT(A) is statutorily obligated under section 250(6) of the Income Tax Act to dispose of an appeal on merits through a speaking order, even if the assessee failed to appear, and cannot dismiss it solely for non-prosecution. Citing precedent, the ITAT set aside the CIT(A)'s order and remitted the matter back for fresh adjudication on merits, ensuring the assessee a proper opportunity of hearing.

The Tribunal dismissed the Revenue's appeal as not maintainable. This decision was based on CBDT Circular No. 09/2024 dated 17.09.2024, which sets the monetary limit for filing departmental appeals to the ITAT at Rs. 60 lakhs, and the admitted tax effect of Rs. 34,79,216/- was below this threshold.

The Tribunal found that the Revenue failed to demonstrate that the assessee's cash sales or opening cash in hand were fictitious, noting that the AO had not rejected the books of account or doubted the genuineness of the opening cash. It also highlighted inconsistencies in the AO's calculation of negative cash balance and confirmed that petrol pumps were allowed cash sales during demonetization. Relying on a similar precedent (Ramesh Kochar), the Tribunal concluded that the addition under Section 69A was unwarranted and deleted the entire amount.

The Tribunal remitted the disputed issues back to the file of the AO for fresh consideration, directing the AO to provide adequate opportunity of being heard to the assessee. The AO was also instructed to verify the return of income concerning the exempt nature of a partner's share of profit from a firm.

The Tribunal dismissed the challenge to the assumption of jurisdiction under Section 147 due to lack of cogent material from the assessee. However, on merits, it held that the LTCG transactions were bona fide, corroborated by documentary evidence, and conducted through banking channels. The Tribunal concluded that an astronomical increase in share prices or the company's poor financial health alone, without proving the assessee's involvement in price rigging, is insufficient to treat the LTCG as sham, thereby deleting the additions made under Section 68 for both assessment years.

The Income Tax Appellate Tribunal (ITAT) observed that the CIT(A) had dismissed the appeal for non-prosecution after sending notices to a wrong email address, which was a violation of natural justice. The ITAT held that the CIT(A) should have decided the appeal on merits. Consequently, the ITAT remitted the issues back to the CIT(A) to consider them afresh and pass an order as per law, after providing the assessee an adequate opportunity of being heard.

The Tribunal held that the assessment orders for AYs 2011-12 and 2012-13 were void ab initio as they fell outside the permissible 10-year block of assessment years under Section 153C read with 153A. It was further held that the satisfaction note for initiating proceedings was mechanical, lacked proper inquiry, and violated natural justice as cross-examination of key individuals (Rajeev Saxena) was denied. The AO's own findings that the assessee was a 'pass-through entity' and that no direct incriminating material or money trail linked the assessee made the protective additions and the assumption of jurisdiction under Section 153C unsustainable.

The Tribunal held that the assessee provided sufficient documentary evidence to prove the genuineness of the share transactions, and the Revenue failed to provide evidence of the assessee's involvement in price rigging. Citing various High Court and ITAT judgments, the Tribunal concluded that mere suspicion or 'modus operandi' is not sufficient to deny LTCG exemption. The Tribunal set aside the CIT(A)'s order on merits, directing the AO to delete the additions under Section 68, but upheld the validity of the reassessment jurisdiction under Section 147.

The tribunal held that the assessment proceedings initiated under Section 153C for AYs 2011-12 and 2012-13 were void ab initio as they fell outside the statutory 10-year block period. Furthermore, the additions made on a protective basis under Section 69A were unsustainable due to the absence of direct incriminating material, the AO's uncertainty regarding the true beneficiary, and the lack of cross-examination for key statements. The tribunal found the satisfaction notes mechanical and the assessment without proper jurisdiction.

