Validity of Ex-parte order if ssessee remained absent on more than one occasion & issue decided on merits

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Validity of Ex-parte order if ssessee remained absent on more than one occasion & issue decided on merits

 

Short Overview  If an order was passed by the CIT(A) on merits, despite the fact that the assessee failed to appear before the CIT(A) at the time of the final hearing of the appeal, the order passed by the CIT(A) cannot be termed as ex-parte.

Assessee, being dissatisfied with the order passed by the AO, under section 11 preferred an appeal before the CIT(A). It appeared that despite number of notices issued by the CIT(A) to the assessee for the hearing of the appeal, the assessee failed to remain present and make his submissions. In such circumstances, the CIT(A) proceeded to decide the appeal on merits in the absence of the assessee. The CIT(A), ultimately, dismissed the appeal, thereby confirming the addition made by the AO.

It is held that  If an order was passed by the CIT(A) on merits, despite the fact that the assessee failed to appear before the CIT(A) at the time of the final hearing of the appeal, the order passed by the CIT(A) cannot be termed as ex-parte. An order having been passed by the CIT(A) after service of notices on the assessee, there is no question of failure of natural justice. It cannot be said that the assessee was not given an opportunity of hearing. The order of the CIT(A) was more than clear. On more than one occasion, the assessee remained absent before the CIT(A), and in such circumstances, the CIT(A) had no option but to look into the records and decide the appeal on its own merit.

Decision: Against the assessee.

IN THE GUJARAT HIGH COURT

J.B. PARDIWALA & A.C. RAO, JJ.

CIT v. Shree Nirman Foundation Charitable Trust

R/Tax Appeal No. 1335 of 2018

30 July, 2019

Petitioner(s) by: Mauna M. Bhatt(174)

Respondent(s) by: ANKIT M. Talsania (7300)

ORAL JUDGMENT

J.B. Pardiwala, J.

  1. This tax appeal under section 260A of the Income Tax Act, 1961 (for short “the Act, 1961) is at the instance of the revenue and is directed against the order passed by the Income Tax Appellate Tribunal, Ahmedabad ‘B’ Bench dated 15-6-2018 in theITA No. 2743/Ahd/2015 for the assessment year 2011-12.
  2. This tax appeal came to be admitted videOrder, dated 8th January, 2019 passed by a Coordinate Bench on the following substantial question of law:

“Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in setting aside the matter to the Commissioner (Appeals) for fresh adjudication.”

  1. It appears from the materials on record that the assessee filed his return of income on 16th February, 2012, declaring the total income of Rs. 70,460. In the course of the assessment proceedings, the assessing officer noticed that the assesseetrust had undertaken activities of providing education to the students by running a school from nursery upto the 12th standard at Vastrapur. The assessee-trust had collected admission fees to the tune of Rs. 1,52,00,000 from the students and the same was credited directly to the balancesheet treating it as a corpus donation without routing it through the income and expenditure account. The assessing officer held the receipts of admission fees as the revenue receipts instead of capital. The registration granted under section 12AA of the Act was also cancelled by the DIT(E), Ahmedabad vide hisOrder, dated 16th March, 2011. The assessing officer held that the assessee was not eligible for deduction under section 11(1)(d) of the Act, and in such circumstances, he made disallowance of Rs. 1,52,00,000 under section 11(1)(d) of the Act.
  2. The assessee, being dissatisfied with the order passed by the assessing officer, preferred an appeal before the Commissioner (Appeals). It appears that despite number of notices issued by the Commissioner (Appeals) to the assessee for the hearing of the appeal, the assessee failed to remain present and make his submissions. In such circumstances, the Commissioner (Appeals) proceeded to decide the appeal on merits in the absence of the assessee. The Commissioner (Appeals), ultimately, dismissed the appeal, thereby confirming the addition made by the assessing officer of Rs. 1,52,00,000.
  3. The assessee, being dissatisfied with the order passed by the Commissioner (Appeals), preferred the appeal before the Appellate Tribunal. The Appellate Tribunal took the view that as the proceedings before the Commissioner (Appeals) wereex-parte, and the assessee had no opportunity to make good his case, it thought fit to remand the matter to the Commissioner (Appeals) for fresh consideration after giving an opportunity of hearing to the assessee. The revenue, being dissatisfied with such order passed by the Appellate Tribunal, is here before this Court with the present appeal.
  4. Mr. M.R. Bhatt, the learned senior standing counsel appearing for the revenue ultimately submitted that the Tribunal committed a serious error in passing the impugned order. According to Mr. Bhatt, there was no good reason for the Appellate Tribunal to take the view that the principles of natural justice were not followed by the Commissioner (Appeals). Mr. Bhatt submitted that despite giving number of opportunities to appear and conduct the appeal, if the assessee fails to remain present, then in such circumstances, the Commissioner (Appeals) would be justified in looking into the records and decide the appeal on its own merits in the absence of the assessee or his representative. According to Mr. Bhatt, the Appellate Tribunal should have decided the appeal on its own merits having regard to the evidence on record instead of remitting the matter to the Commissioner (Appeals).
  5. In such circumstances, referred to above, Mr. Bhatt, the learned senior standing counsel appearing for the revenue prays that the substantial question of law formulated in the present appeal may be answered in favour of the revenue and the appeal be allowed.
  6. On the other hand, this appeal has been vehemently opposed by Mr. Jaimin Dave, the learned counsel appearing for the assessee. Mr. Dave submitted that there is no question of law much less a substantial question of law involved in the present appeal. According to Mr. Dave what is involved in this appeal is essentially a question based on facts. According to Mr. Dave, the Tribunal, in its discretion, thought fit to give one opportunity of hearing to the assessee, and in such circumstances, remitted the matter to the Commissioner (Appeals). According to Mr. Dave, if that be so, then no error could be said to have been committed by the Appellate Tribunal in passing such an order. In such circumstances, referred to above, Mr. Dave prays that there being no merit in this appeal and there being no substantial question of law as such involved, the appeal may be dismissed.

