2025 (6) TMI 1130 - AT - Income Tax

Ex parte assessment framed u/s 147 r.w.s. 144 - Unexplained cash deposits in bank account - HELD THAT - We find that the assessee has adequately explained the reasons for his non-compliance both during the assessment as well as during the first appellate proceedings. The affidavit placed on record confirms the appellant s age background and non-technical orientation and explains that the assessment order served via email remained unnoticed. The screenshot of the portal error message ( Page Not Found ) which occurred during the window for filing submissions before the CIT(A) supports the appellant s contention of genuine technical difficulty. It is settled law that where a party has not been afforded a proper opportunity of being heard due to technical or procedural lapses justice demands that the matter be restored for de novo consideration. As DR has not objected to restoration we deem it fit and proper to set aside the order of the CIT(A) as well as the ex parte assessment framed under section 147 r.w.s. 144 and restore the matter to the file of the Jurisdictional Assessing Officer (JAO) for framing a fresh assessment after affording adequate and effective opportunity of being heard to the assessee. Appeal filed by the assessee is allowed for statistical purposes.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this appeal are:

(a) Whether the additions made by the Assessing Officer (AO) under sections 69, 69A, and 56 of the Income-tax Act, 1961, relating to unexplained cash deposits, fixed deposits, interest income, and investment in immovable property, were justified in the absence of satisfactory explanation and evidence from the assessee.

(b) Whether the dismissal of the appeal by the Commissioner of Income Tax (Appeals) [CIT(A)] ex parte for non-compliance and non-filing of submissions was justified, particularly considering the assessee's explanation and circumstances.

(c) Whether the initiation of reassessment proceedings under section 147 of the Income-tax Act was valid and in accordance with law.

(d) Whether the assessee was afforded adequate opportunity of being heard during the assessment and appellate proceedings, especially in light of procedural and technical difficulties faced by the assessee.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Legitimacy of Additions Made by AO under Sections 69, 69A, and 56

The legal framework governing unexplained cash credits, investments, and income is contained in sections 69, 69A, and 56 of the Income-tax Act. Section 69 deals with unexplained investments, section 69A with unexplained cash credits, and section 56 with income from other sources such as interest income. The AO, relying on information from AIR/CIB/TDS databases, formed a belief that income chargeable to tax had escaped assessment and made additions aggregating Rs. 7,25,91,501/-.

The AO's approach was based on the failure of the assessee to file a return and to respond to notices under sections 142(1) and 143(2), leading to an ex parte assessment under section 144. The additions were made on the ground that the assessee did not satisfactorily explain the source of cash deposits (Rs. 36,02,300/-), fixed deposits (Rs. 18,00,000/-), interest income (Rs. 2,17,201/-), and investment in immovable property (Rs. 6,69,72,000/-).

In the appeal, the assessee contended that the income was below taxable threshold and that the investments and deposits were from agricultural income and minor interest income, which were not taxable. The AR emphasized the absence of willful concealment and the bona fide nature of non-filing of returns.

The Court noted that the AO's additions were based on non-compliance and absence of explanation, but the assessee had provided a notarized affidavit and explanations during the appeal stage, which were not considered due to procedural lapses. The Court did not delve into the substantive merits of the additions at this stage but focused on procedural fairness.

Issue (b): Validity of Ex Parte Dismissal of Appeal by CIT(A)

The CIT(A) dismissed the appeal ex parte on the ground of non-compliance, citing failure to respond to the communication window and final hearing notice, and relying on precedents that support dismissal for want of prosecution.

The assessee's AR submitted that the non-filing of submissions was due to a genuine technical error in the e-filing portal, supported by a screenshot of the "Page Not Found" error, and that the assessee was unaware of the assessment order due to service only through registered email, which the senior citizen assessee did not regularly access.

The Court observed that procedural fairness requires that an assessee be given adequate opportunity to be heard, especially when non-compliance arises from technical or procedural difficulties rather than willful default. The affidavit and evidence of technical glitches were accepted as credible explanations for non-compliance.

The Court held that the ex parte dismissal was unjustified without considering these explanations and that justice demands restoration of the appeal for fresh adjudication after affording proper opportunity.

Issue (c): Validity of Notice Issued under Section 148

The assessee challenged the validity of the reassessment notice under section 148, contending that the initiation of proceedings was invalid. The CIT(A) had upheld the validity of the notice, but this issue was not extensively argued before the Tribunal.

The Court noted that since the matter was being restored for fresh adjudication, the validity of the notice and the initiation of reassessment could be examined afresh by the AO in the light of the submissions and evidence to be furnished by the assessee.

Issue (d): Adequacy of Opportunity of Hearing and Procedural Fairness

The assessee's AR highlighted the age and background of the assessee, a senior citizen engaged in agriculture, who was not technically oriented and did not regularly access the registered email used for service of notices. This led to a lack of awareness about the assessment order and appellate proceedings.

The Court emphasized settled legal principles that a party must be given a proper and effective opportunity of being heard before adverse orders are passed. The procedural irregularities, including exclusive service by email and technical portal errors preventing filing of submissions, deprived the assessee of such opportunity.

The Court held that in such circumstances, the principles of natural justice require setting aside the ex parte orders and restoring the matter for de novo consideration with adequate opportunity to the assessee.

3. SIGNIFICANT HOLDINGS

The Court held:

"It is settled law that where a party has not been afforded a proper opportunity of being heard due to technical or procedural lapses, justice demands that the matter be restored for de novo consideration."

Further, the Court concluded:

"In view of the above, and considering that the Departmental Representative has not objected to restoration, we deem it fit and proper to set aside the order of the CIT(A), as well as the ex parte assessment framed under section 147 read with section 144, and restore the matter to the file of the Jurisdictional Assessing Officer for framing a fresh assessment after affording adequate and effective opportunity of being heard to the assessee."

The core principles established include:

• The necessity of affording a proper and effective opportunity of hearing before passing ex parte orders under the Income-tax Act.
• The recognition that technical difficulties and procedural lapses, such as failure to access email or portal errors, can justify condonation of delay and restoration of proceedings.
• The importance of examining the validity of reassessment notices and substantive additions only after ensuring procedural fairness.

Final determinations:

• The additions made by the AO were not adjudicated on merits due to procedural infirmities.
• The ex parte dismissal of the appeal by CIT(A) was set aside for failure to provide adequate opportunity.
• The reassessment order passed ex parte under section 147 r.w.s. 144 was set aside.
• The matter was restored to the jurisdictional AO for fresh assessment proceedings after providing the assessee adequate opportunity to present his case.