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Facts
The assessee declared an investment of Rs. 12,35,00,000/- in Non-Convertible Debentures (NCDs). The Assessing Officer (AO) accepted that the money was invested, but questioned the source of funds. Despite multiple notices, the assessee failed to provide sufficient evidence to prove the origin of the funds.
Held
The Tribunal held that the CIT(A) erred in dismissing the appeal without affording a meaningful opportunity to the assessee. The Tribunal set aside the CIT(A)'s order and restored the matter for fresh adjudication, emphasizing the need for a reasonable opportunity of being heard.
Key Issues
Whether the CIT(A) erred in dismissing the appeal without providing a proper opportunity of hearing to the assessee? Whether the addition of Rs. 12,35,00,000/- as unexplained investment under Section 69 was justified?
Sections Cited
69, 271(1)(c), 272A(1)(d), 133(6), 142(1)
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Income Tax Appellate Tribunal, MUMBAI BENCH “C” MUMBAI
Before: SHRI OM PRAKASH KANT & SHRI ANIKESH BANERJEE
ORDER PER OM PRAKASH KANT, AM
This appeal by the assessee is directed against order dated 21.07.2025 passed by the Ld. Commissioner of Income-tax (Appeals) – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2022-23, raising following grounds:
1. On the facts and in the circumstances of the case and in law the Hon'ble CIT (A) erred in dismissing the appeal in limine without considering the subject issues on merit and passing an ex parte order and confirming the addition made by the Ld. AO to the returned income and the reasons assigned for doing so are wrong and contrary to the provisions of Income Tax and rules made and contrary to the provisions of Income Tax and rules made and contrary to the provisions of Income Tax and rules made thereunder. Therefore, the appeal may be restored back to Hon'ble thereunder. Therefore, the appeal may be restored back to Hon'ble thereunder. Therefore, the appeal may be restored back to Hon'ble CIT(A) for fresh adjudication. CIT(A) for fresh adjudication.
2. On the facts and in the circumstan 2. On the facts and in the circumstances of the case and in law the ces of the case and in law the Hon'ble CIT(A) erred in upholding the addition made by the Ld AO Hon'ble CIT(A) erred in upholding the addition made by the Ld AO Hon'ble CIT(A) erred in upholding the addition made by the Ld AO of Rs. 12,35,00,000/ of Rs. 12,35,00,000/- to the returned income u/s 69 of the Act and to the returned income u/s 69 of the Act and the reason assigned for doing so are wrong and contrary to the the reason assigned for doing so are wrong and contrary to the the reason assigned for doing so are wrong and contrary to the Provisions of Income Tax Act a Provisions of Income Tax Act and rules made there under. nd rules made there under.
3. On the facts and in the circumstances of the case and in law the 3. On the facts and in the circumstances of the case and in law the 3. On the facts and in the circumstances of the case and in law the Ld AO erred in initiating penalty u/s. 271AAC(1) of the IT Act 1961 Ld AO erred in initiating penalty u/s. 271AAC(1) of the IT Act 1961 Ld AO erred in initiating penalty u/s. 271AAC(1) of the IT Act 1961 and the reason assigned for doing so are wrong and contrary to and the reason assigned for doing so are wrong and contrary to and the reason assigned for doing so are wrong and contrary to the provision of Income Tax Ac the provision of Income Tax Act and rules made there under. t and rules made there under.
4. On the facts and in the circumstances of the case and in law the 4. On the facts and in the circumstances of the case and in law the 4. On the facts and in the circumstances of the case and in law the Ld AO erred in initiating penalty u/s. 272A(1)(d) of the IT Act 1961 Ld AO erred in initiating penalty u/s. 272A(1)(d) of the IT Act 1961 Ld AO erred in initiating penalty u/s. 272A(1)(d) of the IT Act 1961 and the reason assigned for doing so are wrong and contrary to and the reason assigned for doing so are wrong and contrary to and the reason assigned for doing so are wrong and contrary to the provision of Income Ta the provision of Income Tax Act and rules made there under..
At the very outset, the learned counsel for the assessee At the very outset, the learned counsel for the assessee At the very outset, the learned counsel for the assessee submitted that the assessee was not afforded a reasonable submitted that the assessee was not afforded a reasonable submitted that the assessee was not afforded a reasonable opportunity of being heard by the learned Commissioner of Income- opportunity of being heard by the learned Commissioner of Income opportunity of being heard by the learned Commissioner of Income tax (Appeals). It was contended that p tax (Appeals). It was contended that pursuant to a notice issued, ursuant to a notice issued, the appeal was disposed of at the very first hearing, immediately the appeal was disposed of at the very first hearing, immediately the appeal was disposed of at the very first hearing, immediately three days after to the date fixed, thereby resulting in denial of three days after to the date fixed, thereby resulting in denial of three days after to the date fixed, thereby resulting in denial of effective opportunity. effective opportunity.
