2025 (9) TMI 289 - AT - Income Tax

Addition under s.69 for unexplained immovable property investment deleted where taxpayer proved funds, retirement benefits, and loan documents

Somabhai Mohandas Patel Versus Income Tax Officer, Ward-3, Palanpur

Somabhai Mohandas Patel Versus Income Tax Officer, Ward-3, Palanpur - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether the delay in filing the appeal (72 days) should be condoned. 2. Whether an addition under section 69 (unexplained investment) in respect of a declared share in immovable property is justified where the assessee offers an explanation supported by retirement receipts, pension income and loan documents produced at the appellate stage. 3. Whether documentary evidence produced for the first time at the appellate stage (including alleged loan documents) can be relied upon and whether non-production during assessment proceedings disentitles the assessee to have that evidence considered. 4. Whether non-compliance with statutory notices and the assessee's failure to respond during assessment proceedings can, by itself, justify treating the investment as income from undisclosed sources. 5. Whether any breach of principles of natural justice occurred by not granting opportunity to be heard by video conferencing in the faceless appeal regime (as raised in grounds). ISSUE-WISE DETAILED ANALYSIS Issue 1 - Condonation of Delay Legal framework: Principles governing condonation of delay require satisfaction of sufficient cause and absence of prejudice to the other side. Precedent Treatment: No specific precedent was applied in the order; standard equitable discretion of the Tribunal was exercised. Interpretation and reasoning: The Tribunal noted the appeal was 72 days time-barred but, on consideration of the assessee's facts and the absence of perceptible prejudice to the respondent, exercised discretion to condone the delay. Ratio vs. Obiter: Ratio - the Tribunal's condonation is an operative decision applying discretionary standards; no novel principle laid down. Conclusion: Delay of 72 days condoned on facts and lack of prejudice, allowing merits to be adjudicated. Issue 2 - Validity of Addition under Section 69 for Unexplained Investment in Immovable Property Legal framework: Section 69 permits treating unexplained investments as income where the assessee fails to satisfactorily explain the source of funds invested. Precedent Treatment: The Tribunal did not cite or distinguish specific case law; it applied statutory principles concerning sufficiency of explanation for source of investment. Interpretation and reasoning: The Tribunal recorded that the Assessing Officer relied on the registration deed showing a 12.5% share valued at Rs.10,33,012 and added that sum as unexplained investment for want of explanation. On appeal, the assessee produced evidence of substantial retirement benefits (lump sum received in 2010) and pension receipts predating the purchase, and asserted a loan of Rs.4,00,000 from a family-related proprietorship. The Tribunal found that these facts established that the assessee possessed substantial funds prior to the purchase and that there was no allegation or finding that the documents produced were fabricated or inherently unreliable. The Tribunal further held that mere non-response to notices during assessment could not be the sole ground to reject the explanation, particularly absent any material indicating undisclosed business or unaccounted income generating the investment. Ratio vs. Obiter: Ratio - where an assessee produces credible documentary evidence (retirement proceeds, pension) showing availability of funds prior to the investment, and there is no material pointing to fabrication or undisclosed income sources, an addition under section 69 cannot be sustained merely because the explanation and documents were produced at the appellate stage or because the assessee failed to respond at assessment stage. Conclusion: The addition of Rs.10,33,012 under section 69 was deleted; the Tribunal allowed the appeal on the ground that the assessee satisfactorily explained the source of investment when considered in totality (retirement receipts, pension income and the asserted loan), and there was no evidence of fabrication or undisclosed income-generating activity. Issue 3 - Admissibility and Reliance on Appellate-Stage Documents (Loan Evidence) Legal framework: Appellate authorities may allow and examine evidence produced for the first time on appeal subject to credibility, reliability, and absence of fabrication; remand to AO for verification is a permissible procedure. Precedent Treatment: The Tribunal recorded that the CIT(A) forwarded the documents to the AO for verification via remand report; the AO's adverse comments were considered. Interpretation and reasoning: Although the loan documents and other proofs were first produced before the CIT(A), the Tribunal noted no finding of fabrication or inherent unreliability. While the AO raised timing and corroboration issues (loan dated after purchase; no confirmation or repayment proof), the Tribunal emphasized that absence of response during assessment cannot be the sole basis for rejecting newly produced evidence if the material, on its face, demonstrates availability of funds and there is no positive material to discredit it. The Tribunal weighed the totality - retirement lump sum and pension receipts together with the loan claim - and found explanation sufficient. Ratio vs. Obiter: Ratio - appellate production of documents is admissible and can be sufficient to discharge the burden of explanation under section 69 if there is no affirmative material to impugn their genuineness and the documents, taken with other available material, show availability of funds. Conclusion: The appellate-stage documents were accepted for consideration; absence of prior production did not automatically render them inadmissible or insufficient to rebut the addition. Issue 4 - Effect of Non-Compliance with Notices / Failure to Respond at Assessment Stage Legal framework: Non-cooperation or failure to reply to statutory notices is a factor that may adversely affect credibility, but it is not ipso facto conclusive against the assessee if reliable evidence is subsequently produced. Precedent Treatment: The Tribunal considered the AO's adverse inference but rejected the proposition that silence during assessment alone mandates sustaining an addition. Interpretation and reasoning: The AO and CIT(A) relied on the assessee's non-compliance and the AO's remand findings (timing discrepancy of alleged loan vis-à-vis purchase and absence of creditor confirmation). The Tribunal, however, distinguished between non-cooperation and positive disproof: because there was no material showing fraudulent fabrication or existence of undisclosed income-generating activity, the Tribunal refused to treat the mere failure to respond as determinative. The Tribunal applied a commonsense evaluation of all available facts (age, employment background, retirement receipts, pension) to conclude that funds were available and explanation plausible. Ratio vs. Obiter: Ratio - while non-compliance is relevant, it cannot be the sole ground to reject an explanation where credible documentary evidence exists and there is no affirmative evidence discrediting it. Conclusion: Non-production during assessment did not justify sustaining the addition in the presence of credible proof of funds and absence of evidence of fabrication or undisclosed income. Issue 5 - Alleged Denial of Video Conferencing Opportunity / Natural Justice under Faceless Appeal Regime Legal framework: Faceless appeal procedures may provide for video-conferencing opportunities; principles of natural justice require an opportunity of hearing. Precedent Treatment: The Tribunal did not undertake a detailed legal analysis or make a specific ruling on the video-conferencing contention in the operative portion of the order. Interpretation and reasoning: Although raised in grounds, the Tribunal's order does not record a separate finding that video-conferencing was denied or that such denial vitiated the proceedings. The Tribunal addressed the substantive sufficiency of the assessee's explanation and evidence and reached a decision to delete the addition; no express adverse finding regarding breach of natural justice was made. Ratio vs. Obiter: Obiter - absence of a specific adjudication on the video-conferencing/natural justice ground means no binding precedent on procedural entitlement is laid down. Conclusion: The Tribunal did not decide the procedural video-conferencing ground separately; the appeal was allowed on merits without reliance on that ground. Overall Disposition The Tribunal condoned the delay, accepted the assessee's explanation of source of funds on the totality of evidence (retirement receipts, pension and the claimed loan), found no material demonstrating fabrication or undisclosed income, held that non-response during assessment could not alone defeat the explanation, deleted the section 69 addition of Rs.10,33,012 and allowed the appeal. The procedural ground concerning video-conferencing was not expressly adjudicated.