2025 (7) TMI 1306 - AT - Income Tax

Assessee gets final chance to submit section 54F exemption documents for unexplained investment addition of Rs. 2.93 crore

Neelam Mandhani Versus The Income Tax Officer-1 (2), Raipur (C.G.)

Neelam Mandhani Versus The Income Tax Officer-1 (2), Raipur (C.G.) - TMI ISSUES: Whether addition under Section 69A of the Income Tax Act, 1961, for unexplained investment is justified without proper documentary evidence supporting the source of investment.Whether the claim of exemption under Section 54F of the Income Tax Act can be disallowed solely on the ground of delayed filing of the return of income.Whether the appellate authority erred in rejecting additional evidence without independent verification or proper reasons, contrary to Rule 46A of the Income Tax Rules, 1962.Whether principles of natural justice were violated by the appellate authority in affirming the addition without proper consideration of submissions and documentary evidence.Whether the appellate authority's order was passed in haste merely to comply with a judicial deadline, thereby defeating the purpose of appellate proceedings.Whether remand for fresh adjudication is appropriate to allow submission and consideration of additional evidence regarding exemption claims. RULINGS / HOLDINGS: The addition of Rs. 2,93,14,320/- under Section 69A was upheld by the appellate authority as the assessee failed to furnish documentary evidence to substantiate the source of investment; the addition was not based on mere presumptions but on absence of corroborative evidence.The claim of exemption under Section 54F was held to be 'baseless' by the Assessing Officer because the return of income was not filed within the due date, a prerequisite for claiming such exemption.The appellate authority erred in rejecting additional evidence solely because the Assessing Officer did not comment on it, without conducting independent verification or recording proper reasons, which is contrary to Rule 46A of the Income Tax Rules, 1962.The principles of natural justice require that all documentary evidence submitted by the assessee must be properly considered before imposing tax liability; failure to do so constitutes a violation.The appellate order was passed 'merely to comply with the 90-day deadline' prescribed by the High Court, which is insufficient for proper adjudication and thus improper.The matter is remanded to the appellate authority for de novo adjudication to allow the assessee a final opportunity to submit documentary evidence supporting the claim of exemption under Section 54F, ensuring equitable justice without prejudice to the revenue. RATIONALE: The legal framework applied includes Section 69A of the Income Tax Act, 1961, which deals with unexplained investments, requiring the assessee to explain the source of investment with documentary evidence.Section 54F of the Income Tax Act mandates timely filing of return of income to claim exemption on capital gains arising from sale of a long-term capital asset and investment in residential property.Rule 46A of the Income Tax Rules, 1962, requires the appellate authority to consider additional evidence with proper verification and recording of reasons for acceptance or rejection.The Court emphasized adherence to principles of natural justice, requiring fair opportunity and proper consideration of evidence before confirming additions to taxable income.The decision reflects a doctrinal emphasis on procedural fairness and the necessity of adjudicating appeals on merits rather than procedural expediency, especially in tax matters involving substantial additions.The remand ensures compliance with judicial principles, allowing the assessee to substantiate claims and the appellate authority to make an informed decision, thus balancing the interests of justice and revenue.