2025 (7) TMI 676 - AT - Income Tax

Assessee gets fresh hearing opportunity despite non-appearance as ITAT restores Section 69A addition matter to AO

Shri Maneesh Joshi Versus The ITO, Ward-Dausa Dausa

Shri Maneesh Joshi Versus The ITO, Ward-Dausa Dausa - TMI 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Appellate Tribunal (AT) in this case are as follows:(a) Whether the addition of Rs. 22,83,000/- on account of unexplained money under Section 69A of the Income Tax Act, 1961 (IT Act) was justified and whether such addition should be deleted.(b) Whether the addition of Rs. 1,41,50,500/- on account of unexplained expenditure under Section 69C of the IT Act was justified and whether such addition should be deleted.(c) Whether the addition of Rs. 15,00,950/- on account of sale of motor vehicle treated as Income from Other Sources was justified and whether such addition should be deleted.(d) Whether the addition of Rs. 6,14,46,043/- on account of unexplained cash credit under Section 68 of the IT Act was justified and whether such addition should be deleted.(e) Whether the imposition of tax at the special rate under Section 115BBE of the IT Act was legally valid.(f) Whether the ex-parte orders passed by the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] without hearing the assessee were sustainable.(g) Whether the matter should be restored to the file of the AO for fresh adjudication to provide the assessee an opportunity to be heard and to produce evidence.2. ISSUE-WISE DETAILED ANALYSISIssue (a) & (b): Addition under Sections 69A and 69C of the IT ActRelevant legal framework and precedents: Section 69A deals with unexplained money, bullion, jewellery or other valuable articles found with the assessee but not recorded in books of account, deeming such unexplained assets as income if no satisfactory explanation is offered. Section 69C pertains to unexplained expenditure, which is treated as income if the assessee fails to explain the nature and source of such expenditure. The tax on such income is chargeable under Section 115BBE at a special rate. The law mandates that the burden of proof lies on the assessee to satisfactorily explain the source of such money or expenditure.Court's interpretation and reasoning: The AO found cash deposits of Rs. 22,83,000/- and cash withdrawals of Rs. 1,41,50,500/- during the relevant financial year which were not explained or offered for taxation by the assessee. The AO made additions under Sections 69A and 69C, applying Section 115BBE for tax and initiating penalties under Sections 271AAC(1) and 272A(1)(d). The CIT(A) confirmed these additions in an ex-parte order, noting the assessee's failure to file return or offer any explanation despite multiple notices and opportunities.Key evidence and findings: The evidence comprised bank transaction records showing cash deposits and withdrawals, absence of return filing, and no response from the assessee to notices. The AO relied on the Risk Management Strategy flagged transactions and the assessee's failure to produce any evidence or explanation.Application of law to facts: Given the unexplained cash transactions and absence of any satisfactory explanation or documentation from the assessee, the AO and CIT(A) held the amounts to be unexplained money and expenditure, taxable under Sections 69A and 69C respectively.Treatment of competing arguments: The assessee did not present any substantive defense or explanation before the AO or CIT(A), resulting in ex-parte confirmation of additions. The assessee's representative later requested an opportunity to contest and adduce evidence, which was not considered by the lower authorities.Conclusions: The Tribunal noted the legal correctness of additions under Sections 69A and 69C based on the facts and law but emphasized the need for the assessee to have an opportunity to be heard and produce evidence. Consequently, the matter was restored to the AO for fresh adjudication with directions to provide the assessee a fair hearing.Issue (c): Addition of Rs. 15,00,950/- as Income from Other SourcesRelevant legal framework and precedents: Income from sale of motor vehicle is taxable under the head 'Income from Other Sources' if the sale proceeds are not accounted for or explained. The AO invoked Section 270A penalty for concealment or furnishing inaccurate particulars of income.Court's interpretation and reasoning: The AO treated the sale proceeds as income since the assessee failed to file returns or explain the transaction. The CIT(A) confirmed the addition ex-parte due to non-appearance of the assessee.Key evidence and findings: The evidence was the transaction record of sale/purchase of vehicle amounting to Rs. 15,00,950/-, unaccounted for in the return.Application of law to facts: Without any explanation or documentation, the transaction was rightly treated as income from other sources.Treatment of competing arguments: No defense was presented before AO or CIT(A). The assessee later sought opportunity to contest.Conclusions: The Tribunal found the addition legally sustainable but restored the matter for fresh adjudication with opportunity to the assessee.Issue (d): Addition under Section 68 of the IT Act on account of unexplained cash creditRelevant legal framework and precedents: Section 68 requires the assessee to explain the nature and source of any cash credit appearing in books of account. If the explanation