2025 (6) TMI 1116 - AT - Income Tax

AO wrongly treated all bank credits as unexplained income without giving assessee proper hearing opportunity

Chintan Navinchandra Shah Versus ITO, Ward-1 (1), Bhavnagar.

ITAT Ahmedabad set aside ex parte order under Section 144 where AO treated total bank account credits as unexplained income. Assessee challenged denial of ... Validity of ex parte order u/s 144 - treating the sum total of all the credits in the specified bank accounts as unexplained - assessee, through an affidavit, has raised a fundamental grievance regarding denial of reasonable opportunity to furnish an explanation along with supporting documents in respect of the amounts found deposited in his bank accounts HELD THAT:- Having considered the totality of circumstances and in the interest of substantial justice, assessee deserves an opportunity to present his case before the AO. Accordingly, the impugned orders passed by the AO and the learned CIT(A) are hereby set aside. The matter is restored to the file of the AO with a direction to adjudicate the case afresh after giving due opportunity to the assessee to file his explanation along with any supporting documentary evidence, including those submitted before the Tribunal as additional evidence. Appeal of the assessee is allowed for statistical purpose. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Appellate Tribunal (AT) in this matter are:Whether the appeal filed by the assessee before the Tribunal was barred by limitation and, if so, whether the delay in filing the appeal could be condoned.Whether the Commissioner of Income Tax (Appeals) erred in dismissing the appeal without adjudicating on merits and confirming the ex parte assessment order passed by the Assessing Officer (AO) under section 144 of the Income Tax Act, 1961.Whether the assessee was denied reasonable opportunity of being heard, including the opportunity to file explanations and supporting documents in respect of unexplained credits in specified bank accounts.Whether the documents filed before the Tribunal could be admitted as additional evidence under Rule 9 of the Income Tax (Appellate Tribunal) Rules, 1963.Whether the matter required remand to the AO for fresh adjudication after providing due opportunity to the assessee.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Delay in Filing Appeal and Condonation of DelayRelevant legal framework and precedents: Section 250 of the Income Tax Act, 1961 prescribes the procedure for filing appeals before the Tribunal, including limitation periods. The Tribunal has discretionary power to condone delay if sufficient cause is shown. The principles governing condonation of delay require demonstration of bona fide reasons and absence of negligence.Court's interpretation and reasoning: The Registry initially flagged the appeal as barred by 517 days. The assessee submitted that the impugned order of the CIT(A) dated 24.06.2023 was not uploaded on the portal or served until 07.01.2025. The assessee contended that the delay was due to the department's failure to upload the correct order and that the appeal was filed promptly on 21.01.2025 after actual availability of the order.The Tribunal accepted the assessee's explanation as verifiable and bona fide, noting that the Revenue did not dispute these facts. The Tribunal held that the delay was caused by the department's procedural lapse and that the assessee acted promptly upon knowledge of the order.Key evidence and findings: The letter from the assessee explaining the delay, copies of departmental portal uploads, and communication from the AO confirming the order's availability on 07.01.2025 were considered.Application of law to facts: The Tribunal applied the principle of sufficient cause and condoned the delay in filing the appeal, admitting it for adjudication on merits.Treatment of competing arguments: The Revenue did not dispute the facts and did not oppose condonation.Conclusions: Delay in filing the appeal was condoned, and appeal admitted for merits.Issue 2: Dismissal of Appeal by CIT(A) Without Adjudication on Merits and Confirmation of Ex Parte OrderRelevant legal framework and precedents: The CIT(A) is required to adjudicate appeals on merits after providing reasonable opportunity to the assessee. Ex parte orders under section 144 of the Act are passed when the assessee fails to comply with notices or appear. Principles of natural justice mandate that the assessee be given a fair chance to present explanation and evidence.Court's interpretation and reasoning: The Tribunal noted that the CIT(A) dismissed the appeal without going into merits, confirming the AO's ex parte assessment order. The assessee contended that the dismissal was based on assumption of non-compliance, as notices were not received due to lack of knowledge of the Income Tax portal and health issues of the partner.Key evidence and findings: An affidavit by the then partner of