👍👍👍👍👍Ex-parte order unjustified as revenue failed to carry out primary duty post non-service of notice

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Stanton Capital (India) P Ltd. Vs ITO (ITAT Ahmedabad)

ITAT Ahmedabad held that post non-service of notice, revenue failed to carry out its primary responsibility to ascertain whether the company, against which notices were issued, and proceedings under section 148 was contemplated, was existing or not. Accordingly, matter remanded to carry out fresh adjudication.

Facts- The assessee is non-filer u/s. 139 of the Act for A.Y. 2011-12. Its case was reopened by issuance of notice u/s. 148 of the Act on 31.3.2017 and required the assessee to file return of income within 30 days, but the assessee did not file. Thereafter various notices u/s. 142(1) and 142(1) r.w.s. 129 were issued to the assessee. However, all the notices remained non-responded by the assessee. Ultimately, the AO was compelled to service notice by affixture on 4.8.2017 show causing the assessee as to why the assessment u/s. 144 should not finalized, but that affixture also remained non-complied. Therefore, the AO proceeded to frame assessment u/s. 144 of the Act on the basis of the material available on record.

During the impugned assessment, the AO based on the information received from Investigation wing of the Department that the assessee maintained account with HSBC Bank, and on verification it was revealed that there were unexplained credits of Rs.2,98,56,934/- from the third party account for A.Y. 2011-12. The AO obtained bank statement u/s. 133(6) of the Act. Since the assessee had not filed return for A.Y. 2011-12, the AO sought for explanation and details in respect of huge cash/cheque deposits found in the bank statements. However, the assessee failed to explain the transactions. In the absence of the explanation/reply from the assessee, the cash credit aggregating to Rs.2,98,56,934/- appearing in the bank accounts was treated as unexplained and added to the total income of the assessee, and exparte assessment order u/s. 144 read with section 147 was accordingly passed by the AO.

This exparte assessment order was challenged before the ld.CIT(A). However, the order was confirmed and appeal was dismissed. Being aggrieved, assessee preferred present appeal.

Conclusion- We find that the assessee has not been provided with adequate opportunity to put forward its defense/explanation with supporting evidences to make out its case that the action of the Revenue authorities are not valid. When the Revenue authorities noticed that the notices could not be served upon the assessee, it has not carried out its primary responsibility to ascertain the company, against which notices were issued, and proceedings under section 148 was contemplated, whether was existing or not.

The contention of the assessee that while recording the reasons, the AO has not applied his mind and has not even obtained the approval as required under the law before issuing the same, cannot be simply brushed aside. Therefore, various objections raised by the assessee before us, which have been noted by us in the foregoing paragraphs require adjudication afresh on merit at the end of the Revenue authorities. Therefore, for this reason, we set aside the impugned order of the ld.CIT(A) with direction to consider various issues and objections raised by the assessee, both on the facts and in law and pass a speaking order. The assessee shall be given proper opportunity of hearing and to submit various documents in support of its case during the set-aside appellate proceedings. With this direction, we allow the quantum appeal of the assessee for statistical purpose.

FULL TEXT OF THE ORDER OF ITAT AHMEDABAD

By way of the above two appeals, the assessee challenges orders passed by the ld.Commissioner of Income Tax (Appeals)-8, Ahmedabad [hereinafter referred to as “Ld.CIT(A)”] dated 21.12.2018 and 24.12.2018 respectively under section 250(6) of the Income Tax Act, 1961 [hereinafter referred to as “the Act” for short]for the Asst.Year 2011-12. One in quantum proceedings and other is in penalty proceedings.

