Facts of the Case

The assessee, Gita Sharma, is engaged in the business of running a petrol pump under the name and style of M/s Kamala Filling Station. She filed her return of income for Assessment Year 2017-18 declaring total income of ₹9,78,950. During scrutiny assessment, the Assessing Officer observed alleged excess purchases reflected in the trading account and treated the same as unexplained. Consequently, an amount of ₹36,46,727 was added as undisclosed income under Section 69A of the Income-tax Act. Further, an amount of ₹1,25,43,804 representing trade receivables was also treated as undisclosed money and added to income. The total income was assessed at ₹1,71,69,481 under Section 143(3).

The assessee filed an appeal before the CIT(A), NFAC. However, despite issuance of multiple notices of hearing, there was no compliance from the assessee. The CIT(A) dismissed the appeal for non-prosecution by relying on judicial precedents relating to dismissal of appeals where the appellant does not pursue the matter. Aggrieved, the assessee preferred an appeal before the Tribunal.

Issues Involved

Whether the CIT(A) was justified in dismissing the appeal for non-prosecution without adjudicating the issues on merits, whether such dismissal violates the mandate of Section 250(6) of the Income-tax Act, and whether the matter required remand for fresh adjudication in the interest of natural justice.

Petitioner’s Arguments

The assessee contended in the grounds of appeal that the purchases were genuine and made through a registered BPCL distributor with payments routed directly to BPCL through banking channels. It was submitted that the trade receivables represented genuine credit sales duly recorded in the books and linked to sales already offered to tax. It was further contended that additions under Section 69A were unjustified as the transactions were fully explained and supported by documentary evidence. The assessee sought an opportunity to substantiate these claims on merits.

Respondent’s Arguments

The Revenue relied on the order of the CIT(A) and submitted that the assessee failed to appear despite several opportunities and therefore the dismissal of the appeal was justified.

Court Order / Findings

The ITAT Kolkata observed that Section 250(6) of the Income-tax Act mandates the CIT(A) to dispose of an appeal by passing a speaking order stating the points for determination, the decision thereon and the reasons for such decision. The Tribunal held that the CIT(A) is not empowered to dismiss an appeal for non-prosecution without adjudicating the issues on merits. Reliance was placed on judicial precedents including Ajji Basha vs CIT and Commissioner of Income-tax (Central), Nagpur vs Premkumar Arjundas Luthra (HUF), which categorically hold that appellate authorities must decide appeals on merits. Considering that proper representation was not made at earlier stages, the Tribunal held that the interest of justice required granting one more opportunity to the assessee. Accordingly, the order of the CIT(A) was set aside and the matter was remitted to the Assessing Officer for de novo assessment after providing reasonable opportunity of being heard.

Important Clarification

The Tribunal clarified that dismissal of an appeal for non-prosecution is impermissible under the Income-tax Act. Appellate authorities are statutorily obliged to adjudicate appeals on merits by passing reasoned speaking orders. Failure to do so constitutes a violation of principles of natural justice and statutory mandate under Section 250(6).

Final Outcome

The appeal filed by the assessee was partly allowed for statistical purposes. The order passed by the CIT(A), NFAC dismissing the appeal for non-prosecution was set aside, and the matter was restored to the file of the Assessing Officer for de novo assessment in accordance with law after granting reasonable opportunity of being heard to the assessee.

Source Link - https://itat.gov.in/public/files/upload/1767179183-CVyk9y-1-TO.pdf

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