ITAT Sets Aside CIT(A) Order, Citing Breach of Natural Justice and Violation of Section 250(6) [Read Order]

In a recent ruling, the Income Tax Appellate Tribunal ( ITAT ), Agra Bench, has set aside the order of the Commissioner of Income Tax (Appeals) [ CIT(A) ] and directed the case to be reconsidered on merits.

The decision was made in the case of Jain Steel Corporation for the Assessment Year 2016-17, wherein the ITAT found that the CIT(A) had violated the principles of natural justice by dismissing the appeal ex-parte without addressing the substantive issues raised by the assessee.

The case is related with the assessment order passed by the Income Tax Officer under Section 143(3) of the Income Tax Act, 1961, which involved an addition of Rs. 20,90,250 under Section 68 of the Act, relating to unexplained cash credits. The assessee showed a substantial cash balance, which was allegedly the result of realisations from debtors. However, the Assessing Officer (AO) was not convinced by the explanations and found discrepancies in the debtor's details and documents. As a result, the AO made the addition under Section 68, treating the amounts as unexplained cash credits.

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Dissatisfied with the AO’s decision, Jain Steel Corporation filed an appeal before the CIT(A). However, the CIT(A) dismissed the appeal at the outset, citing non-compliance with the notices issued to the assessee. Four notices were issued, with the last one on 02.05.2023, directing the assessee to submit a response by 08.05.2023. The assessee had submitted an adjournment request on 06.05.2023, but the CIT(A) proceeded to dismiss the appeal without considering the merits of the case, leading to an apparent violation of the due process.

The assessee argued before the ITAT that the CIT(A) had failed to grant the adjournment request, despite it being filed before the due date, and had dismissed the appeal without a proper examination of the issues on merits. The CIT(A) did not consider the e-proceedings details presented by the assessee or call for assessment records from the AO, which was a crucial step in ensuring fairness in the appeal process. Moreover, the CIT(A) failed to independently verify the merits of the case before dismissing the appeal.

Single Member Bench of Ramit Kochar(Accountant Member), upon examining the facts, held that the CIT(A)’s order was in breach of Section 250(6) of the Income Tax Act, which mandates that appellate orders must be reasoned and based on an independent assessment of the facts and law. The tribunal emphasized that the CIT(A) had not applied his mind to the issues raised in the appeal and had not provided a reasoned decision, which is a statutory requirement under the law.

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The ITAT further noted that the failure to adhere to the principles of natural justice by not granting the adjournment request and dismissing the appeal ex-parte violated the procedural fairness expected in tax proceedings. As a result, the ITAT set aside the CIT(A)’s order and remanded the case back to the CIT(A) for a fresh adjudication on merits, giving both parties a fair opportunity to present their case.

The matter is now to be reconsidered by the CIT(A) with full consideration of the facts and submissions made by both parties. The appeal has been allowed for statistical purposes.

To Read the full text of the Order CLICK HERE

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