2. At the outset, it was brought to the notice of the Bench that the Registry has notified the above appeals filed by the assessee before the Tribunal to be late by 42 days, and therefore, barred by limitation to that extent. The CIT(A)’s order was passed on 21.12.2018 and the appeal to the ITAT was to be filed by 19.02.2019 but was filed on 16.4.2019, thus being filed delayed by 42 days. To explain the delay, the assessee has filed an application for condonation of delay supported by the sworn affidavit. In the affidavit, the assessee stated inter alia that director of the assessee, Shri Vipulkumar Devjibhai Patel, who was looking after the affairs of the company was facing criminal proceedings and was in jail from 3.3.2019 till 9.4.2019. During this period, when the appeal papers prepared for filing appeal before the Tribunal could not be signed due to this reason, and therefore, the impugned delay occurred in filing the appeal. It was stated that since the delay was for reasons beyond the control, the same it was prayed, be condoned and the appeal be admitted for regular hearing on merit. The assessee, on identical line pleaded for condonation of delay in filing penalty appeal also. On the other hand, the ld.DR objected to the condonation of delay.

3. We have considered submissions of both the parties and also gone through the delay condonation application filed by the assessee along with affidavit filed by the director of the assessee-company. We find that the main plea of the assessee for the condonation of delay of 42 days in filing appeal before the Tribunal was because of multiple proceedings, civil and criminal proceedings against the director of the assessee-company viz. Shri Vipulkumar Devjibhai Patel, who was looking after the affairs of the assessee-company, and he was unable to finalise and submit the appeal in time before the Tribunal. Therefore, the impugned delay was occurred. This plea, we find, is reasonable to condone a small delay of 42 days in both the appeals. Therefore, with the support from the ratio of law down by the Hon’ble Apex Court in the case of Collector, Land Acquisition vs. Mst. Katiji& Others, 167 ITR 471 (SC) wherein it was held that where substantial justice was pitted against technicality of non-deliberate delay, the cause of substantial justice was to be preferred. Thus, we condone the impugned delay in filing both the appeals, proceed to dispose of the appeals on merits.

4. Now coming to the merits of the quantum appeal in ITA No.658/Ahd/2019, the grounds raised are as under:

“1. The impugned Order passed by the Ld. ITO and to the extent uphold by the Ld. CIT(A)-8, Ahmedabad is bad in law, passed against the natural rule of justice, without giving proper opportunity of being heard and is based on an inappropriate appraisal of facts and is liable to be quashed,

2. The Ld. AO have erred in law and on facts in passing the order without having jurisdiction to pass the same and the Ld. CIT(A) erred in law and on facts in upholding the same.

3. The Ld. AO have erred in law and on facts in passing the order U/s. 144 of the Act and the Ld. CIT(A) erred in law and on facts in upholding the same.

4. The Ld. CIT(A) have erred in law and on facts in passing the order without assuring the proper service of notice of hearing and without considering the fact that, the appellant had not received the notice in time and did not get proper opportunity to explain the reason for being unable to attend the CIT(A) on the date of hearing.

5. The Ld. AO have erred in law and on facts in making the addition of Rs.2,98,56,934 by considering the same as unexplained credits appearing in the appellant company’s bank accounts and the Ld. CIT(A) erred in law and on facts in upholding the same,

6. The Ld. AO have erred in law and on facts in passing the order only by considering the credit entries in bank statement and thereby also have erred in law and on facts in ignoring the other entries in the bank statement/company’s records and the Ld. CIT(A) erred in law and on facts in upholding the same.

7. The Ld. AO have passed the order without allowing the expenses appearing in the bank statement/in the company’s records and the Ld. CIT(A) erred in law and on facts in upholding the same.

8. The Ld. AO have erred in law and on facts in levying tax of Rs.99,17,729 which may kindly be deleted in view of the facts and other grounds of appeal and the Ld. CIT(A) erred in law and on facts in upholding the same.

9. The Ld. AO have erred in law and on facts in charging interest of Rs.6,94,241 U/S.234A and Rs.80,33,337 u/s. 234B of the Act which may kindly be deleted in view of the facts and other grounds of appeal and the Ld. CIT(A) erred in law and on facts in upholding the same.