ANALYSIS

  1. The assessing officer, in his order, observed as under:

“(i) The assessee had collected fees from the students at the time of admission and credited the same directly to the balance sheet treating this amount as corpus donation whereas, this amount was not reflected to the income and expenditure account, the nature of the receipt is revenue not capital. Hence the stand of assessee is not acceptable.

(ii) It’s activities were ascertained in commercial manner.

(iii) The registration granted under section 12AA of the Income Tax Act by the Hon’ble DIT(E), Ahmedabad too has been cancelled vide his Order, dated 16-3-2011.

Therefore, the assessee is not eligible for deduction under section 11(1)(d) of the Income Tax Act which he is claiming. Therefore, corpus donation under section 11(1)(d) of the Income Tax Act of Rs. 1,52,00,000 is disallowed and added to the total income of the assessee.

(Addition of Rs. 1,52,00,000)

  1. After scrutiny of the details furnished by the assessee the total income of the assessee is computed as under :
(Rs.)
Total Income as per return of income 70,463
Add: Corpus donation as discussed above under section 11(1)(d) (Para 2) 1,52,00,000
Assessed Income 1,52,70,463

Assessed under section 143(3) of the Income Tax Act, 1961 calculate the tax and interest as per the provisions of the Act. Give credit for prepaid taxes if any, after due verification. Issue notice and challan or refund & order as the case is.”

  1. The Commissioner (Appeals), in its order, observed as under:

“The appeal has been filed against the order of DDIT (Exemption), Ahmedabad under section 143(3) making addition of Rs. 1,52,00,000. The appellant has filed appeal on 11-7-2013. Notice was issued on 26-5-2014 fixing compliance on 2-6-2014 at 4.00 p.m., but no one appeared. Fresh notice was issued on 1-7-2014 fixing compliance on 16-7-2014 at 12.00 p.m., again no one appeared. Notice was also issued on 4-8-2014 fixing compliance on 14-8-2014 at 10.30 a.m., in response to which the appellant, through its representative filed an adjournment petition, stating that the Chartered Accountant who is handling the case is out of station and therefore the case may be refixed on or after 10-9-2014, as convenient to this officer, which was allowed to the appellant. Notice was issued on 8-9-2014 fixing compliance on 16-9-2014 at 4.45 p.m., however, the appellant did not make any submissions in support of its ground of appeal. The appeal is accordingly being decided on merits.

  1. The assessing officer has not allowed corpus donation under section 11(1)(d) of Rs. 1,52,00,000 on the following grounds:

(i) The assessee had collected fees from the students at the time of admission and credited the same directed to the balance sheet treating this amount as corpus donation whereas, this amount was not reflected to the income and expenditure account, the nature of the receipt is revenue not capital. Hence the stand of assessee is not acceptable.

