2024 (5) TMI 1619 - AT - Income Tax

Appellate authority must decide appeals on merits, cannot summarily dismiss for non-prosecution; must record reasons if agreeing

Rajesh Kumar Khubwani Versus The Assistant Commissioner of Income Tax-1 (1), Raipur. (C.G.)

ITAT RAIPUR - AT set aside the CIT(A)'s orders dismissing the appeals for non-prosecution and directed fresh adjudication by a speaking order. The ... Delay filling of appeal - CIT(Appeals) had disposed off the appeal for non-prosecution - captioned appeals involved an impugned delay of 420 days, 258 days and 208 days respectively - submitted by the Ld. AR that the same had occasioned for the reason that though the assessee in Form 35 had categorically stated that all the notices/communications be made available otherwise than by email but no physical /hard copy of the order of the CIT(Appeals) was served upon him - HELD THAT:- CIT(Appeals) had disposed off the appeal for non-prosecution and had failed to apply his mind to the issues which did arise from the impugned order and were assailed by the assessee before him. Once an appeal is preferred before the CIT(Appeals), it becomes obligatory on his part to dispose off the same on merit and it is not open for him to summarily dismiss the appeal on account of non-prosecution of the same by the assessee. In case the CIT(Appeals) concurred with the additions/disallowance made by the A.O., then he is obligated to record a finding to the said effect along with the reasons. As per the mandate of law, CIT(Appeals) is not vested with any power to summarily dismiss the appeal for non-prosecution. The aforesaid view is fortified by the judgment of Premkumar Arjundas Luthra (HUF)[2016 (5) TMI 290 - BOMBAY HIGH COURT] Apart from that, we find that the assessee had in Form 35 clearly opted out from the service of notices/communications from the office of the CIT(Appeals) through email. As the notices intimating the fixation of the appeal were dropped in the assessee’s e-mail account, therefore, there is substance in his claim that as he was not validly put to notice about the hearing of the appeal, thus, the same had resulted to failure on his part to participate in the proceedings before the first appellate authority. Thus, unable to persuade ourselves to subscribe to the dismissal of the appeal by the CIT(Appeals) for non-prosecution, therefore, set aside his order with a direction to dispose off the same afresh based on a speaking order. ISSUES PRESENTED AND CONSIDERED 1. Whether the delay in filing appeals to the Appellate Tribunal merits condonation where the appellant had opted in Form 35 to receive communications otherwise than by e-mail and did not receive physical copies of the first appellate order. 2. Whether a first appellate authority is empowered to summarily dismiss an appeal for non-prosecution where the assessee failed to appear or to pursue the appeal, without applying its mind to the substantive issues arising from the assessment order. 3. Whether notices intimating fixation of appeal were validly served where they were sent by e-mail despite the assessee's specific election in Form 35 for service otherwise than by e-mail, and whether service by a mode other than that elected vitiates dismissal for non-appearance. 4. Whether the reassessment framed under sections 147/144 (and attendant jurisdictional/transfer objections raised under sections 120/124/127) should be considered on the record before the Tribunal where the assessee in additional grounds challenged jurisdiction of the officer who framed the reassessment. 5. Whether the addition of 25% of alleged bogus purchases (ad hoc GP estimation) can be sustained on the record where the assessing officer disallowed 25% of purchases of Rs. 4,00,000 for lack of substantiation and the first appellate authority dismissed the appeal for non-prosecution without addressing merits. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Condonation of delay in filing appeals where assessee elected non-email service Legal framework: Limitation for filing appeals runs from the date of service/communication of the order. Form 35 allows the taxpayer to elect mode of service for notices/communications. Precedent treatment: No specific appellate precedent overruled; general practice and principles concerning service and limitation were applied. Interpretation and reasoning: The Tribunal accepted the assessee's affidavit that the assessee had opted in Form 35 that communications should be sent otherwise than by e-mail and that no physical/hard copy of the CIT(A) order was received. The Tribunal reasoned that computing limitation from date on which the order was dropped in the assessee's e-mail would render the statutory option in Form 35 otiose. Where an assessee has validly elected a mode of service other than e-mail and did not receive service in that mode, delay attributable to non-receipt of e-mail service is not imputable to the assessee. Ratio vs. Obiter: Ratio - where an assessee elects non-email service in prescribed form and does not receive physical service, limitation should not be reckoned from e-mail date; such delay may be condoned if caused by non-service in elected mode. Obiter - practical considerations about checking e-mail habits of assessee. Conclusions: The impugned delays (420, 258, 208 days) were condoned in view of the election in Form 35 and the affidavit evidencing non-receipt of physical copy; filing of appeals on dates asserted by assessee was held not to be delayed due to any fault of the assessee. Issue 2 - Power of first appellate authority to dismiss appeal for non-prosecution without adjudication on merits Legal framework: Sections 246A, 250, 251 and Explanation to section 251(2) (statutory obligation of CIT(A) to apply mind, state points for determination and render decision on each point) impose duty on CIT(A) to adjudicate appeals on merits; procedural practice regarding dismissal for non-prosecution. Precedent treatment: Tribunal followed authority emphasising that preferring an appeal requires effectively pursuing