10. The Ld. AO have erred in law and on facts in issuing the notice of demand of Rs. 1,86,45,310 which may kindly be set aside and the Ld. CIT(A) erred in law and on facts in not setting aside the same

11. The Ld. AO have erred in law and on facts in initiating penalty proceedings U/s.271(l)(c) of the Act and the Ld. CIT(A) erred in law and on facts in upholding the same.”

5. As the facts emerge out from the assessment order, the assessee is non-filer under section 139 of the Act for the Asst.Year 2011-12. Its case was reopened by issuance of notice under section 148 of the Act on 31.3.2017 and required the assessee to file return of income within 30 days, but the assessee did not file. Thereafter various notices under section 142(1) and 142(1) r.w.s. 129 were issued to the assessee. However, all the notices remained non-responded by the assessee. Ultimately, the AO was compelled to service notice by affixture on 4.8.2017 show causing the assessee as to why the assessment under section 144 should not finalized, but that affixture also remained non-complied. Therefore, the AO proceeded to frame assessment under section 144 of the Act on the basis of the material available on record.

6. During the impugned assessment, the AO based on the information received from Investigation wing of the Department that the assessee maintained account with HSBC Bank, and on verification it was revealed that there were unexplained credits of Rs.2,98,56,934/- from the third party account for Asst.Year 2011-12. The AO obtained bank statement under section 133(6) of the Act. Since the assessee had not filed return for Asst.Year 2011-12, the AO sought for explanation and details in respect of huge cash/cheque deposits found in the bank statements. However, the assessee failed to explain the transactions. In the absence of the explanation/reply from the assessee, the cash credit aggregating to Rs.2,98,56,934/- appearing in the bank accounts was treated as unexplained and added to the total income of the assessee, and exparte assessment order under section 144 read with section 147 was accordingly passed by the AO.

7. This exparte assessment order was challenged before the ld.CIT(A). The grievance raised before the ld.CIT(A) by the assessee mainly were three folds viz;

i) No proper opportunity of hearing was provided to the assessee while framing the impugned assessment order;

ii) The incumbent AO had no jurisdiction over the assessee and the assessment order passed under section 144 r.w.s. 147 was bad in law;

iii) Impugned addition of Rs.2,98,56,934/- on account of alleged cash credit was wrong more so when there was no allowance given by the AO in respect of the expenses shown in the bank statement.

Again none appeared before the Ld.CIT(A) who accordingly adjudicated the appeal exparte dismissing all the grounds raised by the assessee as under:

“6. I have carefully considered the impugned order and the submissions made. Ground wise points for determination, decision thereon and the reasons for the decision are as per succeeding paragraphs.

7. In Ground No. 1 of the appeal, appellant has contended that the impugned order has been passed without affording proper opportunity of being heard to the appellant. In the impugned assessment order AO has in para 3 duly stated that since the notices could not be served at the addresses provided by the appellant to the department the same were served by way of affixture at the known address as per the records. In the statement of facts (SOF) appellant has also mentioned that the said address i.e. 301/A-1, Raindrops, C. G. Road, Nr. Times Square, Navrangpura, Ahmedabad belong to the appellant and was vacated in February, 2011. Appellant has not controverted the fact that no intimation of change of address to the department was given. Hence, AO has rightly served the notices by affixture at the last known address. Undisputedly, AO has sent the notices on the last known address as per his records and when the notices were not served by post he got the same served by duly a fixing the same. Hence, there is no deficiency in service of notices and therefore, I do not find any merit in this ground of appeal. Ground No. 1 of the appeal is dismissed.

8. In Ground No.2 appellant has challenged the jurisdiction of AO. the appellant is a private limited company located in the city of Ahmedabad and the income Tax Authority having jurisdiction over the corporate cases beginning what the alphabet “S” are the officers of Pr. Commissioner of Income Tax-4, Ahmedabad , the AO passing the impugned order is ITO Ward-4(1)(3), Ahmedabad working in the Commissionerate-4 (Income Tax), Ahmedabad. The appellant has not specified as to how the AO has acted without jurisdiction. Hence, the AO has made the order well within his jurisdiction, the jurisdiction u/s.147 is also acquired after obtaining due approval of Pr. CIT-4 as requisite. Hence, I do not find any lack of jurisdiction of AO. Accordingly, Ground No. 2 of the appeal is also dismissed.

