2025 (5) TMI 1557 - AT - Income Tax

Tax Assessment Dispute: Premature Disallowance Overturned, New Evidence Requires Comprehensive Review Under Section 263

The Tribunal addressed tax assessment issues involving cash payments and evidence admissibility. It held that the Assessing Officer's disallowance of ... Disallowance of purchases - Payments made in excess of Rs. 20,000/- in cash - as argued these were not cash transactions but were payments made through DDs - HELD THAT:- Admittedly, the assessee has not produced the required evidence before the Assessing Officer to prove that the purchases are made through DDs. Certain evidences have been produced before the ld. CIT(A). These evidences have completely been disregarded by the ld. CIT(A). This being so, in the interest of justice, the issues in both the appeals appeal are restored to the file of AO for readjudication after granting the assessee adequate opportunity of being heard. Appeals of the assessee are partly allowed for statistical purposes. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal were:Whether the Assessing Officer was justified in disallowing the entire purchases made allegedly in cash exceeding Rs. 20,000/- due to the assessee's failure to produce evidence substantiating that such payments were made through Demand Drafts (DDs) and not in cash;Whether the evidence produced by the assessee before the Commissioner of Income Tax (Appeals) (CIT(A)) regarding payments through DDs drawn from banks in Bhutan could be admitted and considered, despite not being produced before the Assessing Officer;Whether the CIT(A) was correct in dismissing the assessee's appeal without remanding the matter back to the Assessing Officer for reconsideration of the newly produced evidence;Whether the matter should be restored to the Assessing Officer for fresh adjudication after providing the assessee an opportunity to produce evidence to substantiate the claim that payments were not made in cash but through DDs.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Justification for disallowance of purchases on account of alleged cash payments exceeding Rs. 20,000/-Relevant legal framework and precedents: Under the Income Tax Act, payments exceeding Rs. 20,000/- in cash for business purchases are generally disallowed due to the statutory prohibition on cash payments beyond this threshold to curb unaccounted transactions. The Assessing Officer is empowered to disallow such expenses if the assessee fails to provide satisfactory evidence to the contrary.Court's interpretation and reasoning: The Tribunal noted that the Assessing Officer disallowed the entire purchases on the ground that the payments were made in cash exceeding the prescribed limit, and the assessee failed to produce evidence before the Assessing Officer to prove that payments were made through DDs.Key evidence and findings: The assessee admitted failure to produce the relevant evidence during the assessment proceedings. However, the assessee contended that payments were made by DDs drawn from banks located in Bhutan, which was adjacent to the place of business in Jalgaon, India.Application of law to facts: The Tribunal recognized that the Assessing Officer's disallowance was based on the statutory provision and the assessee's failure to produce evidence during assessment. However, the Tribunal also considered the nature of the evidence produced later before the CIT(A).Treatment of competing arguments: The revenue argued that the assessee had ample opportunity to produce evidence during assessment and failed to do so, justifying the adverse inference and disallowance. The assessee argued that the payments were made through DDs and that the evidence was produced before the CIT(A), which should have been considered.Conclusions: The Tribunal held that the disallowance was premature without considering the evidence produced before the CIT(A), which could substantiate the claim that payments were not in cash.Issue 2: Admissibility and consideration of evidence produced before CIT(A) but not before Assessing OfficerRelevant legal framework and precedents: It is a settled principle that evidence not produced before the Assessing Officer ordinarily cannot be admitted at the appellate stage unless there is sufficient cause for non-production. The CIT(A) has discretion to remand the matter for fresh adjudication if new evidence is produced.Court's interpretation and reasoning: The Tribunal observed that the CIT(A) dismissed the appeal on the ground that the evidence was not produced before the Assessing Officer and that the DDs were drawn from Bhutan banks, which was considered unusual. The Tribunal noted the assessee's explanation regarding the proximity of Bhutan and the lower bank charges there.Key evidence and findings: The evidence comprised details of DDs drawn from three banks in Bhutan. The assessee argued that this was a legitimate business practice due to cost advantages.Application of law to facts: The Tribunal found that the CIT(A) erred in not considering the evidence and in not remanding the matter to the Assessing Officer for verification and fresh adjudication.Treatment of competing arguments: The revenue contended that the assessee had sufficient time to produce evidence during assessment and that the CIT(A) was justified in dismissing the appeal. The assessee argued that the CIT(A) should have remanded the matter to the Assessing Officer for fresh consideration.Conclusions: The Tribunal held that the CIT(A) should have remanded the matter to the Assessing Officer rather than outright dismissing the appeal.Issue 3: Whether the matter should be restored to the file of the Assessing Officer for fresh adjudicationRelevant legal framework and precedents: The appellate authority has the power to restore the matter to the Assessing Officer for fresh adjudication if new evidence is produced or if procedural fairness demands further opportunity to the assessee.Court's interpretation and reasoning: The Tribunal emphasized the principles of natural justice and fair opportunity to the assessee to substantiate its claims. It noted that the assessee was under the impression that the evidence produced before the CIT(A) would be forwarded to the Assessing Officer for remand report, which did not happen.Key evidence and findings: The Tribunal took note of the assessee's willingness to produce all relevant evidence if granted an opportunity.Application of law to facts: The Tribunal found that the CIT(A) erred in not remanding the matter and instead dismissing the appeal, thereby depriving the assessee of a fair opportunity.Treatment of competing arguments: The revenue argued against restoration on the ground that the assessee had already been granted time during assessment. The Tribunal balanced this against the interest of justice and the need to consider relevant evidence.Conclusions: The Tribunal