2025 (6) TMI 1390 - AT - Income Tax

Addition u/s 68 - CIT(A) dismissing the appeal in limine for want of prosecution and for failure to support the grounds raised - HELD THAT - The assessee despite being given multiple opportunities failed to place on record any corroborative evidence to support the claim that the cash deposits were explained or that the addition u/s 68 was unjustified. No error in the approach of the CIT(A) in invoking the ratio laid down by the judicial precedents wherein it was held that preferring an appeal without prosecution is equivalent to non-preferring it and the appellate authority is not required to adjudicate grounds in vacuum without substantiation. It is trite law that legal arguments must be supported by facts and in the absence of any documentary or evidentiary support the appellate authority cannot be faulted for dismissing the appeal. Accordingly the grievance that the CIT(A) failed to consider the written submissions is devoid of merit as those submissions were not accompanied by any new facts or explanations and merely reiterated earlier general legal contentions. No infirmity in the action of CIT(A) in dismissing the appeal in limine for want of prosecution and for failure to support the grounds raised. The principles of natural justice do not extend to granting endless indulgence particularly where procedural notices remain unanswered. Accordingly Ground Nos. 1 and 2 raised by the assessee are dismissed. Jurisdictional validity of reassessment proceedings initiated u/s 147 - grievance of the assessee is that the AO reopened the case for a specific reason namely the alleged advancement of an unsecured loan to one party which was not reflected in the assessee s books of account - HELD THAT - This is not a case where the AO has made addition on an entirely unrelated ground. Rather the AO traced the funding of the loan to unaccounted cash deposits and treated the latter as unexplained for want of books and records. Loan transaction served as the triggering event for the reopening and the inquiry led to a connected addition on the same line of inquiry. It is now settled law that if the AO makes an addition on a matter which was examined as a result of or connected with the reason recorded the reassessment cannot be invalidated merely because the form of the addition differs from the reason recorded. In the present case the loan transaction and cash deposits are part of a single factual chain and cannot be viewed in isolation. Where the AO finds that the purported loan is fictitious and is backed by unaccounted cash the addition of cash deposits falls within the ambit of the original reason even if the section applied is different. It is also pertinent to note that the reassessment has been completed within the scope and spirit of section 147. The existence of tangible material coupled with the enquiry into the source of loan and the linked cash deposits supports the jurisdiction assumed by the AO. The procedural compliance with issue of notice under section 148 and the recording of reasons is not in dispute. We therefore do not find merit in the assessee s challenge to the validity of the reassessment. Accordingly Ground No. 3 is dismissed. Addition u/s 68 - unexplained cash credits being deposits in four ICICI Bank accounts held by the assessee - We find the plea to be prima facie acceptable for consideration. The facts and pattern of transactions in the present year are substantially similar to those in A.Y. 2012 13 as evidenced by the presence of multiple ICICI Bank accounts large-value cash deposits and rotation of funds. However the critical difference is that in the present year the assessee failed to furnish any factual explanation or documentation before the AO or CIT(A). The record before us also does not contain any independently verifiable material to assess whether the transactions were of a pass-through nature or whether the assessee retained the entire sums for his own benefit. While the alternative plea for estimation merits examination we are not inclined to accept the same straightaway at the Tribunal stage without factual verification. However in the interest of justice and in keeping with the principle of consistency we are of the considered view that the matter deserves to be restored to the file of the Assessing Officer with a specific direction to verify the nature and pattern of the cash deposits in light of the facts accepted in A.Y. 2012 13 and to decide whether estimation of commission income is warranted in the present year. Accordingly we set aside the limited issue of quantum addition and restore the matter to the Assessing Officer with the following directions a. The AO shall verify the assessee s bank statements flow of funds and any available evidence to ascertain the nature of cash deposits including repayment of such loan if any in part or full. b. The AO shall specifically examine whether the assessee had engaged in providing accommodation entries or rotation of third-party funds as accepted in A.Y. 2012 13. c. If the factual matrix is found to be similar the AO shall estimate the income component such as commission on a reasonable basis and in accordance with law. Assessee shall be afforded a reasonable opportunity of being heard and to furnish supporting evidence if any. Appeal of the assessee is partly allowed for statistical purposes.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this appeal include:

