Facts of the Case 

The assessee, Krishna Fabrics, filed an appeal before the Income Tax Appellate Tribunal against the order passed by the CIT(A)/NFAC dated 25.10.2023 for Assessment Year 2017-18.

The assessment in the case was completed by the Assessing Officer under Section 147 read with Section 144 of the Income Tax Act, 1961, making total additions of Rs. 3,13,66,744.

The additions primarily related to:

  • Total cash deposits of Rs. 2,80,10,950 in the bank account
  • Addition of Rs. 33,50,000 under Section 68 as unexplained investment for purchase of time deposits
  • Minor addition of Rs. 5,794

The assessee challenged these additions before the CIT(A). However, the CIT(A) observed that several notices were issued but the assessee failed to comply. Consequently, the appeal was dismissed for non-prosecution.

Aggrieved by this order, the assessee preferred an appeal before the ITAT Delhi.

Issues Involved

  1. Whether the CIT(A) is justified in dismissing an appeal for non-prosecution without deciding the issues on merits.
  2. Whether the matter relating to additions made by the Assessing Officer should be restored for fresh adjudication after providing an opportunity of hearing to the assessee.

Petitioner’ Arguments (Assessee)

  • The CIT(A) passed the order ex-parte without properly considering the facts available on record.
  • The addition relating to cash deposits ignored the corresponding withdrawals from the bank account made for business purposes.
  • The addition of Rs. 33,50,000 under Section 68 was unjustified because a bank passbook or bank statement cannot be treated as books of account maintained by the assessee for the purpose of Section 68.
  • The findings of the lower authorities were based on presumptions, suspicion, and assumptions rather than proper examination of facts.

Respondent’s Arguments (Income Tax Department)

  • The assessee failed to respond to the notices issued during appellate proceedings.
  • Due to the assessee’s non-compliance, the CIT(A) was justified in proceeding ex-parte and dismissing the appeal.

Court Order / Findings

  • The assessment order was passed under Section 144, which itself indicates best judgment assessment due to lack of compliance.
  • The CIT(A) dismissed the appeal for non-prosecution, without adjudicating the issues on merits.

The Tribunal held that dismissal of an appeal by CIT(A) merely for non-prosecution is not permissible under the Income Tax Act, as the appellate authority is required to decide the appeal on merits.

Considering the interest of justice, the Tribunal directed that:

  • The entire matter be restored to the file of the Assessing Officer.
  • The Assessing Officer should re-examine the issues after giving adequate opportunity of hearing to the assessee.

Important Clarification

The ITAT clarified that an appeal before the CIT(A) cannot be dismissed solely for non-prosecution. The appellate authority is required to examine the issues and pass a reasoned order on merits even if the assessee fails to appear.

Thus, the Tribunal restored the matter to the Assessing Officer for fresh adjudication with proper opportunity of hearin

Sections Involved

  • Section 68 – Unexplained Cash Credits
  • Section 147 – Income Escaping Assessment
  • Section 144 – Best Judgment Assessment

 Link to download the order -  https://itat.gov.in/public/files/upload/1735632846-KVNxTP-1-TO.pdf

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