2024 (3) TMI 1470 - AT - Income Tax

Appeal restored for fresh hearing on Section 50C capital gains addition due to ex parte orders and condoned delay

Mehulkumar Kantilal Patel Versus I.T.O., Ward 2 (3) (2), Surat

Mehulkumar Kantilal Patel Versus I.T.O., Ward 2 (3) (2), Surat - TMI 1. ISSUES PRESENTED and CONSIDERED Whether delay of 120 days in filing appeal before the Tribunal is liable to be condoned. Whether ignorance of income tax law and reliance on advice of a novice accountant constitutes sufficient cause for condonation of delay. Whether the ex parte orders passed by the Assessing Officer and Commissioner of Income Tax (Appeals) warrant restoration of appeal for fresh adjudication. Whether addition under Section 50C of the Income Tax Act, 1961, based on stamp valuation authority's valuation without allowing cost of acquisition or improvement, is justified. Whether the assessee was denied reasonable opportunity of hearing and chance to submit evidence before the lower authorities. Whether the principle that ignorance of law is no excuse applies in income tax proceedings. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Condonation of delay in filing appeal before the Tribunal Legal framework and precedents: The Tribunal considered established principles that delay in filing appeal may be condoned unless there is gross negligence or mala fide intention. Reliance was placed on jurisdictional High Court and Supreme Court decisions holding that legal advice, even if erroneous, can constitute sufficient cause for condonation of delay. The Apex Court's ruling emphasized a liberal approach in the larger interest of justice, disallowing deprivation of adjudication on merits unless delay is deliberate and intentional. Court's reasoning: The assessee's delay was attributed to reliance on a novice accountant who failed to properly represent or advise the assessee. The assessee was a layman agriculturist unfamiliar with income tax technicalities and was unaware of procedural requirements. The delay was not deliberate or intentional but bonafide. The Tribunal distinguished the facts from a cited Supreme Court case where no sufficient cause was shown for a much longer delay. Key findings: The assessee filed an application with affidavit explaining the delay and circumstances. The Tribunal found the explanation credible and the delay reasonable under the circumstances. Conclusion: Delay of 120 days in filing appeal was condoned on grounds of bonafide reliance on professional advice and lack of awareness, consistent with judicial precedents advocating liberal approach. Issue 2: Effect of ignorance of law and reliance on advice of accountant Legal framework and precedents: The general principle that ignorance of law is no excuse was discussed. However, the Tribunal noted that this principle is primarily applicable in criminal or penal law and does not rigidly apply in specialized tax proceedings where reliance on professional advice may justify condonation of delay. Court's reasoning: The assessee's ignorance was due to being a layman agriculturist and reliance on a novice accountant who inadequately handled the case. This was held to be a reasonable cause for delay and non-compliance before lower authorities. Treatment of competing arguments: The Department's contention that ignorance of law cannot be an excuse was rejected as inapplicable in tax proceedings. The Tribunal accepted the assessee's submission that specialized legislation requires a more nuanced approach. Conclusion: Ignorance of income tax law coupled with reliance on professional advice can constitute sufficient cause for condonation of delay in tax appeals. Issue 3: Validity of ex parte orders and entitlement to fresh opportunity Legal framework: Principles of natural justice require that an assessee be given reasonable opportunity to present evidence and submissions before adverse orders are passed. Court's interpretation and reasoning: Both the Assessing Officer and CIT(A) passed ex parte orders due to non-compliance by the assessee, who was unrepresented or inadequately represented. The Tribunal found that the assessee's substantial rights were affected by addition of income and denial of opportunity to contest the case. Application of law to facts: Given the ex parte nature of orders and the assessee's claim of ignorance and reliance on faulty advice, the Tribunal held that the assessee deserves a fresh opportunity to be heard and to submit evidence. Conclusion: The appeal was restored to the file of the Assessing Officer for fresh adjudication after granting the assessee opportunity of hearing. Issue 4: Addition under Section 50C based on stamp valuation authority's valuation Legal framework: Section 50C of the Income Tax Act mandates that where the consideration received on transfer of immovable property is less than the value adopted by the stamp valuation authority, the latter's value shall be deemed to be the full value of consideration for capital gains computation. Court's reasoning: The Assessing Officer invoked Section 50C and added the difference between stamp valuation and sale consideration as long-term capital gain attributable to the assessee's 1/4th share. However, no allowance was made for cost of acquisition or improvement. Key findings: The Tribunal noted that the assessee was denied opportunity to submit evidence regarding cost of acquisition or improvement. The addition was made in ex parte proceedings without hearing the assessee. Conclusion: The matter was restored to the Assessing Officer to allow the assessee to file submissions and evidence on cost of acquisition and improvement before fresh adjudication under Section 50C. Issue 5: Whether the assessee was denied reasonable opportunity before lower authorities Legal framework: Natural justice principles require that an assessee be given reasonable opportunity to present case before passing adverse orders. Court's reasoning: Both the Assessing Officer and CIT(A) passed orders ex parte due to non-compliance by the assessee, who was unaware of proceedings and relied on faulty advice. The Tribunal found that the assessee's failure to comply was not deliberate and that the assessee was entitled to opportunity to be heard. Conclusion: The assessee was denied reasonable opportunity before lower authorities, justifying restoration of appeal for fresh hearing. Issue 6: Applicability of principle 'ignorance of law is no excuse' in tax proceedings Legal framework: The principle that ignorance of law is no excuse is a well-established legal maxim, generally applied in criminal and penal contexts. Court's reasoning: The Tribunal distinguished the principle's applicability in specialized tax legislation, where reliance on professional advice and procedural complexities may justify condonation of delay and leniency. Treatment of competing arguments: The Department's reliance on the principle was rejected as inapposite to the facts of the case and the nature of tax proceedings. Conclusion: The principle does not rigidly apply in tax appeals, especially where the assessee is a layman and acted on advice of a professional.