The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has set aside two ex parte appellate orders after finding that there was no evidence that hearing notices issued on five occasions had been served on or received by the taxpayer.

The bench of Raj Kumar Chauhan (Judicial Member) and Ramit Kochar (Accountant Member) has observed  that the hearing mandated under Section 250(2)(a) of the Income-tax Act, 1961 is a statutory requirement for observing the principles of natural justice. It restored the matters to the Commissioner of Income Tax (Appeals) for fresh adjudication after an effective opportunity of hearing.

The company filed its return for assessment year 2020-21 under Section 139(1), declaring nil income.

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A search and seizure operation conducted on July 20, 2022, in the case of the SMC group and others subsequently yielded information about accommodation entries allegedly provided through various entities. Based on this information, the Assessing Officer alleged that the company had received accommodation entries in the form of loans.

The Assessing Officer described the entities concerned as allegedly non-genuine or shell entities, referring to characteristics such as the absence of substantial business activity and the provision of accommodation entries.

In the lead case, the officer added ₹7,14,97,570 under Section 68 towards alleged unexplained unsecured loans or accommodation entries. A further addition of ₹21,44,927 was made under Section 69C towards alleged commission expenditure. Together, the disputed additions amounted to approximately ₹7.36 crore.

The tribunal did not determine whether these allegations were established or whether the additions were justified on merits.

The company challenged the assessments before CIT(A)-29, New Delhi. Through orders dated February 26, 2026, the appellate authority dismissed the appeals ex parte, recording that the company had failed to comply with notices despite several opportunities.

The appeals arose from assessment orders dated March 22, 2024, and March 18, 2025, respectively.

Before the tribunal, the company challenged the appellate orders on the ground that it had not received a reasonable and adequate opportunity of hearing. It also contended that the CIT(A) had failed to adjudicate the merits of the dispute or record reasoned findings.

The company disputed the addition under Section 68 and challenged the alleged commission expenditure under Section 69C as an estimated addition. It further alleged that the tax authorities had relied on third-party information and statements without permitting cross-examination.

Its grounds also asserted that regularly audited books of account had been maintained and that the additions rested on assumptions without cogent evidence. These were the taxpayer’s contentions; the tribunal did not adjudicate them on merits.

No representative appeared for the company at the tribunal’s hearing on October 1, 2026. The Revenue was represented by CIT-DR Bhopal Singh.

After examining the record, the tribunal acknowledged that the CIT(A) had afforded several opportunities and that the company had neither availed itself of those opportunities nor filed submissions.

However, the bench found that there was no evidence or material showing that the notices issued on five occasions had ever been served on or received by the company.

Considering this gap in the record, the tribunal held that the interests of substantial justice required one more effective opportunity for the company to present its case before the first appellate authority.

The departmental representative supported the lower authorities’ decision while leaving restoration of the matters to the tribunal’s discretion.

The tribunal relied on Section 250(2)(a), which gives an appellant the right to be heard at the appellate hearing, either personally or through an authorised representative.

The bench explained that this requirement is not a mere formality. It is a mandatory statutory safeguard through which a quasi-judicial authority must follow the principles of natural justice.

Applying that requirement to the facts, the tribunal concluded that the impugned ex parte order had been passed without affording an effective opportunity of hearing. Consequently, the principles of natural justice had not been duly followed, rendering the order unsustainable.

The finding was based on the absence of evidence establishing service or receipt of the notices and the resulting lack of an effective opportunity to participate in the appeal proceedings.

The tribunal set aside the impugned appellate orders and restored the matters to the CIT(A) for fresh adjudication in accordance with law.

It directed the appellate authority to afford an effective opportunity of hearing and consider the submissions furnished by the company. The company was also directed to submit the necessary submissions and detailed material before the CIT(A) within 60 days of the tribunal’s order.

The findings in the lead appeal were made applicable to the connected appeal for assessment year 2022-23. Both appeals were allowed for statistical purposes.

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