2025 (6) TMI 707 - AT - Income Tax

Tax Appeal Remanded: Procedural Errors Require Fresh Hearing, Natural Justice Principles Upheld Under Section 69A

The SC/Tribunal remanded the tax appeal back to the CIT(A) for fresh hearing due to procedural errors. The key issues involved unexplained cash deposits ... CIT(A) dismissing the appeal ex-parte - as argued CIT(A) had not adjudicated the appeal of the assessee on merits and had dismissed the appeal in limine on the ground that the assessee had not made any compliance in the course of appeal proceeding HELD THAT:- Assessee has not explained the reason for non-compliance either before the AO or before CIT(A). In the absence of any explanation, we deem it proper to impose a cost of Rs. 5,000/- on the assessee, which should be paid to the Income Tax Department within 15 days of receipt of this order. As the matter was not examined on merits by the Ld. CIT(A), we deem it proper to set aside the file to the Ld. CIT(A) with the direction to allow another opportunity of being heard to the assessee. The assessee is also directed to co-operate and comply with the notices issued by the CIT(A) in the said proceeding. Appeal of the assessee is allowed for statistical purpose. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal in this appeal include:Whether the First Appellate Authority (CIT(A)) erred in dismissing the appeal ex-parte without adjudicating the merits, thereby violating principles of natural justice and the mandate under Section 250(6) of the Income Tax Act, 1961 (the Act).Whether the addition of Rs. 8,00,000/- as unexplained cash deposits in the bank account under Section 69A of the Act was justified.Whether the addition of Rs. 17,58,219/- as unexplained investment in immovable property under Section 69A of the Act was justified.Whether Section 69A of the Act applies to investment in immovable property.Whether the invocation of Section 115BBE of the Act for taxing the unexplained income additions was appropriate.Whether the levy of interest under Sections 234A, 234B, 234C, and 234D of the Act was justified.Whether the penalty proceedings initiated under Section 271AAC of the Act on the additions were valid.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Whether the CIT(A) erred in dismissing the appeal ex-parte without adjudicating on meritsRelevant legal framework and precedents: Section 250(6) of the Act mandates that the appellate authority shall dispose of the appeal after giving a reasonable opportunity of being heard to the appellant. Principles of natural justice require that no order should be passed without giving the party an opportunity to present its case.Court's interpretation and reasoning: The Tribunal noted that the CIT(A) dismissed the appeal in limine on the ground of non-compliance by the assessee without examining the substantive issues raised. This dismissal without hearing violated the mandate of Section 250(6) and principles of natural justice.Key evidence and findings: The assessee had not complied with notices or appeared before the CIT(A), but no explanation for non-compliance was provided. The Tribunal observed that the assessee had failed to cooperate at the lower appellate stage.Application of law to facts: Despite non-compliance, the Tribunal emphasized the statutory requirement of adjudication on merits and opportunity of hearing before dismissal. The absence of explanation did not justify denial of hearing.Treatment of competing arguments: The Revenue argued that non-compliance precluded merit examination. The Tribunal balanced this with the statutory duty to hear and decided to set aside the matter for fresh adjudication.Conclusions: The Tribunal held that the CIT(A) erred in dismissing the appeal without hearing and ordered the matter to be remanded for fresh hearing with a direction to the assessee to cooperate and comply with notices.Issue 2 and 3: Additions of Rs. 8,00,000/- (cash deposits) and Rs. 17,58,219/- (investment in immovable property) under Section 69A of the ActRelevant legal framework and precedents: Section 69A of the Act deals with unexplained investments and allows the Assessing Officer to treat such investments as income if the assessee fails to explain the source. Section 115BBE provides for taxation of such unexplained income at a special rate.Court's interpretation and reasoning: The Assessing Officer found cash deposits and immovable property investments unexplained due to the assessee's failure to furnish any explanation or evidence despite multiple notices and show cause notices. As a result, additions were made under Section 69A and taxed under Section 115BBE.Key evidence and findings: The assessee did not respond to notices or provide any documentary evidence to explain the cash deposits or source of funds for property investments. The bank account showed cash deposits of Rs. 8,00,000/-, and immovable property investment amounted to Rs. 17,58,219/- including stamp duty.Application of law to facts: The Assessing Officer rightly invoked Section 69A