2025 (6) TMI 1708 - AT - Income Tax

Estimation of commission income adopting net profit @12% - ex-parte order of CIT(A) - CIT(A) not giving an opportunity to the assessee to furnish the relevant record as well as submissions - HELD THAT - AO has estimated the commission income of the assessee by adopting net profit @12% which is without any basis and further the same is on the higher side and arbitrary. AO has not given any basis for estimation of the commission income @ 12% as against the income declared by the assessee at Rs. 1, 25, 950/-. Further the entire deposits in the bank account of the assessee are treated by the AO as business income. Therefore when the learned CIT(A) has passed the ex-parte order we set aside the impugned order and remand the matter to the record of the learned CIT(A) for fresh adjudication after giving an appropriate opportunity of hearing to the assessee. 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 this appeal are:

(a) Whether the delay of 84 days in filing the appeal before the Tribunal should be condoned, considering the reasons furnished by the assessee;

(b) Whether the learned CIT(A) erred in dismissing the appeal without considering the assessee's request for adjournment and without giving an opportunity of hearing, thereby violating principles of natural justice;

(c) Whether the learned CIT(A) erred in not adjudicating the jurisdictional issue concerning the issuance of notice under section 148 of the Income Tax Act, 1961, particularly in light of section 151A of the Act and Circular No. 18 of 2022;

(d) Whether the addition made by the Assessing Officer by estimating commission income at 12% of total cash deposits is justified and sustainable in law;

(e) Whether the estimation of income at 12% commission is arbitrary and excessive, given the assessee's status as a commission agent and the declared income;

(f) Whether the impugned order passed ex-parte by the learned CIT(A) without considering relevant records and submissions is legally sustainable.

2. ISSUE-WISE DETAILED ANALYSIS

(a) Condonation of Delay in Filing Appeal

Relevant legal framework and precedents: The Tribunal exercises discretionary power to condone delay in filing appeals under procedural rules, provided sufficient cause is shown. Delay condonation requires the appellant to demonstrate that the delay was neither willful nor intentional and that no prejudice is caused to the revenue.

Court's interpretation and reasoning: The Tribunal noted that the assessee had requested adjournment to avail the Direct Tax Vivad-se-Vishwas Scheme (VSVS) 2024, which required payment within 15 days of Form-II issuance. The assessee was engaged in mobilizing funds to meet a substantial tax demand of Rs. 12 crores. The CIT(A) dismissed the appeal without considering the adjournment request, and the assessee remained unaware of this dismissal until the tax consultant discovered the order in junk mail. The Tribunal found these reasons sufficient to demonstrate the delay was not deliberate or inordinate.

Key evidence and findings: The assessee's affidavit detailed the timeline and efforts to raise funds, the communication requesting adjournment, and the lack of notice regarding dismissal. The Tribunal also noted the Government's scheme was open until April 2025, supporting the assessee's intention to avail it.

Application of law to facts: Given the procedural lapse by the learned CIT(A) in passing the order without considering the adjournment request and the genuine efforts by the assessee, the Tribunal condoned the delay of 84 days.

Treatment of competing arguments: The Revenue's objection that the reasons were insufficient was rejected due to the detailed explanation and absence of willfulness.

Conclusion: Delay in filing the appeal was condoned.

(b) Violation of Principles of Natural Justice and Adjournment Request

Relevant legal framework and precedents: Principles of natural justice require that an appellant be given a fair opportunity to be heard before adverse orders are passed. Rejection of adjournment requests must be communicated to the appellant.

Court's interpretation and reasoning: The Tribunal observed that the learned CIT(A) passed the impugned order without considering the adjournment request and without giving notice of rejection. The dismissal was effectively ex-parte, violating natural justice.

Key evidence and findings: The assessee's letter requesting adjournment dated 4/10/2024 was on record. The CIT(A) order dated 29/10/2024 did not mention any communication rejecting the adjournment, and the assessee was unaware of the dismissal until much later.

Application of law to facts: The Tribunal held that the CIT(A)'s failure to consider the adjournment request and not providing notice of rejection amounted to violation of natural justice.

Treatment of competing arguments: The Revenue's reliance on the impugned order was insufficient to justify the procedural lapse.

Conclusion: The impugned order was passed without affording the assessee a proper opportunity of hearing.

(c) Jurisdictional Issue Regarding Notice under Section 148

Relevant legal framework and precedents: Section 148 empowers the Assessing Officer to reopen assessments if income has escaped assessment. Section 151A and Circular No. 18 of 2022 prescribe procedural safeguards and jurisdictional checks.

