2025 (6) TMI 408 - AT - Income Tax

CIT(A) admitting the additional evidences in contravention of Rule 46A of the Rules i.e without confronting the same to the AO - as alleged assessee had failed to show that it had sufficient reasons for non-compliance during assessment stage which is a pre-condition for accepting additional evidence under Rule 46A of the Rules - addition u/s. 69A of the Act on account of unexplained cash deposit in the appellant s bank account - profit gains of appellant is estimated being 8% of gross receipts HELD THAT - We find substance in the ld. DR s claim that as the aforesaid documentary evidence were filed by the assessee before the CIT(A) for the first time viz. (i). Bank statement; and (ii). Trading Profit and Loss Account Balance-Sheet were additional documentary evidence therefore as per the mandate of sub-rule (3) of Rule 46A of the Income Tax Rules 1962 he was obligated to have allowed a reasonable opportunity to the A.O. to examine the said documents and file his objections to the admission of the same if any. Apart from that the CIT(A) as per sub-rule (2) of Rule 46A was obligated to have recorded in writing the reasons for admission of additional documentary evidence. CIT(A) as per the mandate of Rule 46A was obligated to have allowed a reasonable opportunity to the A.O. to examine the said documentary evidence before admitting the same. Apart from that CIT(A) was further required to have recorded in writing the reasons for admitting the aforesaid additional documentary evidence. CIT(A) had failed to comply with the statutory obligation and had bypassed the procedure contemplated U/Rule 46A for admission of the aforesaid additional documentary evidence and had summarily admitted relied and acted upon the said documents for disposing off the appeal therefore the order passed by him cannot be sustained. We thus set aside the order of CIT(A) with a direction to re-decide the same after complying with the mandate of Rule 46A qua the admission of the additional documents that were filed by the assessee before him.

Summary

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

1. Whether the Commissioner of Income-Tax (Appeals) (CIT(A)) was justified in admitting additional documentary evidence filed by the assessee during appellate proceedings without complying with the procedural safeguards mandated under Rule 46A of the Income Tax Rules, 1962.

2. Whether the CIT(A) was correct in estimating the assessee's income on a presumptive basis under Section 44AD of the Income Tax Act, 1961, at 8% of the gross receipts from the liquor business, instead of accepting the Assessing Officer's (A.O.) addition under Section 69A on unexplained cash deposits.

3. Whether the CIT(A) erred in accepting the assessee's claim regarding the quantum of cash deposits in the bank account, which was lower than the amount determined by the A.O.

4. Whether the CIT(A) erred in directing the A.O. to give credit for TCS/TDS amounts while giving effect to the order.

5. Whether the delay in filing the appeal by the assessee before the Tribunal should be condoned.

Issue-wise Detailed Analysis:

1. Admission of Additional Documentary Evidence by CIT(A) without Compliance of Rule 46A

Relevant Legal Framework and Precedents: Rule 46A of the Income Tax Rules, 1962, prescribes the conditions and procedure for admission of additional evidence by the Commissioner (Appeals). Sub-rule (1) restricts the appellant from producing evidence not produced before the A.O., except in specified circumstances. Sub-rule (2) requires the Commissioner to record reasons in writing for admitting such evidence. Sub-rule (3) mandates that the A.O. must be given a reasonable opportunity to examine the additional evidence and file objections before it is taken into account. Sub-rule (4) carves out exceptions where the Commissioner directs production of documents or examination of witnesses for disposal of appeal or substantial cause.

Court's Interpretation and Reasoning: The Tribunal observed that the assessee had failed to produce the relevant documents before the A.O., including bank statements, trading account, profit and loss account, and balance sheet, which were filed for the first time before the CIT(A). The CIT(A) admitted and relied upon these documents without providing the A.O. an opportunity to examine or object to them, and without recording reasons in writing as mandated by Rule 46A(2) and (3).

The Tribunal held that since the additional evidence was not filed pursuant to any direction by the CIT(A) (which would have invoked sub-rule (4)), the procedural safeguards under sub-rules (2) and (3) were mandatory. The failure to comply with these requirements rendered the CIT(A)'s order unsustainable.

Application of Law to Facts: The CIT(A) had admitted the additional documentary evidence filed by the assessee without affording the A.O. a reasonable opportunity to examine or rebut it, and without recording reasons in writing. This was a clear violation of Rule 46A. The Tribunal emphasized the mandatory nature of these procedural requirements to ensure fairness and proper adjudication.

Treatment of Competing Arguments: The Revenue contended that the CIT(A) erred in admitting the additional evidence without complying with Rule 46A. The assessee did not dispute the procedural lapse but relied on the documents to substantiate the source of cash deposits and income. The Tribunal sided with the Revenue, underscoring the importance of procedural compliance.

Conclusion: The Tribunal set aside the CIT(A)'s order and directed the CIT(A) to re-decide the appeal after complying with Rule 46A, including giving the A.O. a reasonable opportunity to examine the additional evidence and file objections, and recording reasons for admission in writing. The Tribunal also directed that the assessee be given a reasonable opportunity of being heard during the re-hearing.

2. Estimation of Income under Section 44AD at 8% of Gross Receipts

Relevant Legal Framework and Precedents: Section 44AD of the Income Tax Act provides a presumptive taxation scheme for small businesses, allowing income to be estimated at 8% of total turnover or gross receipts, unless the assessee declares a higher income. This provision is applicable where the business turnover does not exceed prescribed limits and the assessee maintains no audited accounts.

