2025 (5) TMI 1075 - AT - Income Tax

Reopening of assessment - Addition of interest salary other credits in the bank account and cash deposit as income of the assessee - HELD THAT - The assessee is a retired person from Indian Railways and getting pension. While assessment proceedings assessee has stated that assessee being a senior citizen and his total income was less than the basic exemption limit during the said financial year return of income was not filed. Even the assessee has neither filed ROI in response to the notice issued u/s 148 nor furnished any computation of total income. Based on that set of facts AO considered the pension income and interest income as undisclosed income in the hands of the assessee. Since the assessee is retired government employee his pension income cannot be considered as unexplained income and thereby even the interest income also so far as the principal amount is not disputed. Therefore we direct the ld. AO to tax that income regular income of the assessee. Based on this observation ground no. 5 raised by the assessee is allowed. Receipts as rent from the son s property - The money has been credited every month in the bank account of the assessee. AO has treated that amount as unexplained cash credits in the absence of evidence. Records also reveal that verification of record were called for from Shri Ravi Kumar Chugh and he has replied by giving his ITR. AO added that amount only on ground that the ITR does not shows income how income which is received by his father be recorded in his sons ITR at most he musth have claimed expenses but the ld. AO has not called for any further details thus the income received on account of the rent cannot be considered as unexplained at most the same can be considered as income without owning property be taxed as other income in the hands of the assessee when the ld. AO has not made any further verification of facts with Shir Ravi Kumar. Based on that set of facts the AO directed to charge that income as other income in the hands of the assessee therefore ground no. 6 is disposed off with that observation. Addition being the amount of cash deposited in his bank account The assessee also deposited a sum of Rs. 5, 00, 000/- on 28.07.2011. The source of that money claimed to have been received from his sister in law Indu Mendiaratta on account of engaged of her daughter which was taken care of by the assessee and his son Shri Ravi Kumar. In support of that claim assessee filed a signed letter of gift dated 25.07.2011 and in furtherance to that an affidavit duly singed and notarized before the notary public dated 02.04.2025 she has confirmed the fact of giving the gift to the assessee. AO though this information available on record has merely called the ITR of Ravi Kumar but not confirmed the marriage gift and ld. AO also remained silent on the gift received from Mrs. Indu. The affidavit of the his son and Mrs. Indu were placed on record in furtherance to the facts already on record and therefore the same cannot be considered as additional evidence but it is considered to render substantial justice to the assessee. Based on those facts which are already on record and further supported by an affidavit we see no reason to sustain that addition of Rs. 10 lac in the hands of the assessee and thereby we considered ground no. 7 raised by the assessee.

Summary

The core legal questions considered by the Tribunal in this appeal pertain to:

1. Whether the learned Commissioner of Income Tax (Appeals) erred in dismissing the appeal ex-parte without affording a reasonable opportunity of hearing, especially considering the appellant's authorized representative passed away due to COVID-19, resulting in non-appearance and non-compliance with hearing notices.

2. Whether the CIT(A) failed to verify proper service of hearing notices on the appellant before dismissing the appeal.

3. Whether the appellant's status as a senior citizen with limited knowledge of tax matters and the genuine reasons for delay in compliance were duly considered.

4. Whether the CIT(A) ought to have adjudicated the appeal on merits rather than passing an ex-parte dismissal.

5. Whether the additions made by the Assessing Officer (AO) and upheld by CIT(A) regarding concealed income of Rs. 1,50,558 (pension income) and Rs. 64,065 (interest income) were justified, given that these incomes were duly explained and below the basic exemption limit.

6. Whether the addition of Rs. 60,958 as unexplained cash credits was justified, considering the appellant's explanation that this amount represented rental income from property owned by his son.

7. Whether the addition of Rs. 10,00,000 as unexplained cash deposits was justified, particularly in light of the explanation that this amount represented gifts received on the occasion of the appellant's son's marriage.

8. Whether any additional or altered grounds could be entertained during or before the hearing.

Issue-wise Detailed Analysis

Issues 1 to 4: Procedural Fairness and Opportunity of Hearing

Legal Framework and Precedents: The principles of natural justice, particularly the right to a fair hearing, are fundamental to administrative and quasi-judicial proceedings. The Supreme Court has consistently held that no adverse order should be passed without affording the affected party a reasonable opportunity to be heard. The landmark decision in Collector, Land Acquisition vs. Mst. Katiji establishes that substantive justice must prevail over procedural technicalities.

Court's Interpretation and Reasoning: The Tribunal noted that the appellant's authorized representative, who was handling the case, passed away due to COVID-19, which was an unforeseen and bona fide reason for the appellant's non-appearance and non-compliance with hearing notices. The notices were sent to the consultant's email, and due to the faceless nature of proceedings, the appellant was unaware of hearing dates and the ex-parte dismissal.

Key Evidence and Findings: The appellant's application for condonation of delay, supported by the facts of the consultant's death and the appellant's limited IT knowledge, was accepted. The Tribunal relied on the principle that the appellant was prevented by sufficient cause, condoning the delay of 378 days in filing the appeal.

Application of Law to Facts: The Tribunal held that the CIT(A) erred in dismissing the appeal without verifying proper service of notices and without affording a reasonable opportunity of hearing, violating the principles of natural justice.

