2024 (6) TMI 928 - AT - Income Tax

Tax Appeal Partially Allowed: ITAT Remits Case for Fresh Adjudication, Urges Comprehensive Review by CIT(A.

Anup Kumar Agrawal Versus Income Tax Officer-2 (1), Raipur, (C.G.)

The ITAT partially allowed the appeal, remitting the issues back to the CIT(A) for fresh adjudication. The ITAT determined that the CIT(A) failed to ... Order of CIT(Appeals) u/s 250 - Unexplained cash credit u/s 68 and u/s 41(1) on account of outstanding balances of creditors - HELD THAT:- It was the allegation of the AR and rightly so that, though the CIT(A) has mentioned the case is being decided on merits, but the order of CIT(A) was more of reproduction of the order of AO, nothing transpires from the impugned order that he had decided the issues with independent application of mind. The appeal of the assessee was not decided on merits by the CIT(A) and in such cases, we are consistently taking a view that such cases should be restored back to the files of CIT(A), therefore, we, in absence of any distinguishable features in the present case, without going into the merits of the case are of the opinion to restore the issues raised in the present appeal back to the files of CIT(A) for adjudicating the same afresh, with affording reasonable opportunity of being heard to the assessee, which the assessee shall comply in most diligent manner without any fail. The assessee will be at liberty to submit necessary explanations and submission in the set aside proceedings. As in absence of deliberation on the issues on its merits before the CIT(A) based on material available on record, in the interest of justice, we find it appropriate to restore the present appeal back to the files of Ld. CIT(A) for fresh adjudication. Appeal of the assessee is partly allowed for statistical purposes. ISSUES PRESENTED AND CONSIDERED 1. Whether additions made by the Assessing Officer under section 68 treating capital introduced as unexplained cash credit are sustainable where the assessee did not adequately respond before the first appellate authority. 2. Whether additions made by the Assessing Officer invoking section 41(1) on account of outstanding balances of creditors are sustainable where the assessee did not adequately respond before the first appellate authority. 3. Whether the Commissioner of Income Tax (Appeals) complied with statutory obligations to decide the appeal on merits with independent application of mind, and whether failure to do so warrants restoration to the first appellate authority for fresh adjudication with opportunity to be heard. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Addition under section 68 (unexplained cash credit): Legal framework Section 68 permits treating sums credited in the books as income where an assessee fails to satisfactorily explain the nature and source of such credits. The first appellate authority is obligated to examine points for determination, render reasoned decisions on each point and may call for further inquiry or direct the AO for further inquiry where necessary. Precedent Treatment The Tribunal relied on the principle that the appellate authority must dispose of appeals on merits and apply independent mind rather than merely reproduce the AO's findings; the Tribunal followed the line of authority requiring reasoned adjudication by the appellate authority. Interpretation and reasoning Though the assessee had not effectively prosecuted the appeal, the Tribunal found that the CIT(A)'s order largely reproduced the AO's conclusions without independent consideration of the evidence and material on record. The Tribunal emphasized that even where the appellant is non-compliant, the CIT(A) is duty-bound to decide points on merits and, if necessary, to seek further inquiry rather than confirming additions summarily. Ratio vs. Obiter Ratio: Where the CIT(A)'s order shows no independent application of mind and merely reproduces the AO's findings on a section 68 addition, such order is not an adjudication on merits and the matter should be restored for fresh adjudication. Obiter: No detailed commentary on the substantive correctness of the section 68 addition was undertaken. Conclusion The Tribunal did not adjudicate the correctness of the section 68 addition on merits; instead it held that the CIT(A) failed to apply independent mind and restored the matter for fresh disposal with opportunity to the assessee to submit explanations. Issue 2 - Addition under section 41(1) (recapture of allowance/provision) relating to outstanding creditors: Legal framework Section 41(1) operates to include in income amounts previously allowed as deduction or set-off where specified conditions are satisfied (e.g., obligation ceases). The first appellate authority must assess whether the AO's invocation of section 41(1) is justified on the record and provide reasons for confirming or disturbing such invocation. Precedent Treatment The Tribunal applied the same supervisory principle governing appellate disposal: the CIT(A) must address issues on merits, independently analyze material and state reasons; failure to do so requires remand. The Tribunal did not consider or distinguish any prior authority that upheld a substantive application of section 41(1) on facts. Interpretation and reasoning Given that the CIT(A)'s order on the section 41(1) addition was likewise a reiteration of the AO's findings without demonstrable independent analysis, the Tribunal determined that the appeal could not be regarded as decided on merits. The Tribunal therefore declined to examine the factual or legal correctness of the section 41(1) addition and remanded the issue for fresh consideration. Ratio vs. Obiter Ratio: Confirmation of a section 41(1) addition by an appellate authority which has not applied independent mind is not a valid adjudication and requires restoration for fresh consideration. Obiter: The Tribunal refrained from addressing the substantive application of section 41(1) to the outstanding creditor balances. Conclusion The Tribunal restored the section 41(1) issue to the CIT(A) for fresh adjudication, directing that the assessee be given a reasonable opportunity to present explanations. Issue 3 - Duty of the first appellate authority to decide on merits and effect of non-prosecution: Legal framework The appellate authority is statutorily obliged to state points for determination and render reasoned decisions on each. It has power to direct further inquiry and to consider issues arising from the impugned order even if not pressed by the appellant; the authority cannot simply dismiss or mechanically confirm the AO's order for non-prosecution. Precedent Treatment The Tribunal expressly relied on higher court authority holding that the CIT(A) must dispose of appeals on merits, may call for further inquiry and cannot dismiss on non-prosecution without applying mind to the issues; that authority was followed as binding precedent guiding the remand. Interpretation and reasoning The Tribunal examined the CIT(A)'s order and found no evidence of independent application of mind: the order largely reproduced the AO's findings and did not articulate reasons on the points arising. In such circumstances, to secure adjudicatory fairness and compliance with statutory obligations, the Tribunal considered remand appropriate rather than attempting decision on the record itself. Ratio vs. Obiter Ratio: Where the appellate order lacks independent reasoning and proper consideration of points for determination, the appropriate remedy is restoration to the appellate authority for fresh adjudication with opportunity to the assessee. Obiter: The Tribunal's comments on the assessee's non-compliance are collateral; non-prosecution does not absolve the CIT(A) of the duty to decide on merits. Conclusion The Tribunal remitted the matters to the CIT(A) for fresh adjudication on merits, directing the CIT(A) to afford reasonable opportunity of hearing and permitting the assessee to file explanations; the Tribunal did not rule on the substantive correctness of the AO's additions. Disposition The Tribunal allowed the appeal in part for statistical purposes by restoring the issues to the first appellate authority for fresh, reasoned adjudication in accordance with statutory obligations and relevant precedent, with liberty to the assessee to submit required explanations and to the CIT(A) to call for further inquiry if necessary.