Faceless Appeal Authority Can’t Avoid Merits by Citing Lack of Facts: ITAT

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has held that faceless appeal authority cannot avoid merits by citing lack of facts. The bench of Mahavir Singh, Vice (President), Satbeer Singh Godara (Judicial Member) and Brajesh Kumar Singh (Accountant Member) has strongly criticised the National Faceless Appeal Centre (NFAC) for failing to discharge its statutory appellate functions in the case of Hero Fincorp Ltd. and has remanded major issues back to the first appellate authority for fresh consideration on merits. The bench held that the Commissioner of Income Tax (Appeals) cannot dismiss grounds of appeal as “not adjudicated” on the pretext of lack of facts and must either confirm, reduce, enhance or annul the assessment as mandated under Sections 250(6) and 251(1) of the Income Tax Act, 1961. The appellant/assessee, Hero Fincorp Ltd., engaged in the business of hire purchase, leasing and finance, had challenged the assessment for Assessment Year 2017–18 involving multiple additions and disallowances. These included disallowance of provision for collection charges amounting to ₹9.75 crore, disallowance of depreciation on a motor vehicle of ₹3.06 lakh and a massive addition of ₹418.66 crore under Section 56(2)(viib) relating to share premium The NFAC, while deciding the appeal, declined to adjudicate certain substantive grounds, citing insufficiency of facts, and went to the extent of treating a rectification order passed under Section 154 as “non-est”. On the issue of disallowance of provision for collection charges, the ITAT noted that the NFAC had refused to decide the matter on merits, despite detailed submissions by the assessee explaining that the provision represented an ascertained liability based on pre-fixed contractual slabs. Collections had already been made by agents before year-end. Tax had been deducted at source on the provision The Tribunal held that such refusal amounted to a clear violation of appellate powers and set aside the NFAC’s order, directing it to pass a fresh reasoned order strictly in accordance with law. On the limited issue of depreciation claimed on a Mercedes-Benz car, the ITAT upheld the disallowance. The Tribunal agreed with the Assessing Officer that the vehicle was registered in the subsequent financial year. Insurance was issued after business hours on 31 March. The assessee failed to establish that the car was put to use during the relevant year The most significant aspect of the ruling concerns the addition under Section 56(2)(viib). The Tribunal took strong exception to the NFAC’s approach of restoring the addition after declaring the Assessing Officer’s Section 154 rectification order as non-est, while simultaneously refusing to adjudicate the assessee’s grounds. The Tribunal observed that once an appeal is before the CIT(A), it must be decided on merits. The appellate authority cannot sit in judgment over the validity of a rectification order without adjudicating the appeal. Dismissing grounds as “not adjudicated” amounts to abdication of statutory responsibility Accordingly, the ITAT set aside the NFAC’s findings and remanded the issue back for fresh adjudication in accordance with Sections 250(6) and 251(1). The Judicial Member Satbeer Singh Godara recorded a detailed dissent on the share premium issue, holding that the rectification order deleting the ₹418.66 crore addition had already attained finality. He emphasised that Section 56(2)(viib) applies only to shares issued to residents and not to non-resident investors, as acknowledged even in the Principal Commissioner’s earlier proceedings. The tribunal partly allowed appeal. Case Details Case Title: Hero Fincop Ltd. Versus ACIT Case No.: I.T.A No.2542/Del/2024 Date: 16.01.2026 Counsel For Petitioner: Rohit Jain, Adv Counsel For Respondent: Pooja Swaroop, CIT(DR) Click Here To Read Order Read More: GST Writ Disposed as GSTAT Becomes Functional: Allahabad HC Grants Extended Window for Appeal

Faceless Appeal Authority Can’t Avoid Merits by Citing Lack of Facts: ITAT

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