We have carefully considered the rival submissions and We have carefully considered the rival submissions and We have carefully considered the rival submissions and perused the material available on record. The learned CIT(A), while perused the material available on record. The learned CIT(A), while perused the material available on record. The learned CIT(A), while dismissing the appeal, has recorded that notice of hearing was dismissing the appeal, has recorded that notice of hearing was dismissing the appeal, has recorded that notice of hearing was issued on the appellate portal on 03.07.2025 fixing the hearing on issued on the appellate portal on 03.07.2025 fixing the hearing on issued on the appellate portal on 03.07.2025 fixing the hearing on 18.07.2025, and that there was no compliance by the assessee. 07.2025, and that there was no compliance by the assessee. 07.2025, and that there was no compliance by the assessee. Thereafter, the learned CIT(A) proceeded to adjudicate the appeal on Thereafter, the learned CIT(A) proceeded to adjudicate the appeal on Thereafter, the learned CIT(A) proceeded to adjudicate the appeal on merits and confirmed the addition of ₹12,35,00,000/ merits and confirmed the addition of 12,35,00,000/- made under section 69 of the Act, primarily on the ground that the assessee section 69 of the Act, primarily on the ground that the assessee section 69 of the Act, primarily on the ground that the assessee failed to substantiate the source of investment in non-convertible failed to substantiate the source of investment in non failed to substantiate the source of investment in non debentures. We find that the Ld. CIT(A) has adjudicated the appeal We find that the Ld. CIT(A) has adjudicated the appeal We find that the Ld. CIT(A) has adjudicated the appeal observing as under:
“5. OPPORTUNITY OF HEARING: 5. OPPORTUNITY OF HEARING: Notice of hearing was issued to the appellant in the appeal portal on Notice of hearing was issued to the appellant in the appeal portal on Notice of hearing was issued to the appellant in the appeal portal on 03.07.2025 requesting compliance on 18.07.2025. No compliance 03.07.2025 requesting compliance on 18.07.2025. No compliance 03.07.2025 requesting compliance on 18.07.2025. No compliance was made to this notice. was made to this notice.
FINDINGS & DECISION: 6. FINDINGS & DECISION: As all the grounds of appeal are inter As all the grounds of appeal are inter-related and related to one related and related to one main issue (i.e.) addition of Rs.12,35,00,000/ main issue (i.e.) addition of Rs.12,35,00,000/- as unexplained as unexplained investment u/s 6 investment u/s 69 of the Act they are taken up together for 9 of the Act they are taken up together for adjudication. After careful consideration of the assessment order, adjudication. After careful consideration of the assessment order, adjudication. After careful consideration of the assessment order, submissions of the appellant and facts on record, the following submissions of the appellant and facts on record, the following submissions of the appellant and facts on record, the following findings are on record made: findings are on record made: 6.2 The appellant declared an investment of Rs.12,35 6.2 The appellant declared an investment of Rs.12,35 6.2 The appellant declared an investment of Rs.12,35,00,000/- in the form of Non the form of Non- Convertible Debentures (NCDs) issued by M/s Om Convertible Debentures (NCDs) issued by M/s Om Mega Shelters Pvt. Ltd. The appellant claimed that these were Mega Shelters Pvt. Ltd. The appellant claimed that these were Mega Shelters Pvt. Ltd. The appellant claimed that these were genuine investments and not loans. The investee company genuine investments and not loans. The investee company genuine investments and not loans. The investee company confirmed issuance of debentures to the appellant. The AO acc confirmed issuance of debentures to the appellant. The AO acc confirmed issuance of debentures to the appellant. The AO accepted that money was invested and debentures were allotted. However, that money was invested and debentures were allotted. However, that money was invested and debentures were allotted. However, the crucial issue was the source of funds used for making these the crucial issue was the source of funds used for making these the crucial issue was the source of funds used for making these investments. 6.3 The appellant was asked to furnish detailed documents proving 6.3 The appellant was asked to furnish detailed documents proving 6.3 The appellant was asked to furnish detailed documents proving the source of Rs.12,35,00,000/ the source of Rs.12,35,00,000/- invested. It is seen that despite is seen that despite multiple notices under sections 133(6), 142(1) and opportunities to multiple notices under sections 133(6), 142(1) and opportunities to multiple notices under sections 133(6), 142(1) and opportunities to explain, the appellant failed to produce vital evidences such as explain, the appellant failed to produce vital evidences such as explain, the appellant failed to produce vital evidences such as bank statements showing the origin of funds, loan agreements or bank statements showing the origin of funds, loan agreements or bank statements showing the origin of funds, loan agreements or capital introduction proofs or any ot capital introduction proofs or any other documentary evidence to her documentary evidence to trace these funds legitimately. The AO, therefore, held that the trace these funds legitimately. The AO, therefore, held that the trace these funds legitimately. The AO, therefore, held that the investment was an unexplained investment within the meaning of investment was an unexplained investment within the meaning of investment was an unexplained investment within the meaning of section 69, since the appellant failed to prove the source. This section 69, since the appellant failed to prove the source. This section 69, since the appellant failed to prove the source. This failure is critical because, under failure is critical because, under the Income Tax Act, the onus is on the Income Tax Act, the onus is on the appellant to explain the source of any investment. the appellant to explain the source of any investment. 6.4 Section 69 states that where an assessee has made 6.4 Section 69 states that where an assessee has made 6.4 Section 69 states that where an assessee has made investments not recorded in the books of account and fails to investments not recorded in the books of account and fails to investments not recorded in the books of account and fails to explain the source, the amount can be treated as t explain the source, the amount can be treated as the assessee's he assessee's
