2025 (5) TMI 110 - AT - Income Tax

Unexplained cash deposits u/s 69A - Fixing the commission @ 10% on the total receipts as against 0.41% declared by the assessee - CIT(A) confirming the addition giving opportunity of hearing to the AO before passing the appellate order HELD THAT - As seen from the appellate order that no remand report was called from the AO which the CIT(A) was statutorily required to obtain in view of sub-Rule (3) of Rule 46A of the Income-tax Rule 1962. It is well-settled that the CIT(A) is vested with co-terminus power that the AO has in making an assessment order. As in the case of Smt. Prabhavati S. Shah 1998 (2) TMI 107 - BOMBAY HIGH COURT held that on a plain reading Rule 46A it is clear that the same is intended to put fetters on the right of the appellant to produce before the AAC any evidence whether oral or documentary other than evidence produced by him during the course of proceedings before the ITO except in the circumstances set out therein. In case of CIT vs. Valimohmad Ahmadbhai 1981 (7) TMI 53 - GUJARAT HIGH COURT held that mere fact that notice of hearing of appeal was given to the AO would not meet the requirements of Rule 46A(3) where assessee produced additional evidence in his appeal to the AAC. Since something adverse to the ITO was sought to be done in the course of appeal by way of augmenting the record the ITO ought to have been heard and given an opportunity to meet the additional material by way of cross-examination counter evidence and urging submissions in the context of the augmented record. CIT(A) has not followed the mandatory requirement of giving opportunity of hearing to the AO before passing the appellate order where addition of entire cash deposit was restricted to 10% of the deposit. Thus we set aside the order of the CIT(A) and remit the matter to the AO for de novo assessment order after considering the explanation and evidence produced by the appellant. Appeal of the assessee is allowed for statistical purpose.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal include:

(a) Whether the delay of one day in filing the appeal before the Tribunal can be condoned in the interest of justice under the provisions of section 253(3) of the Income-tax Act, 1961.

(b) Whether the Assessing Officer (AO) was justified in making an addition of Rs. 4,09,46,000/- under section 69A of the Act on account of unexplained cash deposits and levying tax @ 60% under section 115BBE.

(c) Whether the Commissioner of Income-tax (Appeals) [CIT(A)] was justified in confirming the addition but reducing the commission income to 10% of the total cash deposits instead of 0.41% declared by the assessee.

(d) Whether the CIT(A) was statutorily required to obtain a remand report from the AO under Rule 46A(3) of the Income-tax Rules, 1962 before passing the appellate order, especially in light of additional evidence and submissions filed by the assessee during the appellate proceedings.

(e) Whether the matter should be remanded to the AO for fresh adjudication after considering all the evidence and explanations furnished by the assessee.

2. ISSUE-WISE DETAILED ANALYSIS

(a) Delay in Filing Appeal

Legal Framework and Precedents: Section 253(3) mandates that an appeal to the Tribunal must be filed within 60 days from the date of the order. The Tribunal has discretion to condone delay if it is not inordinate or intentional.

Court's Reasoning: The appeal was filed one day late. The Tribunal found the delay to be neither deliberate nor intentional.

Application of Law to Facts: Given the minimal delay and absence of mala fide intent, the Tribunal exercised its discretion to condone the delay in the interest of justice.

Conclusion: Delay of one day in filing the appeal was condoned and appeal admitted for hearing.

(b) Addition of Cash Deposits under Section 69A and Levy under Section 115BBE

Legal Framework and Precedents: Section 69A permits addition of unexplained cash credits to the income of the assessee. Section 115BBE prescribes a special tax rate of 60% on income from undisclosed sources. The AO relied on precedents including Smt. Srilekha Banerjee & Ors. vs. CIT, which held that receipt or conversion of cash is prima facie evidence against the assessee if unexplained.

Court's Reasoning: The assessee declared commission income of Rs. 1,69,862/- against cash deposits of Rs. 4,09,46,000/-. The AO found the assessee failed to furnish documentary evidence or explanation for the source of cash deposits despite multiple notices and show cause notices. The AO invoked best judgment assessment under section 144 and added the entire cash deposit as income under section 69A, levying tax under section 115BBE.

Application of Law to Facts: The onus was on the assessee to prove the cash deposits did not constitute income. Failure to do so justified the addition.

Treatment of Competing Arguments: The assessee contended that cash deposits represented commission income from retailers and was ready to submit details. However, the AO found the explanation insufficient and non-cooperation during assessment proceedings.

