The Income Tax Appellate Tribunal, Mumbai, has reaffirmed that ex parte assessments under Section 144 cannot stand when material evidence, previously unavailable due to genuine procedural impediments, is produced before the appellate forum. This judgment underscores the principle that substantive justice must prevail over technical non-compliance when the taxpayer’s failure to respond is not attributable to mala fide intent.
Background & Facts
The Dispute
The assessee, an individual and housewife with no independent source of income, was assessed for Assessment Year 2020-21 under Section 147 read with Section 144 and Section 144B of the Income Tax Act, 1961. The Assessing Officer initiated proceedings after receiving information via the Insight Portal that the assessee had purchased an immovable property for Rs. 70,00,000 and earned interest income of Rs. 69,750 during the financial year. As the assessee failed to file a return or respond to notices, the AO completed the assessment ex parte.
Key Facts
- The assessee did not file a return of income for AY 2020-21.
- On 19.03.2024, notice under Section 148A(d) was issued, followed by notice under Section 148 on the same date.
- Multiple notices under Section 142(1) were issued, but the assessee did not respond.
- The Assessing Officer made two additions on 14.02.2025:
- Rs. 70,42,000 under Section 69 for unexplained investment in immovable property (including stamp duty and registration charges)
- Rs. 69,750 under "Income from Other Sources" as bank interest
- Penalty proceedings were initiated under Sections 271AAC, 270A, and 234F.
- The assessee appealed to the CIT(A) but failed to file any submissions or documents.
- The CIT(A) passed an ex parte order on 15.10.2025, upholding the additions.
- The assessee filed the present appeal before the ITAT on 22.07.2025.
- During the hearing before the ITAT on 08.04.2026, the assessee submitted new documentary evidence:
- Bank statements showing closure of fixed deposits
- Proof of transfer of funds from husband’s account
- Sale agreement for the property
- Affidavit confirming the gift from husband
- The assessee claimed non-receipt of notices due to inaccessibility of the registered email ID linked to the Income Tax portal.
Procedural History
- 19.03.2024: Notice under Section 148A(d) and Section 148 issued
- 14.02.2025: Assessment order passed under Section 147 read with Section 144 and Section 144B
- 15.10.2025: CIT(A) order passed ex parte, upholding additions
- 22.07.2025: Appeal filed before ITAT Mumbai
- 08.04.2026: Hearing before ITAT; new evidence submitted
- 13.05.2026: Judgment pronounced
Relief Sought
The assessee sought:
- Deletion of Rs. 70,42,000 added under Section 69
- Deletion of Rs. 69,750 added under "Income from Other Sources" on grounds of non-taxability
- Cancellation of penalties under Sections 271AAC, 270A, and 234F
The Parties' Positions
For the Assessee: The failure to respond to notices was due to technical inaccessibility of the registered email ID, not negligence. The investment was funded by a gift from her husband, sourced from matured fixed deposits. Documentary evidence was now available and was material to the case.
For the Revenue: The evidence was not produced before the lower authorities. However, the Departmental Representative did not oppose restoration of the matter to the AO for fresh adjudication.
The Legal Issue
The central question was whether an appellate tribunal may set aside an ex parte order under Section 250 and restore the matter to the Assessing Officer when the assessee produces material documentary evidence for the first time before it, and the failure to produce such evidence earlier was due to circumstances beyond control.
Arguments Presented
For the Appellant
The learned Authorised Representative argued that the assessee, being a housewife with no digital literacy or access to the Income Tax portal, was unaware of the notices due to technical failure in email delivery. The evidence now submitted - bank statements, FD closure proofs, and gift deed - directly rebutted the presumption under Section 69. The assessee had no intention to evade tax and had always been cooperative. The principle of natural justice required that she be given a fair opportunity to substantiate her claim.
For the Respondent
The Departmental Representative acknowledged that the evidence was not before the lower authorities but did not object to its consideration or to the restoration of the matter. He conceded that the evidence, if verified, could alter the outcome and that justice would be better served by allowing the AO to re-examine the claim with the new documents.
The Court's Analysis
The Tribunal observed that the assessment was completed under Section 144 due to non-cooperation, and the CIT(A) had decided the appeal ex parte. However, the Tribunal emphasized that the purpose of the Income Tax Act is not merely to enforce compliance but to ascertain true income. The Tribunal noted:
"The evidences now furnished by the assessee go to the root of the issue relating to the addition under Section 69. In the interest of justice, the assessee deserves an opportunity to substantiate her claim before the Assessing Officer."
The Tribunal held that while procedural compliance is important, it cannot override the fundamental right to be heard. The failure to respond to notices, if attributable to technical or non-mala fide reasons, does not forfeit the right to present evidence when it becomes available. The Tribunal further noted that the Departmental Representative’s non-objection to restoration was a significant factor indicating the Revenue’s willingness to accept a fair adjudication.
The Tribunal distinguished this case from those where the assessee deliberately withholds evidence or engages in dilatory tactics. Here, the evidence was not merely supplementary but foundational to the very basis of the addition under Section 69. The Tribunal held that the AO must now examine the documents, verify the source of funds, and determine whether the gift from the husband and its origin in matured fixed deposits constitute a legitimate explanation.
The Verdict
The appeal was allowed for statistical purposes. The order of the CIT(A) dated 15.10.2025 was set aside. The matter was restored to the file of the Assessing Officer for fresh adjudication. The AO was directed to examine the documentary evidence submitted before the ITAT, provide the assessee a full opportunity of being heard, and decide the issues afresh in accordance with law. Penalty proceedings were to be stayed pending the fresh assessment.
What This Means For Similar Cases
Ex Parte Orders Are Not Final If Material Evidence Emerges
- Practitioners must immediately file applications before appellate forums when new evidence becomes available, even if the lower authorities passed ex parte orders
- The burden shifts to the Revenue to show mala fide delay or deliberate suppression
- Courts and tribunals will prioritize substantive justice over procedural technicalities when the taxpayer’s non-compliance is not intentional
Section 69 Additions Require Genuine Opportunity to Explain
- The presumption under Section 69 is rebuttable and must be tested with documentary proof
- Mere non-filing of return does not validate an addition if credible source evidence is later produced
- Bank statements, FD maturity proofs, and gift deeds are admissible and sufficient to rebut unexplained investment allegations
Procedural Failures Due to Technical Issues Are Not Fatal
- Non-receipt of notices due to portal access issues, email failures, or lack of digital literacy may constitute valid grounds for restoration
- Taxpayers should document attempts to access notices (e.g., screenshots, complaints to IT department)
- Advocates must raise the issue of natural justice and right to be heard in every ex parte case where evidence is newly available
