2025 (5) TMI 682 - AT - Income Tax

Dismissal of appeal by CIT(Appeals)/NFAC vide an exparte order - HELD THAT - Assessee though had filed appeal but was not vigilant enough to take the matter to a logical end. The same applies even in the appellate forum before this bench. However in this situation since the tax payer assessee contributes to the socio-economic well-being and development of the nation by paying taxes the principles of natural justice demands that the rights and liabilities of such tax payer requires to be considered and the benefit of doubt to be given within the parameters of facts and law. Considering the totality of the facts and circumstances the Ld. Sr. DR fairly conceded that one final opportunity may be provided to the tax payer assessee to represent his case on merits before the Ld. CIT(Appeals)/NFAC. Thus we deem it fit and proper to provide one final opportunity to the assessee to represent his case on merits before the Ld. CIT(Appeals)/NFAC. We observe that the ITAT Division Bench Raipur in the cases of Brajesh Singh Bhadoria 2025 (3) TMI 1480 - ITAT RAIPUR had dealt with similar issue on the same parameters of exparte order passed by the Ld. CIT(Appeals)/NFAC and remanded the matter back to the file of the Ld. CIT(Appeals)/NFAC. Thus set-aside the respective orders of the Ld. CIT(Appeals)/NFAC and remand the matter back to its file for denovo adjudication while complying with the principles of natural justice as per similar terms. Appeals of the assessee are allowed for statistical purposes.

Summary

The core legal questions considered by the Tribunal in the present appeals revolve around the procedural propriety and principles of natural justice in appellate proceedings under the Income Tax Act. Specifically, the issues are:

1. Whether the dismissal of the assessee's appeals by the first appellate authority (Ld. CIT(Appeals)/NFAC) via ex-parte orders, due to non-compliance and non-appearance despite service of notices, is legally sustainable.

2. Whether the principles of natural justice, particularly the right to be heard (audi alteram partem), require that the assessee be given a final opportunity to present their case before the first appellate authority before dismissal.

3. The scope and limits of the Tribunal's power to decide legal issues on merits when the first appellate authority's order is ex-parte due to non-compliance by the assessee.

4. The appropriate remedy where an ex-parte order has been passed by the first appellate authority without substantive adjudication on merits.

Issue 1: Validity of ex-parte dismissal by the first appellate authority due to non-compliance

The legal framework governing appellate proceedings under the Income Tax Act mandates that the first appellate authority provide opportunities for hearing and adjudication on merits. The CIT(Appeals)/NFAC had dismissed the appeals ex-parte because the assessee failed to comply with multiple hearing notices despite their service via registered email. The appellate authority relied on established judicial precedents, including the Supreme Court's decision in CIT vs. B.N. Bhattacharjee, which emphasized that an appeal must be effectively prosecuted and that non-compliance may lead to dismissal. Similarly, the M.P. High Court's ruling in Estate of Late Tukojirao Holkar underscored that failure to appear or prepare for hearing justifies dismissal without answering the reference.

The CIT(Appeals) concluded that the assessee was not interested in pursuing the appeal or had no defence, justifying the ex-parte dismissal. This reasoning was supported by the documented history of notices served and the assessee's failure to respond substantively after initial adjournment requests.

Issue 2: Applicability of principles of natural justice and right to be heard

Despite the procedural justification for ex-parte dismissal, the Tribunal considered the broader constitutional and jurisprudential mandate of the principles of natural justice, particularly the right to be heard under Article 14 of the Constitution. The Tribunal referred extensively to recent authoritative pronouncements, including a Bombay High Court decision that held dismissal of appeals ex-parte without proper opportunity violates natural justice. The Supreme Court's ruling in Delhi Transport Corporation vs. DTC Mazdoor Union was cited, affirming that the right to be heard is a fundamental right embedded in Article 14.

The Tribunal recognized that the Income Tax Act is a welfare legislation, distinct from penal statutes, and thus benefit of doubt must be given to the assessee within legal parameters. It acknowledged that non-compliance may sometimes arise from circumstances beyond the assessee's control and that no evidence suggested mala fide intent or deliberate default.