The Tribunal held that the assessment orders for AYs 2011-12 and 2012-13 were void ab initio because these years fell outside the statutory 10-year block for Section 153C proceedings, as per a jurisdictional High Court judgment. It further ruled that the AO's satisfaction note for initiating Section 153C was mechanical, lacked proper inquiry into incriminating material, and that protective additions under Section 69A were unsustainable as the assessee was deemed a mere 'pass-through' entity. The Tribunal emphasized that assessments under Section 153C must be completed in accordance with Section 153A, which the AO failed to do, thereby rendering the proceedings without jurisdiction and in violation of natural justice (due to lack of cross-examination of key witnesses).

The Tribunal held that the assessment orders for AYs 2011-12 and 2012-13 are void ab initio and quashed as they fall outside the statutory 10-year block period for Section 153C proceedings. It further ruled that the protective additions under Section 69A were unsustainable due to lack of incriminating material, absence of physical asset recovery, and the AO's own finding that the assessee was a mere pass-through. The satisfaction note was mechanical, and the denial of cross-examination of Rajeev Saxena violated natural justice, rendering his statement unreliable.

The CIT(A) deleted both additions, a decision upheld by the Tribunal. For the profit addition, the Tribunal found no incriminating material on record from the search and held the AO's estimation was unwarranted as the assessee's audited books already reflected profits. Regarding ITC, the Tribunal concurred with the CIT(A) that ITC is a balance sheet item, not a component of the profit and loss account, thus its alleged wrong availment does not impact the taxable income.

The Tribunal upheld the CIT(A)'s decision, ruling that the advances made to sister concerns were for business purposes and constituted commercial expediency. Citing various Supreme Court and High Court judgments, the Tribunal affirmed that once a nexus between expenditure and business purpose is established, the Revenue cannot interfere with the commercial judgment of the businessman. Therefore, the disallowance of interest and processing fees was found to be erroneous.

The Tribunal upheld the CIT(A)'s decision, finding that the cash deposits were duly explained by available cash balances as on 08.11.2016, which were built up through undisputed bank withdrawals and corroborated by ITRs and audit reports filed before demonetization. The Tribunal noted that maintaining high cash balances and routine cash withdrawals/deposits were a regular business practice for the assessee, and the AO's observations lacked rational basis or documentary proof.

The Tribunal upheld the decision of the CIT(A), concluding that the assessee was a shell concern and a mere pass-through entity. It was established that the commission income had already been assessed and taxed in the hands of the principal entry operators. Therefore, the Tribunal held that making a separate addition for the same commission income in the hands of the assessee would constitute double taxation, referencing its previous ruling in a similar case (Zed Enterprises (P) Ltd.).

The Tribunal upheld the CIT(A)'s decision, finding that the assessee was merely a pass-through entity for accommodation entries, and the actual commission income had already been taxed in the hands of the entry operators. Therefore, charging commission income from the assessee would lead to double taxation. The bank credits could not be treated as unexplained in the assessee's hands as it was not the beneficiary of the funds, and information regarding beneficiaries was disseminated to their respective AOs.

The Tribunal upheld the CIT(A)'s decision, confirming that the assessee was merely a pass-through entity for accommodation entries, not the ultimate beneficiary. It was found that the commission income from these transactions had already been taxed in the hands of the primary entry operators. Therefore, taxing the same income in the assessee's hands would constitute double taxation, aligning with previous Tribunal decisions.

The Tribunal held that the assessee was merely a pass-through entity for routing unaccounted income of beneficiaries. Since the beneficiaries were identified and information disseminated, and the commission income was already taxed in the hands of the entry operators, no further addition for unexplained credits or commission income should be made in the assessee's hands. The Tribunal relied on its precedent in Zed Enterprises (P) Ltd., where similar facts led to the same conclusion.

The Tribunal upheld the CIT(A)'s decision, ruling that the additions for estimated profit were not sustainable under section 153A as no incriminating material was found during the search to justify them, and the assessee's audited books reflected the profits. For the ITC disallowance, the Tribunal agreed that ITC is a balance sheet item, not a profit and loss account item, and therefore has no bearing on the assessee's profitability. Consequently, both appeals by the Revenue were dismissed, and the cross-objections by the assessee were also dismissed.

