2025 (1) TMI 1608 - AT - Income Tax

Decision upholds s153D approval; s69C unexplained cash additions confirmed as assessee failed to prove third-party HUF source

Smt. Usha Satish Salvi Versus Asst. CIT Central Circle-4 (4), Mumbai

ITAT upholds the assessments: approval under s153D was valid and the assessee's additional ground is dismissed. Unexplained cash expenditure under ... Assessment u/s 153C - want of valid approval u/s 153D - HELD THAT:- We are of the opinion that approval was granted by the additional Commissioner of income-tax after due application of mind. The objections of the assessee raised in an additional ground are accordingly rejected. The additional ground is accordingly is dismissed. Unexplained cash expenditure u/s 69C - source and nature of the cash expenditure incurred as appearing in the document seized from the premises of the husband of the assessee - HELD THAT:- Since the assessee is claiming that said cash expenditure was incurred by Mr. Suresh Jajra, the onus lies on the assessee to produce him before the AO or CIT(A) along with source of cash expenditure but no such effort was made by the assessee and the assessee wants to shift his onus to the AO to establish that cash was advanced by Shri Suresh Jajra HUF. Now a period of more than 12 years has elapsed and the limitation for taking any action in the hands of Mr. Suresh Jajra HUF within the provision of the Income-tax has already expired and therefore, making such claim for making enquiry from Mr Suresh jajera and shifting the burden on Shri Suresh Jajra HUF is of no relevance. Accordingly, we reject the contention of the assessee and uphold the finding of the Ld. CIT(A) on the issue in dispute. The addition on the merit for all the three years is accordingly confirmed. ISSUES PRESENTED AND CONSIDERED 1. Whether the approval granted by the competent authority under section 153D was vitiated for want of application of mind and therefore rendered the assessment framed under section 153C/153A void. 2. Whether cash payments evidenced by seized documents but not recorded in the assessee's books constitute unexplained cash expenditure taxable under section 69C. 3. Whether the assessee discharged the onus of proving that the cash payments were not hers but belonged to a third party (i.e. that the assessee acted only as a pass-through/producer in name) and whether failure to summon/produce that third party before the AO/CIT(A) vitiates the addition. 4. Admissibility of additional grounds raising legal challenges to the administrative approval under section 153D (whether such grounds may be entertained by the Tribunal when raised first on appeal). ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of approval under section 153D (application of mind) Legal framework: Section 153D requires prior approval of the authorised range officer before the Assessing Officer passes assessment orders under sections 153A/153C; such approval must follow application of mind. Precedent treatment: Coordinate Bench and High Court decisions were cited by the assessee holding that mechanical/blank approvals without reasons are unsustainable; the Tribunal considered those authorities but distinguished them on facts where no evidence of deliberation existed. Interpretation and reasoning: The Tribunal examined the approval letter, the assessment file and affidavits of both the Assessing Officer and the approving authority. The approval, though concise and consolidated for multiple years, was shown to follow repeated discussions, review of appraisal reports and suggested modifications to the draft order. The approving authority's involvement throughout the process and recorded modifications in the final order were treated as evidence of application of mind. The Tribunal noted absence of any rebutting evidence from the assessee to counter the affidavits. Ratio vs. Obiter: Ratio - approval under section 153D is sustainable if material on record (including affidavits and manifested modifications to draft orders) establishes deliberation and application of mind even if the formal approval letter is brief or consolidated. Distinguishing observations on the inapplicability of earlier precedents where no deliberation was shown are part of the ratio. Obiter - remarks on administrative practice of not recording every meeting. Conclusion: The approval under section 153D was not mechanical or without application of mind; the assessment orders under section 153C/153A stood valid. The additional ground challenging validity of approval was dismissed. Issue 2 - Addition under section 69C for unexplained cash expenditure Legal framework: Section 69C treats unexplained expenditure as income where cash expenditure is shown by documents seized from search and the assessee fails to explain source/nature; entries not recorded in books attract additions. Section 69A/69C distinctions applied where some sums are unaccounted receipts and some are unexplained