Natural Justice Breach: ITAT Sets Aside CIT(A)'s Order, Remands Rs 4.90 Crore Depreciation Dispute:

The Income Tax Appellate Tribunal (ITAT), Delhi Bench, has set aside the order of the Commissioner of Income Tax (Appeals) [CIT(A)] in the case of Monnet Ispat & Energy Ltd. for Assessment Year 2012-13 and remanded the matter for fresh adjudication.

The assessee, engaged in manufacturing steel products, power generation, coal mining and trading, had declared income of Rs 235.23 crore for the relevant assessment year. During a search conducted in November 2010, documents allegedly indicated that certain fixed asset purchases were not genuine. The Assessing Officer (AO) therefore treated the transactions as bogus and disallowed depreciation claimed on the assets.

For AY 2012-13, the AO initially disallowed depreciation of Rs 6.07 crore. The CIT(A), after examining the reconciliation submitted by the assessee, restricted the disallowance to Rs 4.90 crore. The assessee challenged this addition before the ITAT, arguing, among other things, that the assessment proceedings violated principles of natural justice.

The assessee contended that the AO had relied on seized documents and statements of third parties without properly confronting the material to the company or providing an opportunity to respond and cross-examine the persons concerned.

The ITAT observed that although the CIT(A) had examined and accepted the assessee’s reconciliation, the assessee had specifically raised the issue that no show-cause opportunity had been provided before the adverse addition was made. Considering the principles of natural justice, the Tribunal held that the assessee should receive a further opportunity to present its case.

The tribunal had noted that "the ld. CIT(A) had examined the reconciliation made by the assessee and accepted the same. Be that as it may, the assessee has raised the issue of violation of principle of natural justice where no show-cause was given to the assessee to present its case. In view of the same and in the interest of natural justice, we are of the view that the ld. CIT(A) may have given a further opportunity to the assessee to present its case."

Accordingly, the ITAT set aside the issue to the CIT(A) for fresh adjudication and directed the CIT(A) to provide three effective opportunities to the assessee. The assessee was also directed to avail these opportunities and furnish the required evidence and documents. The appeal was allowed for statistical purposes.