• Whether the Commissioner of Income Tax (Appeals) erred in dismissing the appeal without adjudicating the grounds raised and without considering the written submissions filed by the assessee;
• The jurisdictional validity of the reassessment proceedings initiated under section 147 of the Income Tax Act, 1961, particularly whether the Assessing Officer could make additions on grounds other than those recorded as reasons for reopening;
• The applicability of section 68 of the Income Tax Act to unexplained cash deposits found in bank accounts not reflected in the assessee's books of account;
• Whether the entire amount of cash deposits treated as unexplained cash credits under section 68 should be taxed as income of the assessee, or whether only a commission or facilitation fee should be considered assessable income;
• The procedural fairness and natural justice considerations arising from the assessee's failure to respond to statutory notices and furnish documentary evidence during appellate proceedings.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Dismissal of Appeal by CIT(A) Without Adjudication or Consideration of Submissions

Legal Framework and Precedents: The appellate authority is required to adjudicate appeals on merits where grounds are raised and supported by evidence. However, judicial precedents establish that appeals preferred without prosecution or substantiation may be dismissed in limine.

Court's Interpretation and Reasoning: The Court noted that although the assessee filed initial written submissions, the CIT(A) issued detailed questionnaires under section 250 seeking explanations and documentary evidence on material issues. The assessee failed to respond to these notices, an omission admitted as inadvertence. No further factual rebuttal or material was produced.

Key Evidence and Findings: The record showed multiple opportunities granted to the assessee to furnish evidence, which were not availed. The affidavit filed cited relocation of the original representative and inability to trace documents as reasons for non-compliance.

Application of Law to Facts: The Court emphasized that the onus was on the assessee to assist in adjudication by responding to specific factual deficiencies. Legal arguments without factual support cannot sustain an appeal. The CIT(A)'s reliance on judicial precedents that equate non-prosecution with non-preference of appeal was found appropriate.

Treatment of Competing Arguments: The assessee's grievance that the CIT(A) ignored submissions was rejected as those submissions lacked new facts or explanations and merely reiterated earlier contentions.

Conclusion: The dismissal of the appeal for want of prosecution and failure to support grounds was upheld as valid and not violative of natural justice.

Issue 2: Jurisdictional Validity of Reassessment Under Section 147

Legal Framework and Precedents: Section 147 permits reopening of assessment where income has escaped assessment based on recorded reasons. Judicial precedents hold that additions must relate to the reasons recorded for reopening; additions on unrelated grounds may invalidate reassessment.

Court's Interpretation and Reasoning: The assessee contended that the reopening was based on alleged unsecured loan not recorded in books, but no addition was made on that ground; instead, addition was made on unexplained cash deposits under section 68, which was argued to be unrelated.

Key Evidence and Findings: The AO's assessment order linked the unsecured loan to the large cash deposits in the assessee's bank accounts, reasoning that the deposits were the source of the loan and were unexplained in the books.

Application of Law to Facts: The Court held that the addition on cash deposits was intrinsically connected to the reopening reason (unsecured loan). The loan and cash deposits formed a single factual chain, and the AO's approach was within the scope of section 147. The Court distinguished the cited precedent where no nexus existed between reopening reason and addition.

Treatment of Competing Arguments: The assessee's argument was rejected as the addition was not on extraneous grounds but was a natural extension of the inquiry triggered by the loan transaction.

Conclusion: The reassessment was held valid and within the jurisdiction of the AO; Ground No. 3 was dismissed.

Issue 3: Applicability of Section 68 to Unexplained Cash Deposits Not Reflected in Books of Account

Legal Framework and Precedents: Section 68 applies where any sum is credited in the books of an assessee and the assessee fails to satisfactorily explain the nature and source. The presence of a credit in books is a foundational condition. Precedents have held that bank passbooks alone are not books of account.