(ii) Its activities were ascertained in commercial manner.

(iii The registration granted under section 12AA of the Income Tax Act by the Hon’ble DIT (E), Ahmedabad too has been cancelled vide his Order, dated 16-3-2011.

3.1 I have considered the assessment order, statement of facts and the grounds of appeal of the appellant. The DIT (Exemption), Ahmedabad has cancelled the registration under section 12AA vide his Order, dated 16-3-2011. As the appellant is not registered under section 12AA, it is not eligible for deduction under section 11(1)(d). The addition made by the assessing officer is accordingly confirmed.

  1. The Appellate Tribunal, in its order, observed as under:

“We have also noticed that the impugned order is passed ex-parte. As noticed in the Commissioner (Appeals)’s order, notice was served through Chartered Accountant but then, as is the contention of the assessee, the Chartered Accountant did not deal with the matter In intelligent manner and had therefore eventually disengaged by the assessee. We have also been assured by the assessee that given another opportunity of presenting his case before the learned Commissioner (Appeals) he will scrupulously ensure early disposal of the appeal on merits and shall not resort to any dilatory tactics.

Learned Departmental Representative also does not oppose the matter being remitted to the file of the learned Commissioner (Appeals) for fresh adjudication. In view of the above discussion and bearing in mind entirety of the case, we deem it fit and proper to remit the matter to the file of learned Commissioner (Appeals) for fresh adjudication on merits.”

  1. Having regard to the facts of the present case, it may appear that as such there is no substantial question of law involved in the appeal. However, if the matter is looked into closely, then it has something to do with a very unusual procedure adopted by the Appellate Tribunal. The Appellate Tribunal takes the view that the impugned order passed by the Commissioner (Appeals) isex-parte. The entire blame has been thrown on the chartered accountant who was appearing as the legal representative of the assessee. The three questions of law as proposed by the revenue assume importance this wise, whether the proceedings before the Commissioner (Appeals) could be termed as ex-parte. If an order is passed by the Commissioner (Appeals) on merits despite the fact that the assessee failed to appear before the Commissioner (Appeals) at the time of the final hearing of the appeal, the order passed by the Commissioner (Appeals) cannot be termed as ex-parte. An order having been passed by the Commissioner (Appeals) after service of notices on the assessee, there is no question of failure of natural justice. It cannot be said that the assessee was not given an opportunity of hearing. The order of the Commissioner (Appeals) is more than clear. On more than one occasion, the assessee remained absent before the Commissioner (Appeals), and in such circumstances, the Commissioner (Appeals) had no option but to look into the records and decide the appeal on its own merit. We take notice of the fact that the Commissioner (Appeals) took into consideration three relevant aspects. First, it took into consideration the fact that the assessee had collected fees from the students at the time of their admission and the amount was credited to the balance-sheet treating it as corpus donation, whereas the said amount was not reflected in the income and expenditure account. Secondly, it took notice of the fact that the activities were commercial in nature, and thirdly, and more importantly, it took into consideration the fact that the registration granted under section 12AA of the Act came to be cancelled vide order passed by the DIT(E), Ahmedabad dated 16th March, 2011.
  2. With such evidence on record, the Appellate Tribunal could have decided the appeal on merits after hearing the assessee. There was no good reason for the Appellate Tribunal to remit the matter to the Commissioner (Appeals) so as to give an opportunity of hearing to the assessee.
  3. We have noticed in many matters that the Appellate Tribunal has been remitting the matters to the Commissioner (Appeals) for no good reason, more particularly, when the Appellate Tribunal is able to decide the matter on its own merits.
  4. In the aforesaid context, a Coordinate Bench of this Court has observed something very pertinent in the case of Principal Commissioner of Income Tax-3 v. Ashokji Chanduji Thakor, Tax Appeal No. 710 of 2018and allied appeals, decided on 27-6-2018. We quote the relevant observations:

