2024 (4) TMI 404 - AT - Income Tax

CIT(Appeals) cannot dismiss appeals for non-prosecution under Sections 251(1)(a), 251(1)(b), 251(2) - must decide on merits

The ITAT Raipur allowed the assessee's appeal against the CIT(Appeals) who had dismissed the appeal for non-prosecution. The ITAT held that under Sections ... Dismissal of the appeal by the CIT(Appeals) for non-prosecution - 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 was 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 fact, a perusal of Sec.251(1)(a) and (b), as well as the “Explanation” to Sec.251(2) of the Act reveals that the CIT(A) remains under a statutory obligation to apply his mind to all the issues which arises from the impugned order before him. As per mandate of law the CIT(Appeals) is not vested with any power to summarily dismiss the appeal for non-prosecution. As persuade myself 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 on merits. CIT(Appeals) in the course of the de novo appellate proceedings shall afford a reasonable opportunity of being heard to the assessee who shall remain at a liberty to raise the additional grounds of appeal which have been raised before us. Thus, appeal filed by the assessee company is allowed for statistical purposes. ISSUES PRESENTED AND CONSIDERED 1. Whether the first appellate authority (CIT(A)) may summarily dismiss an appeal for non-prosecution, or is statutorily obliged to adjudicate the appeal on merits by applying its mind to the issues arising from the impugned order? 2. Whether the notice issued under section 148 (reopening) is invalid for want of proper jurisdictional assumption/transfer under section 127 (i.e., whether jurisdiction vested in one ITO could be assumed by another without compliance with transfer formalities)? 3. Whether the assessing officer was justified in denying higher rate depreciation (30%) on excavating/earth-moving equipment (JCB and Tata Hitachi) on the grounds that such vehicles are not motor lorries/taxis used on hire and so are not eligible under the relevant depreciation rules. 4. Whether interest paid on hire charges is liable to disallowance under section 40(a)(ia) for failure to deduct tax at source, taking into account exemptions for interest paid to specified banks under section 194A(3)(a) and timing of deposit of TDS where applicable. 5. Whether adjustments/additions made by the assessing officer while framing assessment should be carried into computation of 'book profit' under section 115JB (i.e., scope and limits of additions/adjustments for MAT computation). ISSUE-WISE DETAILED ANALYSIS Issue 1 - Obligation of CIT(A) to decide appeals on merits (statutory framework and power to dismiss for non-prosecution) Legal framework: Sections 246A, 250 and 251 (and Explanation to s.251(2)) require the CIT(A) to dispose of appeals in writing, state points for determination, render decisions with reasons, and empower the CIT(A) to confirm, reduce, enhance or annul an assessment; the CIT(A) is obliged to apply his mind to issues arising from the impugned order. Precedent treatment: The decision of the High Court (Bombay) in Premkumar Arjundas Luthra was relied upon for the proposition that the CIT(A) cannot summarily dismiss appeals for non-prosecution and must dispose of appeals on merits. Interpretation and reasoning: The Tribunal held that once an appeal is preferred, the CIT(A) has a statutory obligation to consider issues and either decide them or direct further inquiry; power to summarily dismiss for non-prosecution is not provided by the statute. The Tribunal emphasized Sec.251(1)(a) & (b) and the Explanation to Sec.251(2) to conclude the CIT(A)'s duty to apply mind to all issues even if not raised by the appellant. Ratio vs. Obiter: Ratio - It is a legal obligation on the CIT(A) to adjudicate appeals on merits and not to dismiss them solely for non-prosecution; dismissal for non-prosecution is impermissible under the statutory scheme. Conclusion: The CIT(A)'s summary dismissal of the appeal for non-prosecution was incorrect; the matter is to be remitted for de novo adjudication with opportunity of hearing to the assessee. This forms the operative direction of the Tribunal. Issue 2 - Validity of notice under section 148 for want of jurisdictional transfer under section 127 Legal framework: Section 148 empowers issuance of notice for reopening; section 127 governs transfer of pending proceedings between income-tax authorities and contemplates documentation/evidence of transfer. Precedent treatment: The assessee raised the jurisdictional objection; the Tribunal noted the contention but did not decide it on merits in the impugned order because the appeal was remitted for fresh adjudication by the CIT(A). Interpretation and reasoning: The Tribunal recognized the raised jurisdictional challenge (that the notice was issued by an ITO who had not assumed jurisdiction by transfer from the earlier ITO as required under section 127) but, having set aside the appellate order for non-prosecution, directed the CIT(A) to hear the assessee and consider such