DIY FURNITURES PRIVATE LIMITED,AHMEDABAD V. THE ITO, TDS, WARD-1, AHMEDABAD

ITA 981/AHD/2025

AI Insights

The case involves two appeals by DIY Furnitures P. Ltd. against orders related to the Assessment Year 2017-18, concerning non-deposit of TDS and unexplained cash credits among other issues. The appeals were initially delayed due to the company's closure and lack of access to the ITBA portal, which were later condoned by the Tribunal. The main legal issues revolved around the non-provision of a reasonable opportunity of being heard, the validity of the additions made under various sections of the Income Tax Act, and the procedural lapses in the handling of the appeals. The Tribunal found that the CIT(A)'s orders were passed ex parte without adequate opportunity for the assessee to present their case, violating principles of natural justice.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 779484 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-10-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2017-2018
• Appeal Filed On: 30-04-2025
• Other Referred Cases: Collector, Land Acquisition v. Mst. Katiji & Others (167 ITR 471), N. Balakrishnan v. M. Krishnamurthy (1998) 7 SCC 123
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: VEERBADRAM VISLAVATH
• Assessee Lawyers: MEHUL K. PATEL
• Keywords: Set aside; Opportunity of being heard; Additional evidence; Corroborative evidences; Unexplained cash credit; Principle of natural justice; TDS; Procedural lapse; Bogus
• Section: 143(3); 271(1)(c); 68; 201(1); 244A; 40(a)(ia)

Judgement Text

"आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण,अहमदाबाद \bयायपीठ अहमदाबाद \bयायपीठ अहमदाबाद \bयायपीठ अहमदाबाद \bयायपीठ ‘C’ अहमदाबाद। अहमदाबाद। अहमदाबाद। अहमदाबाद। IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, AHMEDABAD ]BEFORE MS. SUCHITRA R. KAMBLE, JUDICIAL MEMBER AND MAKARAND V.MAHADEOKAR, ACCOUNTANT MEMBER ITA No.980 and 981/Ahd/2025 Asstt.Year : 2017-18 DIY Furnitures P. Ltd. B/2, Suraj Kala, Raj Colony Nr.Naranpura Railway Crossing, Naranpura Ahmedabad 380 013. PAN : AAECT 4996 R Vs. The DCIT, Cir.1(1)(2) Anandnagar. Ahmedabad. (Applicant) (Responent) Assessee by : Shri Mehul K. Patel, AR Revenue by : Shree Veerbadram Vislavath, Sr.DR सुनवाई क तारीख/Date of Hearing : 16/10/2025 घोषणा क तारीख /Date of Pronouncement: 17/10/2025 आदेश आदेश आदेश आदेश/O R D E R PER MAKARAND V.MAHADEOKAR, AM: Both these appeals by the assessee are directed against separate orders of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi / Addl. CIT (A)-4, Kolkata, from the office of Commissioner of Income Tax (Appeals) [hereinafter referred to as “CIT(A)”] , passed under section 250 of the Income Tax Act, 1961 [hereinafter referred to as “the Act”] for Assessment Year 2017–18 arising out of assessment order passed by the Assistant Commissioner of Income Tax, Circle 1(1)(2), Ahmedabad under section 143(3) of the and the order passed by the Income Tax Officer, TDS, Ward -1, Ahmedabad [hereinafter referred to as “Assessing Officer or AO”] under section 201(1)/201(1A) of the Act. Since common facts and issues arise, both appeals were heard together and are disposed of by this consolidated order for the sake of convenience and brevity. Printed from counselvise.com ITA No.980 and 981/Ahd/2025 2 2. Condonation of Delay: 2.1 At the outset, it is noted that there is a delay of 517 days in filing the appeal against the order passed under section 143(3), and a delay of 61 days in filing the appeal against the order passed under sections 201(1)/201(1A). The assessee has filed a duly sworn affidavit dated 29.04.2025 explaining the reasons for delay, which has been placed on record. 2.1 As per the affidavit of Shri Anant Sureshchandra Maloo, Director of the assessee-company, the assessee had been incurring continuous losses, and its business was completely closed after A.Y. 2018–19. The last balance sheet was filed before the Registrar of Companies for A.Y. 2018–19. Owing to complete cessation of operations, there were no employees, and all the bank accounts of the company as well as of its directors stood attached by statutory authorities. Consequently, the ITBA portal was not accessed regularly, and the assessee remained unaware of notices and appellate orders passed by the Department and the CIT(A). It was only when departmental recovery officers visited the residence of one of the directors that the assessee came to know that assessment and appellate orders had been passed. Immediately thereafter, the director appeared before the jurisdictional AO, explained the circumstances, and in March 2025 appointed a new Authorised Representative (A.R.) to attend to the pending matters. On verification of the ITBA portal, the A.R. found that ex parte orders had been passed by the CIT(A) and the time for filing appeal before the Tribunal had expired. The present appeals were therefore filed with the delay of 517 and 61 days respectively. 