The Income Tax Appellate Tribunal has directed the Commissioner of Income Tax (Appeals) to re-adjudicate an assessment appeal involving substantial additions under Sections 68 and 69 of the Income-tax Act, 1961. The Tribunal emphasized that while the assessee’s failure to prosecute the appeal was problematic, the nature of the additions - totaling over ₹72 lakh - demanded a merits-based decision with proper opportunity and verification. The case underscores the procedural obligations of tax authorities and the limits of ex parte adjudication in high-value assessments.
The Verdict
The assessee won on procedural grounds. The Income Tax Appellate Tribunal restored the appeal to the Commissioner of Income Tax (Appeals) for fresh adjudication, directing that the matter be decided on merits after affording the assessee a full opportunity to present evidence. The Tribunal imposed a cost of ₹5,000 as a condition precedent for re-hearing. The additions under Sections 68 and 69 were not upheld or rejected outright; instead, the Tribunal held that the appellate authority must conduct a reasoned, independent evaluation with due regard to documentary evidence and statutory verification powers.
Background & Facts
The assessee, an individual engaged in agriculture and a small milk supply business, did not file an income tax return for Assessment Year 2015-16, claiming income below the taxable limit. The Department reopened the assessment under Section 148 based on information of significant cash deposits and a property purchase. The assessee filed a return declaring income of ₹1,25,250. During reassessment, the Assessing Officer made two additions: ₹34,15,900 under Section 68 as unexplained cash credit, and ₹37,95,000 under Section 69 as unexplained investment. The total assessed income rose to ₹73,36,150, creating a demand of over ₹58 lakh.
The assessee contended that the cash deposits arose from advance payments received on the sale of agricultural land and submitted supporting documents. He also argued that the property purchase consideration was ₹37,95,000, as per the registered sale deed, and that the Sub-Registrar had erroneously recorded it as ₹75,90,000 - exactly double. He requested the Assessing Officer to issue summons under Section 133(6) to verify these facts with the Sub-Registrar and the buyer, but no such inquiry was conducted.
The assessee appealed to the Commissioner of Income Tax (Appeals), but failed to file written submissions or supporting documents despite multiple notices. The appellate authority, citing non-prosecution, passed an ex parte order upholding the additions. The assessee then appealed to the Tribunal.
The Legal Issue
The central legal questions were: (1) Can an appellate authority uphold substantial tax additions under Sections 68 and 69 based solely on the Assessing Officer’s findings, without independently evaluating the evidence or granting a meaningful opportunity to the assessee? (2) Does the failure of the assessee to prosecute the appeal justify an ex parte order when the additions involve complex factual disputes requiring verification under Section 133(6)?
Arguments Presented
For the Petitioner
The assessee’s counsel argued that the Assessing Officer failed to discharge the duty to verify the source of funds despite the production of documents and specific requests under Section 133(6). He contended that once a plausible explanation with supporting documents is furnished, the burden shifts to the Department to disprove it, which was not done. He emphasized that the discrepancy in property value was a clerical error by the Sub-Registrar, not the assessee’s fault, and that the Tribunal must not allow mechanical affirmation of assessments without independent scrutiny. He cited judicial precedents requiring authorities to act fairly and not rely on assumptions.
For the Respondent
The Department relied on the findings of the Assessing Officer and the CIT(A), arguing that the assessee failed to provide credible evidence and neglected to prosecute the appeal. It contended that the burden of proof under Sections 68 and 69 lies squarely on the assessee, and that the appellate authority was justified in upholding the additions due to the absence of any submissions or evidence from the assessee during the appeal. The Department maintained that the ex parte order was procedurally valid under the circumstances.
The Court's Analysis
The Tribunal acknowledged the assessee’s failure to prosecute the appeal before the CIT(A) as a serious lapse. However, it emphasized that procedural defaults cannot override substantive justice, particularly when the additions involve large sums and complex factual disputes. The Tribunal noted that the Assessing Officer had not undertaken any verification despite the specific request under Section 133(6), which empowers tax authorities to summon third parties for information. The failure to do so rendered the assessment incomplete and potentially arbitrary.
"The issues involved relate to substantial additions and require adjudication on merits after proper appreciation of facts and evidence."
The Tribunal held that the CIT(A) erred in disposing of the appeal ex parte without addressing the specific contentions raised - particularly the discrepancy in property value and the source of cash deposits. The appellate authority was obligated to examine whether the documents submitted by the assessee were prima facie credible and whether the Department had discharged its secondary burden of rebuttal. The Tribunal clarified that while the burden of proof lies with the assessee under Sections 68 and 69, the authority must still evaluate the plausibility of the explanation and the reasonableness of the denial.
The Tribunal further observed that the error in property valuation reported by the Sub-Registrar was not a mere technicality but a material fact that could have altered the outcome. The failure to verify such information through statutory powers under Section 133(6) undermined the integrity of the assessment. The Tribunal concluded that the interests of justice required a fresh hearing, not a dismissal on technical grounds.
What This Means For Similar Cases
This decision reinforces that appellate authorities in tax matters cannot rely on ex parte dismissals when the underlying assessments involve substantial additions based on disputed facts. Practitioners must now ensure that even if the assessee has been dilatory, the appellate authority must still conduct a merits-based review if the issues involve verifiable documents or statutory verification powers. The Tribunal’s directive to impose a cost as a condition precedent for re-hearing sets a new benchmark: it balances procedural accountability with substantive fairness.
For tax practitioners, this case underscores the importance of formally requesting verification under Section 133(6) in cases involving third-party records, such as property registrations or bank transactions. Failure to do so may weaken the assessee’s position, but failure by the Department to act on such requests may render the assessment vulnerable. This judgment also signals that appellate authorities must issue reasoned orders addressing each ground of appeal, even if the appellant has been non-cooperative. A mechanical affirmation of the lower authority’s order will no longer suffice.
The ruling does not alter the burden of proof under Sections 68 and 69, but it clarifies that the authority’s duty to examine evidence and verify facts is non-negotiable. Practitioners should treat requests under Section 133(6) as essential procedural steps, not optional requests.
