Assessee can raise unadjudicated issues before Tribunal through Rule 27 application when CIT(A) fails to decide

ITAT Hyderabad ruled that an assessee can raise issues before the Tribunal through Rule 27 application even when CIT(A) failed to adjudicate those issues. The case involved penalty proceedings under sections 270A and 271AAB where the assessee challenged vague show cause notices. Following precedents from Madras HC and Bombay HC, ITAT held that unadjudicated issues by CIT(A) are deemed decided against the assessee, allowing them to be raised before the Tribunal without separate appeal. The matter was remanded to CIT(A) for proper consideration of the preliminary legal issue regarding validity of penalty proceedings.

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Issues Involved:

1. Legality of penalties imposed under sections 270A and 271AAB of the Income Tax Act.
2. Validity of the notice issued under section 274 read with sections 270A and 271AAB.
3. Interpretation of "undisclosed income" and "false entry" in the context of cash payments recorded in the books of accounts.

Detailed Analysis:

1. Legality of Penalties Imposed under Sections 270A and 271AAB:

The Revenue appealed against the orders of the CIT(A), which deleted penalties imposed on the assessee under sections 270A and 271AAB for the assessment years 2017-18 and 2018-19. The penalties were initially levied by the Assessing Officer (AO) on the grounds of under-reporting and mis-reporting of income due to cash payments made for the purchase of immovable properties, which were recorded under "Development Expenses" and "Site Salaries" in the books of accounts. The CIT(A) held that these entries did not constitute false entries as they were admitted as additional income in the returns filed under section 153A, and therefore, the penalties were not justified.

2. Validity of the Notice Issued under Section 274 r.w.s. 270A/271AAB:

The assessee challenged the penalties on the basis that the notice issued under section 274, read with sections 270A and 271AAB, was vague and did not specify the precise limb under which the penalties were being levied. The Tribunal acknowledged that the issue of a vague notice was a legal question that could be raised at any stage of the proceedings. Although the CIT(A) did not adjudicate this issue, the Tribunal found that the assessee had raised it in written submissions. The Tribunal decided that the matter should be reconsidered by the CIT(A) to address the validity of the penalty proceedings initiated on the basis of the vague notice.

3. Interpretation of "Undisclosed Income" and "False Entry":

The CIT(A) found that the additional income offered by the assessee did not fall within the definition of "undisclosed income" as per section 271AAB. The cash payments recorded in the books of accounts were shown under "Advances" in the balance sheet and were therefore not considered undisclosed. Furthermore, the CIT(A) concluded that the entries in question were not false, as they were not patently incorrect or made with the intention to deceive. The Tribunal supported the CIT(A)'s view that the case did not involve recording false entries, as the cash payments were admitted as income in compliance with section 153A.

Conclusion:

The Tribunal set aside the orders of the CIT(A) and remanded the case for a fresh examination of the preliminary legal issue concerning the validity of the penalty proceedings based on the vague notice. The CIT(A) was instructed to reconsider the legal issue and address the merits of the case for both assessment years. The appeals filed by the Revenue were allowed for statistical purposes, pending the outcome of the reconsideration by the CIT(A).

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