expenditure. Precedent treatment: Tribunal and appellate authorities' established approach that where cash payments are evidenced by seized documents and not recorded, onus lies on assessee to explain source; failure permits addition under section 69C. Interpretation and reasoning: Seized loose papers exhibited cash payments made for film production. Payments made by cheque appeared in books; cash payments did not. The assessee's contention of being a mere pass-through (third party funding by a producer HUF) required documentary proof or production of the third party for verification. The agreement and other documents produced were scrutinised: contract terms demonstrated that risks and rewards lay with the assessee as producer, assignment of IPR and profit sharing clauses favoured the assessee's position as principal rather than mere custodian. Retraction of the husband's statement lacked supporting sworn evidence. The Tribunal emphasised that when an assessee asserts third-party source, the onus to bring that third party or corroborative evidence is on the assessee; mere claims without supporting documentation or witness production are insufficient. The Tribunal accepted the CIT(A)'s bifurcation and confirmation of additions under sections 69C (for unexplained cash expenditure) and 69A (for unaccounted receipts where applicable), noting overall aggregate of cash payments seized matched assessment additions. Ratio vs. Obiter: Ratio - where seized documents establish cash payments not recorded in books and the assessee fails to produce corroborative evidence or summon the alleged third-party source, unexplained cash expenditure under section 69C can be added; the commercial substance of the production agreement and allocation of risks/rewards is relevant to determine whether claimed third-party funding absolves the assessee. Obiter - comment that limitation expiry for acting against the alleged third party reduces relevance of seeking AO enquiry now. Conclusion: Additions for unexplained cash expenditure under section 69C (and related 69A components) for the contested assessment years were upheld; the assessee failed to discharge the onus to show that cash belonged to a third party. Issue 3 - Onus to produce third party and effect of retracted statement Legal framework: Basic evidentiary principle that a taxpayer asserting that a transaction involves a third party must substantiate the claim; statements recorded under section 132(4) are relevant evidentiary material; retractions require credible corroboration (affidavits, panchas) to be accepted. Precedent treatment: Authorities require tangible evidence if an assessee seeks to shift burden to department to pursue third parties; mere retraction without formal affidavits or witnesses is of limited value. Interpretation and reasoning: The assessee relied on a retraction of the husband's earlier statement and later produced an agreement not previously on record; the Tribunal observed that retraction lacked the formalities (sworn affidavit with panch witnesses) and the newly produced agreement was not relied on before lower authorities. The Tribunal held that it was incumbent upon the assessee to produce the alleged third party or contemporaneous corroboration before the AO/CIT(A); failing which, the claim cannot override the primary documentary evidence seized and the contractual terms establishing producer role. Ratio vs. Obiter: Ratio - shifting onus to the department to pursue a third party is not acceptable where the assessee has the capacity to produce or summon that third party; retractions must meet evidentiary standards. Obiter - practical observation on limitation expiry affecting late verification requests. Conclusion: The assessee's failure to produce the third party or credible corroboration led to rejection of the pass-through defence; the retracted statement did not nullify the seized material's evidentiary effect. Issue 4 - Admissibility of additional legal grounds before the Tribunal Legal framework: Tribunal may admit additional ground where it raises pure questions of law and does not require fresh evidence; settled principles (e.g., NTPC) permit such admission. Precedent treatment: The Tribunal admitted the additional grounds here because they raised legal questions (validity of approval under section 153D) not requiring fresh fact-finding. Interpretation and reasoning: The Tribunal applied the settled test for admissibility and allowed the additional ground to be heard on its merits; however, admissibility did not guarantee success - factual record and affidavits were considered to decide the substance. Ratio vs. Obiter: Ratio - additional grounds of law can be admitted at the Tribunal stage; their admission is distinct from their merits assessment. Obiter - none. Conclusion: Additional legal grounds challenging procedural validity were admissible and were adjudicated on merits; they were ultimately dismissed on the facts.