the assessee firm revealed serious mental and physical health problems, psychiatric treatment, and retirement from the firm during the assessment year. The partner stated inability to comply with notices and ignorance of proceedings due to no access to the portal. The statement of facts filed before CIT(A) was not considered.Application of law to facts: The Tribunal emphasized the denial of reasonable opportunity and the importance of considering explanations and documentary evidence before passing adverse orders. The failure to serve notices and consider submissions violated principles of natural justice.Treatment of competing arguments: The Revenue supported the orders of the AO and CIT(A) but did not rebut the affidavit or the claim of non-receipt of notices.Conclusions: The Tribunal found that the assessee was denied reasonable opportunity and that the ex parte orders were not justified without proper hearing.Issue 3: Admission of Additional Evidence Under Rule 9 of ITAT RulesRelevant legal framework and precedents: Rule 9 of the Income Tax (Appellate Tribunal) Rules, 1963 permits admission of additional evidence in exceptional circumstances where it is necessary for proper adjudication and was not available before the AO or CIT(A).Court's interpretation and reasoning: The Tribunal accepted that the documents filed before it were crucial for a just adjudication and fell within exceptions under Rule 9, especially given the denial of opportunity at earlier stages.Key evidence and findings: The documents filed by the assessee before the Tribunal included explanations and supporting evidence regarding the source of unexplained credits.Application of law to facts: The Tribunal admitted the additional evidence to ensure fair adjudication and to rectify procedural lapses.Treatment of competing arguments: The Revenue did not oppose admission of additional evidence.Conclusions: Additional evidence was admitted under Rule 9.Issue 4: Direction for Fresh Adjudication by AORelevant legal framework and precedents: The principles of natural justice and fair trial require that when procedural irregularities or denial of opportunity are established, the matter should be remanded for fresh adjudication.Court's interpretation and reasoning: Considering the denial of opportunity, non-receipt of notices, and availability of additional evidence, the Tribunal set aside the impugned orders and restored the matter to the AO for fresh adjudication.Key evidence and findings: Affidavit of partner, non-receipt of notices, and procedural errors by Revenue.Application of law to facts: The Tribunal directed the AO to provide due opportunity to the assessee, including filing explanations and evidence, and to decide the matter in accordance with law.Treatment of competing arguments: The Revenue's support of earlier orders was noted but outweighed by the need for fair hearing.Conclusions: Matter remanded for fresh adjudication after affording reasonable opportunity.3. SIGNIFICANT HOLDINGS'In view of the verifiable nature of these facts and the bonafide belief narrated by the assessee, which are not disputed by the ld.DR, I am satisfied that there was sufficient cause preventing the assessee from filing the appeal earlier. In fact, the appeal has been filed promptly upon actual availability of the impugned order. Accordingly, the delay, if any, stands condoned and the appeal is admitted for adjudication on merits.''The assessee deserves an opportunity to present his case before the Assessing Officer. Accordingly, the impugned orders passed by the AO and the learned CIT(A) are hereby set aside. The matter is restored to the file of the Assessing Officer with a direction to adjudicate the case afresh after giving due opportunity to the assessee to file his explanation along with any supporting documentary evidence, including those submitted before the Tribunal as additional evidence.'Core principles established include:Delay in filing appeal can be condoned if caused by procedural lapses of the Revenue and if the assessee acts promptly upon knowledge of the order.Dismissing appeals without adjudication on merits and confirmation of ex parte assessment orders without providing reasonable opportunity violates principles of natural justice.Additional evidence may be admitted under Rule 9 of ITAT Rules where it is necessary for just adjudication and was not previously available.Where denial of opportunity and procedural irregularities are established, the matter must be remanded to the AO for fresh adjudication after affording due opportunity to the assessee.Final determinations:The delay in filing appeal was condoned and appeal admitted.The impugned orders of AO and CIT(A) were set aside.The additional evidence filed before the Tribunal was admitted.The matter was remanded to the AO for fresh adjudication after providing reasonable opportunity to the assessee.The appeal was allowed for statistical purposes.