2.2 The affidavit emphasises that the delay was not deliberate or intentional but arose due to closure of business, absence of staff, and non- access to the portal. The assessee asserts that no benefit accrued to it by Printed from counselvise.com ITA No.980 and 981/Ahd/2025 3 filing the appeals belatedly and that dismissal on technical grounds would defeat substantial justice. 2.3 During the hearing, the Authorised Representative reiterated the above factual background and urged that the delay be condoned in the interest of justice. The Departmental Representative fairly stated that in view of the circumstances explained, no objection was raised, leaving the issue to the discretion of the Bench. 3. We have carefully considered the affidavit, submissions, and material on record. The reasons stated by the assessee are duly supported by contemporaneous facts namely, the closure of business, attachment of bank accounts, absence of staff, and lack of operational control over the company’s affairs. These constitute a reasonable and bona fide cause preventing the assessee from filing the appeals within the prescribed period. 3.1 It is a settled proposition that when substantial justice and technical considerations are pitted against each other, the cause of substantial justice should prevail. The Hon’ble Supreme Court in Collector, Land Acquisition v. Mst. Katiji & Others (167 ITR 471) has laid down that a liberal approach should be adopted while considering applications for condonation of delay, since the expression “sufficient cause” must receive a justice- oriented construction. Similarly, in N. Balakrishnan v. M. Krishnamurthy [(1998) 7 SCC 123], it was held that the primary function of the Court is to advance substantial justice and that length of delay is immaterial where the explanation is satisfactory and there is no malafide. 3.2 Applying these principles to the present facts, we are satisfied that the delay was caused by circumstances beyond the assessee’s control and that the explanation is genuine and acceptable. The delay of 517 days in the quantum appeal and 61 days in the TDS appeal is accordingly condoned, and both appeals are admitted for adjudication. Printed from counselvise.com ITA No.980 and 981/Ahd/2025 4 4. Facts in case of Order under section 201(1)/201(1A) – ITA No. 981/Ahd/2025 4.1 The Assessing Officer, while examining the TDS compliance for A.Y. 2017–18, observed that the assessee had deducted tax at source aggregating to Rs.12,38,125/- on various payments but failed to deposit the same into the Government treasury. Consequently, the AO treated the assessee as an assessee-in-default under section 201(1) and computed interest under section 201(1A) at Rs.15,12,295/-, resulting in a total demand of Rs. 27,50,420/-. 4.2 The assessee submitted that due to severe financial crisis and closure of operations, the TDS amount could not be deposited, though the corresponding expenses had already been disallowed in the computation of income under section 40(a)(ia) and that there was no loss of revenue. The AO rejected the contention and passed the order dated 28.07.2023 holding the assessee in default. 4.3 The assessee preferred appeal before CIT(A). The CIT(A) [Addl/JCIT(A)-4, Kolkata, by order dated 30.12.2024, confirmed the action of the AO. The CIT(A) recorded that the assessee failed to respond to statutory notice issued under section 250 and that despite adequate time being available, no adjournment or reply was filed. The order records that the assessee remained in default for not depositing TDS of Rs. 12,38,125/- and interest under section 201(1A) was mandatorily chargeable. The CIT(A) further observed that addition under section 40(a)(ia) in the assessment proceedings and default under section 201(1) are distinct proceedings, and that financial crisis cannot be a ground for non-deposit of Government dues. The appeal was accordingly dismissed. 4.4 Aggrieved by the order u/s 250 of the Act, the assessee is in appeal before us raising following grounds: Printed from counselvise.com ITA No.980 and 981/Ahd/2025 5 1. That the Id. CIT(A) has grievously erred in passing the ex-parte order after issuance of only one notice of hearing in flagrant violation of the principles of natural justice and equity. The only notice issued could not be complied since there being no business activity of the appellant company since several years, the ITBA Portal was not timely accessed leading to unintended non-compliance. 