2025 (6) TMI 303 - AT - Income Tax

ITAT overturns dismissal of appeal for non-compliance, mandates CIT(Appeals) decide on merits under Section 251

ITAT set aside CIT(Appeals)/NFAC's ex-parte dismissal of assessee's appeal for non-compliance without examining merits. Tribunal held that under Section ... Exparte order passed by CIT(Appeals)/NFAC - CIT(Appeals)/NFAC dismissed the appeal of the assessee in limine for non-compliance without dealing with the merits of the case - HELD THAT:- 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(Appeals) remains under a statutory obligation to apply his mind to all the issues which arises from the impugned order before him. As per the mandate of law the CIT(Appeals) is not vested with any power to summarily dismiss the appeal for non-prosecution. We set-aside the order of the CIT(Appeals)/NFAC and remand the matter back to its file for denovo adjudication while complying with the principles of natural justice as per similar terms. At the same time, it is directed that this being the final opportunity, the assessee shall duly comply with the hearing notices from the Ld.CIT(Appeals)/NFAC. CIT(Appeal)/NFAC shall accordingly pass order in terms with Section 250(4) & (6) of the Act within three months from receipt of this order. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this appeal are:Whether the first appellate authority (CIT(Appeals)/NFAC) was justified in dismissing the appeal in limine for non-compliance by the assessee without adjudicating the appeal on merits.Whether the principles of natural justice require that an appeal preferred before the CIT(Appeals) must be disposed of on merits and not summarily dismissed for non-prosecution.The scope of the statutory obligation of the CIT(Appeals) under Sections 250 and 251 of the Income Tax Act to apply mind and dispose of appeals on merits.The legal consequences and propriety of passing ex-parte orders by the CIT(Appeals) due to non-compliance by the assessee.Whether the appellate tribunal (ITAT) can decide legal grounds raised by the assessee when the first appellate order is ex-parte and the assessee has not complied with hearing notices.The appropriate remedy when an ex-parte order is passed by the CIT(Appeals) in violation of natural justice principles.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Validity of summary dismissal of appeal by CIT(Appeals) for non-compliance without adjudication on meritsRelevant legal framework and precedents: Sections 250(1)(a), 250(4), 250(6), and 251(1)(a) and (b) of the Income Tax Act mandate that the CIT(Appeals) dispose of appeals on merits after applying his mind to all issues arising from the impugned order. The Explanation to Section 251(2) clarifies that the CIT(Appeals) may consider and decide any issue arising in the proceedings, even if not raised by the appellant. The Hon'ble High Court of Bombay in CIT Vs. Premkumar Arjundas Luthra (2017) 297 CTR 614 (Bom) held that the CIT(Appeals) is not empowered to summarily dismiss appeals for non-prosecution and must dispose of appeals on merits.Court's interpretation and reasoning: The Court observed that the CIT(Appeals)/NFAC dismissed the appeal in limine merely because the assessee failed to file submissions or comply with notices. The Court emphasized that once an appeal is filed, the CIT(Appeals) has a statutory obligation to dispose of the appeal on merits and cannot summarily dismiss it for non-compliance. The Court relied on the statutory provisions and the High Court ruling to hold that the CIT(Appeals) must apply his mind to the issues and pass a speaking order.Key evidence and findings: The impugned order showed repeated notices to the assessee for submissions, none of which were complied with. The CIT(Appeals) dismissed the appeal without examining the merits or evidence.Application of law to facts: The Court found that the CIT(Appeals) failed to fulfill the statutory mandate and principles of natural justice by dismissing the appeal in limine. The appeal deserved adjudication on merits.Treatment of competing arguments: The Revenue conceded that the matter could be adjudicated de novo on merits, indicating acceptance that summary dismissal was improper.Conclusions: The Court held that the CIT(Appeals) erred in dismissing the appeal without adjudication and remanded the matter for fresh hearing on merits.Issue 2: Principles of natural justice and requirement of hearing before dismissal of appealRelevant legal framework and precedents: The principle of audi alteram partem (right to be heard) is a fundamental aspect of Article 14 of the Constitution of India. The Supreme Court in Delhi Transport Corporation vs. DTC Mazdoor Union AIR 1999 SC 564 held that a person adversely affected by an administrative order must be given a hearing. The Hon'ble High Court of Bombay in Vijay Shrinivasrao Kulkarni Vs. ITAT (2025) 171 taxmann.com 696 (Bom) reiterated that dismissal of appeals ex-parte without hearing violates natural justice.Court's interpretation and reasoning: The Court underscored that the CIT(Appeals) must provide a reasonable opportunity of hearing before dismissing an appeal. The ex-parte dismissal without hearing was held to be a violation of natural justice and therefore unsustainable.Key evidence and findings: The CIT(Appeals) had issued multiple notices but did not obtain any submissions from the assessee, leading to dismissal. However, there was no evidence of deliberate non-compliance or mala fide conduct by the assessee.Application of law to facts: Given the absence of malafide intent and the fundamental right to be heard, the Court found it necessary to provide one final opportunity to the assessee to present the case on merits.Treatment of competing