2024 (6) TMI 1472 - AT - Income Tax

Tribunal s power to admit additional evidence - Addition of undisclosed income u/s 69A in the absence of satisfactory explanation or evidence regarding the source of such funds - HELD THAT -Documents now sought to be placed on record are relevant to the assessee s contention and go to the root of the matter. Although the CIT(A) issued notice dated 12/07/2024 and fixed the hearing on 18/07/2024 the assessee was prevented by reasonable cause from producing the documents on that date as evidenced by the adjournment request. We also respectfully rely on the judgment of Text Hundred India (P) Ltd. 2013 (6) TMI 72 - DELHI HIGH COURT which clearly affirms the Tribunal s discretionary power to admit additional evidence in the interest of justice when the party was prevented by sufficient cause from producing it earlier and where such evidence has material relevance to the issue at hand. Accordingly we admit the additional evidence filed by the assessee and remit the matter to the file of the Ld. CIT(A) for de novo adjudication after taking the same into consideration.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal issues considered by the Tribunal in this appeal are:

(a) Whether the addition of Rs. 20,85,79,000/- as undisclosed income under section 69A of the Income Tax Act, 1961 is justified in the absence of satisfactory explanation or evidence regarding the source of such funds.

(b) Whether the assessee was afforded adequate opportunity to produce evidence and explain the source of the alleged undisclosed money during the assessment and appellate proceedings.

(c) Whether the Tribunal should admit additional evidence filed by the assessee at the appellate stage and remit the matter back to the Commissioner of Income Tax (Appeals) for fresh adjudication.

(d) The scope and exercise of discretion vested in the Tribunal under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1962, particularly regarding admission of additional evidence in the interest of justice.

2. ISSUE-WISE DETAILED ANALYSIS

(a) Legitimacy of addition under Section 69A

The legal framework governing unexplained cash credits or deposits is primarily section 69A of the Income Tax Act, 1961, which mandates that where any sum is found credited in the books of an assessee and the assessee offers no satisfactory explanation about the nature and source of such sum, it is deemed to be the income of the assessee for that year.

The assessing officer (AO) found that the assessee had transactions aggregating Rs. 20,85,79,000/- in various bank accounts under the proprietorship name, which were not reflected in the declared business income or regular books of accounts. The assessee claimed to be a beneficiary of such funds against commission received, which was accounted as business receipts. However, the AO noted that the assessee failed to furnish details of parties involved, ledger accounts, or supporting evidence substantiating these transactions.

The AO relied on circumstantial and factual evidence, summarized in paragraph 6.6.3 of the assessment order, highlighting that:

• The declared business was trading in chemicals, but the bank transactions far exceeded the declared turnover.
• The assessee did not disclose names or addresses of parties from whom amounts were received.
• The deposits were over and above the normal course of business and not recorded in books.

The AO thus invoked section 69A to treat the entire sum as undisclosed income, which was confirmed by the Commissioner of Income Tax (Appeals) due to the assessee's failure to comply with notices and produce evidence.

The Tribunal noted that the assessee was unable to satisfactorily explain the source of funds during the assessment and appellate proceedings, which prima facie justified the addition under section 69A.

(b) Adequacy of opportunity and procedural fairness

The assessee contended that despite notices issued by the CIT(A), he was unable to produce the required documents due to unavailability of the concerned employee and sought adjournments. The CIT(A) recorded the failure to comply and confirmed the addition.

The Tribunal examined the procedural history and found that the CIT(A) had issued a notice dated 12/07/2024 fixing a hearing on 18/07/2024, but the assessee filed an adjournment application citing reasonable cause for non-production of documents.

Thus, the Tribunal recognized that the assessee was prevented by sufficient cause from furnishing evidence at the appellate stage, which is a relevant consideration in procedural fairness and natural justice.

(c) Admission of additional evidence and remand to CIT(A)

The assessee filed an application under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1962, seeking admission of additional evidence before the Tribunal and prayed for remand to the CIT(A) for fresh adjudication after considering the said evidence.

The Tribunal relied on the precedent set by the Hon'ble Delhi High Court in CIT-IV v. Text Hundred India (P) Ltd., which held that the Tribunal has discretionary power to admit additional evidence in the interest of justice if it is necessary for proper adjudication and the party was prevented by sufficient cause from producing it earlier.

The Court emphasized that "justice should not be allowed to be choked only because of some inadvertent error or omission on the part of one of the parties to lead evidence at the appropriate stage."

Applying this principle, the Tribunal found that the additional documents filed by the assessee were relevant and went to the root of the matter. Since the assessee was prevented by reasonable cause from producing these documents earlier, the Tribunal exercised its discretion to admit the additional evidence.

The Tribunal accordingly remanded the matter to the CIT(A) for de novo adjudication after considering the additional evidence, directing that the assessee be granted a reasonable opportunity of being heard and be allowed to file further documentary evidence if necessary.

(d) Treatment of competing arguments

The Revenue contended that sufficient opportunities had already been afforded to the assessee and supported the orders of the AO and CIT(A). However, the Revenue did not strongly oppose the admission of additional evidence at the Tribunal stage.

The Tribunal balanced the competing interests by acknowledging the procedural opportunities already given but also recognizing the assessee's reasonable cause for delay and the material relevance of the additional evidence. The Tribunal's approach reflects a judicious exercise of discretion aimed at ensuring substantial justice rather than procedural technicalities.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"The documents now sought to be placed on record are relevant to the assessee's contention and go to the root of the matter. Although the Ld. CIT(A) issued notice dated 12/07/2024 and fixed the hearing on 18/07/2024, the assessee was prevented by reasonable cause from producing the documents on that date, as evidenced by the adjournment request."

"The Tribunal has discretionary power to admit additional evidence in the interest of justice when the party was prevented by sufficient cause from producing it earlier and where such evidence has material relevance to the issue at hand."

"Justice should not be allowed to be choked only because of some inadvertent error or omission on the part of one of the parties to lead evidence at the appropriate stage."

"Accordingly, we admit the additional evidence filed by the assessee and remit the matter to the file of the Ld. CIT(A) for de novo adjudication after taking the same into consideration."

Core principles established include:

• The necessity of satisfactory explanation and evidence for source of funds in cases of large unexplained bank transactions under section 69A.
• The Tribunal's discretionary power under Rule 29 to admit additional evidence in the interest of justice, particularly where the party was prevented by sufficient cause from earlier production.
• The importance of procedural fairness and ensuring that justice is not defeated by procedural lapses or inadvertent omissions.
• The mandate for remand to the CIT(A) for fresh adjudication when new evidence is admitted, ensuring the matter is decided on complete material.

On the issue of addition under section 69A, the Tribunal did not express any opinion on the merits to avoid prejudicing the remanded proceedings.

The final determination was to allow the appeal, admit the additional evidence, and remit the case to the CIT(A) for fresh adjudication with directions to grant reasonable opportunity to the assessee.