2026 (3) TMI 805 - AT - Income Tax

Right to be heard: order set aside and matter restored for de novo adjudication to permit substantiation of interest deduction.

The appellate order dismissing the appeal for non-prosecution was set aside and the matter restored for de novo adjudication to permit the assessee to ... Revision u/s 263 - claim of interest expenditure u/s 57(iii) - CIT observed that the AO had not carried out necessary enquiries to verify whether such interest expenditure had been incurred wholly and exclusively for the purpose of earning the interest income as required under section 57(iii) - HELD THAT: - We are of the view that although the assessee did not properly prosecute the appeal before the CIT(Appeals), the issues involved in the present appeal require adjudication on merits after considering the evidences relating to the claim of interest expenditure under section 57(iii) of the Act. The principles of natural justice require that the assessee should be afforded one more opportunity to substantiate the claim. At the same time, it is evident that the non-prosecution of the appeal before the CIT(Appeals) has been attributable to the negligence on the part of the assessee. We deem it appropriate to set aside the impugned order of the CIT(Appeals) and restore the matter to the file of the CIT(Appeals) for de-novo adjudication Final Conclusion: The Tribunal set aside the CIT(A)'s order and restored the matter to the CIT(A) for de novo adjudication of the issues (including the claim under section 57(iii)) after affording the assessee a reasonable opportunity to be heard; restoration is subject to the assessee depositing the directed cost, and the appeal is allowed for statistical purposes. Issues: Whether the appeal dismissed by the Commissioner of Income Tax (Appeals) for non prosecution should be set aside and the matter restored for de novo adjudication with an opportunity to the assessee to substantiate the claim of interest deduction under section 57(iii) of the Income tax Act, 1961.Analysis: The Tribunal examined the appellate record and submissions, noting that the Assessing Officer completed reassessment ex parte under section 144 after proceedings under section 142(1) pursuant to a reference under section 263. The CIT(A) dismissed the appeal for non prosecution after issuance of multiple hearing notices under section 250. The Tribunal found that, notwithstanding the assessee's failure to effectively prosecute the appeal-attributed to negligence linked to concurrent search and group reassessment activity-the central issue (allowability of interest under section 57(iii)) required consideration on merits. Applying principles of natural justice, the Tribunal held that the assessee ought to be afforded one more reasonable opportunity to place evidence and submissions before the appellate authority. In the exercise of its appellate jurisdiction and considering the facts and interests of justice, the Tribunal determined that restoration for de novo adjudication was appropriate, while making restoration conditional on payment of a modest cost to reflect the assessee's prior non prosecution.Conclusion: The impugned order of the CIT(A) is set aside and the matter is restored to the file of the CIT(A) for de novo adjudication of the claim under section 57(iii) of the Income tax Act, 1961 after affording the assessee a reasonable opportunity of being heard; restoration is subject to payment of costs of Rs.10,000 by the assessee. The appeal is allowed for statistical purposes.