2025 (5) TMI 1415 - HC - Income Tax

CIT (A) dismissing the appellant s appeal on non-appearance and non-support by the appellant - allegation of non compliance of Sections 250(4) and 250(6) - addition of unexplained money u/s 69A HELD THAT - As after filing the appeal before the CIT (Appeals) the appellant admittedly did not respond to the notices issued by the CIT (Appeals) for his appearance. CIT (Appeals) while observing that the appellant has not pursued the appeal despite being granted several opportunities and he failed to substantiate the source of credit in his bank account either by oral or documentary evidence upheld the order passed by the assessing officer in making the addition of Rs. 2, 47, 65, 369/- holding it to be unexplained money u/s 69A of the Act and dismissed the appeal of the appellant. The said order of the CIT (Appeals) has been affirmed by the ITAT. However from perusal of the order of CIT (Appeals) it nowhere appears that any inquiry has been made as contemplated under Section 250(4) and 250(6) of the Act. Even if the appellant did not make his appearance the points for determination ought to have been formulated but the same has not been done as provided under Section 250(6) of the Act. As such order of the CIT (Appeals) is completely vitiated on account of non compliance of Sections 250(4) and 250(6) of the Act which the ITAT was supposed to take note of and rectify the defects by directing the CIT (Appeals) to decide the appeal on merits after complying the provisions contained in Section 250(4) and (6) of the Act however the ITAT has perpetuated the said illegality by affirming the order of the CIT (Appeals). Thus the order passed by the CIT (Appeals) is hereby set aside and subsequently the order passed by the ITAT 2023 (12) TMI 1198 - ITAT RAIPUR is also set aside. The matter is restored to the file of the CIT (Appeals) for hearing and disposal afresh in accordance with law after making inquiry as stipulated u/s 250(4) - Decided in favour of assessee.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court are:

(a) Whether the Commissioner of Income-Tax (Appeals) (CIT (Appeals)) was justified in summarily dismissing the appellant's appeal without deciding it on merits, on the ground of non-appearance and non-support by the appellant, and whether such dismissal was based on a finding contrary to the record;

(b) Whether the Income Tax Appellate Tribunal (ITAT) was justified in affirming the order of the CIT (Appeals) despite the alleged perverse finding and non-compliance with statutory provisions requiring inquiry and formulation of points for determination.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Summary Dismissal of Appeal by CIT (Appeals) Without Deciding on Merits

Relevant Legal Framework and Precedents:

The procedure for disposal of appeals before the CIT (Appeals) is governed by Section 250 of the Income Tax Act, 1961, which mandates the following key points:

• Section 250(4) empowers the CIT (Appeals) to make such further inquiry as deemed fit before disposing of the appeal or to direct the Assessing Officer to do so.
• Section 250(6) requires the CIT (Appeals) to dispose of the appeal by a reasoned order in writing stating the points for determination, the decision thereon, and the reasons for the decision.

Section 251 confers powers on the CIT (Appeals) to confirm, reduce, enhance, or annul the assessment or penalty and to consider any issue arising from the proceedings, even if not raised by the appellant.

Judicial precedents include:

• The Supreme Court in Commissioner of Income-Tax, Patiala v. The Ambala Flour Mills held that the Appellate Commissioner has plenary powers co-extensive with the Assessing Officer, including directing the Assessing Officer to do what he has failed to do.
• The Bombay High Court in Commissioner of Income-tax v. Premkumar Arjundas Luthra (HUF) held that once an appeal is filed, the CIT (Appeals) is obliged to dispose of the appeal on merits and cannot dismiss it merely for non-prosecution by the appellant.

Court's Interpretation and Reasoning:

The Court observed that the CIT (Appeals) dismissed the appeal solely on the ground that the appellant did not appear to support the appeal despite multiple notices. However, the order of the CIT (Appeals) did not record any inquiry as mandated under Section 250(4), nor did it formulate points for determination as required under Section 250(6). The Court emphasized that these procedural requirements are not optional but mandatory to ensure transparency and reasoned decision-making akin to the requirements under Order 41 Rule 31 of the Civil Procedure Code.

