2023 (3) TMI 1580 - AT - Income Tax

Ex-parte order passed by CIT(A) - assessee could not explain the source of the various credits appearing in the Bank A/c - CIT (A) sustained the addition made by the Assessing Officer on the ground that despite number of opportunities granted by him the assessee did not appear before him - as argued by assessee that since the assessee was in jail when the CIT(A) issued the notices to him the assessee could not engage his lawyer to represent before the CIT (A) for which nobody could appear before the CIT (A) HELD THAT - As assessee said given an opportunity the assessee is in a position to substantiate his case before the CIT (A) we deem it proper to restore the issue to the file of the CIT (A) with a direction to grant one last opportunity to the assessee to appear before the CIT (A) and substantiate his case without seeking any adjournment under any pretext failing which the CIT(A) is at liberty to pass appropriate order as per law. Appeal filed by the assessee is allowed for statistical purposes.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in the appeals are:

• Whether the ex-parte orders passed by the Commissioner of Income Tax (Appeals) (CIT (A)) in confirming additions made by the Assessing Officer (AO) for unexplained cash credits under section 68 of the Income Tax Act are sustainable.
• Whether the principles of natural justice were violated by the CIT (A) in passing ex-parte orders due to non-appearance of the assessee or his authorized representative.
• Whether the assessee had adequately explained the source of bank credits amounting to Rs. 81,72,880/- through documentary evidence, including bank statements and RTGS transfers from M/s. R.B. Enterprises.
• Whether the frequent adjournments sought by the assessee during appellate proceedings justified dismissal of the appeals for non-prosecution.
• Whether the addition under section 68 of the Income Tax Act was justified on the facts and circumstances of the case.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of the ex-parte order passed by CIT (A) confirming additions made by AO

Relevant legal framework and precedents: The principles of natural justice require that an appellant be given reasonable opportunity to be heard before adverse orders are passed. The Apex Court in CIT v. B.N. Bhattacharjee held that "preferring an appeal" means effectively prosecuting it, not merely filing it. Courts have held that non-appearance without reasonable cause can justify dismissal of appeals for non-prosecution (Estate of Late Tukojirao Holkar v. CIT; CIT v. Multiplan (India) Pvt. Ltd.). The maxim "Vigilantibus Non Dormientibus Jura Subveniunt" was cited to emphasize that the law favors vigilant parties.

Court's interpretation and reasoning: The CIT (A) had issued multiple hearing notices over several months and granted numerous opportunities to the assessee to present his case. Despite this, the assessee neither appeared in person nor through an authorized representative, nor filed any written submissions. The CIT (A) observed that the assessee habitually filed adjournment requests without substantive compliance, indicating a lack of bona fide prosecution of the appeal. The CIT (A) therefore dismissed the appeals ex-parte, relying on established judicial precedents.

Key evidence and findings: The record showed a detailed chronology of hearing notices and adjournment requests by the assessee, with repeated failure to appear or file submissions. The assessee's counsel before the Tribunal explained the non-appearance was due to the assessee being in jail and inability to engage counsel during the appeal proceedings.

Application of law to facts: While the CIT (A) was justified in dismissing the appeal for non-prosecution, the Tribunal considered the exceptional circumstance of the assessee's incarceration and inability to effectively pursue the appeal. The Tribunal emphasized the interest of justice and restored the matter to the CIT (A) with a direction to grant one final opportunity to the assessee to present his case without further adjournments.

Treatment of competing arguments: The Revenue supported the dismissal for non-prosecution, citing the repeated non-compliance. The assessee argued that the incarceration prevented effective representation and requested opportunity to substantiate the case. The Tribunal balanced procedural compliance with substantive justice.

Conclusions: The ex-parte dismissal was prima facie justified but was set aside in view of the assessee's incarceration and inability to appear. The matter was remanded for fresh adjudication with a final hearing opportunity.

