Bombay High Court Sets Aside ITAT Order For Failing To Decide Challenge To Faceless Assessment Procedure

The Bombay High Court has recently set aside an order of the Income Tax Appellate Tribunal (ITAT), holding that the tribunal failed to adjudicate a taxpayer's jurisdictional objection alleging non-compliance with the mandatory assessment procedure.

The court ruled that the issue went to the root of the matter and required adjudication by the tribunal.

A division bench of Justice G.S. Kulkarni and Justice Aarti Sathe observed,

"Even otherwise, on merits, the ITAT was required to consider and appreciate the documentary evidence as sought to be produced by the AppellantAssessee to prove the genuineness and creditworthiness of the transactions, and hence an opportunity to appreciate the aforesaid evidence in its entirety needs to be given to the Appellant-Assessee. We are therefore of the view that the impugned order of the ITAT dated 10th December 2024, hence is required to be set aside considering the jurisdictional issue raised by the Appellant-Assessee. The same goes to the root of the matter and has to be adjudicated."

The case arose from the assessment of Accost Media LLP for the assessment year 2021-22. The Assessing Officer treated purchases and labour expenses of about ₹17.31 crore as unexplained expenditure.

The Commissioner of Income Tax (Appeals) partly allowed the taxpayer's appeal. It restricted the disallowance to 12.5% of the expenditure, and the tribunal upheld that decision.

Before the High Court, Accost Media LLP contended that the Assessing Officer had not followed the mandatory procedure prescribed under Section 144B before passing the assessment order. It also argued that it was denied an opportunity to respond to the allegation that certain suppliers could not be physically verified.

According to the taxpayer, that allegation appeared for the first time in the assessment order and not in the show-cause notice.

The Revenue argued that the jurisdictional objection had never been raised before the tribunal.

Rejecting that contention, the court held that the taxpayer had specifically raised the issue in its rectification application before the tribunal. It further held that the tribunal had failed to return any finding on that objection.

The court observed, "We are further of the view that the contention as sought to be advanced by the learned counsel on behalf of the Revenue that no grounds of appeal were raised or no submission was made by the Appellant-Assessee insofar as the jurisdictional issue was concerned before the ITAT, deserves to be rejected inasmuch as in the Miscellaneous Application filed by the Appellant-Assessee against the impugned order of the ITAT, the Appellant-Assessee had specifically raised the aforesaid ground."

The court also held that the tribunal was required to examine the documentary evidence produced by the taxpayer to establish the genuineness and creditworthiness of the transactions.

Accordingly, the High Court set aside the tribunal's order dated December 10, 2024. It remanded the matter to the tribunal for fresh adjudication on the jurisdictional objection and on the merits of the documentary evidence relied upon by the taxpayer.

For Petitioner:Gunjan Kakkad i/by Mint & Confreres 

For  Respondents: Arjun Gupta for Revenue