Facts of the Case

The assessee, M/s Dibya Construction Co., engaged in the business of civil contracts, filed its return of income for Assessment Year 2014-15 declaring total income of ₹40,85,310. The case was selected for scrutiny under CASS.

The Assessing Officer completed assessment under Section 143(3) of the Income Tax Act, 1961, determining total income at ₹71,78,406 after making the following additions:

  • Addition under Section 68: ₹16,00,000
  • Extra profit from business: ₹12,17,906
  • Interest income addition: ₹2,75,190

Aggrieved by the assessment order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals). The appeal was later migrated to the National Faceless Appeal Centre (NFAC), which dismissed the appeal ex-parte.

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

Issues Involved

  1. Whether the ex-parte dismissal of the appeal by the NFAC without granting reasonable opportunity was valid.
  2. Whether additions under Section 68, estimated extra profit, and interest income were justified.
  3. Whether the assessee was denied a fair hearing in the appellate proceedings.
  4. Whether the appeal deserved restoration for adjudication on merits.

Petitioner’s Arguments (Assessee)

  • The CIT(A)/NFAC passed the order ex-parte without providing reasonable opportunity.
  • The order was not a speaking order and did not consider the merits of the case.
  • The assessee was not aware of the hearing dates before the NFAC.
  • Additions made by the Assessing Officer were unjustified, particularly:
    • ₹16,00,000 under Section 68 despite receipt through account-payee cheque from a genuine party
    • ₹12,17,906 on account of extra profit by applying a higher net profit rate despite audited books with no defects
    • ₹2,75,190 towards interest on refund
  • The assessee sought restoration of the appeal to the NFAC for proper adjudication on merits.

Respondent’s Arguments (Revenue)

The Revenue did not seriously oppose the request for restoration, acknowledging that the order had been passed ex-parte.

Court Order / Findings (ITAT Allahabad)

  • The NFAC had passed the appellate order ex-parte without granting reasonable opportunity to the assessee.
  • Principles of natural justice require that a litigant be afforded adequate opportunity to present its case.
  • In the circumstances, the assessee deserved one more opportunity to argue the appeal on merits.

Accordingly, the Tribunal restored the matter to the NFAC with directions to hear the appeal afresh and decide it on merits after providing due opportunity.

The Tribunal also cautioned that the assessee must fully comply with the directions of the NFAC during the set-aside proceedings, failing which the NFAC would be free to pass an order based on the material available on record, even ex-parte.

Important Clarification

  • Ex-parte orders in appellate proceedings may be set aside where reasonable opportunity of hearing has not been granted.
  • Faceless proceedings do not dilute the requirement of natural justice.
  • Restoration for fresh adjudication does not imply acceptance of the assessee’s claims on merits.
  • The assessee bears the responsibility to cooperate in subsequent proceedings.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1771064285_MSDIBYACONSTRUCTIONCO.BHADOHIVS.DCITCIR3MIRZAPUR.pdf

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