it (BN Bhattacharya cited by lower authority) but relied on higher authority holding that CIT(A) must decide on merits and cannot summarily dismiss for non-prosecution (referred to High Court decision in Premkumar Arjundas Luthra (HUF)). Interpretation and reasoning: The Tribunal held that once an appeal is filed, CIT(A) is statutorily obliged to apply its mind to issues arising from the assessment order and to decide them on the merits. Mere non-appearance by the appellant does not empower CIT(A) to dismiss the appeal summarily; if CIT(A) concurs with AO, reasons must be recorded. The Tribunal found that CIT(A) dismissed appeals for non-prosecution and/or made generic observations without addressing the specific grounds raised by assessee, contrary to statutory mandate. Ratio vs. Obiter: Ratio - CIT(A) must dispose of appeals after applying mind to issues arising from the assessment order and record reasons if confirming AO; cannot summarily dismiss for non-prosecution. Obiter - citation to authorities on non-pursuance vs. duty to adjudicate. Conclusions: Orders of CIT(A) dismissing appeals for non-prosecution or upholding AO without addressing issues were set aside and matters remitted to CIT(A) for de novo disposal with reasoned/speaking orders and reasonable opportunity to the assessee. Issue 3 - Validity of service by e-mail contrary to elected mode and effect on appellate proceedings Legal framework: Principles of valid service; election of mode of service in prescribed form; consequence of failure to serve in elected mode for entitlement to be heard. Precedent treatment: No express overruling; the Tribunal applied principle that an election of service mode must be given effect to and improper service can vitiate proceedings dependent on service. Interpretation and reasoning: The Tribunal observed that notices intimating fixation of appeal were dropped in e-mail account despite the assessee's election for non-email service, and record contained no proof of service by the mode elected. In absence of evidence to the contrary by Revenue, the Tribunal accepted that the assessee was not validly put to notice and that failure to appear before CIT(A) was occasioned by lack of valid service. Ratio vs. Obiter: Ratio - where assessee elects a mode of service and revenue effects service by a different mode without proving service in the elected mode, non-appearance cannot be attributed to assessee and appellate proceedings must be reopened. Obiter - procedural directions for CIT(A) to afford reasonable opportunity on remand. Conclusions: Defective service in elected mode vitiated CIT(A)'s dismissal for non-appearance; appeals remitted for fresh adjudication after valid service and opportunity. Issue 4 - Jurisdictional objections to reassessment/transfer under sections 120/124/127 raised as additional grounds Legal framework: Jurisdictional limits and internal transfer provisions (sections 120, 124, 127 or relevant administrative directions) determine competence of officer to make reassessment; additional grounds raise pure questions of law. Precedent treatment: Tribunal admitted additional ground relying on Supreme Court principle that a new ground involving pure question of law and not requiring further facts may be admitted (NTPC principle relied upon). Interpretation and reasoning: The Tribunal noted that the assessee raised additional grounds challenging the validity of jurisdiction assumed by assessing officer and transfer order (section 127) and held that such challenge involved purely legal questions requiring no further fact-finding; therefore the grounds warranted admission. However, the Tribunal did not decide the jurisdictional issues on merits in the present order but remitted matters to CIT(A) for fresh consideration where relevant. Ratio vs. Obiter: Ratio - additional grounds that present pure legal questions and require no factual verification may be admitted by the Tribunal even if raised for first time. Obiter - implication that jurisdictional issues should be considered on remand by appropriate authority. Conclusions: Additional grounds challenging jurisdiction were admitted; remand ordered for fresh adjudication so that jurisdictional and transfer issues may be considered by CIT(A) in the light of the record. Issue 5 - Sustenance of ad-hoc addition of 25% on alleged bogus purchases where AO applied section 144 r.w.s. 147 and CIT(A) dismissed appeal for non-prosecution Legal framework: Burden on assessee to substantiate purchases; AO's powers under section 144 to make best judgment assessment where evidence absent; appellate duty to consider and decide substantive additions. Precedent treatment: Tribunal did not finally adjudicate the substantive correctness of the 25% addition; it held that CIT(A) failed to address the substantive contention and therefore could not be permitted to uphold the addition without speaking findings. Interpretation and reasoning: The AO made an addition of 25% (Rs.1,00,000) on purchases of Rs.4,00,000 for lack of substantiation. The CIT(A) dismissed the appeal for non-prosecution and did not record any reasoned concurrence with the AO's ad-hoc estimation. Tribunal emphasized statutory obligation on CIT(A) to address issues on merits, and therefore could not sustain the addition on the basis of the impugned appellate order. The Tribunal remitted the matter for de novo adjudication to allow the assessee opportunity to substantiate purchases and for CIT(A) to record reasoned findings if confirming AO's action. Ratio vs. Obiter: Ratio - an assessing addition premised on unsupported purchases cannot be sustained where the appellate authority has merely dismissed appeal for non-prosecution without applying mind to merits; a speaking order on remand is required. Obiter - specifics about evidentiary sufficiency of purchase documentation left to remand proceedings. Conclusions: The Tribunal declined to adjudicate and did not uphold the 25% ad-hoc addition; matters remitted to CIT(A) to decide substantively with reasons after affording opportunity to the assessee.