Court's interpretation and reasoning: The Tribunal noted that the learned CIT(A) did not adjudicate on the jurisdictional issue raised by the assessee concerning the validity of the notice under section 148. The Tribunal did not explicitly decide on this issue but observed the failure to address it.

Key evidence and findings: The grounds of appeal raised the issue, but the impugned order was silent on this aspect.

Application of law to facts: The Tribunal's remand direction implicitly requires the CIT(A) to consider all issues, including jurisdiction.

Treatment of competing arguments: Not elaborated in detail.

Conclusion: The issue requires fresh adjudication on remand.

(d) Legitimacy of Addition by Estimating Commission Income at 12%

Relevant legal framework and precedents: Income estimation must be based on relevant material and reasonable basis. Arbitrary or unsupported estimations are liable to be set aside. The burden lies on the Assessing Officer to justify the rate applied.

Court's interpretation and reasoning: The Tribunal found that the Assessing Officer estimated commission income at 12% of total cash deposits without any basis or rationale. The entire bank deposits were treated as business income, which was not justified.

Key evidence and findings: The declared commission income was Rs. 1,25,950/-, whereas the AO estimated it at Rs. 59,56,380/-. The AO did not provide any material or basis for the 12% rate.

Application of law to facts: The Tribunal held that the estimation was arbitrary and excessive, lacking evidentiary support.

Treatment of competing arguments: The Revenue's reliance on the impugned order was insufficient to uphold the addition.

Conclusion: The addition is unsustainable and requires reconsideration.

(e) Appropriateness of 12% Estimation for Commission Agent

Relevant legal framework and precedents: Income estimation must consider the nature of the business and realistic profit margins. Commission agents typically earn commissions, not gross business income.

Court's interpretation and reasoning: The Tribunal noted that the assessee was a commission agent, and estimating income at 12% of deposits was impractical and on the higher side.

Key evidence and findings: The discrepancy between declared income and AO's estimate highlighted the arbitrariness.

Application of law to facts: The Tribunal concluded that the estimation did not reflect the true nature of the assessee's business.

Treatment of competing arguments: The Revenue did not produce documentary evidence to support the estimation.

Conclusion: The estimation requires reassessment on merits.

(f) Ex-parte Passing of Impugned Order by CIT(A)

Relevant legal framework and precedents: Orders passed without hearing the appellant or considering submissions violate principles of natural justice and are liable to be set aside.

Court's interpretation and reasoning: The Tribunal found that the CIT(A) passed the order without giving the assessee an opportunity to furnish records or submissions, especially after the adjournment request.

Key evidence and findings: The assessee's repeated requests and absence of any notice rejecting the adjournment were on record.

Application of law to facts: The Tribunal set aside the impugned order and remanded the matter for fresh adjudication after affording opportunity of hearing.

Treatment of competing arguments: The Revenue's contentions were insufficient to justify the ex-parte order.

Conclusion: The impugned order is set aside for fresh hearing.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"The reasons explained by the assessee in the affidavit are sufficient for not filing the appeal within the period of limitation and therefore, we condone the delay of 84 days in filing the present appeal."

"The learned CIT(A) has passed the order on 29/10/2024 without considering the request of the assessee for adjournment of the hearing thereby upheld the additions made by the Assessing Officer... The assessee was under the impression that the learned CIT(A) will give reasonable time to the assessee for opting Direct Tax Vivad-se-Vishwas Scheme, 2024, however, the impugned order was passed without granting the time to the assessee."

"The Assessing Officer has estimated the commission income of the assessee by adopting net profit @12% which is without any basis and further the same is on the higher side and arbitrary... The Assessing Officer has not given any basis for estimation of the commission income @ 12% as against the income declared by the assessee at Rs. 1,25,950/-."

"In the facts and circumstances of the case and in the interest of justice... we set aside the impugned order and remand the matter to the record of the learned CIT(A) for fresh adjudication after giving an appropriate opportunity of hearing to the assessee."

Core principles established include the necessity to consider adjournment requests in good faith especially when statutory schemes are available, the requirement to provide notice before dismissing appeals, the need for a reasonable and evidentiary basis for income estimation by tax authorities, and the imperative to uphold principles of natural justice by affording opportunity of hearing before passing adverse orders.

Final determinations on each issue are:

- Delay of 84 days in filing appeal is condoned.

- The impugned order passed without considering adjournment request and without notice is set aside.

- The estimation of commission income at 12% by the AO is arbitrary and unsustainable.

- The matter is remanded to the CIT(A) for fresh adjudication after providing opportunity of hearing and considering all issues including jurisdictional objections.