The Ahmedabad bench of the Income Tax Appellate Tribunal ( ITAT ) has set aside the addition made by the Commissioner of Income Tax (Appeals) ( CIT (A) ) and directed fresh adjudication, noting that the pandemic and a fire incident hindered compliance with the CIT (A)’s requirements.
The bench, comprising Siddhartha Nautiyal ( Judicial Member ) and Makarand V. Mahadeokar ( Accountant Member ), reviewed the submissions and evidence presented. It was observed that the assessee faced unprecedented disruptions due to the pandemic and the fire, significantly impacting its ability to comply with the CIT (A)’s proceedings. Moreover, the CIT (A) did not provide a fair opportunity for the assessee to present its case.
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The assessee- Metro Heritage Pvt. Ltd company submitted its return of income for the assessment year 2016-17 on October 13, 2016, declaring a total income of Rs. 17, 97,090. The case was selected for scrutiny under the Computer-Assisted Scrutiny Selection ( CASS ). Notices under sections 143(2) and 142(1) of the Income Tax Act were issued to the assessee, but the assessee did not provide the required details. Consequently, the Assessing Officer ( AO ) issued a show-cause notice, indicating that a penalty under section 271(1)(b) of the Act would be levied for non-compliance. The assessee’s continued failure to comply led the AO to pass an order imposing the penalty.
During the assessment proceedings, the AO noted that the assessee had submitted some details online via the E-proceedings facility. However, the AO observed that the assessee had not disclosed interest income amounting to Rs. 5,47,553. The AO requested details to justify a depreciation claim of Rs. 26,96,496, but the assessee failed to provide the necessary evidence. Consequently, the AO added Rs. 5,47,553 under “income from other sources” and disallowed the depreciation claim of Rs. 26,96,495
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The AO also requested details regarding a significant share premium received during the year, including detailed calculations under Rule 11U and 11UA and confirmations from each party involved. The assessee responded that the shares were issued at a premium based on the fair market value of equity shares calculated from the company’s last audited balance-sheet as of March 31, 2014, which valued the shares at approximately Rs. 110 each.
However, the AO concluded that the value should have been calculated according to Rule 11UA of the Income Tax Rules, 1962, which valued the shares at Rs. 98.31 each. The AO added Rs. 12,85,900, the difference between the assessed value and the issued value, to the assessee’s total income. The assessment was completed with an order under section 143(3) of the Act.
The assessee appealed to the Commissioner of Income Tax (Appeals) [ CIT(A) ] against the additions made. The CIT(A) dismissed the appeal, confirming the AO’s order on the grounds that the assessee remained non-compliant and failed to produce necessary evidence.
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Mr. Hemant Suthar, representing the assessee, stated that the COVID-19 pandemic caused significant disruptions, preventing compliance with the first notice from the CIT(A) dated December 23, 2020.
He also cited a fire in the hotel building where records were kept, leading to the destruction or misplacement of documents. Additionally, the departure of the consultant handling the company’s accounting and taxation work further deteriorated record-keeping. These factors led to non-compliance with the CIT (A)’s notices. An affidavit stating these facts was filed, and the assessee requested the matter be restored to the CIT (A) for proper adjudication.
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Considering the affidavit and supporting documents filed by the assessee, the bench deemed it necessary to verify the evidence to ensure a fair adjudication. Consequently, the order of the CIT (A) was set aside, and the matter was remanded for fresh adjudication. The CIT (A) was directed to provide the assessee with an adequate opportunity to present all necessary evidence and explanations. The assessee was also instructed to cooperate with the proceedings to ensure a timely resolution. The appeal of the assessee was allowed for statistical purposes.
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