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2025 (7) TMI 115 - AT - Income TaxAssessment order passed u/s 143(3) without issuance of a valid notice u/s 143(2) - assumption of jurisdiction by Jurisdictional AO - jurisdiction u/s 127 -HELD THAT - For any challenge of jurisdiction u/s 127 of the Act the assessee has to file his objections before the Ld. AO. In this regard the provision of section 124(3) of the Act and provision of section 124(4) of the Act prescribe a mechanism for an assessee to ventilate the grievance regarding the issue of jurisdiction. Admittedly as per the documents and material before us it is revealed that the procedure laid down has not been followed by the assessee and hence we are unable to provide any kind of relief on this issue more so because proceedings under chapter XIII provide a mechanism for settlement of grievance if any and strictly speaking are not within the domain of the powers of ITAT as derived from section 253. The case of Kalinga Institute of Industrial Technology 2023 (6) TMI 1076 - SC ORDER is a guiding force for deciding any issue in this regard. To this extent Ground Nos. 1 to 3 are dismissed. Addition u/s 69C - expenditure was incurred during the year under consideration on account of interior decoration not justified - HELD THAT - Giving the benefit of doubt to the assessee we feel that he deserves another chance to present the facts before the Ld. CIT(A) and to this extent we set aside the impugned order and remand the same to the file of Ld. CIT(A) for fresh adjudication after giving an opportunity of being heard.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Tribunal in this appeal are:
2. ISSUE-WISE DETAILED ANALYSIS Validity and Jurisdiction of Assessment Order (Grounds 1 to 3) Legal Framework and Precedents: The provisions of sections 143(2), 143(3), 124(3), and 124(4) of the Act regulate issuance of notices and jurisdictional challenges. Section 143(2) notice is mandatory before passing an assessment order under section 143(3). Section 127 deals with transfer of cases between Assessing Officers (AOs). The Supreme Court's ruling in the Kalinga Institute of Industrial Technology case (454 ITR 582) provides guidance on procedural compliance and jurisdictional challenges. Court's Interpretation and Reasoning: The Tribunal noted that the notice under section 143(2) was duly served and acknowledged by the assessee, who participated in the assessment proceedings. The AO's order dated 05.06.2021 was passed after considering the assessee's submissions. The Tribunal emphasized that challenges to jurisdiction under section 127 require the assessee to raise objections before the AO as per the grievance redressal mechanism under sections 124(3) and 124(4). Since the assessee did not follow this procedure, the Tribunal declined to interfere. Application of Law to Facts: The procedural requirements for valid assessment and jurisdictional challenge were satisfied by the AO's issuance and service of notice and the assessee's participation. The failure to raise jurisdictional objections before the AO precluded the Tribunal from granting relief. Competing Arguments: The assessee contended invalidity due to absence of valid notices and orders, but did not press these grounds with supporting procedural compliance. The Department supported the validity of the proceedings. Conclusion: Grounds 1 to 3 challenging jurisdiction and validity of assessment order were dismissed. Taxability of Rs. 15,00,000/- as Unexplained Expenditure under Section 69C Legal Framework and Precedents: Section 69C of the Act treats unexplained expenditure as deemed income if the assessee fails to satisfactorily explain the source or nature of the expenditure. The burden lies on the assessee to substantiate the expenditure with documentary evidence. Court's Interpretation and Reasoning: The CIT(A) found that although the assessee initially denied any expenditure on interior decoration, the audited financial statements showed an addition of Rs. 15 lakh to fixed assets and a depreciation claim of Rs. 75,000/-. The assessee failed to furnish documentary evidence to support the expenditure or explain its source. Despite issuance of a detailed questionnaire under section 250, the assessee chose not to submit further details, effectively admitting inability to substantiate the claim. The Tribunal concurred with the CIT(A)'s conclusion that the source of the expenditure remained unexplained. Key Evidence and Findings: The partner's admission during survey, audited financial statements showing asset addition and depreciation, failure to produce supporting documents, and refusal to respond to the questionnaire. Application of Law to Facts: The unexplained expenditure was rightly treated as deemed income under section 69C, attracting tax and addition. Competing Arguments: The assessee argued that the Rs. 15 lakh related to the initial year of business (AY 2014-15) and should not be taxed in AY 2018-19. The Tribunal observed that this fact was noted by the CIT(A) but did not find sufficient evidence to disallow the addition in the current year. The Tribunal, however, granted the assessee an opportunity to present facts afresh before the CIT(A). Conclusion: The addition under section 69C was sustained by the CIT(A) but remanded for fresh adjudication after providing