“7.0. Heard the learned advocates for the respective parties at length. Perused the impugned judgment and order passed by the learned Tribunal. By impugned judgment and order passed by the learned ITAT, the Tribunal has remitted the matter back to the file of the learned Commissioner (Appeals) for afresh adjudication by solely observing that “we consider it expedient to restore the matter back to the file of the Commissioner (Appeals) in the larger interest of justice with a view to enable the assessee to avail opportunity once more.” No reasons whatsoever have been assigned by the learned ITAT and learned Tribunal has not at all observed anything on merits of the order passed by the learned Commissioner (Appeals). Nothing is observed whether assessee was prevented from appearing before the learned Commissioner (Appeals) and/or there were any justifiable reasons for the assessee not to appear before the learned Commissioner (Appeals). The impugned order passed by the learned Tribunal is non-speaking and unreasoned order. The manner in which, the learned Tribunal has disposed of the appeal is not at all appreciable and same cannot be sustained. Without any cogent reasons and/or justifiable reasons, the matters cannot be remitted casually and lightly. Merely by observing that that “we consider it expedient in the larger interest of justice”, a well reasoned order passed by the learned Commissioner (Appeals) could not have been set aside in such a manner and the matter cannot be restored to the file by the learned Commissioner (Appeals). Thus, the impugned order passed by the learned Tribunal can be said to be suffering from vice of arbitrariness, unreasonableness and therefore, interference of this Court is called for. It is true that normally High Court would not interfere with the order of remand passed by the learned Tribunal remanding the matter for fresh adjudication. However, provided the order passed by the learned Tribunal is backed by cogent reasons and does not suffer from any unreasonableness and arbitrariness like in the present case. The exercise of powers in such a manner and exercise of such appellate powers and passing the non-speaking and non-reasoned order and the orders which are passed by the Tribunal, which suffers from unreasonableness and arbitrariness and/or at the whims of the Tribunal not backed by any reason can be said to be pure question of law and therefore, interference of this Court is required.

8.0. It is required to be noted that in the present case right from very beginning, i.e., assessment proceeding, assessee was non-cooperative. Number of opportunities were given by the assessing officer, however assessee did not cooperate and even did not file any reply. Therefore, considering the material on record, the assessing officer made addition as unexplained investment. Even before the learned Commissioner (Appeals) also the assessee was non-cooperative. Number of opportunities were given to the assessee to represent his case, however none remained present on behalf of assessee. Thereafter, the learned Commissioner (Appeals) proceeded further with the appeal exparte and decided the appeal on merits and confirmed the order passed by the assessing officer confirming additions of unexplained investment. Thus, even learned Commissioner (Appeals) also decided the matter on merits. On going through the orders passed by the assessing officer as well as learned Commissioner (Appeals), we are of the opinion that in absence of any explanation by the assessee on the investment in question, assessing officer was justified in making the addition of unexplained investment and thereafter learned Commissioner (Appeals) was justified in confirming the same. Therefore, even the order passed by the learned Commissioner (Appeals) which was on merits was not required to be interfered with by the learned Commissioner (Appeals) and ought not to have been quashed and set aside without assigning any reasons. Under the circumstances, the impugned orders passed by the learned Tribunal cannot be sustained.”

  1. There is one another valid reason for us to say that ordinarily the matter should not be remitted by the Appellate Tribunal to the Commissioner (Appeals) if the Appellate Tribunal is in a position to decide the appeal on its own merits having regard to the evidence on record. Such remand orders lead to unnecessary delays and cause prejudice to the revenue. The Supreme Court in the case of Ashwinkumar K. Patel v. Upendra J. Patel, reported in(1999) 3 SCC 161, in context with an order of remand passed by the High Court under Order 41 Rule 23 of the CPC, observed as under:

“The High Court should not ordinarily remand a case under Order 41 Rule 23 CPC to the Lower Court merely because it considers that the reasoning of the Lower Court, in some respects, was wrong. Such remand orders lead to unnecessary delays and cause prejudice to the parties to the case. When the material was available before the High Court, it should have, itself, decided the appeal one way or the other. It could have considered the various aspects of the case mentioned in the order of the Trial Court and considered whether the order of the Trial Court ought to be confirmed or reversed or modified.”

  1. In such circumstances, referred to above, the impugned order passed by the Appellate Tribunal is not sustainable in law. We are of the view that we should quash the order passed by the Appellate Tribunal and direct the Appellate Tribunal to hear the appeal filed by the assessee afresh and decide it on its own merits.
  2. In the result, this appeal is allowed. All the three substantial questions of law formulated are answered in favour of the revenue. The impugned order passed by the Appellate Tribunal is quashed and set aside. The Appellate Tribunal is directed to restore the appeal preferred by the assessee to its original file and decide the same on its own merits after giving an opportunity of hearing to the revenue as well as to the assessee.

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