2. That on the facts and in circumstances of the case as well as law on the subject, the Id. CIT(A) has not provided reasonable opportunity of being heard as provided u/s.250(2) of the Act. 3. That on the facts and in circumstances of the case as well as law, the Id. CIT(A) has grievously erred in rejecting the Grounds of Appeal in a summary manner without proper consideration and appreciation of facts of the case, more particularly the fact that the corresponding expenses on which TDS was deducted but not deposited had already been disallowed while computing the assessed income, leading to no loss of revenue to the department. Therefore, the Id. CIT(A)'s order deserves to be quashed and/or set aside to his file for fresh decision. 4. The Id. CIT(A) has further erred in law and on facts in treating the appellant as an assessee-in-default u/s.201(1) of the Act despite the fact that the parties to whom the payments were made have already included the corresponding income in their returns of income and paid taxes thereon. The interest liability of Rs.27,50,420/- thus requires to be cancelled/deleted. 5. That without prejudice to the above, the impugned demand under section 201(1A) is highly excessive, arbitrary, and requires reconsideration in light of judicial precedents that provide relief in cases where the deductees have already discharged their tax liabilities. The appellant craves leave to add, amend, alter, modify or delete any of the above grounds as well as to submit additional grounds at the time of hearing of the appeal. 5. Facts in Case of Assessment u/s 143(3) – ITA No. 980/Ahd/2025 5.1 The assessee, engaged in the business of manufacturing and trading in furniture, filed its return of income for A.Y. 2017–18 declaring total income of Rs. (-) 2,32,27,048/- (loss) on 27.10.2017. The case was selected for scrutiny under CASS and notice u/s 143(2) was issued. During the course of assessment, the Assessing Officer noted the following issues: (i) Unsecured Loans – Section 68: The AO noticed receipt of unsecured loans aggregating to Rs. 1,42,18,500/- from various parties. Despite opportunities, confirmations and creditworthiness were allegedly not proved to the AO’s Printed from counselvise.com ITA No.980 and 981/Ahd/2025 6 satisfaction. The AO held that the assessee failed to discharge the onus under section 68 and treated the same as unexplained cash credits. (ii) Interest on Unexplained Unsecured Loans - Section 68: The AO disallowed interest expenditure of Rs. 2,54,688/-, being relatable to the aforesaid loans, holding that when the principal is unexplained, corresponding interest cannot be allowed. (iii) Circular Trading – Disallowance of Expenditure: The AO observed alleged circular trading in purchases and sales and disallowed Rs.92,21,212/- being proportionate expenditure, holding that transactions were not genuine. (iv) Disallowance u/s 40(a)(ia): The AO further disallowed Rs. 87,47,637/- on account of advertisement expenses paid to Bennett Coleman & Co. Ltd., alleging non-deduction of TDS. (v) Disallowance u/s 37: An amount of Rs. 5,85,882/- was disallowed by treating share issue expenses as capital in nature. (vi) Undisclosed interest u/s 244A of Rs. 6,831/- 5.1 The AO completed the assessment u/s 143(3) and initiated penalty proceedings under sections 271(1)(c) and 271B. 5.2 The assessee preferred appeal before CIT(A). The appeal was migrated to NFAC. First notice was issued on 08.02.2021 fixing hearing on 23.02.2021. After a long interval of more than three years, the NFAC issued two back-to-back hearing notices in June and July 2023. The assessee failed to respond due to closure of its business operations. The CIT(A) dismissed the appeal ex-parte, confirming the entire assessment order of the AO. The order specifically records that the appeal was decided “on merits based on material available on record,” but as no details were produced, all additions were sustained. 5.3 Aggrieved by the order of CIT(A), the assessee is in appeal before us raising following grounds: [I] Lack of Opportunity granted for compliance: 1. That the Id. CIT(A) has grievously erred in passing the ex-parte order after issuance of only two back-to-back notice of hearing after a gap of 3½ years from the date of filing the appeal and 2½ years from the first notice Printed from counselvise.com ITA No.980 and 981/Ahd/2025 7 in flagrant violation of the principles of natural justice and equity. The appellant states that the notices issued could not be complied with since in view of complete closure of business activity of the appellant company since several years, the ITBA Portal was not timely accessed leading to unintended non-compliance. 