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Facts
The assessee filed an appeal with a delay of 39 days, explaining that the delay was due to counsel's oversight. The original assessment involved the disallowance of Rs. 9,23,400/- claimed as expenses against derivative income, which the assessee initially reported under Section 44AD and later sought to reduce by claiming specific expenses without furnishing evidence. The AO disallowed these expenses, and the CIT(A) upheld the disallowance ex-parte due to non-compliance.
Held
The Tribunal condoned the 39-day delay in filing the appeal, citing the principle of substantial justice and the inadvertence of the legal counsel. However, on merits, the Tribunal upheld the disallowance of Rs. 9,23,400/-, finding that the assessee failed to substantiate the expenses at any stage (AO, CIT(A), or ITAT) and that the claim appeared to be an afterthought.
Key Issues
Whether the delay in filing the appeal should be condoned and whether the disallowance of expenses claimed against derivative income for lack of substantiation was justified.
Sections Cited
250, 143(3), 143(1), 142(1), 44AD, 43(5), 37(1), 5 of the Limitation Act
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Income Tax Appellate Tribunal, JAIPUR BENCH “B”, JAIPUR
Before: Dr. S. SEETHALAKSHMI & SHRI GAGAN GOYAL
This appeal by assessee is directed against the order of Addl./JCIT (A), Aurangabad dated 17.01.2025 passed u/s. 250 of the Income Tax Act, 1961 (in short ‘the Act’). The assessee has raised the following grounds of appeal: -
1. That the Ld. AO has erred in law as well in facts the case in passing order u/s. 143(3) of the Act and thus order is bad in law, null & void.
2. That the lower authorities have erred in law as well in facts of the case is making/confirming addition of Rs. 9, 23,400/- to the returned income.
That the appellant reserves his right to add, amend, alter or withdraw any ground of appeal or before hearing of this appeal.
The assessee has filed the present application seeking condonation of delay of 39 days in filing the appeal in Form No. 36 against the order dated 17.01.2025 passed by the Learned Commissioner of Income-tax (Appeals) – NFAC under Section 250 of the Income-tax Act, 1961 for the Assessment Year 2016-17.
2. The assessee has also submitted a duly sworn affidavit explaining the reasons for the delay. The relevant facts, as stated in the application and affidavit, may be summarized as follows:
• The assessee derives income from salary and trading in equity derivatives.
• The appellate order of the Ld. CIT (A) was passed on 17.01.2025 and was served on the same day via email; consequently, the appeal before the Tribunal was required to be filed on or before 31.03.2025, but actually filed on 09.05.2025.
• The assessee promptly informed the legal counsel, Shri Manish Tatiwala, Chartered Accountant, and instructed him to prepare and file the appeal.
• However, due to preoccupation with annual closing work and ongoing scrutiny proceedings, the counsel inadvertently overlooked the filing of the appeal within the prescribed period.
• The legal counsel had also requested certain certified copies of documents from the Assessing Officer, considered necessary for preparing the appeal submissions. Despite repeated efforts, such documents could not be obtained in time.
• The delay in filing came to the notice of the assessee only when he personally enquired with the counsel regarding the status of the appeal before the Hon’ble ITAT.
• The appeal was immediately prepared and filed thereafter, without any further delay.
• The assessee has submitted that the delay was bona fide, unintentional, and solely attributable to the counsel, and that the assessee had acted diligently in pursuing the matter.
• A separate affidavit has also been filed by the counsel, acknowledging responsibility for the oversight and explaining the circumstances.
3. The assessee has prayed that the delay may kindly be condoned in the interest of substantial justice, and has assured that such delay shall not recur in future. It has been submitted that as the delay occurred solely due to the inadvertence of the legal counsel/CA, the assessee should not be penalised for the same.
We have carefully considered the facts of the case, the explanation offered, the affidavits filed by both the assessee and the legal counsel, and the submissions made.
It is a well-settled principle of law that when questions of substantial justice and technical delay arise, the cause of substantial justice ought to prevail. In this regard, the Hon’ble Supreme Court in Vedabai alias Vaijayanatabai Baburao Patil v. Shantaram Baburao Patil [(2002) 122 Taxman 114 (SC)] has observed that while exercising discretion under Section 5 of the Limitation Act, Courts should adopt a pragmatic approach, and the expression “sufficient cause” should receive liberal construction, keeping in mind that the principle of advancing substantial justice is of prime importance.
6. In the present case, the explanation furnished by the assessee, supported by the affidavits, demonstrates that the assessee had taken timely steps by instructing the counsel to file the appeal. The delay occurred solely due to inadvertent oversight on the part of the counsel/CA, which constitutes a reasonable and sufficient cause within the meaning of Section 5 of the Limitation Act, as applicable to proceedings before the Tribunal.