The Court further noted that the CIT (Appeals) upheld the addition made by the Assessing Officer under Section 69-A of the Act on unexplained money but without conducting any inquiry or providing a reasoned order with points for determination. This omission vitiated the order.

Key Evidence and Findings:

The appellant had filed the appeal under Section 246A but failed to appear despite repeated notices. The CIT (Appeals) passed the order dismissing the appeal on 14.12.2022. The ITAT affirmed this dismissal on 18.09.2023. However, the CIT (Appeals) order lacked compliance with Sections 250(4) and 250(6), which was not addressed by the ITAT.

Application of Law to Facts:

The Court applied the statutory provisions and judicial precedents to conclude that non-appearance by the appellant does not empower the CIT (Appeals) to dismiss the appeal summarily without inquiry and without a reasoned order. The CIT (Appeals) must exercise the powers conferred under Sections 250 and 251 to dispose of the appeal on merits, even if the appellant does not actively prosecute the appeal.

Treatment of Competing Arguments:

The Revenue argued that Section 250(4) is directory and non-compliance does not cause prejudice, thus justifying dismissal. The Court rejected this submission, holding that the procedural safeguards are mandatory to ensure fair adjudication and that failure to comply vitiates the order.

Conclusions:

The CIT (Appeals) erred in dismissing the appeal summarily without inquiry and without a reasoned order stating points for determination. The order is therefore vitiated and liable to be set aside.

Issue 2: Justification of ITAT in Affirming the CIT (Appeals) Order

Relevant Legal Framework and Precedents:

The ITAT is a quasi-judicial authority that reviews orders passed by the CIT (Appeals) and Assessing Officer. It must ensure that statutory provisions have been complied with and that the orders are legally sustainable.

Court's Interpretation and Reasoning:

The Court found that the ITAT failed to notice or rectify the CIT (Appeals)'s non-compliance with Sections 250(4) and 250(6). By affirming the defective order, the ITAT perpetuated the illegality. The Court held that the ITAT ought to have directed the CIT (Appeals) to decide the appeal afresh in accordance with law.

Key Evidence and Findings:

The ITAT's order dated 18.09.2023 merely upheld the dismissal by the CIT (Appeals) without addressing the procedural lapses.

Application of Law to Facts:

The Court applied the principle that appellate authorities must ensure compliance with mandatory procedural requirements and that failure to do so renders the order unsustainable.

Treatment of Competing Arguments:

The Revenue's stand that the ITAT was justified was rejected as it overlooked the mandatory nature of the inquiry and reasoned order requirements.

Conclusions:

The ITAT's affirmation of the CIT (Appeals) order was unjustified and the order was set aside.

3. SIGNIFICANT HOLDINGS

"The law does not empower the CIT(Appeals) to dismiss the appeal for non-prosecution as is evident from the provisions of the Act."

"Once an assessee files an appeal under Section 246A of the Act, it is not open to him as of right to withdraw or not press the appeal. In fact the CIT(Appeals) is obliged to dispose of the appeal on merits."

"The CIT (Appeals) is obliged to make such further inquiry that he thinks fit or direct the Assessing Officer to make further inquiry and report the result of the same to him as found in Section 250(4) of the Act."

"Section 250(6) of the Act obliges the CIT(Appeals) to dispose of an appeal in writing after stating the points for determination and then render a decision on each of the points which arise for consideration with reasons in support."

"The ITAT ought to have taken note of the non-compliance of Sections 250(4) and 250(6) of the Act and directed the CIT (Appeals) to decide the appeal on merits after complying with the provisions."

The Court set aside both the order of the CIT (Appeals) dated 14.12.2022 and the ITAT order dated 18.09.2023, restoring the matter to the CIT (Appeals) for fresh disposal in accordance with law within 60 days, allowing the appellant liberty to appear and support the appeal.