2025 (7) TMI 429 - AT - Income Tax

Condonation of delay - delay of 172 days in filing the appeal before this Tribunal - eligible reasons of delay - HELD THAT - Hon ble courts in plethora of judgments observed that when consideration of an appeal on merits is pitted against the rejection of a meritorious claim on the technical ground of the bar of limitation the Courts lean towards consideration on merits by adopting a liberal approach towards sufficient cause to condone the delay. Hon ble Supreme Court in the case of Inder Singh Vs. State of Madhya Pradesh judgment 2025 (3) TMI 1479 - SUPREME COURT condoned delay of 1537 days sub-serving the cause of justice. It was held so while observing that the appeal filed by the appellant with a delay was unintentional much less due to any deliberate laches and was well-explained by the State before the High Court. Hon ble Court further held that in cases where the merits are significant a more liberal approach may be adopted to allow for the examination of the case on its merits. Having gone through the averments made in the condonation application there was reasonable cause which prevented the assessee in filing the appeal within the stipulated time. Therefore condone the delay of 172 days and admit the appeal for adjudication. Adhoc addition disallowing 50% of the total cash purchases made from unregistered dealers - AO observed that assessee has made cash purchases by purchasing raw Gold from the customers i.e. unregistered dealers (URD) - Assessee makes such purchases on year to year basis but AO noticed that there is cash purchases - HELD THAT - Assessee runs the business of jewellery and goldsmith for past many years. Books of account are regularly maintained and audited and Tax Audit Reports are furnished. Quantitative records are maintained on year to year basis and there is no adverse comment of the AO about the quantitative record. Also observe that the assessee is regularly making the purchases from URD and the details for the preceding two years including the year under consideration. AO has only verified few URD and merely on the basis of No reply/No positive reply/details not available he made adhoc disallowance. Ld. AO ought to have considered the practical aspect that person who deal for small amounts of sale of goods and are like walkin vendors may not have given correct contact details. AO has not found any defect in the quantitative records and audited books of accounts regularly maintained by the assessee. When quantitative details are not in dispute and also the AO has not carried out complete exercise and only resorted to make adhoc disallowance such adhoc disallowance is not sustainable. Impugned addition is deleted. Finding of CIT(A) is set-aside and grounds of appeal raised by the assessee are allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

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

• Whether the delay of 172 days in filing the appeal before the Tribunal can be condoned on the grounds of 'sufficient cause' and 'reasonable cause' under the Limitation Act and relevant judicial precedents.
• Whether the Assessing Officer's adhoc disallowance of 50% of the cash purchases made from unregistered dealers (URD) amounting to Rs. 22,05,077/- under section 69C of the Income-tax Act, 1961, is justified.
• Whether the Assessing Officer was correct in making an adhoc addition based on test-check verification and non-receipt of satisfactory replies from some URD sellers without conducting a complete and detailed verification of all purchases from URD.
• Whether the Tribunal should restore the issue to the Assessing Officer for detailed verification or decide the matter on merits based on the available records.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Condonation of Delay in Filing Appeal

Relevant legal framework and precedents: The Tribunal considered the provisions of the Limitation Act, particularly section 5, which allows condonation of delay if 'sufficient cause' is shown. The Supreme Court's ruling in Collector, Land Acquisition v. Mst. Katiji & Ors. was cited, emphasizing that substantial justice should prevail over technical limitations. Another recent precedent relied upon was Inder Singh Vs. State of Madhya Pradesh, where a delay of 1537 days was condoned due to unintentional delay and significant merits of the case.

Court's interpretation and reasoning: The Tribunal noted that the delay was primarily due to the medical condition of the person responsible for tax compliance (coronary artery disease and subsequent surgery), which incapacitated him for a significant period. Further delays arose due to the difficulty in engaging senior counsel and technical issues with e-filing. The Tribunal emphasized that the delay was unintentional and well-explained.

Key evidence and findings: The medical records and timeline of events were submitted, showing the appellant's inability to act timely. The appellant's efforts to engage counsel and file the appeal were documented, including payment of fees and attempts to e-file.

Application of law to facts: Applying the principle that "when substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred," the Tribunal found 'reasonable cause' for the delay.

Treatment of competing arguments: The Revenue did not strongly oppose condonation, and the Tribunal adopted a liberal approach favoring adjudication on merits.

Conclusion: The delay of 172 days in filing the appeal was condoned, and the appeal was admitted for adjudication on merits.

Issue 2: Validity of Adhoc Disallowance of 50% of Cash Purchases from URD

Relevant legal framework and precedents: Section 69C of the Income-tax Act empowers the Assessing Officer to make additions where purchases are not satisfactorily explained or verified, especially from unregistered dealers. However, principles of natural justice and fair inquiry require that the AO conduct a proper and complete verification before making adhoc disallowances. Precedents emphasize that additions should be based on concrete evidence and not mere suspicion or partial verification.

Court's interpretation and reasoning: The Tribunal observed that the assessee is engaged in the jewellery business and has consistently made purchases from URD over several years, with a significant portion of total purchases being from URD (58.24% in AY 2015-16, 46.10% in AY 2016-17, and 44.28% in AY 2017-18). The cash purchases under scrutiny (Rs. 44,10,154/-) were made from 762 persons with small individual amounts, averaging Rs. 5,787.60 per person.

The AO's approach was limited to test-checking a few URD sellers and making an adhoc disallowance of 50% based on non-receipt or unsatisfactory replies. The Tribunal found this approach flawed as the AO did not conduct a complete verification of all URD purchases, nor did he find any defects in the quantitative records or audited books maintained by the assessee.

Key evidence and findings: The assessee's audited books, tax audit reports, and quantitative records were maintained regularly without adverse remarks. The pattern of URD purchases over the years was consistent and documented. The AO's test-check was limited and did not cover the entire scope of URD transactions.

Application of law to facts: The Tribunal applied the principle that adhoc additions should not be made without proper and complete verification. The small amounts and large number of vendors indicated practical difficulties in obtaining replies from all. The absence of any adverse comments on the books and records further weakened the AO's case.

Treatment of competing arguments: The Revenue sought restoration of the issue to the AO for detailed verification. However, the Tribunal found that the AO had already made an adhoc addition without full exercise and that such addition was not sustainable.

Conclusion: The adhoc disallowance of 50% of cash purchases from URD was deleted. The Tribunal set aside the CIT(A)'s confirmation of the addition and allowed the appeal on this ground.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"When consideration of an appeal on merits is pitted against the rejection of a meritorious claim on the technical ground of the bar of limitation, the Courts lean towards consideration on merits by adopting a liberal approach towards 'sufficient cause' to condone the delay."

"The appeal filed by the appellant with delay was unintentional, much less due to any deliberate laches, and was well-explained by the State before the High Court. In cases where the merits are significant, a more liberal approach may be adopted to allow for the examination of the case on its merits."

"The Assessing Officer ought to have considered the practical aspect that persons who deal for small amounts and are like walk-in vendors may not have given correct contact details. Further, the AO has not found any defect in the quantitative records and audited books of accounts regularly maintained by the assessee."

"Under these given facts and circumstances, when quantitative details are not in dispute and the AO has not carried out complete exercise and only resorted to make adhoc disallowance, such adhoc disallowance is not sustainable."

Final determinations:

• The delay of 172 days in filing the appeal was condoned in the interest of justice.
• The adhoc disallowance of Rs. 22,05,077/- made by the AO under section 69C was deleted.
• The CIT(A)'s order confirming the disallowance was set aside.
• The appeal was allowed on merits.