the assessee an opportunity to be heard. Taxability of Rs. 7,20,000/- as Unexplained Investment under Section 69 Legal Framework and Precedents: Section 69 treats unexplained investments as deemed income if the assessee fails to explain the source of investment. The assessee must provide documentary evidence to substantiate the investment. Court's Interpretation and Reasoning: The CIT(A) observed that the assessee initially disclosed the investment in post office deposits but later retracted, claiming the deposits were in names of partners and relatives. Confirmation from some investors and agents was furnished, but ledger extracts, partnership deed, and partners' returns were not submitted despite a detailed questionnaire. The partner's statement during survey was said to be made under nervousness, but no clarification was provided regarding the return filing. The Tribunal agreed with the CIT(A) that the assessee failed to substantiate the investment and suppressed facts. Key Evidence and Findings: Lack of documentary evidence, failure to produce ledger extracts, non-submission of partnership deed and partners' returns, and inconsistent statements by the assessee. Application of Law to Facts: The unexplained investment rightly qualified as deemed income under section 69, warranting addition. Competing Arguments: The assessee contended that the investment was disclosed and surrendered voluntarily to buy peace of mind, and thus should not be taxed under sections 69 or 69C. The Tribunal did not find this argument persuasive given the lack of supporting evidence. Conclusion: The addition under section 69 was confirmed but remanded for fresh adjudication with opportunity to the assessee to present evidence. Violation of Principles of Natural Justice and Opportunity of Hearing (Grounds 6 to 8) Legal Framework: Principles of natural justice require that an assessee be given a reasonable opportunity of hearing and access to relevant documents, including draft assessment orders, before final orders are passed. Court's Interpretation and Reasoning: The CIT(A) had issued a detailed questionnaire under section 250, but the assessee declined to furnish details. The Tribunal noted that the assessee had an opportunity to be heard but chose not to avail of it fully. However, the Tribunal also observed that the assessee deserves another chance to present facts and evidence before the CIT(A). Accordingly, the matter was remanded for fresh adjudication with opportunity of hearing. Application of Law to Facts: While procedural opportunities were provided, the assessee's failure to respond fully warranted remand rather than outright dismissal. Competing Arguments: The assessee argued violation of natural justice due to non-provision of draft orders and hearing. The Department contended that adequate opportunity was provided. Conclusion: The Tribunal directed remand for fresh adjudication after giving the assessee opportunity to be heard, thereby partially upholding the natural justice claim. 3. SIGNIFICANT HOLDINGS "It needs to be mentioned that notice u/s 143(2) of the Act was served on the assessee and the same has been recorded in the first paragraph on page 2 of the Ld. AO's order. Thereafter, it is seen that the assessee has participated in the assessment proceedings since the notice issued by Ld. AO dated 12.04.2021 has been duly responded to and it is only after considering the submissions by the assessee that the Ld. AO has passed the order dated 05.06.2021." "Admittedly, as per the documents and material before us it is revealed that the procedure laid down has not been followed by the assessee and hence, we are unable to provide any kind of relief on this issue, more so because proceedings under chapter XIII provide a mechanism for settlement of grievance, if any, and strictly speaking are not within the domain of the powers of ITAT as derived from section 253 of the Act." "It can be concluded that the source of expenditure incurred for interior decoration remains unexplained. Hence, the amount of Rs. 15,00,000/- shall be treated as Unexplained expenditure and deemed income within the meaning of provisions of Section 69C of the IT Act." "In such circumstances, it can be concluded that the appellant could not substantiate its claims. Thus, the undisclosed investments in post office are deemed to be Unexplained investment and deemed income within the meaning of provisions of Section 69 of the IT Act." "Giving the benefit of doubt to the assessee, we feel that he deserves another chance to present the facts before the Ld. CIT(A) and to this extent, we set aside the impugned order and remand the same to the file of Ld. CIT(A) for fresh adjudication after giving an opportunity of being heard." Core principles established include the mandatory requirement of procedural compliance for jurisdictional challenges, the burden on the assessee to substantiate unexplained expenditure and investments with documentary evidence, and the necessity to provide reasonable opportunity of hearing before passing adverse orders. The Tribunal upheld the additions under sections 69 and 69C subject to fresh adjudication after opportunity to the assessee, and dismissed jurisdictional challenges for non-compliance with prescribed procedural mechanisms.
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