Facts of the Case

The assessee, Dharti Madrid County LLP, filed its return of income for Assessment Year 2018-19 on 31.10.2018 declaring total income of ₹34,32,120. The case was selected for scrutiny under CASS to examine large sales promotion expenses vis-à-vis gross receipts.

During assessment proceedings under Section 143(3), the Assessing Officer observed that the assessee had claimed sales promotion expenditure of ₹3,01,63,665, which included brokerage on sales, interest on cancellation and interest on customers’ home loans. The Assessing Officer noted that the assessee had not incurred expenditure towards rent or interest on its own home loan. Treating interest on customers’ home loans and sales promotion expenditure aggregating to ₹2,89,94,161 as unexplained expenditure, the Assessing Officer made an addition under Section 69C and taxed the same under Section 115BBE.

The assessee’s appeal before the CIT(A), National Faceless Appeal Centre, Delhi was dismissed ex parte due to repeated non-compliance. Aggrieved, the assessee filed an appeal before the Tribunal.

Issues Involved

Whether the CIT(A) erred in passing an ex parte order without adjudicating the appeal on merits despite adjournment requests, whether addition of ₹2,89,94,161 under Section 69C for sales promotion and interest expenses could be confirmed without examination on merits, and whether the matter required restoration with conditions.

Petitioner’s Arguments

The assessee submitted that although adjournment applications were filed on multiple occasions, the CIT(A) passed the impugned order without providing reasonable opportunity of being heard, in violation of principles of natural justice. It was contended that the assessee should be granted one more opportunity to explain the nature of transactions and substantiate the expenditure claimed.

Respondent’s Arguments

The Revenue supported the order of the CIT(A) but fairly stated that it had no objection if the matter was set aside to the file of the CIT(A) for providing another opportunity to the assessee.

Court Order / Findings

The ITAT Ahmedabad observed that the CIT(A) had granted multiple opportunities to the assessee, but no effective compliance was made except for seeking adjournments. The Tribunal held that the assessee could not escape responsibility by merely blaming the counsel and that negligence on the part of the assessee was evident.

However, in the interest of justice, the Tribunal deemed it appropriate to grant one more opportunity. Balancing equity with the conduct of the assessee, the Tribunal imposed a cost of ₹10,000 payable to the Prime Minister’s National Relief Fund within 15 days. Subject to payment of such cost, the Tribunal set aside the ex parte order and restored the matter to the file of the CIT(A) with directions to adjudicate the appeal on merits after granting reasonable opportunity. The CIT(A) was given liberty to decide the matter on merits based on available material if the assessee again failed to comply.

Important Clarification

The Tribunal clarified that while ex parte dismissal of appeals without deciding merits is not desirable, repeated non-compliance by an assessee cannot be ignored. Conditional remand with imposition of cost is permissible to balance principles of natural justice with procedural discipline.

Final Outcome

The appeal filed by the assessee was allowed for statistical purposes. The ex parte order of the CIT(A) was set aside, and the matter was remanded to the file of the CIT(A) for fresh adjudication on merits subject to payment of cost of ₹10,000 by the assessee within the stipulated time.

 Link to download order
 - https://www.mytaxexpert.co.in/uploads/1769061872_DHARTIMADRIDCOUNTYLLPAHMEDABADVS.THEDY.CITCIRCLE311AHMEDABAD.pdf

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