2025 (5) TMI 1944 - AT - Income Tax

Addition u/s 69A - unexplained income from undisclosed sources - confirming the rate of tax u/s 115BBE of the Act as 60% - HELD THAT - AO simply reproduced the contents of notice which was served to assessee / appellant which is not sustainable in the eyes of law and not even dismissed the documents furnished by the assessee / appellant. Requirement of proper verification and in the interest of justice we find it appropriate to provide one more opportunity to defend the case by assessee / appellant inclined to restore the matter to the file of AO with the direction to pass order after affording reasonable adequate and effective opportunity of being heard and hence the appeal of the assessee deserves to be allowed. Consequently we set aside the order of the CIT(A) and the matter remitted back to the AO with the direction to decide the matter afresh. Appeal filed by the assessee is accordingly allowed for statistical purpose.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Appellate Tribunal (AT) in this appeal pertain to:

• Whether the addition of Rs. 1,00,00,000/- as unexplained income under Section 69A of the Income Tax Act, 1961 (the Act) was justified, given the assessee's contention that this amount represented business income and not undisclosed income.
• Whether the confirmation of the tax rate under Section 115BBE of the Act at 60% on the unexplained income was appropriate.
• The validity of the addition of Rs. 24,28,704/- as unexplained expenditure under Section 69C of the Act.
• Whether the Assessing Officer erred in not allowing relief of Rs. 43,20,000/- disclosed under the Pradhan Mantri Garib Kalyan Yojna, 2016 (PMGKY), on which tax was paid.
• Whether relief under Section 80C of the Act for Rs. 41,268/- paid by the assessee was wrongly denied.
• Whether the delay in filing the appeal should be condoned in light of the circumstances presented by the assessee, including health issues due to COVID-19 and lack of awareness of appeal status.

2. ISSUE-WISE DETAILED ANALYSIS

Delay in Filing Appeal

Legal Framework and Precedents: The Tribunal considered the principle of "sufficient cause" for condonation of delay, referencing the Supreme Court decision in Collector, Land Acquisition vs. Mst. Katiji, which holds that the test of sufficient cause must be applied meaningfully to subserve justice and not to defeat adjudication on merits.

Court's Reasoning: The Tribunal noted the appellant's detailed explanation regarding the delay, which included lack of awareness about the appeal effect order, compounded by two episodes of COVID-19 infection severely affecting the appellant's health and vigilance. The appellant's counsel also pointed out that the appellant was not properly advised on timelines by legal and accounting representatives.

Application of Law to Facts: The Tribunal found that the delay was neither intentional nor deliberate and that the appellant took prompt action upon becoming aware of the pending litigation. The principle of justice warranted condonation of delay to allow adjudication on merits.

Conclusion: The delay in filing the appeal was condoned, enabling the Tribunal to proceed with merits of the case.

Addition of Rs. 1,00,00,000/- as Unexplained Income under Section 69A

Legal Framework: Section 69A of the Income Tax Act permits addition of unexplained income from undisclosed sources where the assessee fails to satisfactorily explain the nature and source of certain cash credits or unexplained loans or investments.

Findings and Evidence: During a survey under Section 133A, a diary and loose documents were seized, revealing entries of cash loans amounting to Rs. 1,00,00,000/- given to various parties. The assessee initially admitted this amount as income from undisclosed sources and paid self-assessment tax of Rs. 30,00,000/-. However, in the Income Tax Return (ITR) filed subsequently, the assessee did not include this amount as income, instead claiming it as business income.

The Assessing Officer (AO) noted that the amount was not recorded in the books of account and was admitted by the assessee to be earned from sources other than the normal business, without documentary evidence. The AO relied on the statement recorded under Section 133A(3)(iii), wherein the assessee admitted the amount was undisclosed income and not reflected in books.

Court's Interpretation and Reasoning: The AO's order was found to be somewhat mechanical, merely reproducing the contents of the notice without dismissing the documents produced by the assessee. The Tribunal observed that the AO's approach was hyper-technical and failed to give adequate opportunity to the assessee to defend the claim.

Treatment of Competing Arguments: The assessee's argument that the amount was business income and not unexplained income was considered. However, the AO's and CIT(A)'s findings were based on the absence of proper accounting and documentary evidence. The Tribunal noted the need for proper verification and reasonable opportunity to the assessee to substantiate the claim.

Conclusion: The Tribunal set aside the addition and remitted the matter to the AO for fresh adjudication after affording the assessee a proper, effective, and reasonable opportunity of being heard.

Addition of Rs. 24,28,704/- as Unexplained Expenditure under Section 69C

Legal Framework: Section 69C deals with unexplained expenditure, allowing the AO to add such expenditure to income if the assessee fails to explain the source of expenditure.

Findings: The AO made the addition on the ground that the assessee failed to provide sufficient evidence to explain the expenditure.

Court's Reasoning: The Tribunal did not delve deeply into the merits but observed that the AO's order lacked proper verification and was made without affording adequate opportunity to the assessee.

Conclusion: The matter was remitted to the AO for fresh consideration with directions to provide reasonable opportunity to the assessee.

Relief under PMGKY and Section 80C

Legal Framework: The Pradhan Mantri Garib Kalyan Yojna, 2016 (PMGKY) allowed taxpayers to declare undisclosed income and pay tax thereon with immunity. Section 80C provides deductions for specified investments or payments.

Findings: The AO denied relief of Rs. 43,20,000/- disclosed under PMGKY and Rs. 41,268/- claimed under Section 80C.

Court's Reasoning: The Tribunal did not explicitly analyze these grounds in detail but included them in the directions for fresh adjudication, implying that the AO should reconsider these claims after giving the assessee an opportunity to produce evidence.

3. SIGNIFICANT HOLDINGS

The Tribunal's key legal reasoning and principles established include:

"The delay in filing the appeal was neither intentional nor deliberate and deserves to be condoned in the interest of justice."

"The order of the Assessing Officer, which merely reproduces the contents of the notice without dismissing the documents furnished by the assessee, is not sustainable in law."

"The matter is remitted to the Assessing Officer with the direction to pass order afresh after affording reasonable, adequate and effective opportunity of being heard to the assessee."

"The addition of Rs. 1,00,00,000/- as unexplained income under Section 69A cannot be sustained without proper verification and opportunity to the assessee."

The Tribunal emphasized the need for adherence to principles of natural justice, proper verification of facts, and avoidance of hyper-technical approaches that preclude fair adjudication on merits.

Final determinations included condonation of delay and remand of the entire matter to the AO for fresh decision after proper hearing, thereby setting aside the orders of the CIT(A) and allowing the appeal for statistical purposes.