9. Ground No. 3 is related to the order u/s.144 of the Act. No specific assertion is made in furtherance of this ground by the appellant. From the impugned order it is abundantly clear that AO issued and served notice u/s.147, and further notices calling for specific details before issuing final notice proposing to complete the assessment ex-party on 04.08.2017. Thus, AO has followed the procedure and given the appellant ample opportunities before making the assessment ex-party u/s.144 r.w.s. 147 of the Act. In view of these facts I do not find any merit in this ground of appeal and accordingly, Ground No. 3 of the appeal is dismissed.

10. Ground No.4, 5 & 6 pertain to additions on account of unexplained credit amounting to Rs.2,98,56,934/- by the AO. Appellant has contended that the additions made are wrong however, has not denied the factum of such credits in the bank accounts maintained with HSBC Bank even in the grounds of appeal. It is settled law that onus is on the appellant to prove the sources of such credits and in case the same are contended to be from some other persons to prove the identity of such creditor and genuineness of the transaction apart from the creditworthiness of such creditor. Appellant has not mentioned a whisper on this issue but has merely stated that the action of AO is wrong. Appellant has not denied the bank account with HSBC bank as also the credits therein. Therefore, on facts there is no merit in the argument of the appellant. Appellant has further contended that AO has not allowed the expenses appearing in bank statement and has ignored the other entries. Appellant has not specified any expense as well as any entry relating thereto in the grounds of appeal and statement of facts. Further, an expense can be allowed only if it is wholly and exclusively laid out for the business of the appellant and also if the genuineness of the same is also proved. In this case, appellant has not filed the return of income or any accounts and also not specifically given detail of any expense whatsoever. Therefore, this contention of the appellant is totally bereft of merit and hence, deserves to be rejected. For these reasons, the arguments of the appellant as regards allowability of expense against the cash credit is not accepted.”

The ld.CIT(A) accordingly confirmed order of the AO and dismissed the appeal of the assessee. Still aggrieved, the assessee is now before the Tribunal.

8. Before us also, the ld.counsel for the assessee raised several objections against the impugned order challenging the validity of the assessment framed u/s 147 of the Act as under:

i) The absence of approval of the Ld.PCIT to the reason recorded by the AO for reopening the case of the assessee u/s 147 of the Act, as required by section 151 of the Act. A copy of the approval was placed at PB Page No.39 & 40 pointing out that it did not bear signatures of the Ld.PCIT.

ii) That there was no satisfaction of the AO and no live link between possession of the information with the AO and the belief of escapement of income, who had merely borrowed words from the section while recording his belief of escapement of income

iii) That reasons were recorded by the AO without any application of mind since the AO had mentioned escapement of income for Asst.Year 2010-11 in the reasons recorded while jurisdiction for reopening was assumed for A.Y2011-12;

iv) Though the AO had mentioned about two bank accounts, but he had possessed only information with regard to one bank account only;

v) That there is no service of notice under section 148 on the assessee, and even copy of the notice was not furnished to the assessee.

vi) Service of notice was not in accordance with Section 282 of the Act read with Rule 127 of IT Rules.

9. A brief note on the objections of the assessee was filed before us whose contents are reproduced hereunder:

“1. Reasons Recorded :

a. PB, Pg. 39 40 : Item at sr. No. 12 on Pg. 40 Shows that, PCIT has not accorded any satisfaction on the reasons recorded by the AO that it is a fit case for issue of notice Us.148,

b. PB, Pg.41 : Annexure being reasons recorded for issue of notice Us. 148, second Para thereof records AO’s satisfaction states that, ”As per the provisions of Sec. 149(109b), the income chargeable to tax, which has escaped assessment for the A.Y. 2010 11 is more than Rs.1 lakh. Non Filing of ROI by the Company is a reason in itself for reopening.