There is nothing on record to indicate that the delay was deliberate or motivated by malafide intent. On the contrary, the assessee has acted bona fide and has shown due diligence in pursuing the matter. Considering that the lapse occurred entirely due to the legal counsel, the assessee should not be penalised for the same.
8. Accordingly, the delay of 39 days in filing the appeal is hereby condoned in the interest of justice, and the appeal is admitted for adjudication on merits.
Brief facts of the case are that the assessee filed his e-return of income on 31.03.2017 declaring a total income of Rs. 41, 31,090/-. The return was processed under section 143(1) of the Income-tax Act, 1961. Subsequently, the case was selected for limited scrutiny on the specific issue:
“Whether the investments and income relating to securities (derivatives) transactions are duly disclosed.” 3. During the course of scrutiny assessment, the Assessing Officer (AO) called upon the assessee to furnish the requisite details regarding the day trading and derivative transactions (Mark-to-Market) carried out during the year. The assessee submitted certain details.
From the perusal of the M2M details, the AO observed that: • The assessee earned profit of Rs. 19, 23,448/- from derivative transactions. • However, the assessee declared income of Rs. 10,00,048/-, purportedly under section 44AD of the Act, thereby reducing the profit by claiming expenses of Rs. 9,23,400/- towards interest, conference, travelling and other expenses.
The AO found that the assessee had declared derivative income under presumptive taxation u/s. 44AD of the Act by adopting 8% profit rate on Rs. 19, 23,448/-. Later, during the assessment, the assessee submitted that actual expenses were incurred and therefore, only Rs. 10, 00,048/- was offered after deduction of Rs. 9, 23,400/-. The AO issued a show-cause notice u/s 142(1) on 27.11.2018 requiring the assessee to justify the deduction of these expenses and to substantiate the same with supporting documents.
However, the assessee failed to furnish any documentary evidence such as bills, vouchers, invoices, ledger accounts, bank statements, confirmations, or any supporting material to prove that such expenses were incurred wholly and exclusively for business purposes. In absence of evidence, the AO held that the expenses were unsubstantiated and unverifiable and therefore disallowed the entire amount of Rs. 9, 23,400/-. The AO accordingly completed the assessment u/s. 143(3) of the Act on 05.12.2018, assessing the derivative profit at Rs. 19, 23,448/- without allowing any deductions.
4. Aggrieved, the assessee preferred an appeal before the Ld. CIT (A).
However, during the appellate proceedings: • The assessee did not appear, nor did his authorised representative. • No written submissions were filed. • No evidence or supporting documents were produced to substantiate the claim of expenses.
Due to complete non-compliance, the Ld. CIT (A) was also constrained to pass the order ex-parte on 17.01.2025, confirming the disallowance made by the AO.
5. The assessee has filed the present appeal before us. However, before Tribunal also, the assessee has not filed any documentary evidence to prove the genuineness or allowability of the expenses claimed. The only documents placed before us are:
• The assessment order dated 05.12.2018; • The Ld. CIT (A) order dated 17.01.2025.
No ledger, no bills, no vouchers, no confirmations, no bank statements, and no business records have been produced. Even at this second appeal stage also, there is complete absence of supporting material.
We have carefully perused the orders of the lower authorities and considered the material available on record. It is an admitted fact that the assessee claimed deduction of Rs. 9, 23,400/- against derivative income. However:
• The burden of proof to establish that an expense is wholly and exclusively for business lies entirely on the assessee as per Section 37(1) of the Act.
• The assessee failed to discharge this burden at all three stages: � During assessment � Before CIT(A) � Before this Tribunal 7. Law is well settled that “he who claims deduction must prove it.” Allowability under Section 37 of the Act requires: • Evidence of actual incurrence • Business nexus • Supporting documents Mere accounting entry or oral explanation without proof is insufficient.
Conduct of the Assessee – After thought Initially, the assessee treated derivative profit under Section 44AD of the Act, which is itself questionable because Section 44AD of the Act does not apply to derivative trading income (being non-speculative business as per Section 43(5) of the Act. Later, the assessee shifted stance and claimed specific expenses, reducing profit. This change in stand without any supporting evidence indicates an afterthought purely to reduce taxable income. At no stage did the assessee produce any Invoices, Receipts, Bank proof, Ledger accounts, agreements etc thus, the claim is unsubstantiated and unverifiable.
The Ld. CIT (A) confirmed the AO’s disallowance since the assessee did not furnish any evidence. Even before us, the assessee has not challenged the finding with any new material. We find no perversity, illegality, or error in the order of the Ld. CIT (A) and the AO.
In view of the above discussion: • The assessee has failed to substantiate the claim of expenses of Rs. 9, 23,400/-. • No material has been brought on record to contradict the findings of the AO or Ld. CIT (A). • The conduct of the assessee shows that the claim is an afterthought. • There is no merit in the appeal. Accordingly, we uphold the order of the Ld. CIT (A) and grounds raised by the assessee are dismissed.
In the result, the appeal of the assessee is dismissed.