Facts of the Case

The assessee, an individual engaged in civil contract work and earning interest income from banks, was subjected to reassessment proceedings for Assessment Year 2010-11.

Statutory notices under Section 142(1) were issued requiring explanation regarding cash deposits in bank accounts. As no reply was furnished by the assessee, the Assessing Officer completed the assessment under Section 147 read with Section 143(3) of the Income Tax Act, determining income at ₹28,11,030 and making an addition of ₹24,11,600.

Aggrieved, the assessee filed an appeal before the first appellate authority (NFAC). However, despite multiple opportunities, no response was submitted, and the appeal was dismissed in limine.

The assessee thereafter approached the Income Tax Appellate Tribunal challenging the ex-parte dismissal.

Issues Involved

  1. Whether reassessment under Section 147 based on cash deposits was valid.
  2. Whether dismissal of the appeal for non-compliance without adjudicating on merits was justified.
  3. Whether addition of ₹24,11,600 was sustainable without corroborative evidence.
  4. Whether failure to provide reasons for issuing notice under Section 148 vitiated proceedings.
  5. Whether the assessee was denied reasonable opportunity of hearing.

 Petitioner’s Arguments (Assessee)

The assessee contended that:

  • The assessment determining income at ₹28,11,030 was unjustified and incorrect.
  • Addition of ₹24,11,600 did not represent real income.
  • The appellate authority decided the appeal ex-parte without providing opportunity of representation.
  • Notice under Section 148 was issued without furnishing reasons or supporting material.
  • The addition was made without corroborative evidence, verification from institutions, or recorded statements.
  • Penal interest levied under various provisions was also unjustified.

Respondent’s Arguments (Revenue)

The Revenue relied on the orders of the lower authorities, emphasizing that:

  • The assessee failed to respond to statutory notices during both assessment and appellate proceedings.
  • Multiple opportunities had been granted but were not utilized.

 Court Order / Findings (ITAT Allahabad)

The Tribunal observed that:

  • There was complete non-compliance by the assessee during the first appellate proceedings before the NFAC.
  • The appeal had been dismissed solely due to absence of response.

However, considering the facts and circumstances, the Tribunal held that the assessee deserved one more opportunity to present his case in the interest of substantial justice.

Accordingly, the Tribunal:

  • Set aside the order of the NFAC
  • Restored the matter to the NFAC for fresh adjudication
  • Directed the NFAC to provide a reasonable opportunity of hearing
  • Cautioned the assessee to fully comply in the remanded proceedings

The Tribunal clarified that if the assessee again fails to cooperate, the NFAC would be free to decide the appeal based on available material, even ex-parte.

Important Clarification

Appeals should ordinarily be decided on merits rather than dismissed solely for non-compliance.

Restoration of proceedings aims to uphold principles of natural justice.

Non-compliance by an assessee does not automatically justify denial of a fair hearing.

Restoration does not imply acceptance of the assessee’s claims regarding reassessment or additions.

Assessees must actively participate in remanded proceedings to avoid adverse decisions.

 Link to download the order - https://www.mytaxexpert.co.in/uploads/1771229194_SHESHNATHSINGHALLAHABADVS.DCITCIRCLE1ALLAHABAD.pdf

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