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2025 (7) TMI 42 - AT - Income TaxEx-parte order passed by the CIT(Appeals)/NFAC due to non-compliance by the assessee - undisclosed cash payments - order u/s 148A(d) - application of principle of fraud - HELD THAT - This bench has provided one final opportunity to the assessee considering that the benefit of doubt may be existing in favour of the tax payer assessee and for that due to reasons beyond control of the assessee the said assessee may not have been able to represent and comply with the hearing notices before the Ld. CIT(Appeals)/NFAC. Therefore in this regard as per the order of the ITAT Division Bench Raipur in the cases of Brajesh Singh Bhadoria 2025 (3) TMI 1480 - ITAT RAIPUR wherein the Tribunal had dealt with similar issue on the same parameters of ex-parte order passed by the Ld. CIT(Appeals)/NFAC and remanded the matter back to the file of the Ld. CIT(Appeals)/NFAC accordingly we set-aside the order of the Ld. CIT(Appeals)/NFAC and remand the matter back to its file for denovo adjudication on similar terms as recorded by us in the aforesaid decision. The facts in this case further suggests that the assessee was involved in huge unaccounted investment and rotation of unaccounted money involving M/s.Hotel Babylon International Pvt. Ltd. and its group of companies/concerns. Therefore it is mandatory on the part of the Ld. CIT(Appeals)/NFAC to determine and examine the facts in detailed manner whether any sham transactions have been facilitated to defraud the revenue by the assessee and thereby getting illegitimate gains. That if fraud is detected that shall be within purview of tax evasion and in such scenario fraud vitiates everything including natural justice. The person approaching the court has to come with clean hands and if hands of the assessee itself are tainted the principles of natural justice will not come to his/her rescue. The application of principle of fraud was even considered by the Hon ble Supreme Court in the case of Badami (deceased) by her LRs v. Bhali 2012 (5) TMI 648 - SUPREME COURT It had been held that the courts of law are meant for imparting justice between the parties and one who comes to the court must come with clean hands. A person whose case is based on falsehood has no right to approach the Court. Therefore in our considered view in the present matter it is the responsibility of the revenue authorities to investigate the matter in detailed manner as per law whether there is tax planning or tax evasion as per the transactions entered into by the assessee. If tax evasion is determined by the revenue in such circumstances additions are to be sustained in the hands of the assessee. Appeal of the assessee is allowed for statistical purposes.
Issues Presented and Considered
The core legal questions considered in this appeal are:
Issue-wise Detailed Analysis Validity of Reopening under Section 147 and Notice under Section 148/148A The reopening of the assessment for AY 2016-17 was initiated on the basis of credible information obtained during survey proceedings under section 133A in the case of a related group company. The information indicated receipt of substantial cash payments by the assessee against sale of immovable property, which was not disclosed in the original return. The reopening notice was issued under section 148 of the Act, but subsequent Supreme Court directions mandated that such notices issued under the unamended section 148 be treated as show cause notices under substituted section 148A(b), requiring the Revenue to provide the material relied upon to the assessee for reply. In compliance, the Revenue furnished the underlying material, including ledger details extracted from the impounded hard disk, to the assessee, who was given an opportunity to reply. The Assessing Officer (AO) considered the assessee's objections and passed an order under section 148A(d) confirming the reopening. The Court recognized the Supreme Court's directive as binding and upheld the procedural compliance in issuing the show cause notice and providing material, thus validating the reopening under section 147 read with section 148A. Receipt of Undisclosed Cash Consideration and Escapement of Income The AO's case rested on incriminating documents and electronic data seized during the survey, particularly a hard disk from the premises of a group company, which contained ledger entries evidencing cash payments totaling Rs. 4.58 crores to the assessee in addition to the declared cheque payments of Rs. 4.12 crores for sale of land. The total consideration as per ledger was Rs. 8.70 crores, substantially exceeding the declared amount. The assessee denied receipt of any cash consideration beyond the declared amount and contended that the entries in the hard disk and statements of third parties were not relevant or corroborated by independent evidence. The assessee also argued that the reopening was based solely on statements without corroborative proof. The AO and the Tribunal rejected these contentions, holding that the documents seized during survey were speaking and incriminating documents maintained in the regular course of business by the group companies. The ownership of the hard disk was undisputed, and the ledger entries were contemporaneous records showing cash transactions with details such as dates and phone numbers. Therefore, these records had evidentiary value and could not be disregarded as mere data entries or hearsay. The