2025 (6) TMI 1754 - AT - Income Tax

Ex-parte order passed by the CIT(A) u/s 250 - No adjudicating the grounds raised by the assessee and without providing an opportunity of hearing - HELD THAT - One more opportunity should be given to the assessee to plead his case before the Assessing Officer. It is settled law that principles of natural justice and fair play require that the affected party is granted sufficient opportunity of being heard to contest his case. Therefore deem it fit and proper to set aside the order of the ld. CIT(A) and remit the matter back to the file of the AO to adjudicate the issue afresh on merits after giving reasonable opportunity of hearing to the assessee. The assessee is also directed to furnish all the evidence at the earliest possible of time before AO as and when call for.ppeal filed by the assessee is allowed for statistical purpose.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the delay of 725 days in filing the appeal by the assessee for Assessment Year 2016-17 should be condoned despite being barred by limitation under the Income Tax Act, 1961.

- Whether the ex-parte order passed by the Commissioner of Income Tax (Appeals) under section 250 of the Act, without adjudicating the grounds raised by the assessee and without providing an opportunity of hearing, is valid or vitiated for violation of principles of natural justice.

- Whether the order passed by the Assessing Officer under section 143(3) of the Act, disallowing 50% of claimed expenditures without basis and without issuing a show cause notice, is legally sustainable.

- Whether the matter requires remand for fresh adjudication after affording the assessee a reasonable opportunity of hearing.

2. ISSUE-WISE DETAILED ANALYSIS

Delay in Filing Appeal and Condonation of Delay

Relevant legal framework and precedents: The Income Tax Act prescribes strict time limits for filing appeals. However, courts and tribunals have consistently adopted a pragmatic and liberal approach towards condonation of delay, especially where the delay is caused due to bona fide reasons such as negligence or mistake of tax consultants. The Supreme Court in Collector, Land Acquisition vs Mst. Katiji (1988) emphasized that when substantial justice and technical considerations conflict, the cause of substantial justice should be preferred. The Tribunal also relied on precedents including M/s. Garg Bros. Pvt. Ltd. & Others vs. DCIT where delay was condoned due to wrong advice by tax professionals, and Gujarat State Fertilizers & Chemicals Ltd. case which advocates a liberal approach to condonation to prevent defeat of substantive rights on technical grounds.

Court's interpretation and reasoning: The Court considered the assessee's petition explaining the delay was caused by the death of the father, lack of awareness about ongoing proceedings, and negligence of the tax consultant who failed to inform the assessee about the order of CIT(A). The Court acknowledged the statutory importance of adhering to limitation but balanced it against the principle of substantial justice. It found the reasons to be mitigating circumstances and accepted that the assessee should not be penalized for the consultant's negligence.

Application of law to facts: The Court applied the principle that delay caused by non-deliberate mistakes of tax professionals should not deprive a party of their substantive rights. The delay of 725 days was condoned, and the appeal was admitted for hearing on merit.

Treatment of competing arguments: While the Revenue opposed condonation on ground of delay, the Court gave overriding weight to justice and mitigating circumstances, rejecting the Revenue's strict technical stance.

Conclusion: Delay in filing appeal was condoned, allowing the appeal to be heard on merits.

Validity of Ex-parte Order Passed by CIT(A) and Violation of Natural Justice

Relevant legal framework and precedents: Principles of natural justice require that a party affected by a decision must be given a reasonable opportunity to present their case. Section 250(6) of the Income Tax Act mandates that the Commissioner (Appeals) must adjudicate the grounds raised in the appeal. An ex-parte order without hearing or consideration of the merits violates these principles.

Court's interpretation and reasoning: The Court noted that the CIT(A) had passed an ex-parte order without adjudicating the grounds raised by the assessee, thus failing to comply with the statutory mandate. The order was found to be based on form rather than substance, and the assessee was denied a fair hearing.

Key evidence and findings: The assessee submitted that they were not given an opportunity to represent their case before CIT(A) and wished to submit further documents and details. The Court observed that the assessment order disallowed expenses without basis and without issuing a show cause notice, indicating procedural irregularities.

Application of law to facts: The Court emphasized that natural justice and fair play require the affected party to be heard. Since CIT(A) did not adjudicate the issues on merit, the order was set aside.

Treatment of competing arguments: The Revenue did not oppose the argument on this point, effectively conceding the procedural lapse.

Conclusion: The ex-parte order was held to be vitiated by violation of natural justice and was set aside.

Validity of Assessment Order Passed by AO under Section 143(3)

Relevant legal framework and precedents: Under section 143(3), the Assessing Officer must issue a show cause notice before making additions or disallowances. The disallowance must be based on evidence and reasoned findings.

Court's interpretation and reasoning: The AO disallowed 50% of expenditures claimed by the assessee without any basis or issuance of a show cause notice. This was found to be an irregularity and a defect in the assessment proceedings.

Key evidence and findings: The AO failed to consider the variety of expenses recorded in the books of account and did not give the assessee an opportunity to explain or produce evidence.

Application of law to facts: The Court held that such a mechanical disallowance without procedural compliance and evidence is unsustainable.

Treatment of competing arguments: No specific opposition from Revenue on this procedural issue was noted.

Conclusion: The assessment order was found to be defective and required fresh adjudication.

Remand for Fresh Adjudication

Relevant legal framework and precedents: When procedural irregularities and violation of natural justice are found, the appropriate remedy is to set aside the impugned order and remit the matter for fresh consideration after providing a reasonable opportunity of hearing.

Court's interpretation and reasoning: The Court deemed it fit and proper to set aside the CIT(A) order and remit the matter back to the Assessing Officer for fresh adjudication on merits after affording the assessee a reasonable opportunity of hearing.

Application of law to facts: The assessee was directed to furnish all evidence promptly and to cooperate with the Assessing Officer. The Assessing Officer was directed to pass a reasoned order after hearing the assessee.

Conclusion: The appeal was allowed for statistical purposes, and the matter was remanded for fresh adjudication.

3. SIGNIFICANT HOLDINGS

"When substantial justice and technical considerations are pitted against each other, cause of substantial justice deserves to be preferred for the other side cannot claim to have vested right in injustice being done because of a non-deliberate delay."

"Delay caused because of the wrong advice or negligence of tax professionals should not be a ground to penalize the assessee. A liberal and pragmatic approach is warranted in condoning delay so that substantive rights are not defeated on technical grounds."

"Principles of natural justice and fair play require that the affected party is granted sufficient opportunity of being heard to contest his case."

"Where the Commissioner of Income Tax (Appeals) passes an ex-parte order without adjudicating the grounds raised by the assessee, such order is vitiated and liable to be set aside."

"An assessment order passed without issuing a show cause notice and without considering the evidence on record is irregular and cannot be sustained."

"In the interest of justice, the matter is remanded to the Assessing Officer for fresh adjudication after giving reasonable opportunity of hearing to the assessee and after considering all evidence."