ITAT sets aside ex-parte CIT(Appeals) orders, remands for fresh adjudication requiring assessee compliance

ITAT Raipur held that when CIT(Appeals) passes an ex-parte order due to assessee's non-compliance, the Tribunal cannot adjudicate legal grounds on merits as it would undermine the statutory framework and create an easy route for redressal without compliance before the first appellate authority. The Tribunal set aside the CIT(Appeals) orders and remanded matters for fresh adjudication on merits, directing the assessee to comply before the first appellate authority as this constituted their final opportunity. Appeals were allowed for statistical purposes.

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1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this consolidated appeal are:

• Whether the final assessment orders passed under Section 153A of the Income Tax Act, 1961, which contained variations from the draft assessment orders approved under Section 153D, without obtaining fresh approval from the competent authority, are valid.
• Whether the ex-parte orders passed by the first appellate authority (CIT(Appeals)) due to non-compliance by the assessee violate the principles of natural justice, particularly the right to be heard.
• Whether the Tribunal can decide legal grounds raised by the assessee when the first appellate authority has passed an ex-parte order without adjudicating on merits.
• Whether the matter should be remanded to the first appellate authority for fresh adjudication in light of the non-compliance and ex-parte orders.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Final Assessment Orders Containing Variations from Draft Orders Approved under Section 153D

Relevant Legal Framework and Precedents: Section 153D of the Income Tax Act requires that draft assessment orders under Section 153A be approved by the Additional Commissioner of Income Tax before finalization. The principle established in the Supreme Court judgment in Panchamahal Steel Ltd. v. U.A. Joshi (1997) 225 ITR 458 mandates that any material variation between the draft and final assessment order requires fresh approval from the competent authority.

Court's Interpretation and Reasoning: The Tribunal examined the assessment records and noted that the draft assessment orders did not contain a year-wise table of additions, which was inserted in the final assessment orders. The Assessing Officer clarified that although the table was inserted post-approval, the quantum of addition remained unchanged and consistent across draft and final orders.

Key Evidence and Findings: The approved draft order lacked a detailed calculation table, but the total additions were mentioned. The final order included the table after directions from the Range Head, but the amounts remained the same.

Application of Law to Facts: Since the quantum of addition was not altered, and the insertion of the table was a formatting or explanatory addition rather than a substantive change, the Tribunal found no mismatch necessitating fresh approval under Section 153D.

Treatment of Competing Arguments: The assessee argued that the insertion of the table without approval violated Section 153D. The Revenue contended that the substance of the order remained unchanged and approval was valid. The Tribunal sided with the Revenue on this point.

Conclusions: The Tribunal concluded that the final assessment orders were valid despite the insertion of the table post-approval, as the substantive content was consistent with the approved draft orders.

Issue 2: Validity of Ex-parte Orders Passed by CIT(Appeals) Due to Non-compliance by Assessee and Violation of Natural Justice

Relevant Legal Framework and Precedents: The principles of natural justice, particularly audi alteram partem (right to be heard), are enshrined under Article 14 of the Constitution of India. The Supreme Court in Delhi Transport Corporation v. DTC Mazdoor Union AIR 1999 SC 564 emphasized that a person adversely affected by an administrative order must be given a hearing. The Bombay High Court in Vijay Shrinivasrao Kulkarni v. ITAT (2025) 171 taxmann.com 696 held that dismissal of appeals ex-parte without proper opportunity violates natural justice.

Court's Interpretation and Reasoning: The Tribunal observed that the CIT(Appeals) passed ex-parte orders for all assessment years under appeal due to non-compliance by the assessee. Despite multiple opportunities, the assessee did not file detailed submissions or evidence. The Tribunal noted that the CIT(Appeals) orders were based only on limited material such as Form 35, grounds of appeal, and assessment orders, without substantive adjudication.

Key Evidence and Findings: The record showed no compliance by the assessee before the first appellate authority, resulting in ex-parte orders. No indication of deliberate non-compliance or mala fide conduct by the assessee was found.

Application of Law to Facts: While the assessee failed to comply, the Tribunal recognized the welfare nature of the Income Tax Act and the importance of natural justice. It held that even if non-compliance occurred, the assessee should be given one final opportunity to present the case before the first appellate authority to avoid injustice.

Treatment of Competing Arguments: The Revenue argued that the ex-parte orders were valid due to non-compliance and that the Tribunal should uphold them. The assessee contended that natural justice was violated. The Tribunal emphasized the need to balance procedural compliance with fundamental rights and favored providing a final hearing opportunity.