AO recalculated the long-term capital gains (LTCG) on the basis of total sale consideration of Rs. 8.70 crores under section 50C, allowing deductions for indexed cost and transfer expenses, and disallowing certain claimed deductions for lack of substantiation. The taxable LTCG was thus enhanced from Rs. 1.32 crores declared by the assessee to Rs. 5.90 crores, resulting in an addition of Rs. 4.58 crores to the total income. Claim of Deductions under Sections 54 and 54EC The assessee claimed deductions under section 54 for investment in residential property and under section 54EC for investment in bonds of Rural Electrification Corporation Limited. The AO initially disallowed these deductions for lack of documentary evidence. However, the assessee subsequently produced bank statements, capital gains account scheme statements, and bond receipts, which were accepted by the AO. Accordingly, no adverse view was taken on these deductions, and they were allowed in the final computation. Dismissal of Appeal by CIT(Appeals)/NFAC for Non-compliance and Tribunal's Power to Set Aside Ex-parte Order The assessee's appeal before the CIT(Appeals)/NFAC was dismissed ex-parte due to non-compliance with hearing notices and failure to file submissions. The CIT(Appeals)/NFAC relied on judicial precedents affirming the inherent power of tribunals to dismiss appeals for non-prosecution and non-attendance, citing Supreme Court and High Court decisions that an appeal must be effectively pursued, not merely filed. The Tribunal noted that despite multiple notices and opportunities, the assessee did not respond, justifying the ex-parte dismissal. However, considering the possibility of reasons beyond the assessee's control and the benefit of doubt, the Tribunal set aside the ex-parte order and remanded the matter back to the CIT(Appeals)/NFAC for de novo adjudication, following precedents where similar ex-parte orders were remanded for fresh consideration. Application of the Principle of Fraud and Tax Evasion The facts revealed during survey and assessment indicated involvement of the assessee in unaccounted investments and rotation of unaccounted money with the group companies. The Tribunal emphasized that if fraud or tax evasion is detected, it vitiates proceedings and natural justice principles may not protect the assessee who does not come with clean hands. The Tribunal referred to Supreme Court decisions holding that fraud avoids all judicial acts, and that tax planning must be within the law, excluding colorable devices. It underscored the Revenue's responsibility to investigate and determine whether the transactions amount to tax evasion or legitimate tax planning. Accordingly, the Tribunal directed the CIT(Appeals)/NFAC to examine the facts in detail on remand, including whether sham transactions were facilitated to defraud the Revenue, and to proceed accordingly. Significant Holdings "The hard disk and other electronic devices were impounded from the premise of the Babylon group concern during the survey action and there was no conflict on the issue of ownership of the impounded materials. ... The document found from the hard disk is in fact a speaking document for the fact that it was maintained by the group in the system of the group companies and it clearly shows various amounts received in cash or paid in cash, the names and other details of persons paying or receiving such amounts in cash along with other details such as date and phone numbers. Hence, these documents partake the nature of incriminating documents." "Every court or judicial body or authority, which has a duty to decide a list between two parties, inherently possesses the power to dismiss a case in default. Where a case is called up for hearing and the party is not present, the court or the judicial or quasi-judicial body is under no obligation to keep the matter pending before it or to pursue the matter on behalf of the complainant, therefore, the court will be well within its jurisdiction to dismiss the complaint for non-prosecution." "Fraud-avoids all judicial acts, ecclesiastical or temporal. It had been held that the courts of law are meant for imparting justice between the parties and one who comes to the court, must come with clean hands. A person whose case is based on falsehood has no right to approach the Court." "Tax planning may be legitimate provided it is within the framework of law, Colourable devices cannot be part of tax planning." Core Principles Established
Final Determinations on Each Issue The reopening of assessment was held valid and justified based on credible information and compliance with procedural requirements. The assessee was found to have received undisclosed cash consideration of Rs. 4.58 crores, supported by incriminating documents seized during survey, leading to enhancement of taxable long-term capital gains from Rs. 1.32 crores to Rs. 5.90 crores. Deductions under sections 54 and 54EC were allowed upon production of satisfactory evidence. The ex-parte dismissal of the appeal by CIT(Appeals)/NFAC was set aside by the Tribunal, remanding the matter for fresh adjudication to ensure fair opportunity to the assessee, considering possible reasons beyond control for non-compliance. The Tribunal emphasized the necessity for detailed investigation into possible sham transactions and tax evasion, cautioning that fraud negates entitlement to relief and natural justice protections.
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