The Tribunal upheld the CIT(A)'s decision to delete the additions, ruling that maintaining high cash balances and re-depositing cash from bank withdrawals was a routine business practice, corroborated by ITRs and audit reports filed before demonetization. The Tribunal found the AO's observations to be mere surmises without concrete facts, and noted that judicial precedents supported considering cash withdrawals as a source for subsequent cash deposits, even with time gaps, based on the principle of preponderance of probability.

The Income Tax Appellate Tribunal (ITAT) upheld the decision of the CIT(A), concluding that the advances made to sister concerns for business purposes fell within the ambit of commercial expediency. Relying on various Supreme Court and High Court judgments, the ITAT emphasized that commercial expediency should be viewed from the businessman's perspective, and a nexus existed between the expenditure and the business purpose. Consequently, the disallowance of interest and processing fees by the AO was not justified.

The Tribunal held that the assessment orders were void ab initio because the Assessing Officer (AO) lacked jurisdiction for Assessment Years 2011-12 and 2012-13, as these years fell outside the permissible 10-year block under Section 153C (which should commence from AY 2013-14). The satisfaction note recorded by the AO was deemed mechanical and the third-party statements unreliable without cross-examination. The additions made on a protective basis under Section 69A were also found unsustainable.

The Tribunal held that the assessment orders for AY 2011-12 and 2012-13 were beyond the permissible 10-year block for Section 153C proceedings (calculated from AY 2022-23 to 2013-14), rendering the assumption of jurisdiction invalid. It further found that the satisfaction notes were mechanical, uncertain about the true beneficiary, and based on uncorroborated, uncross-examined statements of Rajeev Saxena. The AO's own finding that the assessee was a mere pass-through entity meant additions under Section 69A were unsustainable. The assessments initiated under Section 153C were improperly completed without reference to Section 153A, which is mandatory.

The Tribunal restored the issue of delayed deposit of employees' PF and ESI contributions to the Assessing Officer (AO) for re-examination to ascertain the correct due date of remittance, citing a Coordinate Bench decision. Furthermore, the Tribunal found that the CPC erred in sending the intimation to a wrong email ID and directed the AO to re-examine this issue and issue relevant notices to the correct email ID. The appeal was allowed for statistical purposes.

The Tribunal, taking note of the counsel's submission, dismissed the appeal as infructuous, stating that no cause of action remained. However, the assessee was granted the liberty to seek restoration of the appeal if any valid cause emerged subsequently.

The Tribunal observed that the CIT(A)'s order was ex-parte and, without commenting on the merits of the disallowance, set aside the impugned order. The case is restored to the file of the CIT(A) for a de novo adjudication, ensuring the assessee is provided a reasonable opportunity to make submissions in accordance with law.

The Tribunal observed that the assessee did not receive the last notice of hearing from the CIT(A), which prevented them from presenting their case effectively. Therefore, the matter was remitted back to the CIT(A) with directions to grant a fresh opportunity of being heard to the assessee and to decide the issues afresh. The assessee was also directed to cooperate with the Assessing Officer.

The tribunal held that penalty under Section 271(1)(c) cannot be levied when the assessee, in response to a reassessment notice, voluntarily offers the undisclosed income to tax and the Assessing Officer accepts the return without making any further additions or disallowances. It emphasized that for a penalty to be imposed, there must be an actual addition or disallowance made by the AO, and the concealment must relate to the return of income filed.

The Tribunal observed that it was not clear whether notices were properly served on the assessee by the lower authorities. It decided to grant the assessee one more opportunity, restoring the appeal to the CIT(A) for de novo adjudication with a direction to provide a reasonable opportunity of hearing. The assessee was also instructed to respond diligently to notices issued by the CIT(A).

The Tribunal held that the lower authorities failed to properly consider the assessee's evidence, which showed that the cash deposits were from business receipts and that the Revenue had not controverted this material. Consequently, the addition of Rs. 7,24,000/- as unexplained income was deemed unsustainable and deleted. Grounds 2 and 4 of the appeal were specifically allowed.

