2025 (6) TMI 1044 - AT - Income Tax

Addition u/s 68 - unexplained cash deposits as well as the credit entries in the bank accounts - HELD THAT - Most of the credit entries were loan transactions in support of which copy of ledger account and confirmations have now been filed in the paper-book. These are fresh evidences and were not examined by the lower authorities at any stage. We therefore deem it proper to set aside the matter to the file of the Ld. CIT(A) with a direction to allow another opportunity to the assessee to explain the source of cash deposits and the credit entries appearing in the bank account. The assessee will be free to bring on record the evidences filed before us or any other evidence before the CIT(A) to explain the cash credit entries as appearing in the bank accounts Appeal of the assessee is allowed for statistical purpose.

Summary

1. ISSUES PRESENTED and CONSIDERED

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

• Whether the learned Commissioner of Income Tax (Appeals) [CIT(A)] erred in law and on facts by not granting adequate opportunity of hearing to the assessee during appellate proceedings, thereby violating principles of natural justice.
• Whether the reassessment order passed by the Assessing Officer (AO) under section 147 read with section 144B of the Income Tax Act, 1961, is sustainable or liable to be quashed.
• Whether the addition of Rs. 91,07,500/- made by the AO on account of cash deposits in the bank account, treated as unexplained money under section 69A of the Income Tax Act, is justified.
• Whether the addition of Rs. 17,77,79,222/- made by the AO as unexplained cash credits under section 68 of the Income Tax Act, in respect of credit entries in the bank account, is justified.
• Whether the AO was correct in treating the entire cash deposits and credit entries as income of the assessee without considering debit transactions and other explanations.
• Whether fresh evidence filed before the Tribunal can be admitted and considered for the purpose of explaining the source of cash deposits and credit entries.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Adequacy of Opportunity of Hearing before the CIT(A)

Relevant legal framework and precedents: The principles of natural justice require that an assessee should be given adequate opportunity to present his case before any adverse order is passed. The Income Tax Act mandates that the CIT(A) must provide a fair hearing to the appellant.

Court's interpretation and reasoning: The Tribunal observed that the assessee had complained of non-grant of adequate opportunity before the CIT(A). However, the record showed that the CIT(A) had granted as many as four opportunities to the assessee. The assessee, however, failed to comply or present any explanation on each occasion, resorting only to seeking adjournments.

Key evidence and findings: The CIT(A) record and submissions of the Revenue representative confirmed repeated opportunities were provided. The assessee's failure to utilize these opportunities was evident.

Application of law to facts: The Tribunal held that the CIT(A) did not violate principles of natural justice as adequate chances were given, but the assessee failed to avail them properly.

Treatment of competing arguments: The assessee argued dismissal without merit examination; the Revenue countered with non-compliance by the assessee. The Tribunal sided with the Revenue on this point.

Conclusion: No fault was found with the CIT(A) in granting hearing opportunities; the assessee's own failure led to the dismissal.

Issue 2: Validity of Reassessment Order under Section 147 read with Section 144B

Relevant legal framework and precedents: Section 147 allows reassessment if the AO has reason to believe income has escaped assessment. Section 144B provides for summary assessment proceedings for certain cases. The AO must record proper reasons before initiating reassessment.

Court's interpretation and reasoning: The AO had received information regarding significant cash deposits and withdrawals in the assessee's bank account, which were unexplained. Proper reasons were recorded for reopening. The Tribunal found no infirmity in initiation of reassessment proceedings.

Key evidence and findings: Bank statements showed cash deposits of Rs. 91,07,500/- and cash withdrawals of Rs. 1,62,37,866/- during the relevant financial year. The assessee had not filed return initially, and later filed a nil return without explanation.

Application of law to facts: The AO's action was justified given the unexplained cash transactions and non-filing of return.

Treatment of competing arguments: The assessee challenged the reassessment as bad in law; the Revenue defended its validity. The Tribunal upheld the reassessment's validity.

Conclusion: The reassessment order was validly passed under the provisions of the Act.

