2025 (8) TMI 1420 - AT - Income Tax

Section 69A additions set aside for inadvertent nondisclosure; matter restored to AO for de novo assessment and documents

Shri Subban Sivakumar Versus ACIT Non Corporate Circle-2 Coimbatore.

Shri Subban Sivakumar Versus ACIT Non Corporate Circle-2 Coimbatore. - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether addition under Section 69A can be sustained where large sundry debtors/creditors are reflected in the books but the Assessing Officer alleges rotation of unaccounted money and the assessee fails to produce formal loan agreements, promissory notes or complete supporting documents. 2. Whether the Assessing Officer's estimation of interest income/undisclosed receipts (by applying assumed interest rates and assumed rotations) is sustainable where the assessee professes a money-lending business, has opted for presumptive taxation under Section 44AD, and has furnished party-wise details of debtors and interest income. 3. Whether, on the facts where the assessee furnished elaborate details and workings before the authorities but the AO and first appellate authority proceeded to make large additions without examining debtors/creditors or accepting the supplied particulars, the matter should be remitted for de novo consideration rather than the additions being confirmed. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of addition under Section 69A in respect of unexplained debtors/rotation of funds Legal framework: Section 69A permits the Assessing Officer to treat any sum found to be the assessee's money as income of the assessee if the assessee is unable to satisfactorily account for the source thereof. The provisions must be applied in light of material on record and explanations furnished by the assessee. Precedent treatment: No specific authorities are cited in the impugned orders. The AO applied s.69A on the basis of internal arithmetic (interest rate, rotation) and discrepancy in opening balance vis-à-vis previous year's return; the CIT(A) endorsed those findings. Interpretation and reasoning: The Tribunal observed that the AO's approach relied on reconstructed estimates (assumed interest rate of 18%, assumed rotation four times) and the fact of an earlier return showing nil debtors. The Tribunal emphasized that the assessee had furnished elaborate details: party-wise names, addresses, PANs, bank statements and workings for movements in sundry debtors and creditors. The Tribunal held that a mere inadvertent omission or discrepancy in earlier return does not automatically justify application of s.69A where the assessee has supplied substantive particulars and workings. The Tribunal criticized the AO's mechanical quantification by assumption without corroborative inquiry or rejection of the factual details provided. Ratio vs. Obiter: Ratio - Section 69A cannot be mechanically invoked and quantified where the assessee has furnished detailed particulars and the disputed sums relate to business transactions (money-lending) unless the AO demonstrates inability of the assessee to account for the sums; mere discrepancy in an earlier return is not conclusive. Obiter - observations critiquing the specific rotation arithmetic (4 times) and assumed interest rates as speculative in the absence of independent verification. Conclusion: Addition of Rs. 58.83 Crores under Section 69A is set aside and the matter remitted to the Assessing Officer for de novo consideration, permitting the assessee to file requisite documents/explanations to substantiate the return. Issue 2 - Sustainability of estimation of interest income/undisclosed receipts Legal framework: The AO may estimate income where records are inadequate or where receipts are not satisfactorily explained; however, estimation must be based on sensible, demonstrable foundations and the authorities must consider available evidence furnished by the assessee, including party-wise interest receipts and bank records. The presumptive scheme under Section 44AD affects maintenance of books but does not preclude the requirement that the AO consider the material produced. Precedent treatment: The AO estimated interest by applying assumed rates (18% and alternatively 24%) to the closing debtors and contrasted that with declared receipts, treating the difference as suppressed income; CIT(A) upheld such estimates for failure of the assessee to furnish fuller particulars. Interpretation and reasoning: The Tribunal found that the assessee had produced party-wise interest income details and bank statements and that lower authorities had not properly examined or accepted those particulars before making large estimated additions. The Tribunal noted the interplay with Section 44AD (presumptive taxation): while books may not be required, the factual matrix of a money-lending business and the furnished particulars mandate careful consideration before estimating income. The Tribunal regarded the AO's methodology as speculative where it ignored the substantive documentary material provided and relied on broad assumptions about interest rates and turnover/rotation without verifying the furnished details or examining debtors/creditors. Ratio vs. Obiter: Ratio - Income estimation by the AO must be predicated on a rational basis and after due consideration of evidence produced by the assessee; rejection of supplied details without appropriate enquiry renders the estimation unsustainable. Obiter - remarks on typical turnover/repayment cycles of money-lending business (3-6 months) used to critique the AO's assumptions. Conclusion: The estimated additions to interest/undisclosed receipts are set aside; the assessment is restored for de novo consideration with a direction permitting the assessee to file full particulars and for the AO to examine party-wise evidence before making any estimation. Issue 3 - Appropriate remedial course where lower authorities fail to consider furnished particulars Legal framework: Where the Assessing Officer or Appellate Authority has not considered material evidence or has made additions based on assumptions without conducting requisite inquiries, the appellate forum may remit the matter for fresh adjudication to afford fair opportunity and ensure fact-finding on the record. Precedent treatment: The AO and CIT(A) confirmed additions without detailed examination of debtors/creditors; the Tribunal emphasized the duty to consider documentary evidence such as bank statements, party lists, PANs and workings. Interpretation and reasoning: The Tribunal concluded that the assessee had furnished elaborate details and that the lower authorities' reliance on earlier return discrepancies and speculative arithmetic was insufficient to sustain the additions. In light of incomplete consideration and the potential availability of corroborative material, the Tribunal found remand for de novo assessment to be the proper remedy to enable thorough verification and to keep issues open for adjudication on full evidence. Ratio vs. Obiter: Ratio - Remittal for de novo assessment is appropriate where the authorities have not adequately considered material evidence produced by the assessee and have made speculative additions; the assessee should be given opportunity to substantiate the return. Obiter - procedural suggestions about the scope of material to be produced on remand. Conclusion: The Tribunal set aside the impugned additions and restored the assessment file to the Assessing Officer for de novo assessment, directing that the assessee be allowed to file requisite documents/explanations; all issues were kept open. The appeal was allowed for statistical purposes.