grounds afresh in the de novo proceedings. Ratio vs. Obiter: Obiter (procedural): No determination on the validity of the section 148 notice was made; the issue remains open for consideration by the CIT(A) on remand. Conclusion: Jurisdictional objection allowed to be raised before the CIT(A) in fresh proceedings; no adjudication on validity of the notice in the Tribunal's order. Issue 3 - Entitlement to higher rate depreciation (30%) on JCB/Tata Hitachi Legal framework: Depreciation rates and conditions in the relevant Income-tax Rules/Appendix (Rule 5, Appendix-I as applicable from A.Y. 2006-07 onwards) govern classification and rates for motor lorries/taxis and potentially for earth-moving equipment. Precedent treatment: The assessee relied on a High Court decision (Kerala High Court in CIT v. Gaylord Constructions) holding that JCB is entitled to higher depreciation; that precedent was invoked before the Tribunal. Interpretation and reasoning: The assessing officer disallowed higher rate depreciation primarily on two findings: (i) the equipment were not motor lorries/motor taxis used in business of running them on hire as per Rule 5, Appendix-I; and (ii) such equipment, unlike motor lorries/trucks, could not be used for running on hire. The Tribunal noted the contest but, because the appeal was remitted for de novo adjudication, did not decide the substantive entitlement to higher depreciation. Ratio vs. Obiter: Obiter (procedural): No binding determination on the depreciation claim; the question is to be addressed afresh by the CIT(A) in adjudication on merits. Conclusion: The depreciation entitlement issue is remitted for fresh consideration by the CIT(A); reliance on the cited High Court ruling may be entertained and adjudicated in the appellate proceedings. Issue 4 - Disallowance under section 40(a)(ia) of interest for non-deduction of TDS Legal framework: Section 40(a)(ia) disallows certain payments where tax is required to be deducted at source and has not been. Section 194A(3)(a) exempts deduction of tax at source on interest payments by certain banks (nationalized banks), and compliance/timing of TDS deposit is relevant. Precedent treatment: The Tribunal considered the assessee's submissions and documents showing bifurcation of interest payments (to HDFC Bank and to NBFCs) and evidence of TDS deposit (timely deposit for part of amount). Interpretation and reasoning: The assessee contended that interest paid to nationalized banks is not subject to TDS per section 194A(3)(a) and that TDS on other interest was deposited within stipulated time. The Tribunal recorded these contentions but did not resolve the issue substantively because the appeal was remitted to the CIT(A) for fresh decision on merits. Ratio vs. Obiter: Obiter (procedural): No conclusive finding on applicability of section 40(a)(ia) or on the exemption under section 194A(3)(a); these matters are to be examined by the CIT(A) in de novo proceedings. Conclusion: The TDS/disallowance issue stands to be considered afresh by the CIT(A) with opportunity to examine documentary proofs and legal contentions. Issue 5 - Adjustment of additions/disallowances to 'book profit' under section 115JB Legal framework: Section 115JB prescribes computation of 'book profit' for minimum alternate tax (MAT) with prescribed adjustments; scope of additions/adjustments is governed by the statutory scheme and relevant accounting principles. Precedent treatment: The assessing officer carried additions/disallowances into computation of book profit; the assessee challenged the permissibility and scope of such adjustments before the CIT(A) and the Tribunal. Interpretation and reasoning: The Tribunal observed that the assessee had raised detailed grounds contesting the adjustments made to book profit. Given the Tribunal's primary finding that the CIT(A) ought to have considered the appeal on merits, the Tribunal did not decide the correct scope of adjustment under section 115JB and left the matter to be adjudicated by the CIT(A) in de novo proceedings. Ratio vs. Obiter: Obiter (procedural): No substantive determination as to whether the specific additions should or should not have been carried into book profit; remitted for reconsideration. Conclusion: Adjustment to book profit under section 115JB requires fresh adjudication by the CIT(A) after hearing; no conclusive ruling in the Tribunal's order. Dispositive Conclusion The Tribunal held that the CIT(A) erred in summarily dismissing the appeal for non-prosecution and set aside the appellate order, directing the CIT(A) to dispose of the appeal afresh on merits after affording the assessee a reasonable opportunity of being heard; all substantive disputes (jurisdiction under section 148/127, higher depreciation claim, s.40(a)(ia) disallowance, and section 115JB book-profit adjustments) are to be considered and decided by the CIT(A) in the remand proceedings. The Tribunal's holding that the CIT(A) must adjudicate appeals on merits is the operative ratio; other substantive issues remain open for determination on remand.