2025 (5) TMI 689 - AT - Income Tax

Procedure in appeal u/s 250 - procedure to be adopted while disposing of the appeal by the CIT(A) - discrepancy in the income reported by the assessee in his return and that alleged by the ld. AO - HELD THAT - Principles governing the exercise of powers by the First Appellate Authority are contemplated u/s 250 and 251 of the Act breach of which has far reaching consequences on the administration of justice culminating in the litigant approaching the higher appellate authority. It is required that the first appellate authority viz. CIT(A) will appreciate the evidence consider the arguments and apply the law on the given set of facts and circumstances and arrive at findings. In the present case assessee has furnished his reply on 11.04.2023 against notice issued by ld. CIT(A) on 03.04.2023 for which e-proceeding response acknowledgment along with its annexures are placed in the paper book. In this submission assessee has duly explained the difference of Rs. 28, 68, 699/- which has led to the discrepancy in the income reported by the assessee in his return and that alleged by the ld. Assessing Officer. Difference was on account of credit from Orbit Construction amounting for which detailed explanation was furnished which is same as reproduced above. Further assessee has pointed out very categorically that gross amount credited in the Form 26AS downloaded by him is Rs. 33, 01, 232/- with TDS of Rs. 3, 30, 125/-. The addition made by AO is exact twice this amount reflected in Form 26AS which comes to Rs. 66, 02, 464/-. Assessee thus explained that what has been added by AO is twice the gross amount appearing in Form 26AS downloaded by the assessee. Though the submissions made by the assessee both before the ld. AO and CIT(A) none of the authorities below has acted with responsibility and in accordance to the provisions of the law to objectively consider the same and deal with it meritoriously. Taking cognisance of the above submissions of the assessee before the authorities below we find it appropriate to remit the matter back to the file of ld. Jurisdictional Assessing Officer (JAO) for the limited purpose of verification to consider the claim of the assessee and pass necessary order in accordance with the provisions of the law. Appeal of the assessee is allowed for statistical purposes.

Summary

The core legal questions considered in this appeal involve the validity and correctness of the reassessment proceedings initiated under section 147 read with section 144B of the Income-tax Act, 1961, specifically regarding the addition of Rs. 66,02,464/- to the assessee's income based on unexplained credits appearing in Form 26AS. The issues also encompass whether the first appellate authority (CIT(A)) properly exercised its jurisdiction and complied with procedural mandates under sections 250 and 251 of the Act while adjudicating the appeal. Further, the case raises questions about the adequacy of opportunity given to the assessee to explain the source of the alleged unexplained income and the correctness of the Assessing Officer's (AO) and CIT(A)'s treatment of the assessee's detailed submissions and reconciliations.

First, the Tribunal examined the legal framework governing reassessment proceedings under section 147, which permits reopening of assessment if the AO has reason to believe that income chargeable to tax has escaped assessment. The AO relied on information from Form 26AS reflecting credits amounting to Rs. 66,02,464/- to the assessee's PAN, which the assessee had not disclosed in his original return. The AO completed reassessment adding this amount to the returned income, treating it as unexplained income. The Tribunal noted that the AO issued notices under section 142(1) and recorded the assessee's submissions dated 03.03.2022 and 24.03.2022, wherein the assessee explained that the credits from Orbit Construction represented refund of amounts previously paid by him for booking a flat, and not income. The assessee also pointed out that the addition made by the AO was exactly twice the gross amount reflected in Form 26AS, indicating a possible error in computation.

Second, the Tribunal scrutinized the conduct and order of the first appellate authority under sections 250 and 251 of the Act, which prescribe the procedure and powers of the Commissioner (Appeals). Section 250 mandates that the CIT(A) must provide an opportunity of hearing, consider the submissions, and pass a reasoned, written order stating points for determination, decisions, and reasons. Section 251 empowers the CIT(A) to confirm, reduce, enhance, or annul the assessment but prohibits enhancement without giving the appellant a reasonable opportunity to show cause. The Tribunal found that the CIT(A) passed a cryptic order of only 16 lines, dismissing the appeal without addressing the detailed explanations and documentary evidence submitted by the assessee. The CIT(A) merely confirmed the addition on the ground that the assessee could not explain the source of the credited amount, ignoring the fact that the assessee had provided a detailed reconciliation and explanation.