arguments: The Court balanced the interests of the Revenue and the assessee, noting that granting a final opportunity would not prejudice the Revenue but would uphold the principles of justice.Conclusions: The Court held that natural justice requires the appeal to be heard on merits and directed remand for fresh adjudication with opportunity to the assessee.Issue 3: Power of the ITAT to decide legal issues when first appellate order is ex-parteRelevant legal framework and precedents: The Supreme Court in National Thermal Power Company Ltd. Vs. CIT (1998) 229 ITR 383 (SC) held that the Tribunal can decide legal issues even if not raised before the lower appellate authority. However, the Court also referred to the statutory scheme where the CIT(Appeals) is the first appellate authority with powers co-terminus with the AO.Court's interpretation and reasoning: The Court reasoned that while the Tribunal has jurisdiction to decide legal issues, it should not usurp the statutory role of the CIT(Appeals) by deciding matters when the first appellate order is ex-parte and the assessee has not complied with hearing notices. Doing so would undermine the appellate structure and encourage non-compliance before the CIT(Appeals).Key evidence and findings: The Court noted that the assessee had not substantiated grounds of appeal before the CIT(Appeals), resulting in an ex-parte order, and that the Tribunal must ensure that the first appellate order is a speaking order passed on merits before deciding legal issues.Application of law to facts: The Court held that in such cases, the proper course is to remit the matter back to the CIT(Appeals) for fresh adjudication rather than the Tribunal deciding legal points directly.Treatment of competing arguments: The Court acknowledged the assessee's argument that legal issues could be decided by the Tribunal but emphasized the importance of maintaining the appellate hierarchy and procedural fairness.Conclusions: The Court concluded that the Tribunal should remand the matter for fresh hearing before the CIT(Appeals) where the assessee is provided a final opportunity to comply.Issue 4: Appropriate remedy when ex-parte order is passed by CIT(Appeals)Relevant legal framework and precedents: The Court relied on the principles established in the judgments of the Hon'ble High Courts and Supreme Court emphasizing that ex-parte orders without hearing violate natural justice and must be set aside.Court's interpretation and reasoning: The Court observed that the only appropriate remedy is to set aside the ex-parte order and remand the matter to the CIT(Appeals) for de novo adjudication on merits with a final opportunity to the assessee.Key evidence and findings: The Court noted the absence of deliberate non-compliance and the welfare nature of tax legislation favoring the assessee in case of doubt.Application of law to facts: The Court directed the CIT(Appeals) to provide reasonable opportunity of hearing and pass a speaking order within a stipulated time frame.Treatment of competing arguments: The Court balanced the interests of justice and procedural requirements, ensuring that the Revenue's position is not prejudiced while protecting the assessee's rights.Conclusions: The Court set aside the ex-parte order and remanded the matter for fresh adjudication on merits.3. SIGNIFICANT HOLDINGSThe Court held:'Once an appeal is preferred before the CIT(A), then in disposing of the appeal, he is obliged to make such further inquiry that he thinks fit or direct the AO to make further inquiry and report the result of the same to him as found in Sec. 250 of the Act. Further, Sec. 250(6) of the Act obliges the CIT(A) to dispose of an appeal in writing after stating the points for determination and then render a decision on each of the points which arise for consideration with reasons in support.''The law does not empower the CIT(A) to dismiss the appeal for non-prosecution as is evident from the provisions of the Act.''The principle of audi-alteram partem is a part of Article 14 of the Constitution of India. In light of such decision, the petitioner ought to have been granted an opportunity of being heard which, partakes the characteristic of the fundamental right under Article 14 of the Constitution of India.''The Tribunal as the highest fact finding authority must be certain enough that the impugned order before it has been passed on merits and is a speaking order where the assessee has also complied during the process of litigation.''If the impugned order of the Ld. CIT(Appeals)/NFAC is an ex-parte order, the only recourse in conformity with the aforesaid judicial pronouncement is to remand the matter back to the file of the Ld. CIT(Appeals)/NFAC for fresh adjudication in terms with the principles of natural justice providing one final opportunity to the assessee.'Core principles established include:The CIT(Appeals) is statutorily bound to dispose of appeals on merits and cannot summarily dismiss for non-compliance.The principles of natural justice, particularly the right to be heard, are fundamental and must be observed in appellate proceedings.Ex-parte orders by the CIT(Appeals) without hearing violate natural justice and must be set aside.The appellate tribunal should not decide legal issues when the first appellate order is ex-parte without compliance by the assessee, to preserve the statutory appellate hierarchy.Where ex-parte orders are passed, the appropriate remedy is remand for fresh adjudication with a final opportunity to the assessee.Final determinations on each issue were to set aside the ex-parte dismissal by the CIT(Appeals) and remand the matter for fresh hearing and adjudication on merits with clear directions for compliance and timely disposal.