Court's Interpretation and Reasoning: The CIT(A) accepted the assessee's claim that the cash deposits related to the liquor trading business, supported by the turnover figures disclosed in the profit and loss account and balance sheet filed before him. However, since the assessee had not filed any return of income, nor had the books audited despite turnover exceeding prescribed limits, the CIT(A) found it appropriate to estimate income on a presumptive basis under Section 44AD at 8% of the gross receipts of Rs. 4.68 crores, amounting to Rs. 37,45,219/-.

Key Evidence and Findings: The assessee's filed documents before the CIT(A) showed a turnover of Rs. 4.68 crores and net profit of Rs. 13.91 lakhs, but these were not verifiable due to non-filing of returns and lack of audit. The A.O. had treated the entire cash deposits of Rs. 6.13 crores as unexplained under Section 69A. The CIT(A) accepted the assessee's revised cash deposit figure of Rs. 4.17 crores based on bank statements filed during appellate proceedings.

Application of Law to Facts: The CIT(A) applied Section 44AD presumptive rate to the gross receipts disclosed, thereby reducing the income estimation significantly from the A.O.'s addition. This approach balanced the need to tax unexplained cash deposits while recognizing the business activity and turnover claimed by the assessee.

Treatment of Competing Arguments: The Revenue challenged the CIT(A)'s estimation, contending that the entire cash deposits were unexplained and should be taxed accordingly. The assessee argued that the cash deposits were legitimate business receipts and supported by turnover and tax collected at source (TCS). The CIT(A)'s approach was a compromise, accepted by the Tribunal as reasonable, subject to procedural compliance regarding evidence admission.

Conclusion: The Tribunal did not disturb the CIT(A)'s estimation of income under Section 44AD at 8% of gross receipts, but remanded the matter for reconsideration after proper admission of evidence as per Rule 46A.

3. Quantum of Cash Deposits in Bank Account

Relevant Legal Framework and Precedents: The burden lies on the assessee to explain cash deposits in bank accounts. Section 69A treats unexplained cash deposits as income if the assessee fails to satisfactorily explain the source.

Court's Interpretation and Reasoning: The A.O. had taken the cash deposits as Rs. 6.13 crores, while the assessee claimed Rs. 4.17 crores based on bank statements filed before the CIT(A). The CIT(A) accepted the lower figure after examining the documents filed during appellate proceedings.

Application of Law to Facts: The acceptance of the lower figure was contingent upon the admissibility and verification of the bank statements, which were additional evidence not produced before the A.O. The Tribunal emphasized the need for procedural compliance before such evidence can be relied upon.

Treatment of Competing Arguments: The Revenue disputed the reduction in cash deposits, arguing that the entire amount should be treated as unexplained. The assessee relied on bank statements and business documents to justify the lower figure.

Conclusion: The Tribunal did not decide the quantum issue finally but linked it to the procedural issue of evidence admission, remanding for reconsideration after proper procedure.

4. Credit for TCS/TDS Amounts

Relevant Legal Framework and Precedents: Tax collected at source (TCS) and tax deducted at source (TDS) are to be credited against the tax liability of the assessee as per provisions of the Income Tax Act.

Court's Interpretation and Reasoning: The CIT(A) directed the A.O. to give credit for TCS/TDS of Rs. 4,08,648/- while giving effect to the order. The Tribunal did not find any infirmity in this direction and did not disturb it.

Application of Law to Facts: The credit was rightly given based on verifiable Form 26AS and other documents.

Conclusion: The Tribunal upheld the direction of credit for TCS/TDS.

5. Condonation of Delay in Filing Appeal

Relevant Legal Framework and Precedents: The Supreme Court has advocated a liberal and justice-oriented approach in condoning delays in filing appeals, especially where sufficient cause is shown.

Court's Interpretation and Reasoning: The assessee delayed filing the appeal by 54 days due to undergoing knee surgery. The Revenue did not oppose condonation. The Tribunal relied on Supreme Court precedent emphasizing liberal approach and condoned the delay.

Conclusion: Delay of 54 days in filing appeal was condoned.

Significant Holdings:

"The Joint Commissioner (Appeals) shall not take into account any evidence produced under sub-rule (1) unless the Assessing Officer has been allowed a reasonable opportunity-(a) to examine the evidence or document or to cross-examine the witness produced by the appellant, or (b) to produce any evidence or document or any witness in rebuttal of the additional evidence produced by the appellant."

"The failure of the CIT(A) to comply with the statutory obligation under Rule 46A by admitting additional documentary evidence without affording the Assessing Officer a reasonable opportunity to examine the same and without recording reasons in writing renders the order passed by him unsustainable."

"The profit and gains of the appellant's business can be justly estimated on a presumptive basis under Section 44AD at 8% of the total turnover/gross receipts where the books of accounts are not audited and returns not filed."

"Ignorance of law is no excuse; a bonafide belief that filing return was unnecessary because tax was collected at source does not absolve the assessee from statutory obligations."

"A liberal and justice-oriented approach should be adopted in condoning delay in filing appeal where sufficient cause is shown."

Final determinations:

- The CIT(A)'s order is set aside and remanded for fresh adjudication after compliance with Rule 46A regarding admission of additional evidence.

- The estimation of income under Section 44AD at 8% of gross receipts is a reasonable approach subject to procedural compliance.

- The quantum of cash deposits and credit for TCS/TDS are to be reconsidered in light of admissible evidence.

- Delay of 54 days in filing appeal by the assessee is condoned.