Therefore, the Tribunal held that the ex-parte dismissal by the CIT(Appeals) without adjudication on merits was contrary to natural justice. The assessee must be afforded one final opportunity to present their case before the first appellate authority.

Issue 3: Tribunal's power to decide legal issues on merits despite ex-parte order at first appellate level

The Tribunal examined whether it could proceed to decide legal issues raised by the assessee despite the absence of a substantive order by the CIT(Appeals) due to ex-parte dismissal. The Supreme Court's decision in National Thermal Power Company Ltd. was analyzed, which permits the Tribunal to decide legal questions going to the root of the matter even if not raised before the lower appellate authority.

However, the Tribunal clarified that such power is circumscribed by considerations of natural justice and statutory scheme. If the first appellate order is ex-parte due to non-compliance, and the assessee has not had a fair chance to be heard, the Tribunal should not usurp the first appellate authority's jurisdiction by deciding on merits. Doing so would undermine the statutory appellate hierarchy and encourage non-compliance at the first appellate stage.

The Tribunal emphasized that the CIT(Appeals) is the primary fact-finding and adjudicating authority, and only after a speaking order on merits is rendered should the Tribunal entertain appeals on legal grounds. Otherwise, the Tribunal's decision on legal issues in the absence of such order would amount to usurpation of power and violate the procedural scheme.

Issue 4: Appropriate remedy for ex-parte dismissal without merit adjudication

In light of the above, the Tribunal concluded that the proper course is to set aside the ex-parte orders of the CIT(Appeals) and remand the matter for de novo adjudication on merits, providing the assessee one final opportunity to comply and present their case. The Tribunal directed that the CIT(Appeals) must ensure compliance with the principles of natural justice and pass a speaking order within a stipulated timeframe.

This approach was consistent with the Tribunal's earlier Division Bench ruling in similar cases, which underscored that welfare legislation demands benefit of doubt to the assessee and that natural justice requires substantive adjudication before dismissal. The Tribunal also noted that the revenue's position would not be prejudiced by such remand.

Significant holdings and core principles established:

"An appeal means an effective appeal. An appeal withdrawn is an appeal non est as judicial thinking suggests. Purposefully interpreted, preferring an appeal means more than formally filing it but effectively prosecuting it."

"The Income Tax Act is within the ambit of welfare legislation which are completely different from that of the penal legislation, therefore, benefit of doubt whenever arises, it has to be interpreted in favour of the assessee tax payer within the parameters of law and facts."

"The principle of audi-alteram partem is a part of Article 14 of the Constitution of India. In light of such decision, the petitioner ought to have been granted an opportunity of being heard which, partakes the characteristic of the fundamental right under Article 14 of the Constitution of India."

"If the impugned order of the Ld. CIT(Appeals)/NFAC is an ex-parte order, the only recourse in conformity with the aforesaid judicial pronouncement is to remand the matter back to the file of the Ld. CIT(Appeals)/NFAC for fresh adjudication in terms with the principles of natural justice providing one final opportunity to the assessee."

"The Tribunal as the highest fact finding authority must be certain enough that the impugned order before it has been passed on merits and is a speaking order where the assessee has also complied during the process of litigation."

"Where the order of the Ld. CIT(Appeals) itself is ex-parte and some legal ground is raised and if the Tribunal decides such legal ground where in fact principles of natural justice is left unanswered due to the fact that the impugned order before the Tribunal is ex-parte and there was no compliance by the assessee, in such scenario the Tribunal would also be usurping the power of the Ld. CIT(Appeals) which is also a statutory authority as per the Act."

"The only course of action is to remand the matter back to the file of the Ld. CIT(Appeals) for adjudication on merits providing one final opportunity to the assessee."

Ultimately, the Tribunal set aside the ex-parte dismissal orders of the first appellate authority and remanded the appeals for fresh adjudication on merits, directing that this be the final opportunity for the assessee to comply and represent their case. The appeals were allowed for statistical purposes accordingly.