income. In the case of Sumati Dayal vs. CIT [1995] 214 ITR 801 income. In the case of Sumati Dayal vs. CIT [1995] 214 ITR 801 income. In the case of Sumati Dayal vs. CIT [1995] 214 ITR 801 (SC), the Hon'ble Supreme Court emphasized that tax authorities are (SC), the Hon'ble Supreme Court emphasized that tax authorities are (SC), the Hon'ble Supreme Court emphasized that tax authorities are entitled to consider surrounding circumstances and apply the test of entitled to consider surrounding circumstances and apply the test of entitled to consider surrounding circumstances and apply the test of human probabilities. human probabilities. 6.5 The appellant did 6.5 The appellant did not present bank account statements or not present bank account statements or audited financials demonstrating inflow of funds. No evidence of audited financials demonstrating inflow of funds. No evidence of audited financials demonstrating inflow of funds. No evidence of loans or capital infusion in prior years was furnished. The source of loans or capital infusion in prior years was furnished. The source of loans or capital infusion in prior years was furnished. The source of funds amounting to Rs.12,35,00,000/ funds amounting to Rs.12,35,00,000/- remained shrouded in remained shrouded in mystery. This creates a mystery. This creates a strong presumption of undisclosed income, strong presumption of undisclosed income, making the addition justified, making the addition justified, 6.6 In the case of Navodaya Castles Pvt. Ltd. v. CIT [2015] 56 6.6 In the case of Navodaya Castles Pvt. Ltd. v. CIT [2015] 56 6.6 In the case of Navodaya Castles Pvt. Ltd. v. CIT [2015] 56 taxmann.com 18 (SC), the Hon'ble Supreme Court affirmed the taxmann.com 18 (SC), the Hon'ble Supreme Court affirmed the taxmann.com 18 (SC), the Hon'ble Supreme Court affirmed the Hon'ble Delhi High Court's decision which is reproduced as Hon'ble Delhi High Court's decision which is reproduced as Hon'ble Delhi High Court's decision which is reproduced as follows: "It is not enough for the assessee to merely furnish details such as "It is not enough for the assessee to merely furnish details such as "It is not enough for the assessee to merely furnish details such as the names, PAN, or confirmations from the share applicants. The the names, PAN, or confirmations from the share applicants. The the names, PAN, or confirmations from the share applicants. The assessee assessee assessee must must must also also also establish establish establish the the the creditworthiness creditworthiness creditworthiness of of of the the the subscribers and the genuineness of the transactions." subscribers and the genuineness of the transactions." "Mere filing of confirmations does not absolve the assessee of the re filing of confirmations does not absolve the assessee of the re filing of confirmations does not absolve the assessee of the responsibility to prove the true source of the funds received. responsibility to prove the true source of the funds received. responsibility to prove the true source of the funds received. Confirmations without supporting evidence of actual capacity to Confirmations without supporting evidence of actual capacity to Confirmations without supporting evidence of actual capacity to invest and the genuineness of the transaction are inadequate unde invest and the genuineness of the transaction are inadequate unde invest and the genuineness of the transaction are inadequate under Section 68." In the present case of the appellant, the investee company's In the present case of the appellant, the investee company's In the present case of the appellant, the investee company's confirmation that debentures were issued establishes only the confirmation that debentures were issued establishes only the confirmation that debentures were issued establishes only the existence of the transaction and not the source of funds. Thus, as existence of the transaction and not the source of funds. Thus, as existence of the transaction and not the source of funds. Thus, as per the above decision, such confirmations cannot per the above decision, such confirmations cannot substitute for proof of source. proof of source. 6.7 It is very clear that the appellant has merely declared the 6.7 It is very clear that the appellant has merely declared the 6.7 It is very clear that the appellant has merely declared the investment in the balance sheet and stated that debentures were investment in the balance sheet and stated that debentures were investment in the balance sheet and stated that debentures were issued, without discharging the initial onus of proving the source of issued, without discharging the initial onus of proving the source of issued, without discharging the initial onus of proving the source of such a high-value investme value investment. Mere reflection of a transaction in nt. Mere reflection of a transaction in books does not ipso facto prove genuineness or explain the nature of books does not ipso facto prove genuineness or explain the nature of books does not ipso facto prove genuineness or explain the nature of the source. Held: Given the above findings and legal principles, it is held that Held: Given the above findings and legal principles, it is held that Held: Given the above findings and legal principles, it is held that the addition of Rs.12,35,00,000/ the addition of Rs.12,35,00,000/- u/s 69 is confirmed. The u/s 69 is confirmed. The penalties and interest levied are consequential in nature. Hence, all es and interest levied are consequential in nature. Hence, all es and interest levied are consequential in nature. Hence, all the grounds raised are dismissed. the grounds raised are dismissed.
