2025 (10) TMI 588 - HC - Income Tax

Rule 29 bars belated affidavits; unexplained cash claims and new explanations rejected as afterthoughts, prior returns cannot be revised

HC upheld the Tribunal's refusal to admit belated affidavits under Rule 29, finding appellants were not prevented by the assessing authority from ... Admission of additional evidence before the Tribunal - Scope of Rule 29 of the ITAT Rules - unexplained income u/s 69A - as contented additional evidence could be produced before the Tribunal under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963 HELD THAT:- Tribunal requires to accept such additional evidence only in a situation where the assessee was prevented from adducing such evidence by the assessing authority. In the case at hand, as noticed earlier, though Uma Maheshwara Rao Chinni claimed that the cash actually belonged to one Ramesh, no evidence was produced. Sravan Kumar Neela did not raise any such contention. He took up a stand that he was travelling to Kerala to set up a retail store for gold jewellery. Uma Maheshwara Rao Chinni contended that he was planning to invest in a new petroleum business in Kerala. Before the first appellate authority, the afore affidavits were not produced. Sravan Kumar Neela only relied on certain financial/bank statements of certain partnership businesses and income tax returns of some family members. As already noticed, Uma Maheshwara Rao Chinni was set ex parte before the first appellate authority. It is thereafter that the respective appellants produced affidavits explaining the source before the Tribunal. We are of the opinion that since returns have been presented by the respective appellants, declaring the respective figures as income from other sources, at the belated stage of the second appeal to the Tribunal, if the venture of the appellants is accepted, that would lead to the revision of the returns voluntarily filed, which is not possible under the statute. This is all the more so when one of the appellants claims that the cash actually belonged to one Ramesh, who has never ventured to claim it at the original stage. Additional evidence in the form of affidavits produced before the Tribunal is the result of an afterthought alone. The Tribunal is justified in refusing to act on the afore basis. The orders of the Tribunal are virtually based on the factual situations noticed earlier, and no infirmity can be attached to those orders. 1. ISSUES PRESENTED AND CONSIDERED Whether the Income Tax Appellate Tribunal (Tribunal) was obliged to admit and act upon additional documentary and affidavit evidence produced by the assessees at the stage of the second appeal under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963 when such evidence was not offered (or was incomplete) before the assessing authority and the first appellate authority. Whether acceptance of the additional evidence would impermissibly permit revision of voluntary returns filed by the assessees (declaring seized cash as income from other sources) and thereby circumvent statutory restrictions against revision, in the context of unexplained cash seized and assessment under Section 69A and tax under Section 115BBE. Whether the Tribunal's refusal to admit and act upon the belated affidavits and documentary material amounted to a legal infirmity warranting interference by the High Court. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Admissibility of additional evidence under Rule 29 ITAT Rules: Legal framework Rule 29 permits the Tribunal to allow production of additional oral or documentary evidence only where the Tribunal requires it to enable it to pass orders, for any other substantial cause, or where income-tax authorities decided the case without giving sufficient opportunity to the assessee to adduce evidence; any allowance must be for reasons to be recorded. Precedent treatment The Court treated Rule 29 as a restrictive gateway: the Tribunal may admit additional evidence, but only on specified grounds (necessity for decision, substantial cause, or denial of opportunity by revenue authorities). The judgment follows the settled understanding that Rule 29 is not a roving permission to permit revisionary evidence at the appellate stage. Interpretation and reasoning The Court analysed the factual matrix: the assessees had declared the seized cash as income from other sources in returns; material explaining alternate sources (affidavits alleging monies from third parties, bank statements, third-party affidavits) was not placed before the assessing authority or the first appellate authority (one assessee remained ex parte). The belated affidavits and documents were produced only at the Tribunal stage. The Court reasoned that Rule 29's purpose is to permit evidence where the assessing authority prevented adducing it or where it is necessary for the Tribunal to decide; it does not license acceptance of afterthought material that attempts effectively to revise voluntarily filed returns. Ratio vs. Obiter Ratio: The Tribunal properly applied Rule 29 in refusing to admit belated affidavits and documents which were neither prevented from being produced earlier nor necessary for the Tribunal to decide in the sense contemplated by Rule 29; such refusal is permissible where the material is an afterthought and would amount to revising voluntary returns. Conclusions The Tribunal did not err in declining to act upon the additional evidence; Rule 29 authorises admission only in limited circumstances not present here. Issue 2 - Effect of admitting additional evidence on voluntary returns and statutory revision limitations (Section 69A / Section 115BBE context) Legal framework Assessees had filed returns declaring the seized cash as income from other sources; assessments proceeded treating the amounts as unexplained cash under Section 69A and applying tax under Section 115BBE. Statutory scheme does not permit revision of voluntarily filed returns in a manner that would undermine the statutory assessment process by presenting new sources at a belated stage. Precedent treatment The Court treated the principle that voluntary returns cannot be unilaterally revised at appellate stages by adducing new evidence unless permitted by law or Rule 29 conditions; it followed established constraints on post hoc attempts to recast the basis of declared income. Interpretation and reasoning The Court observed that acceptance of the Tribunal-stage affidavits would effectively revise the returns by converting amounts declared as income into sums belonging to third parties or loans/gifts, thereby nullifying the statutory characterisation adopted in the returns and assessments. One assessee's allegation that cash belonged to an unparticipating third party who never asserted ownership at the original stage was treated as suspect and an afterthought. The Court emphasised that the Tribunal's discretion under Rule 29 cannot be exercised so as to enable revision of returns outside the statutory mechanism. Ratio vs. Obiter Ratio: Admission of late evidence that would amount to revision of voluntary returns is impermissible unless Rule 29's conditions (prevention by assessing authority, necessity for decision, or substantial cause) are satisfied; where not satisfied, the Tribunal rightly refuses admission to prevent circumvention of statutory safeguards. Conclusions Admission of the belated evidence would have impermissibly allowed revision of voluntary returns; the Tribunal's refusal to act on that basis was justified. Issue 3 - Whether the Tribunal's factual conclusions warranted interference Legal framework Appellate courts interfere with Tribunal factual findings only on demonstrable illegality, perversity, or failure to consider relevant material; discretionary refusals to admit evidence under Rule 29 are reviewable for patent absence of grounds or misapplication of rule. Precedent treatment The Court treated the Tribunal's conclusions as primarily factual and discretionary and applied the standard that absent a clear legal error or jurisdictional misapplication, such discretionary factual determinations should not be disturbed. Interpretation and reasoning The Tribunal recorded that the affidavits and documents were afterthoughts and that the assessees had opportunities earlier; one assessee had been ex parte earlier, and neither had made the same claims during earlier proceedings. Given these factual findings and the statutory constraints, the Court found no infirmity. The reasoning emphasised the temporal sequence of declarations, lack of prevention by revenue authorities, and the potential to revise returns. Ratio vs. Obiter Ratio: Discretionary factual findings by the Tribunal refusing belated evidence founded on absence of Rule 29 grounds and characterization of the evidence as afterthought are not to be disturbed where supported by records. Conclusions The Tribunal's orders were sustainable on facts and law; there was no jurisdictional or legal error warranting interference, and the appeals were dismissed. Cross-references Issue 1 and Issue 2 are interlinked: the restrictive scope of Rule 29 (Issue 1) is determinative of whether admitting evidence would impermissibly revise returns (Issue 2); Issue 3 addresses appellate restraint in revisiting the Tribunal's exercise of that discretion.