2025 (5) TMI 1309 - AT - Income Tax

CIT(A) disposing of the appeal ex parte - HELD THAT - Hon ble Jurisdictional High Court in the case of PCIT(C) Vs. Prem Kumar Arjundas Luthra (huf) 2016 (5) TMI 290 - BOMBAY HIGH COURT has held that Ld. CIT(A)NFAC is obliged to dispose the appeal on merits even in the ex-parte order. Examining the impugned order in light of the above judgement we find that Ld. CIT(A) failed to deal with merits of the case and did not passed a speaking order. We also note that the assessee has also not made proper compliance before Ld. CIT(A) and therefore in the larger interest of justice and being fair to both the parties we deem it appropriate to remit all the issues raised for necessary adjudication as contemplated in section 250(6) - Effective grounds of appeal raised by the assessee are allowed for statistical purposes.

Summary

The primary issues presented and considered in this appeal revolve around the correctness and legality of the impugned appellate order passed under section 250 of the Income Tax Act, 1961, specifically concerning the assessment year 2018-19. The core legal questions include:

1. Whether the appellate authority (CIT(A)) was obliged to dispose of the appeal on merits despite the appeal being decided ex parte, and whether the failure to do so renders the order unsustainable.

2. The validity of transfer pricing adjustments made by the Assessing Officer (AO), particularly in light of a Unilateral Advance Pricing Agreement (APA) executed by the appellant and the subsequent filing of a modified return.

3. The correctness of disallowances made by the AO and upheld by the CIT(A), specifically:

• The disallowance of INR 17,16,421 related to notional interest arising from Ind AS adjustments.
• The disallowance of INR 1,84,90,300 concerning excess provisions written back.

4. The entitlement of the appellant to carry forward losses and unabsorbed depreciation.

5. The correctness of the AO's computation of total income, particularly regarding reliance on erroneous intimation under section 143(1) of the Act.

6. The appellant's claim for due credit of Tax Deducted at Source (TDS) and the consequent refund with interest.

7. The validity of penalty proceedings initiated under section 270A of the Act.

Each issue is analyzed in detail as follows:

1. Obligation to Dispose Appeal on Merits Despite Ex Parte Proceedings

The legal framework mandates that even when an appeal is decided ex parte due to non-appearance or non-compliance by the appellant, the appellate authority is required to adjudicate the appeal on its merits. This principle is reinforced by the jurisdictional High Court's ruling which held that the CIT(A) is obliged to dispose of appeals on merits even if the appellant is absent. The impugned order, however, was passed ex parte without addressing the substantive grounds of appeal raised by the appellant.

The Tribunal noted that the CIT(A) failed to pass a speaking order and did not engage with the appellant's detailed submissions or grounds of appeal, thereby contravening the established legal standard. The appellant's failure to appear and repeated adjournment requests were noted, but the Tribunal emphasized the necessity of a merits-based adjudication to uphold principles of natural justice and fair play.

Consequently, the Tribunal exercised its discretion under section 250(6) of the Act to remit the matter back to the CIT(A) for fresh adjudication, directing that the appellant be granted a proper opportunity of hearing and that the CIT(A) pass a reasoned order addressing all substantive issues.

2. Transfer Pricing Adjustment and the Impact of Unilateral APA

The AO had made a transfer pricing adjustment amounting to INR 33,03,75,100/-, which was upheld by the CIT(A). The appellant contended that this adjustment was unsustainable due to the existence of a Unilateral Advance Pricing Agreement (APA) executed with the Central Board of Direct Taxes (CBDT) on 21 December 2021, and the filing of a modified return thereafter.

The legal framework governing transfer pricing adjustments includes the provisions of the Income Tax Act and the APA mechanism, which provides certainty to taxpayers by pre-determining transfer pricing methodologies. The appellant argued that the APA should override the AO's adjustment.

However, since the CIT(A) did not examine the merits of this contention due to the ex parte nature of the order, the Tribunal found it necessary to remit this issue for fresh consideration. The CIT(A) is directed to consider the validity and applicability of the APA, the timing of the modified return, and the corresponding effect on the transfer pricing adjustment in accordance with the law and relevant precedents.