Court's Interpretation and Reasoning: The assessee argued that the bank accounts and deposits were not reflected in regular books and hence section 68 was inapplicable. The Court noted that the assessee failed to produce any books or records despite voluminous banking transactions and multiple notices.

Key Evidence and Findings: Undisputed facts included multiple ICICI Bank accounts with cash deposits totaling Rs. 16.94 crore, an unsecured loan of Rs. 9.80 crore not recorded in books, and failure to respond to notices or produce sales/purchase records.

Application of Law to Facts: The Court emphasized that the failure to maintain or produce books is within the assessee's control and cannot be used as a shield. The substance over form principle applies, especially where concealment is indicated. The Court found the technical plea of non-applicability of section 68 to be unmeritorious given the circumstances.

Treatment of Competing Arguments: The Court distinguished the cited precedent involving a salaried individual with no business activity and isolated deposits, noting the present case involved complex banking transactions and admitted loan advances. The Court also held that the AO's use of section 68 does not preclude application of other provisions like sections 69 or 69A.

Conclusion: The addition under section 68 was sustainable in substance; the technical objection was rejected.

Issue 4: Quantum of Addition - Entire Cash Deposits or Commission Income Only

Legal Framework and Precedents: The principle of consistency and estimation of income on reasonable basis applies where the assessee acts as an intermediary or provides accommodation entries. Prior assessments may guide treatment of similar facts.

Court's Interpretation and Reasoning: The assessee contended that he was not the beneficial owner of the funds but merely facilitated transactions on behalf of third parties, and thus only commission income should be taxed. Reference was made to the preceding year's assessment where income was estimated at 1% commission on banking turnover.

Key Evidence and Findings: The facts and pattern of transactions were substantially similar to the preceding year, but in the present year, the assessee failed to furnish any explanation or evidence.

Application of Law to Facts: The Court found the plea prima facie acceptable but declined to accept it outright at the appellate stage without factual verification. The matter was restored to the Assessing Officer with directions to verify the nature of transactions and consider estimation of commission income if warranted.

Treatment of Competing Arguments: The Court balanced the assessee's failure to produce evidence with the principle of consistency and the prior year's treatment, allowing reconsideration rather than outright acceptance or rejection.

Conclusion: The issue of quantum was remanded for fresh adjudication with specific directions and opportunity to the assessee to produce evidence.

3. SIGNIFICANT HOLDINGS

"Once specific factual deficiencies were pointed out by the appellate authority, the onus was on the assessee to respond and assist in the adjudication of his own appeal. The assessee, despite being given multiple opportunities, failed to place on record any corroborative evidence to support the claim that the cash deposits were explained or that the addition under section 68 was unjustified."

"The reassessment cannot be invalidated merely because the form of the addition differs from the reason recorded. The loan transaction and cash deposits are part of a single factual chain and cannot be viewed in isolation."

"The deliberate omission to maintain books, or the failure to produce them despite having carried out voluminous banking transactions involving substantial cash flow, cannot be used as a shield to resist lawful inquiry."

"Tax adjudication must rest on realities of the transaction, and not on the appearance or technical characterisation alone."

"The matter deserves to be restored to the file of the Assessing Officer with a specific direction to verify the nature and pattern of the cash deposits in light of the facts accepted in A.Y. 2012-13 and to decide whether estimation of commission income is warranted."

Core principles established include the necessity of substantiation in appeals, the validity of reassessment when additions are connected to the recorded reason, the applicability of section 68 even in absence of formal books when the assessee fails to explain large cash deposits, and the principle of consistency in income estimation where the assessee acts as an intermediary.

Final determinations:

• Grounds challenging dismissal of appeal for non-adjudication were dismissed;
• Reassessment under section 147 was held valid;
• Addition under section 68 was upheld in principle;
• Quantum of addition was remanded for fresh consideration with directions to verify the nature of cash deposits and consider estimation of commission income;
• The appeal was partly allowed for statistical purposes.