Condonation of Delay in Tax Appeals | Natural Justice Requires Opportunity to Explain : Income Tax Appellate Tribunal

The Income Tax Appellate Tribunal's decision in Farook Shaikh v. National Faceless Assessment Centre establishes a critical precedent for tax appeals, emphasizing that procedural fairness requires appellate authorities to consider condonation applications for delayed appeals before dismissal. The ruling underscores that natural justice principles must prevail even in faceless assessment proceedings, particularly when taxpayers demonstrate bonafide attempts to comply with statutory requirements.

Background & Facts

The Dispute

The appellant, a non-resident Indian employed abroad, faced an assessment order under Section 147 read with Section 144 of the Income Tax Act, 1961 for the assessment year 2016-17. The Assessing Officer made additions of Rs. 10,00,000 under Section 69 for unexplained investments and Rs. 89,075 as estimated interest income, based on information from a search operation conducted on a third party. The appellant had not filed income tax returns in India, assuming no taxable income was earned domestically.

Procedural History

The case progressed through the following stages:

• 2015: Investment of Rs. 10 lakhs made by the appellant
• 2022: Assessment order passed under Section 147/144 making additions
• 2022-23: Appeal filed before CIT(A) with a delay of 163 days
• 2023: CIT(A) dismissed the appeal in limine for non-condonation of delay
• 2025: Appeal filed before ITAT challenging both the delay dismissal and the substantive additions

Relief Sought

The appellant sought:

1. Condonation of the 163-day delay in filing the appeal before CIT(A)
2. Setting aside of the additions made under Section 69 for unexplained investments
3. Opportunity to present evidence regarding the source of investments under the Direct Tax Vivad se Vishwas (DTVSV) Scheme, 2024

The Legal Issue

The central question before the Tribunal was whether the CIT(A) erred in dismissing the appeal solely on grounds of delay without considering:

1. The appellant's bonafide belief that no taxable income was earned in India
2. The appellant's subsequent compliance under the DTVSV Scheme
3. The principles of natural justice requiring an opportunity to explain the delay

Arguments Presented

For the Appellant

The appellant's counsel advanced the following contentions:

• The delay was not wanton but resulted from a bonafide impression that no Indian income was earned
• The appellant had opted for the DTVSV Scheme and paid taxes on the disputed amount, demonstrating willingness to comply
• The CIT(A) issued only one hearing notice, limiting the appellant's opportunity to explain the delay
• The principles of natural justice required the CIT(A) to consider a condonation application before dismissal
• The appellant's affidavit and condonation application were not filed due to procedural oversight, not mala fide intent

For the Revenue

The Senior Departmental Representative supported the CIT(A)'s order, arguing:

• The appellant failed to explain the delay with reasonable cause as required under Section 249(3) of the Act
• No affidavit or condonation application was filed before the CIT(A)
• The DTVSV Scheme eligibility was correctly rejected due to the pending appeal
• The CIT(A) provided adequate opportunity of hearing, which the appellant did not utilize

The Court's Analysis

The Tribunal conducted a meticulous examination of the procedural fairness and natural justice principles in tax appeals. Key aspects of the analysis included:

1. Condonation of Delay Principles: The Tribunal noted that while Section 249(3) empowers appellate authorities to condone delays, the CIT(A) failed to consider whether the appellant had shown sufficient cause. The judgment emphasized:

"The CIT(A) has passed the order considering the fact that there is no proper compliance by the assessee in spite of providing adequate opportunity of hearing and the delay in filing the appeal was not explained with reasonable cause. Whereas the assessee has raised grounds of appeal challenging the addition u/sec 69 of the Act made by the A.O and there could be various reasons for no proper compliance."

1. Natural Justice Mandate: The Tribunal held that principles of natural justice required the CIT(A) to provide an opportunity for the appellant to file a condonation application before dismissing the appeal. The judgment observed:

"Considering the facts, circumstances, submissions and principles of natural justice, shall provide with one more opportunity to the assessee to file the application/affidavit for condonation of delay before the CIT(A) explaining the sufficient and reasonable cause."

1. DTVSV Scheme Interaction: The Tribunal noted the appellant's bona fide attempt to settle the dispute under the DTVSV Scheme and the rejection of eligibility due to the pending appeal. This highlighted the pragmatic need for appellate authorities to consider condonation applications expeditiously to avoid penalizing taxpayers seeking resolution.

2. Remand for Fresh Adjudication: The Tribunal set aside the CIT(A)'s order and remanded the matter for fresh consideration, directing:

• The appellant to file a condonation application with affidavit explaining the delay
• The CIT(A) to expedite the disputed issue and adopt a pragmatic approach to condonation
• Both parties to cooperate for early disposal of the appeal

The Verdict

The Tribunal allowed the appeal for statistical purposes, setting aside the CIT(A)'s order and remanding the matter for fresh adjudication. The key holdings were:

1. The CIT(A) erred in dismissing the appeal in limine without considering a condonation application
2. The appellant must be provided an opportunity to explain the delay under Section 249(3)
3. The principles of natural justice require appellate authorities to adopt a pragmatic approach to delay condonation in tax appeals

What This Means For Similar Cases

Condonation Applications Must Be Considered Before Dismissal

The judgment reinforces that appellate authorities cannot dismiss appeals on delay grounds without first:

• Providing the taxpayer an opportunity to file a condonation application
• Evaluating whether the delay was explained with reasonable cause
• Considering bonafide attempts to comply with procedural requirements

Practitioners should:

• Always file a condonation application with affidavit when appealing with delay
• Highlight bonafide reasons for delay, such as lack of awareness of Indian tax obligations for NRIs
• Cite this judgment to argue that dismissals in limine violate natural justice

Natural Justice Prevails in Faceless Proceedings

The ruling clarifies that faceless assessment and appeal mechanisms must not compromise procedural fairness. Key takeaways:

• Single hearing notices may not suffice to establish adequate opportunity
• Affidavits and condonation applications must be considered even if initially omitted
• Pragmatic approaches are required to avoid penalizing taxpayers for procedural lapses

DTVSV Scheme Eligibility and Pending Appeals

The judgment provides guidance on the interaction between pending appeals and settlement schemes like DTVSV:

• Taxpayers cannot be denied scheme benefits solely due to pending appeals if they demonstrate bona fide intent to settle
• Appellate authorities should expedite condonation proceedings to enable scheme participation
• Revenue authorities must consider the overall compliance history of the taxpayer