2024 (11) TMI 222 - AT - Income Tax

Ex- parte appellate order passed by CIT(A) based on the material on record mainly statement of fact (SOF) filed by the assessee - second round of litigation - whether the assessee firm stood dissolved or the business stood discontinued? - Disallowance of freight expenses u/s 40(a)(ia) - HELD THAT - It could be seen that the assessee did not participated at all in the appellate proceedings conducted before ld. CIT(A), for the reasons cited in SOF. This is second round of litigation. Huge additions were made by the AO even in second round of litigation and huge demand of tax and interest was raised by Revenue against the assessee. The assessee filed its appeal before ld. CIT(A) challenging the additions as were made by the AO in second round of litigation, and it is for the assessee to have remained vigilant once the appeal was filed by it before ld. CIT(A). The assessee and/or its partners (or legal representative) acted negligent during the course of appellate proceedings before ld. CIT(A) in the second round of litigation and their act is deprecated. The assessee should not be allowed to take benefit of its own wrong as it acted in complete defiance of law on both the counts. Assessee has now filed paper book before the ITAT and has raised challenge to the additions both on merits as well on law. It is equally true that the ld. CIT(A) passed an ex-parte appellate order based on material on record including SOF. The assessee did not comply with any of the eight notices issued by ld. CIT(A). It is also equally true that the Act of the Court should not prejudice anybody. The mandate of the 1961 Act is to compute and collect correct taxes from correct assessee and for the correct assessment year. The assessee has now come forward to argue against the additions as were made by authorities below, and paper book containing as many as 225 pages are filed before ITAT. The assessee has also stated the reasons for its non compliances before ld. CIT(A), which have been cited by us in the preceding part of this order. The true, complete and correct facts are to be brought on record and the onus is on the assessee to bring the same on record. Even before us contradictory statements are made with respect to dissolution of the assessee firm vis- -vis discontinuance of the business of the assessee firm. Under these facts and circumstances, and in the interest of justice as well now the inquiries are to be conducted. Keeping in view Section 189(1), 189(3) 189(4) read with Section 176(3)(owing to failure on the part of the assessee to intimate Revenue in stipulated time about discontinued business), it is considered fit and appropriate that in accordance with principles of natural justice, one more opportunity is required to be given to the assessee and hence the appellate order passed by ld. CIT(A) dated 25.09.2023 is set aside and the matter can go back to the file of ld. CIT(A) for fresh adjudication of the appeal of the assessee on merit in accordance with law after giving opportunities to both the parties.

Summary

Issues Involved:

1. Legality of disallowance of freight expenses under Section 40(a)(ia) of the Income-tax Act, 1961.
2. Condonation of delay in filing the appeal.
3. Compliance with procedural requirements and principles of natural justice.
4. Disclosure of business discontinuance and its implications under Sections 176(3) and 189 of the Income-tax Act, 1961.

Detailed Analysis:

1. Legality of Disallowance of Freight Expenses:

The core issue in this appeal was the disallowance of freight expenses amounting to Rs. 8,29,90,590/- under Section 40(a)(ia) of the Income-tax Act, 1961. The assessee argued that the disallowance was inappropriate as all necessary details of the freight payees were provided, and the second proviso to Section 40(a)(ia), inserted by the Finance Act 2012, should apply retrospectively. The Tribunal, in the first round of litigation, had remitted the matter back to the Assessing Officer (AO) for a fresh assessment to verify whether the payees had disclosed the receipts in their returns. However, in the second round, the AO reiterated the disallowance, and the Commissioner of Income-Tax (Appeals) [CIT(A)] upheld this decision, leading to the current appeal.

2. Condonation of Delay in Filing the Appeal:

The appeal was filed with a delay of 83 days. The assessee cited several reasons for the delay, including the closure of business, death of the tax consultant, and lack of awareness of the appellate order due to non-receipt of electronic communication. The Tribunal considered these reasons plausible, especially given the transition to technology-driven processes within the Revenue department, and condoned the delay, emphasizing the importance of substantial justice over technicalities, referencing the Supreme Court's decision in Collector of Land Acquisition, Anantnag v. Mst. Katiji.

3. Compliance with Procedural Requirements and Principles of Natural Justice:

The Tribunal noted that the CIT(A) had issued eight notices to the assessee, none of which were complied with, leading to an ex-parte order. The assessee claimed ignorance of these proceedings due to the closure of business and other logistical issues. The Tribunal highlighted the need for the assessee to be vigilant and participate in proceedings, especially given the substantial tax demand involved. Despite the non-compliance, the Tribunal decided to set aside the CIT(A)'s order and remand the case for fresh adjudication, ensuring the assessee is given another opportunity to present its case.

4. Disclosure of Business Discontinuance and Its Implications:

The Tribunal observed discrepancies in the assessee's disclosure regarding the discontinuance of its business. The assessee failed to inform the AO about the business closure as required under Section 176(3) of the Income-tax Act. The Tribunal emphasized the necessity for the assessee to provide true and complete facts, particularly regarding its business status and the partners' liability under Sections 189(1), 189(3), and 189(4). The Tribunal directed the CIT(A) to conduct a thorough inquiry into these aspects during the fresh adjudication process.

Conclusion:

The Tribunal allowed the appeal for statistical purposes, remanding the matter back to the CIT(A) for a denovo adjudication on merits, ensuring compliance with procedural requirements and principles of natural justice. The Tribunal refrained from commenting on the merits of the disallowance, leaving all contentions open for reconsideration. The decision underscores the importance of procedural diligence and accurate disclosure by the assessee, while also highlighting the Tribunal's commitment to ensuring fair adjudication.