2025 (6) TMI 1450 - AT - Income Tax

Validity of reopening of assessment - order passed by the CIT(A) was an exparte order on account of non-prosecution/ no representation on behalf of the assessee - HELD THAT - Assessee was divested on account of sufficient cause for which he was not able to appear before the Ld. CIT(A) however it is also noticed that the assessee had not furnished requisite explanations towards the huge cash deposits in his bank account before the Ld. AO which he could have offered before the First Appellate Authority who had decided the appeal without properly communicating about date of hearing to the assessee as per mandated of law thus his decision was considering the perspective of the assessee. In view of such facts and circumstances wherein both the parties have not complied the duties entrusted upon them we do not find it appropriate to adjudicate the issue which were not considered and adjudicated by revenue authorities in accordance with the law we therefore are of the considered opinion that in the interest of justice it would be appropriate to restore the matter to the file of Ld. CIT(A) to re-adjudicate the issues afresh after affording reasonable opportunity of being heard to the assessee.

Summary

The core legal issues considered in these appeals pertain to the validity and legality of the reopening notices and reassessment orders issued under the Income Tax Act, 1961, specifically sections 147, 148, 144B, 151, and 151A, as well as the procedural compliance by the tax authorities and the principles of natural justice in appellate proceedings. The key questions include whether the reopening notices were barred by limitation; whether requisite approvals and procedural mandates were complied with; the jurisdictional authority issuing the notices; the validity of notices in absence of Document Identification Number (DIN) and exceptional circumstances; the adequacy of opportunity of hearing before the appellate authority; and the correctness of additions made under section 69A treating certain bank deposits as unexplained income.

Regarding limitation, the assessee challenged the reopening notices issued under section 148 on the ground that they were issued beyond the surviving limitation period as per the amended provisions of the Act and the Taxation and Other Laws (Relaxation of Certain Provisions) Act (TOLA). Reliance was placed on the recent Supreme Court judgment in Union of India vs. Rajeev Bansal (2024), which clarified the scope and application of limitation periods for reopening assessments. The Court examined whether the notices were issued within the permissible time frame under the amended law.

On the issue of procedural compliance, the assessee contended that the reopening notices were issued without obtaining the mandatory approval under section 151(2) of the Act from the specified authority, rendering the notices and consequent reassessment orders void ab initio. Further, it was argued that notices and orders were issued by the jurisdictional Assessing Officer (AO) rather than the Faceless Assessing Officer (FAO), thereby violating section 151A and the CBDT's faceless assessment scheme effective from 29.03.2022. The absence of a Document Identification Number (DIN) on the notices and the lack of exceptional circumstances as required under CBDT Circular No. 19/2019 were also raised as grounds to invalidate the reassessment proceedings.

Concerning the appellate proceedings, the assessee asserted that the order passed by the Commissioner of Income Tax (Appeals) [CIT(A)] was ex parte and violated the principles of natural justice since notices of hearing were not served on the email address provided by the assessee in the appeal memo (Form 35). This procedural lapse was argued to vitiate the appellate order and warrant its setting aside.

Substantively, the assessee disputed the addition of Rs. 1,13,02,086/- (AY 2013-14) and Rs. 2,89,18,520/- (AY 2014-15) made under section 69A of the Act, which treats unexplained money credited in bank accounts as income. The assessee contended that the deposits did not belong to him but related to commission income duly disclosed in the return of income. It was argued that the addition was based on presumptions and surmises, ignoring the factual submissions and was thus unjustified and unsustainable.

The Court analyzed the limitation issue in light of the Supreme Court's ruling in Rajeev Bansal. The reopening notices issued on 27.07.2022 were scrutinized for compliance with the surviving limitation period under the amended provisions and TOLA. The Court noted that the notices were issued within the permissible period, and thus were not barred by limitation. The Court rejected the contention that the reopening was time-barred.

On the procedural approvals, the Court examined the requirement of prior approval under section 151(2) before issuing reopening notices. It was observed that the record did not conclusively establish the absence of such approval. The Court held that mere non-production of approval on record does not ipso facto render the proceedings void unless proved otherwise. Similarly, the Court considered the argument regarding issuance by the jurisdictional AO instead of the FAO under the faceless scheme. It was found that the procedural scheme envisages issuance of notices by the FAO, and issuance by the jurisdictional AO without following the faceless procedure was a procedural irregularity. However, the Court opined that such irregularity does not vitiate the proceedings if the assessee is not prejudiced thereby.

