2025 (6) TMI 1797 - AT - Income Tax

Addition u/s 69A - cash deposit in the bank account of the assessee and further there were credit entries as unexplained - Assessee has died - legal heirs of the deceased seeked placing additional evidences - AO observed that despite issuance of several notices of hearing the assessee did not comply and accordingly he made addition - HELD THAT - Assessee/legal heirs of the deceased filed paper book stating that the assessee had not been keeping well for a long time and had ultimately expired on 24th December 2024. Assessee also filed revised Form 36 bringing the legal heirs of the assessee on record. The Counsel for the assessee also furnished medical and payment receipts to demonstrate that the assessee had been unwell for a long time and was undergoing treatment. The assessee also filed sale bills towards sale of rice (agricultural produce) to demonstrate that the assessee was earning agricultural income which were duly disclosed by the assessee in its return of income for the impugned year under consideration. On going through the facts of the assessee s case and the details filed by the assessee before us in the interest of justice the matter is hereby restored to the file of the assessing officer for de novo consideration. The legal heirs of the assessee would be at liberty to furnish any evidence in support of its case - Appeal of the assessee is allowed for statistical purposes.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Appellate Tribunal were:

• Whether the addition of Rs. 15,80,000/- made by the Assessing Officer under section 69A of the Income Tax Act, 1961, on account of unexplained cash deposits in the assessee's bank account, was justified.
• Whether the assessee's failure to respond to notices and furnish evidence during assessment and appellate proceedings justified the confirmation of the addition.
• Whether the delay of 308 days in filing the appeal was liable to be condoned.
• Whether the legal heirs of the deceased assessee could be allowed to place evidence and seek de novo consideration of the case.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Justification of addition under section 69A for unexplained cash deposits

Relevant legal framework and precedents: Section 69A of the Income Tax Act empowers the Assessing Officer to make additions to income where any sum found credited in the books of account or bank account of the assessee is unexplained to the satisfaction of the assessing authority. The Supreme Court precedent cited (Kale Khan Mohammad Hanif v. CIT) establishes that if an assessee fails to satisfactorily prove the source and nature of amounts received, the Assessing Officer is entitled to treat such receipts as assessable income.

Court's interpretation and reasoning: The Assessing Officer observed cash deposits totaling Rs. 15 lakhs and credit entries of Rs. 80,000/- in the Bank of India account of the assessee. Despite issuance of multiple notices, the assessee did not respond or provide any explanation or documentary evidence to substantiate the source of these deposits. Given the absence of any credible explanation, the AO invoked section 69A to add the entire amount to the income of the assessee.

Key evidence and findings: The key facts were the cash deposits and credits in the bank account, and the assessee's non-compliance with notices. No documentary evidence or explanation was furnished during assessment or appellate proceedings to rebut the addition.

Application of law to facts: The Tribunal relied on the principle that unexplained credits in bank accounts, when not satisfactorily accounted for, are liable to be treated as income. The assessee's failure to respond or substantiate the source of funds justified the addition under section 69A.

Treatment of competing arguments: The assessee's only contention was old age and ill health preventing compliance, but no evidence was initially provided. The CIT(A) rejected this as insufficient without documentary proof. The Tribunal later allowed submission of medical evidence post-facto, but only after the assessee's death.

Conclusions: In the absence of any credible explanation or evidence during the assessment and appellate proceedings, the addition under section 69A was rightly made and confirmed by the CIT(A). However, subsequent medical evidence and sale bills for agricultural produce were accepted by the Tribunal for de novo consideration.

Issue 2: Assessee's non-compliance with notices and failure to furnish evidence

Relevant legal framework and precedents: The Income Tax Act mandates compliance with notices issued during assessment and appellate proceedings. Failure to comply or furnish evidence weakens the assessee's case and permits the authorities to draw adverse inferences.

Court's interpretation and reasoning: The CIT(A) noted that the assessee failed to appear or respond to multiple hearing notices during both assessment and appellate stages. The appellate authority emphasized that the assessee was given four opportunities to produce evidence but did not avail any. The Tribunal observed similar non-compliance until the filing of medical evidence and legal heirs' representation posthumously.

Key evidence and findings: The repeated absence of the assessee or authorized representatives at hearings, and failure to submit documentary proof during the initial proceedings, was critical. Only after the appeal reached the Tribunal were medical certificates and sale bills submitted.

Application of law to facts: The authorities were justified in drawing adverse inference due to non-compliance. However, the Tribunal's restoration of the matter for fresh consideration recognized the need to consider the new evidence in the interest of justice.

Treatment of competing arguments: The assessee's initial failure to comply was balanced against the subsequent submission of medical evidence and the fact of the assessee's death. The Tribunal showed leniency by condoning delay and restoring the matter.

Conclusions: Non-compliance justified the addition and confirmation initially, but the Tribunal's intervention allowed reconsideration on fresh evidence submitted by legal heirs.

Issue 3: Condonation of delay in filing appeal

Relevant legal framework: The Income Tax Act and procedural rules permit condonation of delay in filing appeals if sufficient cause is shown and no prejudice is caused to the other party.

Court's interpretation and reasoning: The appeal was delayed by 308 days. The Tribunal condoned the delay after considering the facts and the absence of prejudice to the Revenue.

Key evidence and findings: The delay was substantial but justified by the circumstances, including the assessee's ill health.

Application of law to facts: The Tribunal exercised discretion in favor of the assessee to allow the appeal to be heard on merits.

Conclusions: Delay was condoned, enabling substantive adjudication.

Issue 4: Allowing legal heirs to place evidence and directing de novo assessment

Relevant legal framework: Legal heirs can represent deceased assessee and file appeals or submissions. The principle of natural justice and fair trial requires consideration of relevant evidence presented.

Court's interpretation and reasoning: The Tribunal accepted medical evidence and sale bills filed by the legal heirs, showing the assessee's ill health and agricultural income. In the interest of justice, it restored the matter to the Assessing Officer for fresh consideration, permitting the heirs to furnish evidence.

Key evidence and findings: Medical certificates and payment receipts demonstrated prolonged ill health. Sale bills substantiated declared agricultural income.

Application of law to facts: The Tribunal balanced procedural lapses with substantive justice, allowing fresh adjudication on new evidence.

Treatment of competing arguments: Although the Revenue initially faced non-compliance, the Tribunal prioritized justice over procedural defaults.

Conclusions: The matter was restored for de novo consideration with liberty to legal heirs to produce evidence.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"If an assessee fails to prove satisfactorily the source and nature of certain amount received during the accounting year, the Assessing Officer is entitled to draw the inference that the receipts are of an assessable nature."

This principle was applied to uphold the addition under section 69A in the absence of any explanation.

Further, the Tribunal stated:

"In the interest of justice, the matter is hereby restored to the file of the assessing officer for de novo consideration. The legal heirs of the assessee would be at liberty to furnish any evidence, in support of its case, during the course of proceedings before the assessing officer."

Core principles established include the entitlement of the Assessing Officer to make additions under section 69A for unexplained credits, the obligation of the assessee to comply with notices and furnish evidence, and the Tribunal's discretion to condone delay and restore matters for fresh consideration when new evidence emerges, especially in cases involving the death of the assessee.

Final determinations:

• The addition of Rs. 15,80,000/- was initially justified and confirmed due to non-explanation of cash deposits.
• Delay in filing appeal was condoned.
• The matter was restored to the Assessing Officer for fresh adjudication in light of new evidence filed by the legal heirs.
• The appeal was allowed for statistical purposes, implying no final decision on merits but permitting re-examination.