Treatment of Competing Arguments: The Department's contention that reasons were insufficient to condone delay was noted but ultimately rejected in favor of the appellant's bona fide reasons.

Conclusion: The delay was condoned, and the ex-parte dismissal was found to be improper, requiring adjudication on merits.

Issue 5: Addition of Pension and Interest Income as Concealed Income

Legal Framework and Precedents: Section 139(1) of the Income Tax Act mandates filing of return only if income exceeds the basic exemption limit. Pension and interest income are taxable heads, but if total income is below exemption threshold, no return is mandatory.

Court's Interpretation and Reasoning: The appellant's total income comprising pension (Rs. 1,50,558) and interest income (Rs. 64,065) was below the basic exemption limit of Rs. 2,50,000 for the relevant year. The appellant did not file a return as there was no legal obligation to do so.

Key Evidence and Findings: The income was fully traceable through bank statements and pension records. No concealment was established.

Application of Law to Facts: The Tribunal held that the addition of these incomes as concealed income was arbitrary and contrary to settled principles, as the appellant's income was below taxable limits and fully explained.

Treatment of Competing Arguments: The Department's view that non-filing amounted to concealment was rejected.

Conclusion: Addition of pension and interest income as concealed income is disallowed; ground no. 5 is allowed.

Issue 6: Addition of Rs. 60,958 as Unexplained Cash Credits

Legal Framework and Precedents: Income received as rent must be offered to tax under the head "Income from House Property." The burden lies on the assessee to establish genuineness and offer income for taxation.

Court's Interpretation and Reasoning: The appellant explained that the amount represented rental receipts from property owned by his son, credited to the appellant's bank account for household support. The AO treated it as unexplained due to lack of evidence that the son had offered it as income.

Key Evidence and Findings: The appellant's submissions and the son's ITR were on record, but the AO did not pursue further verification.

Application of Law to Facts: The Tribunal observed that the AO did not make further inquiries or verification with the son. The amount was not unexplained but at most taxable as "other income" in the appellant's hands.

Treatment of Competing Arguments: The Department's reliance on absence of evidence was found insufficient to treat the amount as unexplained income.

Conclusion: The addition is not justified as unexplained income; the amount should be taxed as income in the appellant's hands. Ground no. 6 is disposed of accordingly.

Issue 7: Addition of Rs. 10,00,000 as Unexplained Cash Deposits

Legal Framework and Precedents: Section 69A of the Income Tax Act deals with unexplained money or valuable articles not recorded in books of account. The assessee must explain the nature and source of such money. The AO must be satisfied with the explanation; mere suspicion is insufficient. The Supreme Court in Dhakeswari Cotton Mills Ltd. and Umacharan Shaw & Brothers held that assessments cannot be completed on guess or suspicion.

Court's Interpretation and Reasoning: The appellant explained that Rs. 10,00,000 was received as cash gifts on the occasion of his son's marriage, supported by a gift letter and affidavits from the donor (sister-in-law) and the appellant. The money was deposited in bank accounts and later transferred to the son. The AO did not verify the gift deed with the donor or the son, relying only on the son's ITR, which was insufficient.

Key Evidence and Findings: The appellant submitted affidavits, gift letters, marriage certificate, and bank statements. The Tribunal considered these as part of the existing record and not additional evidence, to render substantial justice.

Application of Law to Facts: The Tribunal held that the cash deposits were satisfactorily explained as gifts, a customary practice exempt under section 56(2)(vi). The AO's addition was based on suspicion and lack of proper verification, which is impermissible.

Treatment of Competing Arguments: The Department's reliance on absence of documentary proof was rejected in light of the affidavits and gift letters. The Tribunal also relied on a recent ITAT Chennai decision supporting the treatment of marriage gifts as non-taxable.

Conclusion: The addition of Rs. 10,00,000 as unexplained income is deleted; ground no. 7 is allowed.

Issue 8: Addition or Alteration of Grounds

This ground was general and did not require specific adjudication.

Significant Holdings

"The delay of 378 days in filing the appeal by the assessee is condoned in view of the decision of Hon'ble Supreme Court in the case of Collector, Land Acquisition vs. Mst. Katiji and Others, as the assessee is prevented by sufficient cause."

"The principles of natural justice mandate that no adverse order should be passed without granting the appellant a fair opportunity to present its case."

"The appellant's total income comprising pension and interest income was below the basic exemption limit and hence there was no legal requirement to file a return of income."

"The addition of Rs. 60,958/- as unexplained cash credits is not justified as the amount was duly explained as rental income and should be taxed as income in the appellant's hands."

"The addition of Rs. 10,00,000/- as unexplained cash deposits is deleted as the amount was satisfactorily explained as gifts received on the occasion of the son's marriage, supported by affidavits and gift letters, and the AO's addition was based on suspicion without proper verification."

"An order passed without proper service of notice and without affording a reasonable opportunity of hearing is unsustainable in law."

The Tribunal allowed the appeal, set aside the ex-parte dismissal, and directed the AO to treat the pension and interest income as regular income. The unexplained cash credits of Rs. 60,958 were to be taxed as income, and the addition of Rs. 10,00,000 was deleted. Other procedural grounds became academic in view of the merits decided.