Issue 3: Addition of Rs. 91,07,500/- as Unexplained Cash under Section 69A

Relevant legal framework and precedents: Section 69A deals with unexplained money found in the possession of the assessee. If the assessee fails to explain the source of such money, it is treated as income.

Court's interpretation and reasoning: The AO treated the entire cash deposit as unexplained money. However, the Tribunal noted that the AO did not consider debit transactions from the bank account, which could explain the source of cash deposits as withdrawals from the same account.

Key evidence and findings: The assessee submitted ledger accounts and confirmations indicating that cash deposits were made out of earlier withdrawals, suggesting circular movement of cash rather than unexplained income.

Application of law to facts: The Tribunal held that the AO's approach was flawed in ignoring debit transactions and the possibility that deposits were from legitimate sources.

Treatment of competing arguments: The assessee argued the deposits were not unexplained; the Revenue maintained the additions were justified. The Tribunal found merit in the assessee's contention based on fresh evidence.

Conclusion: The addition under section 69A could not be sustained without considering debit transactions and explanations.

Issue 4: Addition of Rs. 17,77,79,222/- as Unexplained Cash Credit under Section 68

Relevant legal framework and precedents: Section 68 provides that unexplained cash credits in the books of account are treated as income. The assessee must satisfactorily explain the nature and source of such credits.

Court's interpretation and reasoning: The AO treated credit entries by cheque/RTGS as unexplained cash credits. The Tribunal observed that the assessee had now produced fresh evidence indicating that many credit entries were loan transactions supported by ledger accounts and confirmations.

Key evidence and findings: The fresh evidence was not considered by the lower authorities, and the assessee was not given an opportunity to explain these credits.

Application of law to facts: The Tribunal emphasized the need to allow the assessee to explain and prove the source of credits before confirming additions under section 68.

Treatment of competing arguments: The assessee sought admission of fresh evidence and opportunity to explain; the Revenue did not oppose remand for this purpose.

Conclusion: The addition under section 68 was not sustainable without examining the fresh evidence and explanation.

Issue 5: Treatment of Entire Cash Deposits and Credit Entries as Income without Considering Debit Transactions

Court's interpretation and reasoning: The Tribunal explicitly noted that the AO erred in treating the entire cash deposits and credits as income without factoring in debit transactions which could explain the source of deposits.

Application of law to facts: The Tribunal found that ignoring debit transactions was an incorrect approach, justifying remand to allow full examination of the bank account transactions.

Issue 6: Admission and Consideration of Fresh Evidence

Relevant legal framework and precedents: The Tribunal has discretionary power to admit fresh evidence if it is relevant and was not previously available or considered.

Court's interpretation and reasoning: The Tribunal admitted the fresh evidence filed before it, including ledger accounts and loan confirmations, as these were not examined by lower authorities and were material to the issues.

Application of law to facts: The Tribunal directed the matter to be remanded to the CIT(A) to consider the fresh evidence and allow the assessee to explain the cash and credit entries.

3. SIGNIFICANT HOLDINGS

"We are also of the opinion that the Assessing Officer was not correct in treating the entire cash deposits and credit entries in the bank account as income of the assessee without taking into account the debit transactions."

"The assessee will be free to bring on record the evidences filed before us or any other evidence before the CIT(A), to explain the cash & credit entries as appearing in the bank accounts and the ld. CIT(A) will be free to call for the remand report of the AO thereon, if so required."

"The assessee is also directed to promptly comply before the ld. CIT(A) and not to seek any adjournment."

Core principles established include the necessity of considering all relevant bank transactions (both credits and debits) before making additions under sections 68 and 69A, the importance of providing adequate opportunity to the assessee to explain unexplained credits, and the Tribunal's discretionary power to admit fresh evidence when it is material and was not previously examined.

Final determinations on each issue are:

• The CIT(A) did not err in granting opportunity; the assessee failed to utilize it properly.
• The reassessment order under section 147 read with 144B was