3. Disallowance of Notional Interest Due to Ind AS Adjustment

The AO disallowed INR 17,16,421 on account of notional interest recorded in the profit and loss statement arising from Ind AS (Indian Accounting Standards) adjustments. The appellant contended that this disallowance was unwarranted.

Ind AS adjustments often involve accounting entries that do not necessarily reflect cash outflows or taxable income. The legal question is whether such notional interest should be disallowed under the Income Tax Act.

Again, the CIT(A) did not address this issue on merits. The Tribunal's direction to remit the matter ensures that the CIT(A) will consider the nature of the Ind AS adjustment, the relevant accounting and tax principles, and applicable judicial precedents to determine the correctness of the disallowance.

4. Disallowance of Excess Provision Written Back

The AO disallowed INR 1,84,90,300, treating it as excess provision that was written back. The appellant argued that this amount should not have been disallowed.

Accounting provisions and their tax treatment are governed by the Income Tax Act and judicial interpretations, which distinguish between genuine provisions and those that are excessive or not allowable.

Since the CIT(A) did not deal with this ground, the Tribunal has remitted this issue for detailed examination, requiring the CIT(A) to analyze the nature of the provision, the circumstances of its write-back, and the relevant tax provisions.

5. Entitlement to Brought Forward Loss and Unabsorbed Depreciation

The appellant claimed allowance for brought forward losses and unabsorbed depreciation. The legal framework under the Income Tax Act permits set-off and carry-forward of losses and depreciation subject to compliance with statutory conditions.

The Tribunal noted the failure of the CIT(A) to address this claim and remitted it for fresh adjudication. The CIT(A) is to verify the appellant's eligibility, compliance with conditions, and correctness of the claim in line with statutory provisions and precedents.

6. Erroneous Computation of Total Income Based on Intimation Under Section 143(1)

The appellant contended that the AO erred by relying on an incorrect computation of total income as intimated under section 143(1) while framing the final assessment under section 143(3) read with section 144C(3).

The Tribunal recognized that the correctness of the assessment depends on the accurate computation of total income. Since this issue was not examined by the CIT(A), it was remitted for reconsideration. The CIT(A) is to scrutinize the computation, verify the correctness of the intimation, and ensure that the final assessment order is based on accurate data.

7. Due Credit of TDS and Consequential Refund with Interest

The appellant asserted entitlement to credit for Tax Deducted at Source (TDS) and consequential refund along with interest. The legal provisions entitle taxpayers to claim TDS credit where applicable, failing which refunds may be due.

Since the CIT(A) did not consider this claim, the Tribunal remitted it for fresh consideration. The CIT(A) must verify the TDS credits claimed, reconcile with the records, and determine the correctness of the refund and interest claim.

8. Validity of Penalty Proceedings Initiated Under Section 270A

The appellant challenged the initiation of penalty proceedings under section 270A of the Act, which deals with penalty for under-reporting and misreporting of income.

The Tribunal noted that the CIT(A) did not address the validity of penalty proceedings. The matter was remitted for fresh adjudication, requiring the CIT(A) to examine the basis for penalty, the nature of the under-reporting or misreporting alleged, and the appellant's defenses in light of the statutory provisions and judicial precedents.

Significant Holdings and Core Principles Established

The Tribunal emphasized the fundamental principle that appellate authorities must dispose of appeals on merits, even if the proceedings are ex parte, and must pass speaking orders addressing the grounds raised by the appellant. Failure to do so renders the appellate order unsustainable.

The Tribunal stated: "Examining the impugned order in light of the above judgement, we find that Ld. CIT(A) failed to deal with merits of the case and did not pass a speaking order."

Further, it was held that in the interest of justice and fairness, matters must be remitted for fresh adjudication with proper opportunity of hearing, especially where the appellant has raised substantial grounds challenging the assessment.

The Tribunal also underscored the appellant's duty to avoid unnecessary adjournments and to be vigilant in complying with procedural requirements.

In conclusion, the Tribunal allowed the appeal for statistical purposes and remitted all substantive issues to the CIT(A) for fresh adjudication in accordance with law and after affording the appellant a fair opportunity of hearing.