In fact, the AO,

i. has not recorded his satisfaction for A.Y.20011 12 .

ii. has merely borrowed the wordings from section by mentioning, income which has escaped is more than Rs.1 Lakh instead of analyzing the bank statement and co relating the same with his working of income escaped, iii. mentioned that, there are two bank accounts, in fact there is only one bank account for which he had information,

2. Service of Notice Us.148 : There is no mention about the same in the impugned order, copy not made available to us.

3. Service of notices Us.142(1) : PB, Pg. 4 5 Service not in accordance with Sec. 2852 Rule 127.

4. Company not in existence :

i. PB, Pg.42 46. Noting Office Use only: This e Form is hereby approved Pg. 46, Date of signing 29.11.2011,

ii. PB, pg. 47. Company Status Strike Off,

iii. Copy of e mail filing appeal before CIT(A) wherein, fact of Company did not exist has been mentioned in a very first Para which is highlighted by stating that, “Appellant Company’s name is struck off since long time” Copy of email to CIT(A) attached.

5. No books of accounts, No sec. 68 can be invoked :

i. PB, Pg. 55 Director’s affidavit,

ii. Appeal filed Pg. 21, AO’s order Para 5.1,Pg.2 : Last line, “ which goes on to [prove that, it has not maintained any books of accounts etc.”

In view of the above, we pray the Hon’ble Bench to quash the impugned order.

10. Before us, the assessee filed a paper book having 288 pages which contained some additional evidences from page no.168 to 202. The PB also contained working of total addition which might not be included in total addition. These workings are available at page no.203 to 211 of the PB. The assessee has also relied on certain case laws, copies of which were also filed in PB at page no.212 to 269. Accordingly, the ld.counsel for the assessee submitted that since the ld.Revenue authorities have erred in taking into consideration both legal and factual aspects of the matter, the impugned order liable to be quashed.

11. On the other hand, the ld.DR relied on the orders of the Revenue authorities.

12. We have considered rival submissions and gone through the orders of the Revenue authorities. We have also gone through various documents filed by the assessee before us in the PB. From the materials available, we find that the assessee has not been provided with adequate opportunity to put forward its defense/explanation with supporting evidences to make out its case that the action of the Revenue authorities are not valid. When the Revenue authorities noticed that the notices could not be served upon the assessee, it has not carried out its primary responsibility to ascertain the company, against which notices were issued, and proceedings under section 148 was contemplated, whether was existing or not. Documents filed in the PB before us show that it was intimated to the ld.CIT(A) that the assessee-company was defunct and was struck off from the record of the ROC. Further, the contention of the assessee that while recording the reasons, the AO has not applied his mind and has not even obtained the approval as required under the law before issuing the same, cannot be simply brushed aside. Copy of the documents placed at PB page no.42 show the ld.Commissioner has not put his signature on the reasons recorded by the AO. Therefore, various objections raised by the assessee before us, which have been noted by us in the foregoing paragraphs require adjudication afresh on merit at the end of the Revenue authorities. Therefore, for this reason, we set aside the impugned order of the ld.CIT(A) with direction to consider various issues and objections raised by the assessee, both on the facts and in law and pass a speaking order. The assessee shall be given proper opportunity of hearing and to submit various documents in support of its case during the set-aside appellate proceedings. With this direction, we allow the quantum appeal of the assessee for statistical purpose.

13. So far as penalty appeal of the assessee being ITA No.659/Ahd/2019 is concerned, since quantum appeal has been restored back to the file of the ld.CIT(A) for consideration afresh, penalty appeal filed by the assessee becomes unsustainable. Therefore, penalty appeal also set aside back to the file of the ld.CIT(A) to be decided as per the outcome in the set aside appellate proceedings.

14. In the result, both appeals of the assessee are allowed for statistical purposes.

Order pronounced in the Court on 21st April, 2023 at Ahmedabad.

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