is unsatisfactory, the amount is treated as income. The AO invoked Section 115BBE for tax and initiated penalty proceedings.Court's interpretation and reasoning: The AO found contractual payments totaling Rs. 6,14,46,043/- unexplained as the assessee failed to file returns or provide evidence. CIT(A) confirmed the addition ex-parte.Key evidence and findings: Bank and transaction records showing large contractual payments without corresponding explanations or returns.Application of law to facts: The unexplained cash credit rightly attracted addition under Section 68.Treatment of competing arguments: No explanation was offered by the assessee before lower authorities; later a request for opportunity was made.Conclusions: The Tribunal upheld the legal basis of the addition but restored the matter to AO for fresh hearing and adjudication.Issue (e): Validity of tax imposition under Section 115BBERelevant legal framework and precedents: Section 115BBE prescribes a special tax rate on income deemed under Sections 69A, 69C, and 68 if unexplained. It is applicable when the income is assessed under these sections.Court's interpretation and reasoning: Since the additions under Sections 69A, 69C, and 68 were justified on facts, the levy of tax under Section 115BBE was also upheld by the CIT(A).Key evidence and findings: The unexplained income determined under the said sections.Application of law to facts: The tax at special rate under Section 115BBE was correctly applied.Treatment of competing arguments: The assessee contested the applicability of Section 115BBE but did not substantiate the claim before lower authorities.Conclusions: The Tribunal did not interfere with the application of Section 115BBE but remanded the matter for fresh adjudication.Issue (f): Sustainability of ex-parte orders passed by AO and CIT(A)Relevant legal framework and precedents: Principles of natural justice require that an assessee be given a reasonable opportunity of being heard before adverse orders are passed. Ex-parte orders are sustainable only if the assessee wilfully abstains from appearing despite adequate opportunity.Court's interpretation and reasoning: The AO and CIT(A) passed ex-parte orders as the assessee did not respond to notices or appear. However, the Tribunal noted that the assessee claimed to have not received communication and sought opportunity to contest. The Tribunal emphasized that large assessments require adjudication on merits with opportunity to the assessee.Key evidence and findings: Notices issued by AO and CIT(A), records of non-appearance, and the assessee's submissions during hearing before the Tribunal.Application of law to facts: While the AO and CIT(A) acted within statutory powers, the Tribunal found it just to restore the matter for fresh hearing to ensure the assessee's right to be heard.Treatment of competing arguments: Revenue opposed restoration citing procedural compliance and non-filing by assessee. The Tribunal balanced this with the interest of justice.Conclusions: The ex-parte orders were set aside for fresh adjudication with directions to provide the assessee adequate opportunity.Issue (g): Restoration of matter to AO for fresh adjudicationCourt's interpretation and reasoning: The Tribunal observed that the assessed income was voluminous (Rs. 7.93 crores approx.) and the assessee was denied opportunity to contest. The Tribunal held that the lis must be decided on merits and nobody's rights should be scuttled without hearing. The assessee was directed to cooperate and not seek frivolous adjournments.Conclusions: The appeal was allowed for statistical purposes by restoring the matter to AO for fresh adjudication in accordance with law and after providing opportunity of hearing.3. SIGNIFICANT HOLDINGSThe Tribunal held:'It was the bounded duty of the assessee to appear before the statutory authorities as and when called for. It is noticed that various opportunities were provided to the assessee for settling the issue, but the assessee remained lethargic and unserious in pursuing his case. However, the Bench is of the view that lis between the parties has to be decided on merits so that nobody's rights could be scuttled down without providing opportunity of being heard to the assessee.''Hence, the matter is restored to the file of the AO to decide it afresh by providing one more opportunity of hearing, however, the assessee will not seek any adjournment on frivolous ground and remain cooperative while-set aside proceedings.''Our decision to restore the matter back to the file of the AO shall in no way be construed as having any reflection or expression on the merits of the dispute, which shall be adjudicated by AO independently in accordance with law.'Core principles established include the necessity of adhering to principles of natural justice by providing opportunity to the assessee before passing adverse orders, especially in cases involving large unexplained income additions. The Tribunal confirmed the legal correctness of additions under Sections 69A, 69C, 68 and the applicability of Section 115BBE tax but emphasized adjudication on merits after hearing the assessee.Final determinations on each issue were that the additions and tax impositions were legally sustainable but the matter required fresh adjudication with opportunity to the assessee. The appeal was allowed for statistical purposes by remanding the case to the AO.