2025 (5) TMI 324 - AT - Income Tax

Dismissal of appeal by CIT(A) on account of non-prosecution - Validity of reassessment proceedings - HELD THAT - Admittedly the first notice for response in the appellate proceedings before the FAA was issued on 03.11.2022 towards which the assessee requested for adjournment thereafter the second notice was issued on 14.01.2024 again the assessee requested for adjournment for which the next date for representation was granted on 07.11.2024 but the assessee yet again requested for adjournment though there was no whisper about this adjournment in the order of CIT(A). CIT(A) on the other hand had observed that there was no compliance by the assessee towards the notice dated 07.11.2024. In our considered opinion reasonable opportunities are not afforded to the assessee as the adjournment application of the assessee was not considered or referred by the Ld. CIT(A) and before us also there was no rebuttal by the revenue on this aspect therefore we find it appropriate in the interest of justice that the assessee should be provided with one last opportunity of representing itself before the First Appellate Authority therefore the matter is restore back to the files of Ld. CIT(A) with the directions to decide the issues raised in the appeal within the period of 3 months from the date of receipt of this order.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in the appeals are:

• Whether the initiation of reassessment proceedings under section 147 read with sections 148 to 151 of the Income-tax Act, 1961 was valid and in accordance with law, including the validity of the notice issued under section 148.
• Whether the Assessing Officer was justified in estimating net profit at 8% of credits appearing in the assessee's bank account aggregating to Rs. 4,69,64,200/- and including the same as business income.
• Whether the addition of Rs. 2,20,34,300/- on account of unexplained cash deposits under section 69A of the Act and charging tax under section 115BBE was justified.
• Whether penalty proceedings under sections 270A and 271AAC(1) were correctly initiated and sustained in respect of the additions made.
• Whether the assessee was afforded reasonable opportunity of hearing before the First Appellate Authority and whether the appellate order was passed in compliance with principles of natural justice.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Reassessment Proceedings and Notice under Section 148

Legal Framework and Precedents: Sections 147 to 151 of the Income-tax Act govern reassessment proceedings, requiring that the Assessing Officer must record satisfaction based on tangible material that income has escaped assessment. Issuance of notice under section 148 must be preceded by valid approval and proper service.

Court's Interpretation and Reasoning: The Court examined the sequence of events and found that the reassessment proceedings were initiated after obtaining approval from the competent authority. The notice under section 148 was issued on 29.03.2021 and duly served through speed post and email. The assessee failed to file return or respond to notices under sections 142(1) despite multiple opportunities.

Key Evidence and Findings: The Assessing Officer recorded satisfaction based on information from multiyear NMS cycles and data from the ITBA system, categorizing the case as a 'Potential case' under CBDT instructions. The assessee neither filed objections to the reasons for reopening at the appropriate stage nor complied with notices.

Application of Law to Facts: The Court held that the reopening was based on cogent evidence and clear facts, and the Assessing Officer complied with statutory requirements. The assessee's failure to object timely or cooperate did not invalidate the proceedings.

Treatment of Competing Arguments: The assessee contended that the reopening was bad in law and without jurisdiction, but the Court found no merit in these contentions due to lack of compliance and absence of valid objections at the proper stage.

Conclusion: The initiation of reassessment proceedings and issuance of notice under section 148 were held valid and lawful.

Issue 2: Estimation of Net Profit at 8% of Bank Credits

Legal Framework and Precedents: When the assessee fails to maintain proper books or file returns, the Assessing Officer is empowered to estimate income based on available data, applying reasonable profit rates to unexplained credits.

Court's Interpretation and Reasoning: The Assessing Officer examined bank statements obtained through notices under section 133(6) and found credits aggregating Rs. 4,69,64,200/-. Since the assessee did not file return or substantiate these credits, the AO estimated 8% profit on these credits as business income.

Key Evidence and Findings: Bank statements from Bank of Baroda confirmed credits; no documentary evidence or explanation was furnished by the assessee despite multiple opportunities.

Application of Law to Facts: The Court upheld the AO's estimation as fair and reasonable given the assessee's failure to substantiate the transactions or file returns.

Treatment of Competing Arguments: The assessee's contentions were unsubstantiated due to lack of evidence or compliance, and the Court found no reason to interfere.

Conclusion: The addition of Rs. 37,57,136/- as estimated profit was upheld.

Issue 3: Addition of Rs. 2,20,34,300/- as Unexplained Cash Deposits under Section 69A and Tax under Section 115BBE

Legal Framework and Precedents: Section 69A allows addition of unexplained money where the assessee fails to explain the source of cash deposits. Section 115BBE prescribes a higher rate of tax on such unexplained income. Penalty provisions under sections 270A and 271AAC(1) apply for concealment and failure to maintain books.

