Natural Justice Violated by unfair Deadline: ITAT Remands ₹1.3 Cr Addition case u/s 69C to AO [Read Order]

The Surat bench of the Income Tax Appellate Tribunal ( ITAT ) in the case of supersonic impex held that a deadline of three days for submission of all relevant records of the assessee’s accounts was unfair and such unfair deadline was indeed a violation of natural justice principles. The assessee had appealed against an order passed by the Commissioner of Income Tax (Appeals) [CIT(A)], National Faceless Appeal Centre ( NFAC ) under Section 250 of the Income Tax Act 1961, for the assessment year (AY) 2018-19.

In this case, the assessee filed its return of income for the 2018-19 AY declaring a total of ₹12,33,640 and the assessee's case was selected for limited scrutiny on the issues of “imports and exports”, and various notices were issued and served upon the assessee. The assessing officer ( AO ) observed that the assessee had made an import purchase amounting to ₹3.2 Crores. The assessee replied to the notice by submitting an excel sheet that showed import purchases amounting to ₹3.9 Crores. The AO gave the assessee 3 days to respond to the draft assessment, which the assessee failed.

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The AO observed the difference as unexplained expenditure under Section 69C of the Act and added it to the assessee's total income and finalised the assessment under section 143(3) of the act after making a total addition of ₹1 Crore to the total income of the assessee.

Dissatisfied by the AO’s order, the assessee filed an appeal before the CIT(A), where the CIT(A) deleted the addition of 63 Lakhs made by the AO as unexplained expenditures as it was accounted as expenditure in import purchases by the assessee. However, the CIT(A) upheld the addition to the difference in income assessed, which accounted for 42 Lakhs. The CIT(A) had partially, therefore partially, allowed the appeal.

In an appeal to the CIT(A)’s order at the tribunal, the assessee's Authorized Representative (AR) submitted that the AO had only given three days to file the reply against the draft assessment order. Without waiting for the assessee’s reply, the assessment order was passed under Section 143(3), which is against the principle of natural justice. The AR submitted that even though the assessee had produced a paper book and an excel sheet, they could not correctly explain the entries. The AR further prayed to set aside the CIT(A) order or remand the issue back to the AO for fresh assessment.

To this, the Departmental Representative for Revenue held that the assessee was negligent and non-cooperative during the assessment proceedings. The DR stated that he would have no objection to setting the issue aside for AO for verification.

ITAT, on hearing both sides, held that the assessee was only given 3 days to furnish all required details before the AO. The tribunal held that the assessee could not submit the particulars due to a short deadline. The tribunal observed the orders to be violative of the principles of natural justice. The tribunal observed that the assessee could not plead his case adequately before the AO.

Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here

The two-member bench, consisting of Pawan Singh ( Judicial Member ) and Bijayananda Pruseth ( Accountant Member ), held that it is settled that natural justice and fair play require that the affected party be given sufficient opportunity to be heard to present his case.

The tribunal asserted that as the case's merits were not looked into in-depth, the CIT(A) order was to be set aside and the matter was to be remanded to the AO for fresh assessment.

The tribunal also directed the assessee to provide all relevant explanations and documents before the AO.

In result, the appeal was allowed.

To Read the full text of the Order CLICK HERE

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