Conclusion: The AO was justified in making the addition under section 69A and levying tax under section 115BBE.

(c) CIT(A)'s Confirmation of Addition and Fixation of Commission at 10%

Legal Framework and Precedents: The CIT(A) has co-terminus powers with the AO and can re-assess income based on material before it. The CIT(A) relied on the nature of agreements submitted by the assessee and the disproportion between declared commission and cash deposits.

Court's Reasoning: The CIT(A) noted that the commission declared by the assessee was only 0.41% of the cash deposits, which was unrealistically low. The CIT(A) considered the agreements with companies involved in promotion and marketing activities but found no specific commission rates mentioned. Therefore, the CIT(A) directed the AO to consider commission income at 10% of total cash deposits.

Application of Law to Facts: The Tribunal observed that the CIT(A) dismissed the appeal without seeking a remand report from the AO despite additional evidence and submissions filed by the assessee during the appellate proceedings.

Treatment of Competing Arguments: The assessee argued that the CIT(A)'s direction to fix commission at 10% was arbitrary and that he was willing to submit details to justify the declared commission. The revenue contended that the assessee was non-cooperative and failed to submit complete details.

Conclusion: While the CIT(A) was justified in revising the commission, the manner of disposal without remand was procedurally flawed.

(d) CIT(A)'s Failure to Obtain Remand Report under Rule 46A(3)

Legal Framework and Precedents: Rule 46A(3) of the Income-tax Rules, 1962 requires the CIT(A) to obtain a remand report from the AO when additional evidence is produced before the CIT(A) that was not before the AO. The Bombay High Court in Smt. Prabhavati S. Shah vs. CIT and the Gujarat High Court in CIT vs. Valimohmad Ahmadbhai held that failure to comply with Rule 46A(3) amounts to procedural infirmity and violation of principles of natural justice.

Court's Reasoning: The Tribunal found that the assessee submitted additional agreements, written submissions, and transaction details before the CIT(A), which were not forwarded to the AO for a remand report. The CIT(A) passed the appellate order without affording the AO an opportunity to consider and respond to the new evidence.

Application of Law to Facts: The CIT(A) did not comply with the mandatory statutory requirement under Rule 46A(3), thereby violating the appellant's right to fair hearing and the AO's right to respond.

Treatment of Competing Arguments: The revenue conceded the procedural lapse and requested remand for fresh adjudication. The assessee did not dispute the failure but sought a decision on merits.

Conclusion: The appellate order was set aside on grounds of non-compliance with Rule 46A(3) and violation of natural justice.

(e) Remand to AO for Fresh Adjudication

Legal Framework and Precedents: The Tribunal has power to remit matters for fresh adjudication when procedural irregularities or incomplete consideration of evidence occur. The AO is entitled to examine all relevant evidence and explanations before making a fresh assessment.

Court's Reasoning: The Tribunal held that the AO should consider the additional evidence and explanations furnished by the assessee, call for further details if necessary, and make a de novo assessment. The assessee was directed to cooperate fully and avoid unjustified adjournments.

Application of Law to Facts: Given the procedural lapse and incomplete consideration of evidence, remand was necessary to ensure fair adjudication.

Conclusion: The matter was remanded to the AO for fresh assessment after considering all evidence and explanations.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"We find that the CIT(A) has not followed the mandatory requirement of giving opportunity of hearing to the AO before passing the appellate order, where addition of entire cash deposit was restricted to 10% of the deposit. In view of the clear statutory provisions discussed above and decision cited supra, we set aside the order of the CIT(A) and remit the matter to the AO for de novo assessment order after considering the explanation and evidence produced by the appellant."

Core principles established include:

(i) The importance of strict compliance with Rule 46A(3) of the Income-tax Rules, 1962, mandating the CIT(A) to obtain a remand report from the AO when additional evidence is produced before the appellate authority.

(ii) The AO's duty to consider all evidence and explanations before making an addition under section 69A, and the onus on the assessee to explain cash deposits.

(iii) The Tribunal's discretion to condone minor delays in filing appeals where delay is not intentional.

(iv) The necessity of fair procedure and opportunity of hearing to all parties, including the AO, to uphold principles of natural justice.

Final determinations:

- Delay of one day in filing appeal was condoned.

- Addition of cash deposits under section 69A and levy under section 115BBE by AO was justified.

- CIT(A)'s confirmation of addition at 10% commission was procedurally flawed due to non-compliance with Rule 46A(3).

- The appellate order was set aside and the matter remanded to the AO for fresh assessment after considering all evidence.