2025 (4) TMI 912 - AT - Income Tax

Tax Appeals Upheld: Health and Custody Claims Validate Delayed Filing, Remanded for Fresh Assessment Under Section 44AD

Bhishm Chauhan Versus Income Tax Officer, Ward-1 (2), Faridabad Haryana

AT allowed appeals challenging tax assessments for AYs 2016-17 and 2017-18. The tribunal set aside ex parte orders and penalty assessments, finding the ... Ex parte orders passed u/s 144 - applications for condonation of delay of 1716 days in filing appeals against assessment and penalty orders - income under presumptive taxation provisions (Section 44AD of the Act) at 8% of total incomes for the relevant assessment years - HELD THAT:- It is crystal clear that appellant/assessee had failed to comply with the several notices during the assessment proceedings. CIT(A) vide order dismissed the applications for condonation of delay of 1716 days in filing appeals. Appellant/assessee claims that due to custody and mental illness, he could not file appeals within period of limitation. In applications dated 24.03.2024, appellant/assessee requested condonation of delay in filing appeals due to custody and mental health, setting aside ex parte order under Section 144 of the Act and reassessment income as per section 44AD of the Act and to compute total income at 8% of Rs. 43,00,550/- and Rs. 17,86,580/- for AYs 2016-17 and 2017-18 respectively. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether delay of 1,716 days in filing appeals to the Commissioner of Income-Tax (Appeals) is liable to be condoned on grounds of custody and mental illness of the taxpayer. 1.2 Whether ex parte assessment orders passed under Section 144 of the Income-Tax Act, 1961 should be set aside and remitted for fresh consideration where the assessee did not comply with notices but subsequently asserted custody and mental-health impediments. 1.3 Whether consequential penalty proceedings under Section 271(1)(c) must be set aside when the underlying assessment/order is set aside and remitted for fresh adjudication. 1.4 Whether the appropriate relief on remand should include directions to compute income under the presumptive regime (Section 44AD) at a specified rate (8%) as sought by the assessee. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Condonation of delay (1,716 days) on grounds of custody and mental illness Legal framework: The statutory power to condone delay in filing appeals is exercised by the appellate authority in accordance with law and judicial principles of sufficient cause; the authority must assess the explanation for delay, conduct of the appellant, and surrounding circumstances. Precedent Treatment: No judicial precedents were cited or applied by the Court in the impugned order; none were followed, distinguished, or overruled in the present decision. Interpretation and reasoning: The Tribunal examined the record and the appellant's conduct during assessment proceedings, noting repeated non-compliance with departmental notices. The appellant's explanation - custody and mental illness - was advanced in applications before the Tribunal. Balancing the explanation against the appellant's failure to assist during assessment, the Tribunal considered it 'in the interest of justice' to set aside the appellate and assessment orders and to permit fresh proceedings, thereby effectively allowing the appeals to proceed despite the long delay. Ratio vs. Obiter: Ratio - The Court's decision that the delay ought to be condoned in the particular factual matrix (custody and mental-health claim together with overall considerations of justice) is a dispositive ruling applicable to the appeals before it. Obiter - General propositions about the standards for condonation were not elaborated and thus remain obiter. Conclusion: The Tribunal exercised its discretion to condone the delay and set aside the orders permitting fresh adjudication; the condonation was granted on the stated grounds of custody and mental illness considered together with the interest of justice. Issue 2 - Setting aside ex parte assessments under Section 144 where assessee failed to comply with notices Legal framework: Assessments under Section 144 may be framed ex parte where the assessee fails to comply with statutory notices; an appellate or revisional forum may set aside such orders if justice warrants reopening or remand for fresh consideration. Precedent Treatment: No prior decisions were invoked in the impugned judgment; the Tribunal did not purport to develop or displace established authority. Interpretation and reasoning: The Tribunal acknowledged the assessee's failure to comply with multiple notices, which formed the basis of the AO's ex parte assessments and resultant additions. Nevertheless, on consideration of the appellant's post-assessment plea concerning custody and mental health, the Tribunal found it 'expedient' and in the 'interest of justice' to set aside the ex parte orders and remit the matters to the AO for fresh orders in accordance with law. The Tribunal thus prioritized fresh adjudication over sustaining ex parte findings where mitigating circumstances were alleged. Ratio vs. Obiter: Ratio - Where material circumstances (such as custody and mental-health claims) are shown and justice so requires, a Tribunal may set aside ex parte Section 144 assessments and remit the matter for fresh adjudication. Obiter - The decision does not lay down exhaustive criteria for when ex parte orders should be set aside; it is confined to the facts of the case. Conclusion: The impugned ex parte assessments under Section 144 were set aside and remitted to the Assessing Officer for fresh adjudication in accordance with law. Issue 3 - Consequential setting aside of penalty under Section 271(1)(c) Legal framework: Penalty proceedings under Section 271(1)(c) are consequential to the assessment of income; if the foundational assessment is set aside or altered materially, related penalty orders may be set aside or rendered unsustainable. Precedent Treatment: No authority was referenced; the Tribunal applied established principle of consequentiality. Interpretation and reasoning: Given the Tribunal's direction to set aside and remit the substantive assessment orders, the Tribunal found it appropriate to set aside the consequential penalty order as well, so that penalty can be considered afresh in light of any reassessment. Ratio vs. Obiter: Ratio - A penalty order that derives from an assessment which has been set aside may itself be set aside and remitted for reconsideration. Obiter - No detailed treatment of independent sustainment of penalty in altered factual scenarios was provided. Conclusion: The penalty order under Section 271(1)(c) was set aside as consequential to the remand of the assessment matters. Issue 4 - Direction to compute income under Section 44AD at a specified rate (8%) Legal framework: Section 44AD prescribes a presumptive basis for computing profits and gains of business at statutory rates; a tribunal may direct computation under a presumptive scheme only if supported by law and facts and within the powers of the assessing authority upon remand. Precedent Treatment: No precedents were considered or applied in relation to compelling Section 44AD treatment or fixing a presumptive percentage. Interpretation and reasoning: The assessee sought a direction to compute income at 8% of specified gross receipts for the relevant assessment years. The Tribunal did not itself compute income under Section 44AD nor direct the AO to adopt a specific percentage as a final determination; instead, it directed the Assessing Officer to pass fresh orders in accordance with law. Thus the Tribunal left the question of application and quantum under Section 44AD to the AO on remand, preserving the AO's duty to examine facts, compliance, and legal entitlement to presumptive taxation. Ratio vs. Obiter: Ratio - The Tribunal's operative ratio is that issues of computation under Section 44AD are to be considered afresh by the Assessing Officer on remand; the Tribunal did not itself order final computation at a specific presumptive rate. Obiter - Any suggestion by the assessee about a fixed 8% computation remains a claim for adjudication and is not accepted as a judicial determination. Conclusion: The Tribunal did not grant a final determination under Section 44AD at 8%; it remitted the matter to the Assessing Officer to decide entitlement to presumptive taxation and the appropriate computation in accordance with law. Overall Disposition and Practical Directions Wherefore, the Tribunal set aside the impugned orders of the Commissioner (Appeals) and the Assessing Officer for the assessment years in question and remitted the matters to the Assessing Officer to pass fresh orders in accordance with law; the consequential penalty order was also set aside. The appeals were partly allowed for statistical purposes (assessments remitted) and the penalty appeal was allowed.