Issue 2: Justification of addition of Rs. 81,72,880/- as unexplained cash credits under section 68

Relevant legal framework and precedents: Section 68 of the Income Tax Act requires that unexplained credits in the books or bank accounts be added to income if the assessee fails to satisfactorily explain the nature and source of such credits. The burden lies on the assessee to prove the identity, creditworthiness, and genuineness of transactions.

Court's interpretation and reasoning: The AO found that the assessee had credits of Rs. 81,72,880/- in his bank account which were not explained satisfactorily. The assessee failed to produce supporting documents or reconcile these credits with his declared income of Rs. 6,01,750/-. The CIT (A) upheld the addition, noting the absence of any substantive evidence or explanation during appellate proceedings.

Key evidence and findings: The cash of Rs. 1.2 crore found in possession of the assessee's driver, linked to payments for Tendu Patta gathering, was unsupported by documents. The bank credits were large and unexplained. The assessee's claim that the credits came from business and RTGS transfers from M/s. R.B. Enterprises was not substantiated with proof of identity or genuineness of the company or transactions.

Application of law to facts: The Tribunal noted that the assessee did not explain the source of the credits satisfactorily and did not produce evidence to establish the identity or creditworthiness of M/s. R.B. Enterprises. The unexplained credits were rightly treated as income under section 68.

Treatment of competing arguments: The assessee contended that the bank statements and RTGS transfers explained the credits and that the sources were business-related. The Revenue disputed the genuineness and identity of the transactions. The Tribunal found the assessee's evidence insufficient.

Conclusions: The addition under section 68 was justified on the facts and law. The assessee failed to discharge the onus of proving the source of credits.

Issue 3: Whether frequent adjournments justified dismissal of appeals

Relevant legal framework and precedents: The law disfavors abuse of process by frequent adjournments and non-prosecution. Courts have held that repeated adjournments without cause can lead to dismissal of appeals.

Court's interpretation and reasoning: The CIT (A) found that the assessee habitually filed adjournment requests and failed to appear despite multiple opportunities. This conduct justified dismissal for non-prosecution.

Key evidence and findings: Records showed adjournment requests on 16.08.2022, 22.09.2022, and 12.12.2022, among others, without substantive compliance.

Application of law to facts: While the CIT (A) was justified in dismissing the appeals, the Tribunal considered the exceptional circumstance of incarceration and restored the matter for final opportunity, warning against further adjournments.

Treatment of competing arguments: The assessee cited incarceration as cause for non-appearance; the Revenue relied on procedural default.

Conclusions: Adjournments were excessive but the Tribunal allowed a final opportunity considering the circumstances.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"The Hon'ble Apex Court, in the case of CIT v. B.N. Bhattacharjee and another (10 CTR 354) held that an appeal means an effective appeal 'expression "prefer an appeal" would mean effectively prosecuting an appeal'. Purposefully interpreted, preferring an appeal means more than formally filing it but effectively pursuing it. If a party retreats before the contest begins, it is as good as not having entered the fray."

"The laws assist those who are vigilant and not those who sleep over their rights. This principle is embodied in the well-known maxim 'Vigilantibus Non Dormientibus Jura Subveniunt'. It means equity comes to the aid of the vigilant and not the slumbering."

"Considering the totality of the facts of the case and in the interest of justice, we deem it proper to restore the issue to the file of the CIT (A) with a direction to grant one last opportunity to the assessee to appear before the CIT (A) and substantiate his case without seeking any adjournment under any pretext failing which the CIT (A) is at liberty to pass appropriate order as per law."

Core principles established include the necessity of effective prosecution of appeals, the burden on the assessee under section 68 to explain unexplained credits, and the balancing of procedural strictness with substantive justice in exceptional circumstances such as incarceration.

Final determinations:

• The ex-parte dismissal of appeals by CIT (A) was set aside due to exceptional circumstances.
• The matter was remanded to CIT (A) for fresh adjudication with a final opportunity to the assessee.
• The addition of Rs. 81,72,880/- as unexplained cash credits under section 68 was upheld as justified in law and fact.
• The appeals were allowed for statistical purposes pending fresh adjudication.