2025 (5) TMI 2054 - AT - Income Tax

Income Tax Tribunal Allows Substantial Appeal Relief, Condones Pandemic-Era Delay and Deletes Significant Tax Additions

Dharam Veer Ram, C/o S.N. Ghosh & Associates, Advocates “ Sagar Mansion” Versus ACIT, Circle 16 (1), Mumbai

The SC/Tribunal condoned a 505-day delay in filing appeals due to COVID-19 communication challenges. For AY 2012-13, the entire Rs. 24,00,000 addition was ... Additions u/s. 69 - term deposits in both the assessment years were made out of the maturity value of earlier term deposits credited to the bank account of the assessee - HELD THAT:- Term deposits were made out of the balance available in the bank account of the assessee. Thus, the source of investment in the term deposits clearly stand established. Out of the total investment in term deposit of Rs. 46,27,514/- the assessee had clearly established the source of Rs. 40,00,000/-. In so far as balance amount of Rs. 6,27,514/- is concerned, undoubtedly, the assessee has failed to established the source. Thus, the addition to the extent of Rs. 6,27,514/- has to be sustained. We direct the AO to delete the addition of Rs. 24,00,000/- made in A.Y. 2012-13. Out of the addition of Rs. 46,27,514/- made in AY. 2014-15, the AO is directed to delete addition of Rs. 40,00,000/-. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal are:- Whether the delay of 505 days in filing the appeals can be condoned on grounds of reasonable cause.- Whether the additions made by the Assessing Officer (AO) under Section 69 of the Income Tax Act, 1961, amounting to Rs. 24,00,000/- for AY 2012-13 and Rs. 46,27,514/- for AY 2014-15, are justified.- Whether the assessee has satisfactorily proved the source of investments in term deposits for the disputed amounts in both assessment years.- The correctness of the AO's invocation of Sections 147 and 144 of the Act for reopening and completing the assessments respectively, given the non-filing of returns and alleged non-compliance with notices.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Condonation of Delay in Filing AppealsRelevant Legal Framework and Precedents: The Income Tax Act and procedural rules allow for condonation of delay in filing appeals if sufficient cause is shown. Courts have consistently held that bona fide reasons such as health, lack of knowledge of procedure, or extraordinary circumstances like lockdowns can constitute reasonable cause.Court's Interpretation and Reasoning: The Tribunal observed that the assessee, a septuagenarian, was unfamiliar with the virtual mode of proceedings and lost contact with his counsel during the COVID-19 lockdown. The assessee only became aware of the adverse orders after receiving physical notices and then engaged new counsel to file the appeals.Key Evidence and Findings: The lockdown and resultant communication difficulties were accepted as bona fide reasons. No deliberate negligence or mala fide intent was found in the delay.Application of Law to Facts: The Tribunal applied the principle of reasonable cause and found the delay justifiable.Treatment of Competing Arguments: The Departmental Representative did not dispute the reasonable cause but relied on merits of the appeal.Conclusion: Delay of 505 days was condoned and appeals admitted for adjudication on merits.Issue 2: Validity of Additions under Section 69 of the Income Tax ActRelevant Legal Framework and Precedents: Section 69 deals with unexplained investments, where if the assessee fails to explain the source of investments, the amount can be treated as income. Sections 147 and 144 empower the AO to reopen assessments and complete them to the best of judgment if returns are not filed or notices ignored.Court's Interpretation and Reasoning: The AO reopened assessments for AYs 2012-13 and 2014-15 on the ground that income had escaped assessment as the assessee did not file returns. The AO added Rs. 24,00,000/- and Rs. 46,27,514/- respectively under Section 69, alleging failure to prove source of term deposits. The First Appellate Authority sustained these additions.Key Evidence and Findings: The assessee contended that term deposits were created from maturity proceeds of earlier term deposits and bank account balances. Bank statements were furnished showing closing balances and maturity proceeds coinciding with term deposit dates.For AY 2012-13, term deposits of Rs. 6,00,000/-, Rs. 10,00,000/-, and Rs. 8,00,000/- were made on dates when bank balances were sufficient to cover these deposits, including maturity proceeds of earlier deposits.For AY 2014-15, term deposits aggregating Rs. 40,00,000/- were similarly supported by bank balances and maturity proceeds. However, the assessee could not satisfactorily explain the source of Rs. 6,27,514/- out of the total Rs. 46,27,514/- term deposits.Application of Law to Facts: The Tribunal applied the principle that the burden of proof lies on the assessee to explain the source of investments. Where the assessee successfully demonstrated the source for substantial amounts through bank statements and maturity proceeds, the additions were not justified. For the unexplained portion, addition under Section 69 was sustained.Treatment of Competing Arguments: The Departmental Representative relied on the AO and appellate orders, emphasizing the failure to prove source. The Tribunal found the assessee's evidence credible for most of the amounts but accepted the shortfall in explanation for Rs. 6,27,514/-.Conclusion: The addition of Rs. 24,00,000/- for AY 2012-13 was deleted. For AY 2014-15, addition was restricted to Rs. 6,27,514/-, deleting the balance Rs. 40,00,000/-.3. SIGNIFICANT HOLDINGS- 'The delay in filing the appeals was due to reasonable cause.' This principle underscores the acceptance of genuine difficulties arising from the COVID-19 lockdown and unfamiliarity with virtual proceedings as sufficient grounds for condonation.- 'The source of investment in the term deposits clearly stand established' where bank statements and maturity proceeds corroborate the amounts invested, thereby negating the addition under Section 69.- 'Out of the total investment in term deposit of Rs. 46,27,514/- the assessee had clearly established the source of Rs. 40,00,000/-,' affirming that partial explanation suffices to reduce the addition proportionately.- The Tribunal directed deletion of the entire addition for AY 2012-13 and partial deletion for AY 2014-15, thereby refining the scope of unexplained investment additions under Section 69.