The Tribunal held that compensation received for delayed delivery of property, even if determined based on an interest rate, is a capital receipt and does not fall within the definition of "interest" under Section 2(28A) of the Income Tax Act. Consequently, the amount is not chargeable to tax, and the grounds of appeal regarding both the nature of the receipt and the related interest disallowance are allowed.

The Tribunal held that the Act does not mandate the CIT(A) to dismiss an appeal merely for non-prosecution and requires a reasoned order on merits. While noting the assessee's non-cooperative conduct, in the interest of justice, the Tribunal set aside the CIT(A)'s order and restored the appeal to the CIT(A) for fresh adjudication after providing a reasonable opportunity to the assessee.

The Tribunal noted the assessee's non-cooperation but held that the CIT(A) erred by dismissing the appeal and rejecting additional evidence without obtaining a remand report from the AO. Consequently, the Tribunal set aside the CIT(A)'s order and restored the matter to the CIT(A) for a fresh de novo adjudication, directing the assessee to comply with notices.

The Tribunal determined that the assessee's grievance was specifically against the adjustment made under section 143(1), not the subsequent 143(3) assessment order that accepted the returned income. As 143(1) proceedings are independent, the appeal against the 143(3) order was dismissed as infructuous. However, the Tribunal granted liberty to the assessee to file a fresh appeal against the 143(1) intimation or a 154 rectification order within 30 days from this order's service, condoning the delay.

The Tribunal acknowledged that lower authorities provided sufficient opportunity, yet the assessee claimed non-receipt of notices and a significant gap between the last notice and the impugned order. To ensure natural justice, the Tribunal set aside the CIT(A)'s ex-parte order and restored the assessment to the Assessing Officer for a fresh determination, with directions for the assessee to cooperate.

The Tribunal affirmed the CIT(A)'s findings, noting the assessee's non-cooperation during verification proceedings and failure to explain the sources of substantial credit entries, specifically invoking Section 68. It upheld the partial relief granted by the CIT(A) for rental income but found no reason to interfere with the sustained addition of Rs. 1,15,16,924/- due to lack of supporting evidence. Consequently, the assessee's grounds of appeal were rejected, and the appeal was dismissed.

The ITAT observed that the CIT(A) dismissed the appeal ex-parte without deciding on its merits, a practice contrary to settled legal principles. Consequently, the ITAT restored the appeal to the file of the CIT(A) for de-novo adjudication, ensuring a proper opportunity of being heard.

The ITAT noted that the genuineness of the cash transactions was not disputed and the assessee habitually conducted business solely in cash. Citing precedent from the Punjab & Haryana High Court and the Supreme Court, the Tribunal held that Section 40A(3) is not absolute and should not restrict genuine business activities based on business expediency. Given the unique nature of the assessee's business, the disallowance was found to be inappropriate.

The Income Tax Appellate Tribunal upheld the CIT(A)'s decision, finding no infirmity in the order. It held that the assessee had discharged its onus by explaining the source of funds for the investment, supported by documentary evidence and the established creditworthiness of the partners. The Tribunal reiterated that if the AO had doubts about the partners' creditworthiness, measures should be taken against the partners individually, not the firm.

The Tribunal considered the assessee's request for withdrawal and the 'no objection' from the Revenue's representative. Permitting the withdrawal, the Tribunal accordingly dismissed the appeal as withdrawn.

The Tribunal held that the penalties imposed under Sections 271D and 271E were barred by limitation as per Section 275(1)(c) of the Act. Relying on Delhi High Court precedent, it clarified that the 'initiation' of penalty proceedings for limitation purposes is the date of the AO's recommendation letter (08/12/2017). The six-month limitation period from the end of that month expired on 30/06/2018, making the penalty orders passed on 24/09/2018, and the CIT(A)'s initiation on 07/07/2018, time-barred.

The ITAT observed that the CIT(A) dismissed the appeal ex-parte by merely sustaining the additions, which is contrary to settled law as the appeal was not decided on merits. Consequently, the ITAT restored the appeal to the file of the CIT(A) for a de-novo adjudication, ensuring a proper opportunity of hearing.