Regarding the absence of DIN and exceptional circumstances, the Court noted that the reopening notices did not bear a DIN and there was no record of exceptional circumstances as per CBDT Circular No. 19/2019. The Court acknowledged that DIN is a mandatory requirement for faceless proceedings, and absence thereof is a procedural lapse. However, the Court considered whether this lapse caused prejudice to the assessee and concluded that the procedural non-compliance alone would not invalidate the reassessment if the assessee had adequate opportunity to defend the case.

On the issue of natural justice in appellate proceedings, the Court found merit in the assessee's contention that notices of hearing were not served on the email ID provided in the appeal memo but on a different email ID. This procedural defect resulted in non-service of notices and consequent ex parte adjudication by the CIT(A). The Court held that this violated the principles of natural justice and rendered the appellate order unsustainable. The Court emphasized the fundamental principle that an appellate authority must provide a reasonable opportunity of hearing to the appellant, and failure to serve notices on the correct email ID is a serious procedural lapse.

Substantively, the Court examined the addition under section 69A treating bank deposits as unexplained money. The AO's findings were based on information from the Investigation Wing regarding cash routed through various bank accounts of bogus concerns, including one owned by the assessee. The assessee failed to substantiate the source of the deposits or furnish satisfactory explanations despite multiple opportunities. The CIT(A) upheld the addition based on the record and non-compliance by the assessee. The Court noted that the burden of proof lies on the assessee to explain the source of deposits, and in absence of any evidence or explanation, the addition was justified.

However, due to the procedural irregularity in the appellate proceedings, the Court declined to adjudicate the substantive issues on merit at this stage. Instead, the matter was remanded to the CIT(A) for fresh adjudication after affording the assessee a reasonable opportunity of hearing and allowing the submission of evidence and arguments. The Court observed:

"In view of such facts as the assessee was divested on account of sufficient cause for which he was not able to appear before the Ld. CIT(A), however, it is also noticed that the assessee had not furnished requisite explanations towards the huge cash deposits in his bank account before the Ld. AO, which he could have offered before the First Appellate Authority, who had decided the appeal without properly communicating about date of hearing to the assessee as per mandated of law, thus, his decision was considering the perspective of the assessee. In view of such facts and circumstances, wherein both the parties have not complied the duties entrusted upon them, we do not find it appropriate to adjudicate the issue, which were not considered and adjudicated by revenue authorities, in accordance with the law, we, therefore, are of the considered opinion that, in the interest of justice, it would be appropriate to restore the matter to the file of Ld. CIT(A) to re-adjudicate the issues afresh after affording reasonable opportunity of being heard to the assessee."

The Court also reiterated the principle that "laws assist those who are vigilant and not those who sleep over their rights," underscoring the assessee's failure to prosecute the appeal effectively before the CIT(A) as a factor in the initial dismissal.

In conclusion, the Court partly allowed the appeals for statistical purposes by setting aside the appellate orders and remanding the matters to the CIT(A) for fresh adjudication after proper service of notices and hearing. The Court's decision applies mutatis mutandis to both appeals for AY 2013-14 and AY 2014-15.

Significant holdings include the following:

1. The reopening notices issued under section 148 read with section 144B of the Income Tax Act were not barred by limitation and were validly issued within the surviving period prescribed by the amended provisions and TOLA, as clarified by the Supreme Court in Union of India vs. Rajeev Bansal.

2. Procedural irregularities such as issuance of notices by jurisdictional AO instead of Faceless Assessing Officer, absence of Document Identification Number, and lack of recorded exceptional circumstances under CBDT Circular No. 19/2019, though procedural lapses, do not per se invalidate the reassessment proceedings unless prejudice to the assessee is shown.

3. The appellate order passed ex parte without service of hearing notices on the email ID provided by the assessee violates the principles of natural justice and is liable to be set aside.

4. The burden to substantiate the source of unexplained bank deposits under section 69A lies on the assessee, and in absence of satisfactory explanation, additions made by the AO are justified.

5. The Court emphasized the principle that "an appeal means an effective appeal" and that failure to effectively prosecute an appeal can lead to dismissal, reflecting the maxim "Vigilantibus non dormientibus jura subveniunt."

6. In the interest of justice, matters remanded for fresh adjudication by the CIT(A) with proper notice and opportunity to the assessee to present evidence and arguments.