7. In the result, the appeal
7. In the result, the appeal is dismissed.”
3.1 However, on an overall consideration of the facts and However, on an overall consideration of the facts and However, on an overall consideration of the facts and circumstances of the case, we find substance in the grievance of the circumstances of the case, we find substance in the griev circumstances of the case, we find substance in the griev assessee. The record reveals that the appeal has been decided at assessee. The record reveals that the appeal has been decided at assessee. The record reveals that the appeal has been decided at the very first instance without granting the assessee a meaningful the very first instance without granting the assessee a meaningful the very first instance without granting the assessee a meaningful and effective opportunity to place its explanation and supporting and effective opportunity to place its explanation and supporting and effective opportunity to place its explanation and supporting material on record. The right of appeal is a v material on record. The right of appeal is a valuable statutory right, aluable statutory right, and its adjudication necessarily requires adherence to the and its adjudication necessarily requires adherence to the and its adjudication necessarily requires adherence to the principles of natural justice. An opportunity of hearing must be real principles of natural justice. An opportunity of hearing must be real principles of natural justice. An opportunity of hearing must be real and effective, and not merely a formality. and effective, and not merely a formality.
3.2 It is well settled that even where an assessee is in de It is well settled that even where an assessee is in de It is well settled that even where an assessee is in default of appearance, the appellate authority is expected to ensure that appearance, the appellate authority is expected to ensure that appearance, the appellate authority is expected to ensure that reasonable opportunity is afforded, particularly when substantial reasonable opportunity is afforded, particularly when substantial reasonable opportunity is afforded, particularly when substantial additions additions additions involving involving involving serious serious serious civil civil civil consequences consequences consequences are are are under under under consideration. Disposal of an appeal at the threshold, without consideration. Disposal of an appeal at the threshold, withou consideration. Disposal of an appeal at the threshold, withou adequate opportunity, vitiates the appellate proceedings. adequate opportunity, vitiates the appellate proceedings. adequate opportunity, vitiates the appellate proceedings.
3.3 In these circumstances, we are of the considered view that the In these circumstances, we are of the considered view that the In these circumstances, we are of the considered view that the impugned order of the learned CIT(A) cannot be sustained. impugned order of the learned CIT(A) cannot be sustained. impugned order of the learned CIT(A) cannot be sustained. Accordingly, the order passed by the learned CIT(A) is set aside, and Accordingly, the order passed by the learned CIT(A) is set aside, and Accordingly, the order passed by the learned CIT(A) is set aside, and the matter is restored to his file for fresh adjudication in accordance he matter is restored to his file for fresh adjudication in accordance he matter is restored to his file for fresh adjudication in accordance with law, after affording the assessee a reasonable and adequate with law, after affording the assessee a reasonable and adequate with law, after affording the assessee a reasonable and adequate opportunity of being heard. opportunity of being heard. The assessee is also directed to The assessee is also directed to cooperate with the appellate proceedings and place all relevant cooperate with the appellate proceedings and place all rele cooperate with the appellate proceedings and place all rele material on record without seeking unnecessary adjournments. material on record without seeking unnecessary adjournments. material on record without seeking unnecessary adjournments.
In the result, the appeal of the assessee is allowed for In the result, the appeal of the assessee is allowed for In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open Court on ounced in the open Court on 18/12/2025. /12/2025.