Court's Interpretation and Reasoning: The AO, relying on bank statements obtained under section 133(6), identified cash deposits totaling Rs. 2,20,34,300/- across accounts with Bank of Baroda and IndusInd Bank. The assessee did not explain the source of these deposits or file returns. The AO treated the entire amount as unexplained money and taxed it accordingly.

Key Evidence and Findings: Detailed bank statement extracts showed multiple cash deposits; no explanation or documentary proof was provided by the assessee despite requests and opportunities.

Application of Law to Facts: The Court found the AO's action justified, given the lack of explanation and non-filing of returns. The addition under section 69A and tax under section 115BBE were lawful.

Treatment of Competing Arguments: The assessee's failure to respond or provide evidence was fatal to its case. The Court noted the burden of proof lies on the assessee to explain cash deposits.

Conclusion: The addition of Rs. 2,20,34,300/- as unexplained money and consequent tax under section 115BBE was upheld.

Issue 4: Penalty Proceedings under Sections 270A and 271AAC(1)

Legal Framework and Precedents: Penalties under section 270A apply for concealment of income or furnishing inaccurate particulars. Section 271AAC(1) penalizes failure to maintain books or documents as required.

Court's Interpretation and Reasoning: Since the quantum additions under sections 69A and 115BBE were upheld, penalty proceedings initiated on the same basis were remitted back for fresh adjudication by the First Appellate Authority in line with the directions given for the quantum appeals.

Key Evidence and Findings: The penalty appeals were linked to the quantum additions; the Court found it appropriate to remit these for fresh consideration after the quantum issues are decided.

Application of Law to Facts: The Court did not decide penalty merits but remitted for fresh adjudication consistent with the directions on quantum.

Treatment of Competing Arguments: The Revenue supported the penalty orders; the assessee sought reconsideration. The Court allowed restoration for fresh hearing.

Conclusion: Penalty appeals were set aside and remitted for fresh adjudication.

Issue 5: Reasonable Opportunity of Hearing before First Appellate Authority

Legal Framework and Precedents: Principles of natural justice require that the assessee be given a reasonable opportunity to be heard before adverse orders are passed.

Court's Interpretation and Reasoning: The Court found that the First Appellate Authority passed an ex parte order without considering the assessee's request for adjournment dated 07.11.2024. The order did not refer to this adjournment application, and the assessee was under bonafide belief that the matter would be adjourned. The Revenue did not rebut this contention.

Key Evidence and Findings: Records showed multiple adjournment requests by the assessee, including the last one not considered in the appellate order. The First Appellate Authority observed non-compliance but did not address the adjournment request.

Application of Law to Facts: The Court held that reasonable opportunity was not afforded, violating principles of natural justice. Accordingly, it restored the appeals to the First Appellate Authority for de novo adjudication with directions to provide the assessee full opportunity.

Treatment of Competing Arguments: The Revenue agreed to restoration; the assessee sought it. The Court found merit in the assessee's contention.

Conclusion: The appeals were partly allowed for statistical purposes and remitted for fresh hearing before the First Appellate Authority.

3. SIGNIFICANT HOLDINGS

"The reopening is based on cogent evidence and clear facts brought out by the Assessing Officer while recording satisfaction for issuance of notices u/s 148. Accordingly, I do not see any reason to intervene at this juncture as I don't see any anomaly in initiation of assessment proceedings u/s 148 initiated by the Assessing Officer which is based on specific information in the case of the appellant."

"The appellant has failed to justify the transactions based on which addition was made to income during the assessment proceedings... The appellant has failed to justify the source of cash deposits made to bank account... The contention of the appellant remained unjustified and unsubstantiated."

"Reasonable opportunities are not afforded to the assessee, as the adjournment application of the assessee was not considered or referred by the Ld. CIT(A)... the matter is restore back to the files of Ld. CIT(A) with the directions to decide the issues raised in the appeal within the period of 3 months from the date of receipt of this order."

Core principles established include the necessity of valid approval and tangible material for reassessment initiation, the Assessing Officer's discretion to estimate income in absence of evidence, the burden of proof on the assessee to explain cash deposits, the linkage of penalty proceedings to quantum additions, and the mandatory requirement of affording reasonable opportunity of hearing before appellate orders.

Final determinations on each issue were that reassessment proceedings and notices were valid; additions on estimated profit and unexplained cash deposits were justified; penalty appeals were remitted for fresh adjudication; and the appellate order was set aside for failure to provide reasonable opportunity, with directions for de novo hearing.