Third, the Tribunal analyzed the submissions made by the assessee regarding the nature of the credited amounts from Orbit Construction. The assessee explained that the amounts were refunds of advance payments made for the purchase of a flat, which was later downsized due to changes in development control regulations, resulting in a price reduction and refund by the builder. The builder subsequently became insolvent, and the assessee had not received the flat or full refund to date. The assessee argued that the credited amount was not income but a return of capital investment. This explanation was supported by the accounts filed by the assessee, including balance sheets and profit and loss accounts, which reflected the advance payments and partial refunds. The Tribunal noted that despite these submissions, neither the AO nor the CIT(A) engaged with the evidence or made any attempt to verify the facts.

Fourth, the Tribunal considered the principle that the first appellate authority must exercise quasi-judicial powers responsibly, applying mind to the facts and law, and must not dismiss appeals in a mechanical or cryptic manner. The failure of the CIT(A) to comply with the procedural requirements of section 250(6) by not stating points for determination, decisions, and reasons was held to be a serious procedural lapse. The Tribunal emphasized that such lapses undermine the credibility and fairness of the tax administration and cause unnecessary harassment to taxpayers.

Fifth, the Tribunal noted that the reassessment addition was based on a double counting of the amount reflected in Form 26AS, as the AO added Rs. 66,02,464/- whereas the gross amount credited was Rs. 33,01,232/-. This factual discrepancy was not addressed by the authorities below. The Tribunal found that the assessee's explanation regarding the discrepancy and the nature of the credited amounts merited verification and consideration by the AO before confirming the addition.

In applying the law to facts, the Tribunal held that the reassessment proceedings and the consequential addition were not justified without proper inquiry and verification of the assessee's explanations. The Tribunal directed the matter to be remitted to the file of the jurisdictional AO for limited purpose of verification of the claim and passing of a fresh order in accordance with law. The assessee was also directed to be given a reasonable opportunity of hearing during the reassessment proceedings and to be diligent in attending hearings to expedite disposal.

The Tribunal rejected the arguments of the revenue that the addition was justified merely because the amount appeared in Form 26AS and the assessee failed to explain the source. The Tribunal underscored that mere appearance of credits in Form 26AS does not ipso facto constitute income unless supported by cogent evidence. The Tribunal also criticized the mechanical confirmation of the addition by the CIT(A) without application of mind or consideration of evidence.

The significant holdings of the Tribunal include the following:

"The principles governing the exercise of powers by the First Appellate Authority are contemplated under sections 250 and 251 of the Act, breach of which has far reaching consequences on the administration of justice culminating in the litigant approaching the higher appellate authority. It is required that the first appellate authority viz. CIT(A) will appreciate the evidence, consider the arguments and apply the law on the given set of facts and circumstances and arrive at findings."

"Had they demonstrated the requisite care and caution and exercised their quasi-judicial/judicial authority with judgment it demands, it would have been appreciable that neither the initiation of reassessment proceedings nor the consequent addition was warranted. Such judicious action would have obviated the litigation cost and time and resources, tantamounting to harassment thrust upon the assessee."

"The addition made by the ld. Assessing Officer is exact twice this amount reflected in Form 26AS downloaded by the assessee. Assessee thus, explained that what has been added by ld. Assessing Officer is twice the gross amount appearing in Form 26AS."

"We find it appropriate to remit the matter back to the file of ld. Jurisdictional Assessing Officer for the limited purpose of verification to consider the claim of the assessee and pass necessary order in accordance with the provisions of the law."

"Needless to say, that assessee be given reasonable opportunity of being heard and make his submissions to substantiate the claims."

In conclusion, the Tribunal set aside the impugned orders of the AO and CIT(A) on grounds of procedural and substantive infirmities, remitting the matter for fresh verification and adjudication. The Tribunal's directions reinforce the principle that appellate authorities must exercise their powers judiciously, consider all relevant evidence, and provide reasoned decisions to uphold fairness and transparency in tax administration.