Conclusions: The Tribunal held that the ex-parte orders of the CIT(Appeals) violated principles of natural justice and remanded the matters for fresh adjudication with a final hearing opportunity to the assessee.

Issue 3: Whether the Tribunal Can Decide Legal Grounds Raised by the Assessee When the First Appellate Authority Passed Ex-parte Orders

Relevant Legal Framework and Precedents: The Supreme Court in National Thermal Power Corporation Ltd. v. CIT (1998) 229 ITR 383 held that the Tribunal can decide legal issues even if not raised before the first appellate authority, provided such issues go to the root of the matter. However, the first appellate authority is a statutory fact-finding body whose orders should be speaking and based on merits.

Court's Interpretation and Reasoning: The Tribunal acknowledged that while legal issues can be raised before it, the facts and circumstances of the case must be considered. Where the first appellate authority's order is ex-parte due to non-compliance, and no substantive adjudication has occurred, the Tribunal should not usurp the appellate authority's jurisdiction by deciding legal issues prematurely.

Key Evidence and Findings: The Tribunal noted that the assessee had raised a legal ground regarding approval under Section 153D, but the first appellate authority had not adjudicated on merits due to non-compliance.

Application of Law to Facts: The Tribunal reasoned that deciding legal grounds without a speaking order from the first appellate authority would undermine the statutory appellate hierarchy and encourage non-compliance by assessees.

Treatment of Competing Arguments: The assessee sought adjudication on the legal ground despite the ex-parte order below. The Revenue opposed this, emphasizing the need to maintain procedural discipline. The Tribunal balanced these views and favored remand for fresh adjudication.

Conclusions: The Tribunal concluded that it is appropriate to remand the matter to the first appellate authority for merits adjudication before deciding legal issues, thereby preserving the statutory appellate structure and principles of natural justice.

Issue 4: Remand for Fresh Adjudication by First Appellate Authority

Relevant Legal Framework and Precedents: Section 250(4) and (6) of the Income Tax Act empower the appellate authority to pass orders after hearing the parties. The Bombay High Court judgment in Vijay Shrinivasrao Kulkarni reiterated the necessity of hearing and adjudication on merits.

Court's Interpretation and Reasoning: The Tribunal found that since the first appellate authority's orders were ex-parte and no substantive adjudication occurred, remand was necessary to ensure compliance with natural justice and statutory requirements.

Key Evidence and Findings: The assessee had failed to comply previously but was not shown to have acted mala fide. The Tribunal recognized the welfare nature of tax laws and the need to provide a final opportunity.

Application of Law to Facts: The Tribunal directed that the first appellate authority must provide a reasonable opportunity of hearing and pass speaking orders within three months.

Treatment of Competing Arguments: The Revenue's request for remand was accepted, while the assessee was directed to comply fully on merits.

Conclusions: The Tribunal remanded the appeals to the first appellate authority for denovo adjudication on merits, directing compliance and adherence to principles of natural justice.

3. SIGNIFICANT HOLDINGS

"The Income tax Act is within the ambit of welfare legislation which are completely different from that of the penal legislation, therefore, benefit of doubt whenever arises, it has to be interpreted in favour of the assessee tax payer within the parameters of law and facts."

"The principles of natural justice i.e. the right to be heard is to be provided and accordingly, the matter had to be substantially adjudicated by the appellate authority."

"Passing of an order on merits by the ITAT even when the impugned order was passed ex-parte amounts to violation of principles of natural justice."

"If the order of the Ld. CIT(Appeals) itself is ex-parte and some legal ground is raised and if the Tribunal decides such legal ground where in fact principles of natural justice is left unanswered due to the fact that the impugned order before the Tribunal is ex-parte and there was no compliance by the assessee in such scenario the Tribunal would also be usurping the power of the Ld. CIT(Appeals) which is also a statutory authority as per the Act."

"The only course of action is to remand the matter back to the file of the Ld. CIT(Appeals) for adjudication on merits providing one final opportunity to the assessee."

Final determinations:

• The final assessment orders under Section 153A containing a table of additions inserted post-approval did not require fresh approval as the substantive quantum of addition remained unchanged.
• The ex-parte orders passed by the first appellate authority due to non-compliance by the assessee violated principles of natural justice.
• The Tribunal should not decide legal issues where the first appellate authority's order is ex-parte and no merits adjudication has occurred; rather, the matter should be remanded for fresh adjudication.
• The appeals are remanded to the first appellate authority for denovo adjudication on merits, providing the assessee one final opportunity to comply and be heard.
• All grounds of appeal are allowed for statistical purposes pending fresh adjudication.

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