2. That on the facts and in circumstances of the case as well as law on the subject, the la. CIT(A) has erred in not providing a reasonable opportunity of being heard as provided u/s.250(2) of the Act. The appellant thus reserves the right to submit additional evidence under Rule 46A to substantiate its claims and refute the baseless allegations made by the AO, which actually are consequential to in furtherance of the evidences already furnished to the AO and hence not technically in the nature of additional evidences. [II] Addition on account of unexplained cash credit being unsecured loans u/s.68 of the Act and disallowance of interest paid on such loans - Rs.1,42,18,500/- and Rs.2,54,688/- respectively. 1. That on the facts and in circumstances of the case as well as in law, the Id. CIT (A) has grievously erred in upholding the addition u/s.68 on account of alleged bogus unsecured loans without proper consideration and appreciation of the comprehensive evidences furnished as well as the details directly furnished to the AO by the parties and entirely on personal presumptions, assumptions and surmises/conjectures. That in view of the facts, submissions and evidences filed and available on record, the impugned addition requires to be deleted. 2. The Ld. CIT(A) has erred in not considering the fact that the appellant had discharged the primary onus as per the provisions of section 68 of the Act by furnishing complete details, including confirmation letters, PAN and address of the parties, bank statements of the lenders, wherever available etc. to establish their identity, genuineness of the transactions and creditworthiness. The Ld. CIT(A) failed to appreciate that merely because the parties complied partly or did not comply to the notices issued upon them by the AO u/s.133(6) of the Act, no adverse inference is warranted in case of the appellant as per settled law laid by various courts of law. The impugned addition thus requires to be deleted. 3. The Ld. CIT(A) has further erred in confirming the disallowance of Rs.2,54,688/-on account of disallowance of interest paid on unsecured loans made by the AO. The appellant states that since the loans obtained by the appellant are genuine and duly substantiated with necessary supporting evidences as furnished to the AO, the corresponding interest paid on such loans also qualifies as an allowable expenditure under the Act. The Ld. AO's approach of disallowing the interest solely based on the assumption that the loans are bogus is unjustified and contrary to the settled legal principles. [III] Addition on account of disallowance of proportionate expenditure incurred on account of alleged circular trading - Rs.92,21,212/- Printed from counselvise.com ITA No.980 and 981/Ahd/2025 8 1. That on the facts and in circumstances of the case as well as in law, the Id. CIT(A) has grievously erred in upholding the addition on account of disallowance of proportionate expenditure of Rs.92,21,212/- on alleged circular trading in the manner worked out by the AO in the assessment order. The appellant states that the entire purchases and sales are duly supported by comprehensive evidences as furnished to the AO, which are not disproved by the AO notwithstanding the fact that the AO failed to provide any concrete/substantive evidence to support his allegations. 2. The Ld. CIT(A) further erred in not appreciating the fact that the transactions were duly recorded in the books of accounts, the corresponding invoices and payments were made through banking channels, the purchase and sales were duly reported in the VAT returns which stood duly accepted apart from various other evidences as furnished to the AO. The assumption of circular trading by the AO is thus based on mere conjectures and deserves to be quashed/ignored. 3. The Ld. CIT(A) further failed to appreciate the fact that the alleged noncompliance of the notices by the AO is grossly contrary to facts as clearly evident from the elaborate replies with evidences filed before him as reflected on ITBA Portal itself, which is self-explanatory. The allegation made by the AO thus prima facie appears to have been made to mislead the appellate and higher authorities and thus required to be ignored. [IV] Addition on account of disallowance u/s.40(a)(ia) of the Act - Rs.87,47,637/- 1. That on the facts and in circumstances of the case as well as in law, the Id. CIT(A) has grievously erred in upholding the addition on account of disallowance of Rs.87,47,637/- u/s.40(a)(ia) of the Act for non-deduction of TDS without appreciating the fact that the appellant had already suo moto disallowed a portion of such expenses in its computation on facts of the case. It is submitted that the appellant had duly accounted for all expenses and disallowed the necessary portion as per statutory provisions. The further disallowance made by the AO is arbitrary and without proper consideration of facts and legal position resulting in doble/multiple taxation, which is not permitted in law. The impugned addition thus requires to be deleted. 