The two member bench of the Income Tax Appellate Tribunal ( ITAT ), Ahmedabad has ruled that the Commissioner of Income Tax (Appeals) [CIT (A)] cannot dismiss an appeal for non-prosecution under Section 250(6) of the Income Tax Act, 1961, without considering the merits of the case, and has accordingly set aside the case to the file of CIT (A) for fresh adjudication based on its merits.
The assessee Shreenath Developers, filed an application for the condonation of a 52-day delay in submitting the present appeal. Accompanying this application was an affidavit in which the assessee explained that the order from the Commissioner of Income Tax (Appeals) [CIT (A)] had been received via email on January 9, 2024. However, due to the assessee’s limited education, there was an unintended delay in forwarding the order to their Chartered Accountant, which resulted in a 52-day delay in filing the appeal.
The assessee, engaged in the business of construction and development, had declared “NIL” income for the relevant year under consideration. The case was selected for a comprehensive scrutiny based on concerns regarding a large capital introduction during the year of incorporation and significant investment in property relative to the declared total income. Upon review, the Assessing Officer discovered that the partners had introduced capital in cash amounting to ₹13, 55,000. However, an examination of the bank account held by the assessee with Shree Bharat Cooperative Bank Ltd. revealed that only ₹9, 05,000 had been deposited, leaving a discrepancy of ₹4, 50,000. This discrepancy was treated by the Assessing Officer as unexplained cash credit under Section 68 of the Income Tax Act, and the amount was added to the assessee’s total income.
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Additionally, the Assessing Officer identified a deposit of ₹1, 16,000 in the assessee’s bank account with Shree Bharat Cooperative Bank Ltd. When asked to provide details and proof of the source of this cash deposit, the assessee failed to respond. Consequently, the Assessing Officer added this amount as unexplained money from undisclosed sources under Section 69A of the Act. Furthermore, the assessee had purchased land in Danteshwar, Vadodara, on October 19, 2016, for ₹2, 85, 00,000.
The Assessing Officer, upon reviewing the purchase deed and bank statement, observed that a payment of ₹68, 00,000 claimed to have been made to the seller was not reflected in the bank statement. As a result, this amount was added as unexplained investment under Section 69 of the Act, based on the assertion that the payment was not made by the assessee to the landowners. In response to the appeal, the CIT (A) dismissed the assessee’s case due to non-appearance.
Mr. Prashant Upadhyay representing the assessee, argued that the partnership firm, engaged in constructing commercial buildings, had voluntarily filed its return of income for the financial year corresponding to the assessment year 2017-18 on August 22, 2017. Along with the return, the firm submitted a Statement of Total Income, Balance Sheet, and Profit and Loss Account, declaring nil income. The return was selected for scrutiny under the Computer Assisted Scrutiny Selection (CASS) system due to the introduction of a significant capital during the year. In response to notices under Sections 142(1) and 143(2) of the Income Tax Act, the firm provided the requested information. A show cause notice was issued on December 20, 2019, with a hearing scheduled for December 23, 2019. However, the appellant was unable to respond due to the short timeframe.
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Further argued that the Assessing Officer erred in adding ₹4,50,000 under Section 68 as unexplained cash credit, stating that the capital account clearly reflected the cash received from partners, and insufficient time was given to provide a detailed breakdown. Regarding the addition of ₹1, 16,000 under Section 69A, he contended that this amount was also reflected in the partners’ capital account, and the firm was not given enough time to provide additional details.
Concerning the ₹68, 00,000 added under Section 69 as unexplained investment, the counsel argued that the payment was made by cheque in the following financial year and that the Assessing Officer erroneously based the addition solely on the bank statement for the financial year 2016-17 without considering subsequent transactions. The appellant clarified that the payment of ₹68, 00,000 was made in the financial year 2017-18 and was duly reflected in the bank statement for that year. He submitted that the CIT (A) had confirmed the additions without discussing the facts of the case and had summarily dismissed the appeal without giving the assessee adequate opportunity to present its case.
The bench, after hearing the arguments and reviewing the case material, noted that the CIT (A) had issued an ex-parte order dismissing the appeal due to non-appearance, without addressing the merits of the case or the grounds raised by the assessee. The bench observed that the CIT (A) is required to address each point arising from the appeal, even in an ex-parte order, as per Sections 250(4) and 250(6) of the Income Tax Act. The CIT (A) does not have the authority to dismiss an appeal on the grounds of non-prosecution without discussing the case’s merits.
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The bench comprising Ramit Kochar ( Accountant member) and Siddhartha Nautiyal ( Judicial member) concluded that the CIT(A) had erred both in law and in fact by summarily dismissing the assessee’s appeal without addressing the grounds raised or discussing the merits of the case. Consequently, ITAT set aside the case, directing the CIT (A) to re-adjudicate on the merits, providing the assessee with an adequate opportunity to present its case.
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