Ground not adjudicated by 1st appellate authority cannot be decided in 2nd appeal

Ground not adjudicated by first appellate authority or ground not originating from first appellate order cannot be decided in second appeal

In a recent judgment, ITAT Panji has held that ground which is not adjudicated by first appellate authority or ground not originating from first appellate order cannot be the subject matter of adjudication in second appeal

ABCAUS Case Law Citation:
4889 (2025) (11) abcaus.in ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A), National Faceless Appeal Centre (NFAC) dismissing the appeal of the assessee.

The primary grievance raised by the assessee was dismissal of first appeal without adjudicating two of three grounds raised in Form No 35 and thus contravention of sub section (6) of 250 of the Income Tax Act, 1961 (the Act).

The assessee was a company engaged in the business of mining & exports of iron ore. The case of the assessee company was selected for scrutiny and consequential assessment was completed u/s 143(3) r.w.s. 143(3A) r.w.s. 143(3B) of the Act wherein a solitary disallowance mase made u/s 14A r.w.r. 8D(2) of Income Tax Rules, 1962 (the rules).

Aggrieved by the impugned order, the assessee went in appeal before ITAT on three grounds on the issue of validity of disallowance u/s 14A of the Act; validity of 14A disallowance added while computing deemed income u/s 115JB and validity of disallowance computed without reducing average investment which did not yield exempt income.

The Tribunal observed that the assessee had filed appeal before NFAC with as many as sixteen grounds on basically three issues. The NFAC while dealing with the appeal dealt with the first two issues, however NFC did not give any finding on the third issue relating to alternative plea to consider only exempt income yielded average investment for the purpose computation of disallowance.

The Tribunal observed that in view of the above, one of the ground raised in Form No. 35 and reproduced by the NFAC in the impugned order admittedly remained unadjudicated.

However, the Tribunal also noted that for solitary addition and three issues, the appellant had raised overlapping sixteen grounds, creating sheer confusion which occasioned inadvertency in adjudication.

Before the Tribunal, the appellant however requested to proceed with adjudication and decide the matter in whole sum including issue or part thereof which was omitted in first appeal. The request however witnessed strong objection from Revenue.

The Tribunal observed that the question as to whether the Tribunal can adjudicate any ground which did not pass through first appellate forum was negatively answered by the Hon’ble Delhi High Court wherein Hon’ble Lordship categorically held that, the ground which is not adjudicated by first appellate authority or ground not originating from first appellate order cannot be the subject matter of adjudication in second appeal. The Tribunal therefore duty bound to remit the matter to first appellate authority where ground raised therein did not give rise to rights & liabilities to the rival parties.

The Tribunal further noted that the Co-ordinate Bench following the judicial precedents while dealing with similar facts & circumstances remanded the case back to the file of NFAC/CIT(A) for adjudicating misplaced ground

Therefore, the Tribunal held that it has much less jurisdiction to adjudicate ground challenged before it unless it is adjudicated first appellate and set aside the appeal for its remand to the file of NFAC with a direction to adjudicate the ground not adjudicated previously in accordance with law.

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