due to non-explanation. The Tribunal did not disturb these factual findings but remanded the matter for fresh hearing to examine these issues on merits after giving the assessee an opportunity to present its case.Treatment of competing arguments: The assessee contended that Section 69A does not apply to immovable property investments and challenged the additions. However, since the appeal was dismissed without merit examination, the Tribunal did not rule on the substantive applicability but directed fresh consideration.Conclusions: The Tribunal did not conclusively decide on the additions but ordered fresh adjudication with opportunity to the assessee to explain and produce evidence.Issue 4: Applicability of Section 69A to investment in immovable propertyRelevant legal framework and precedents: Section 69A applies to unexplained investments, including investments in immovable property, if the source is not satisfactorily explained. The legal position is that immovable property investments can be subjected to Section 69A additions if unexplained.Court's interpretation and reasoning: The assessee disputed the applicability of Section 69A to immovable property investment. However, the Tribunal did not decide on this issue due to non-adjudication at the CIT(A) level and remanded for fresh hearing.Key evidence and findings: No evidence was placed on record to support the assessee's contention.Application of law to facts: The Tribunal left this issue open for fresh consideration by the CIT(A).Treatment of competing arguments: The assessee's argument was noted but not adjudicated.Conclusions: No final conclusion was drawn; issue to be reconsidered on merits.Issue 5: Invocation of Section 115BBE for taxing unexplained incomeRelevant legal framework and precedents: Section 115BBE mandates tax at a special rate on unexplained income determined under Sections 68 to 69D, including Section 69A.Court's interpretation and reasoning: The Assessing Officer invoked Section 115BBE consequent to additions under Section 69A. The Tribunal did not disturb this legal position but deferred detailed consideration to the remand proceedings.Key evidence and findings: The additions were made as unexplained income; no contrary evidence was presented.Application of law to facts: The application of Section 115BBE flows automatically from unexplained income additions under Section 69A.Treatment of competing arguments: The assessee challenged this but no merit examination was conducted.Conclusions: The Tribunal did not alter the invocation but remanded for fresh hearing.Issue 6: Levy of interest under Sections 234A/B/C/D of the ActRelevant legal framework and precedents: Sections 234A to 234D prescribe interest for defaults in filing returns and payment of advance tax.Court's interpretation and reasoning: The CIT(A) confirmed interest levy. The Tribunal did not examine this issue on merits due to non-adjudication and remanded for fresh consideration.Key evidence and findings: No material was placed before the Tribunal to justify or challenge the interest.Application of law to facts: Interest is generally levied on default; absence of compliance by the assessee supports the levy.Treatment of competing arguments: The assessee disputed the levy but no adjudication occurred.Conclusions: Issue to be reconsidered on merits.Issue 7: Initiation of penalty proceedings under Section 271AAC of the ActRelevant legal framework and precedents: Section 271AAC provides for penalty on concealment of income or furnishing inaccurate particulars, especially relating to unexplained income additions.Court's interpretation and reasoning: Penalty was initiated on additions under Section 69A. The Tribunal did not examine the validity of penalty due to non-adjudication and remanded for fresh hearing.Key evidence and findings: The assessee did not contest penalty substantively before lower authorities.Application of law to facts: Penalty proceedings are linked to additions; absence of explanation may justify penalty.Treatment of competing arguments: The assessee challenged penalty but no merit examination was done.Conclusions: Penalty issue to be reconsidered after fresh hearing.3. SIGNIFICANT HOLDINGSThe Tribunal emphasized the fundamental principle that an appellate authority must adjudicate appeals on merits and provide an opportunity of hearing before dismissal. It stated: 'The issues were not examined on merits as per the mandate of Section 250(6) of the Act.' and accordingly set aside the matter for fresh adjudication.The Tribunal also held that despite the assessee's non-compliance and failure to explain the additions, the proper course is to allow the assessee an opportunity to be heard before confirming additions, invoking Section 115BBE, levying interest, or imposing penalty.The final determination was to impose a cost of Rs. 5,000/- on the assessee for non-compliance and to remit the appeal to the CIT(A) for fresh hearing and decision in accordance with law, directing the assessee to cooperate and comply with notices.