2. The Ld. CIT(A) has grievously erred in not appreciating the fact that AO had erred in assuming that the advertisement expenses paid to Bennet Coleman & Co. Ltd. are liable to TDS and thereby disallowing 30% of the said expenses u/s.40(a)(ia) of the Act. The appellant states that the AO having completely misunderstood the nature of expenses incurred, the effect given in the books of account and the relevant provisions of law according to which the said expenses were not liable for TDS, the impugned addition of Rs.87,47,637/- requires to be deleted. [V] Addition on account of disallowance u/s.37 of the Act - Rs.5,85,882/- 1. That on the facts and in circumstances of the case as well as in law, the Id. CIT(A) has grievously erred in upholding the addition on account of disallowance u/s.37 of the Act amounting to Rs.5,85,882/- by treating the share issue expenses as capital in nature while ignoring the elaborate Printed from counselvise.com ITA No.980 and 981/Ahd/2025 9 submissions filed before him justifying the expenditure as revenue in nature. It is submitted that the said expenses were incurred for the smooth operation of business and ought to have been allowed. The appellant craves leave to add, amend, alter, modify or delete any of the above grounds as well as to submit additional grounds at the time of hearing of the appeal. 5.4 During the hearing, the Authorised Representative reiterated the factual background and the contents of the affidavit. It was submitted that the CIT(A) order was passed ex parte without reasonable opportunity, and the assessee could not attend proceedings due to complete closure of business and absence of staff. It was further submitted that the issue involves verification of facts such as whether the payees had offered the corresponding income to tax, and whether expenses were already disallowed in the computation of income. The AR, therefore, prayed that both the matter be restored to the file of the CIT(A) or the Assessing Officer for fresh adjudication after affording due opportunity of hearing. 6. The Departmental Representative, after going through the record, raised no objection to the proposal for restoration and left the matter to the discretion of the Bench. 6.1 We have considered the rival submissions and perused the material available on record. The CIT(A)’s order reveals that it has been passed ex parte, and that the assessee had not filed any reply or appeared in response to notice issued under section 250. The order itself acknowledges that the hearing notice was issued once through ITBA and no further opportunity was granted. 6.2 In our view, such disposal of appeal without ensuring effective service and opportunity violates the principles of natural justice embodied in section 250(2). 6.3 Further, the assessee’s plea that the expenses on which TDS was deducted but not deposited had already been disallowed in the computation Printed from counselvise.com ITA No.980 and 981/Ahd/2025 10 of income, and that the payees had returned the income in their respective returns, requires factual verification. These aspects are material to determine the correctness of treating the assessee as an assessee-in-default under section 201(1) and computing interest under section 201(1A). 6.4 Considering the totality of the facts and circumstances of the case and in the interest of substantial justice, we deem it just and proper to set aside the impugned orders of the learned CIT(A) in both appeals and restore the matters to the files of the respective CIT(A)/Assessing Officer for adjudication afresh on merits, in accordance with law, after affording due and reasonable opportunity of being heard to the assessee. The assessee is directed to extend full cooperation in the proceedings and to furnish all requisite details and evidences as may be called for. 6.5 However, having regard to the prolonged non-compliance and procedural lapse leading to avoidable delay in disposal of the matters, we direct the assessee to pay a cost of Rs.5,000/- per appeal to the credit of the Income-tax Department within thirty (30) days from the date of receipt of this order. This cost is levied as a deterrent to ensure due diligence and cooperation in future proceedings. 7. In the combined result, both the appeals of the assessee are allowed for statistical purposes. Order pronounced in the Court on 17th October, 2025 at Ahmedabad. Sd/- Sd/- (SUCHITRA R. KAMBLE) JUDICIAL MEMBER (MAKARAND V. MAHADEOKAR) ACCOUNTANT MEMBER Ahmedabad, dated 17/10/2025 vk* Printed from counselvise.com "