Facts of the Case

The assessee, Shivalaya Engineering Works, filed its return of income for Assessment Year 2018-19 declaring total income of ₹19,52,800. Based on information received through the Risk Management Strategy formulated by the CBDT, reassessment proceedings were initiated and notice under Section 148 was issued on 31.03.2022. The assessee filed a return in response declaring the same income. The reassessment was completed ex parte under Sections 147 read with Section 144B on 16.03.2023, assessing total income at ₹30,19,970. The additions comprised ₹3,990 towards interest income and ₹10,63,180 towards disallowance of purchase expenditure treated as unexplained under Section 69C.

Aggrieved, the assessee filed a first appeal before the CIT(A). During appellate proceedings, multiple notices were issued; however, no effective compliance was made. The faceless CIT(A) dismissed the appeal for non-prosecution and simultaneously confirmed the additions on merits. The assessee thereafter preferred a second appeal before the Tribunal.

Issues Involved

Whether an ex parte reassessment completed under Sections 147/144B without effective adjudication on merits was sustainable, whether the CIT(A) was justified in dismissing the appeal for non-prosecution while also confirming additions on merits, whether principles of natural justice were violated, and whether the matter warranted remand for fresh adjudication.

Petitioner’s Arguments

No appearance was made on behalf of the assessee before the Tribunal. The grounds of appeal challenged the additions on account of alleged bogus purchases and interest income, violation of principles of natural justice, denial of opportunity for cross-verification, and improper ex parte disposal by the CIT(A).

Respondent’s Arguments

The Revenue submitted that both the assessment and the appellate orders were passed ex parte due to repeated non-compliance by the assessee. It was fairly conceded that the assessment involved only part compliance and that the matter had not been adjudicated on merits. The Revenue suggested that, considering the nature of the orders, the matter may be remanded to the Assessing Officer for de novo adjudication.

Court Order / Findings

The ITAT Indore observed that the reassessment was completed ex parte under Section 147 read with Section 144B and that the total income of the assessee was not assessed on merits. The Tribunal noted that the CIT(A) dismissed the appeal for non-prosecution in the operative part of the order and thereafter proceeded to discuss the merits, resulting in an internally inconsistent appellate order. The Tribunal held that it is a settled principle that total income must be computed and assessed on real income basis by following due process of law.

While noting that the assessee remained non-compliant at both the assessment and appellate stages, the Tribunal emphasized that justice requires merits-based adjudication. Accordingly, the Tribunal set aside the impugned appellate order and remanded the matter to the file of the Assessing Officer for passing a fresh, speaking and well-reasoned order on merits after granting adequate opportunity to the assessee. The Tribunal also directed the assessee to cooperate fully and furnish complete details during fresh proceedings.

Important Clarification

The Tribunal clarified that dismissal of appeals for non-prosecution coupled with partial discussion on merits does not satisfy the requirement of lawful adjudication. Even in cases of non-compliance, assessment of income must ultimately be based on merits and real income after following due process under the Income-tax Act.

Final Outcome

The appeal filed by the assessee was allowed for statistical purposes, the impugned order of the CIT(A) was set aside, and the matter was remanded to the file of the Assessing Officer for de novo assessment on merits in accordance with law after providing due opportunity of hearing to the assessee.

Link to Download Order- https://www.mytaxexpert.co.in/uploads/1769159263_SHIVALAYAENGINEERINGWORKSMANDIDEEPVS.ITOBHOPAL.pdf

 

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