Additional evidence cannot be used to contradict an income already declared in a return.
Issue
Can a taxpayer, who has already voluntarily declared a sum of seized cash as their “income from other sources” in their filed income tax return, be allowed to introduce new and additional evidence at a late appellate stage to try and explain a different source for that same cash?
Facts
- A certain amount of cash was seized from the assessee.
- Following this, the assessee filed an income tax return in which they voluntarily declared the entire amount of the seized cash as their “income from other sources.”
- The Assessing Officer (AO) did not dispute the amount but reclassified it. The AO treated the cash as “unexplained income” under Section 69A of the Income-tax Act, 1961, and accordingly, applied the higher, punitive tax rate prescribed under Section 115BBE.
- The assessee did not produce any new evidence before the first appellate authority.
- However, when the case reached the Tribunal stage (the second appeal), the assessee tried to introduce new, additional evidence. This new evidence consisted of affidavits from various other people, which were intended to explain the source of the cash and, by implication, to argue that it was not the assessee’s unexplained income.
Decision
The court ruled in favour of the revenue.
- It refused to admit or act on the additional evidence that was produced by the assessee at this late stage.
- The court’s reasoning was that since the assessee had already made a formal and voluntary declaration in their tax return that the cash was their own income, accepting new evidence now to suggest a different source would be equivalent to allowing a de facto revision of the voluntarily filed return, which is not permissible under the law at such a late stage.
- The court concluded that the new evidence and the new explanation were clearly an “afterthought,” and the Tribunal was therefore justified in refusing to consider it.
Key Takeways
- A Tax Return is a Binding Declaration: A return of income is a solemn declaration made by the taxpayer. A taxpayer cannot voluntarily declare an amount as their own income and then, when faced with an undesirable tax consequence (like a higher tax rate), try to completely change their story and disown that income.
- Additional Evidence Cannot Create a New Case: While appellate authorities have the power to admit additional evidence, this power is discretionary. It is generally not exercised to allow a taxpayer to build a completely new and contradictory case that goes against their own initial, voluntary declaration.
- “Afterthought” Defenses Lack Credibility: Introducing a completely new explanation and the evidence to support it at a very late stage of the appellate process, especially when there was ample opportunity to present it earlier, is viewed by the courts as an “afterthought” and is given very little credibility.
- The Consequence of Declaring Unexplained Cash as Income: By declaring the cash as “income from other sources,” the assessee admitted ownership but hoped to have it taxed at their normal slab rates. The AO’s action of reclassifying this admitted income under Section 69A in order to apply the much higher flat tax rate of Section 115BBE is a common and legally accepted approach by the tax department in such cases.
HIGH COURT OF KERALA
Sravan Kumar Neela
v.
Assistant Commissioner of Income-tax
A. Muhamed Mustaque and Harisankar V. Menon, JJ.
IT Appeal Nos. 58 and 59 OF 2024
SEPTEMBER 17, 2025
Abraham Joseph Markos, Alexander Joseph Markos, John Vithayathil, Isaac Thomas and P.G. Chandapillai Abraham, Advs. for the Appellant. Smt. Susie B Varghese, Jose Joseph, Standing Counsels, Navaneeth N. Nath, CGC and Navaneeth N. Nath for the Respondent.
JUDGMENT
Harisankar V. Menon, J. – These two Income Tax Appeals have been filed by the respective appellants, challenging the common order dated 15.04.2024 of the Income Tax Appellate Tribunal (ITAT), rejecting the appeals filed by them, challenging the finalization of assessments for the year 2017-18.
2. On 19.07.2016, in an operation at the instance of the excise officials at Muthanaga Check Post, an amount of Rs.2,39,57,500/- was seized from the possession of three passengers – Sravan Kumar Neela, Uma Maheshwara Rao Chinni, and K.Ganesh Kumar – who were travelling in a private bus from Hyderabad to Kozhikode. The custody of the entire amount was taken over by the officials under the provisions of the Income Tax Act, 1961 (hereinafter referred to as the “Act”). Later, Sravan Kumar Neela and Uma Maheswara Rao Chinni submitted letters declaring the entire cash seized from them – Rs.1,62,47,500/- and Rs.77,10,000/- respectively – as their income from other sources for the financial year 201617. The returns were also filed accordingly, and the amounts returned by the respective assessees were treated as unexplained income under Section 69A of the Act, and tax under the provisions of Section 115BBE of the Act was demanded. The respective assessees preferred appeals before the Commissioner of Income Tax (Appeals). Sravan Kumar Neela filed some additional evidence in the form of financial/bank statements of a partnership firm, and the income tax returns of some of the family members to explain the source of the income. The first appellate authority did not accept the additional evidence adduced since that would, in effect, lead to the revision of his returned income, which could not be permitted. Therefore, the appeal was rejected. Uma Maheshwara Rao Chinni, however, remained ex parte before the first appellate authority, and his appeal was also dismissed.
3. Separate appeals were filed before the Income Tax Appellate Tribunal, contending essentially that the source of the cash was properly explained and the provisions of Section 69A of the Act ought not to have been applied. Sravan Kumar Neela filed separate affidavits from various persons to point out that he obtained money from friends and relatives. Uma Maheshwara Rao Chinni also produced similar affidavits, contending that the cash actually belonged to one D.Ramesh, who entrusted the said money for the purchase of raw gold from Kerala. The source of the afore amount as regards Ramesh was also produced, along with the affidavits executed by those who advanced the amounts to Ramesh.
4. The Tribunal, by the impugned order dated 15.04.2024, refused to act on the additional evidence produced as above, thereby dismissing the appeals. It is in such circumstances that these appeals are instituted by the respective appellants.
5. Heard Sri.Joseph Markose, the learned senior counsel for the appellants, and Sri.Jose Joseph, the learned Standing Counsel for the respondent.
6. The main contention urged by the learned senior counsel on behalf of the appellants is with reference to the additional evidence produced by the respective appellants before the Tribunal, as noticed earlier. It is his contention that such additional evidence could be produced before the Tribunal under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963 (hereinafter referred to as the ‘ITAT Rules’). Per contra, the learned Standing Counsel for the revenue would contend that the appellants were taking contradictory stands at various stages and hence, the findings of the Tribunal do not warrant any interference.
7. We have considered the rival contentions as well as perused the connected records.
8. The primary question arising for consideration is as regards the acceptance of the additional evidence. True, the Income Tax Appellate Tribunal can accept additional evidence filed before it. However, it is not as if such evidence once produced requires to be accepted by the Tribunal and acted upon. Rule 29 of the ITAT Rules provides as follows:
“29. Production of additional evidence before the Tribunal
The parties to the appeal shall not be entitled to produce additional evidence either oral or documentary before the Tribunal, but if the Tribunal requires any documents to be produced or any witness to be examined or any affidavit to be filed to enable it to pass orders or for any other substantial cause, or, if the income-tax authorities have decided the case without giving sufficient opportunity to the assessee to adduce evidence either on points specified by them, or not specified by them, the Tribunal, for reasons to be recorded, may allow such document to be produced or witness to be examined or affidavit to be filed or may allow such evidence to be adduced.”
Thus, the 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. However, 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. From all the above, we are of the opinion that the 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.
9. We are of the opinion that the orders of the Tribunal are virtually based on the factual situations noticed earlier, and no infirmity can be attached to those orders.
Resultantly, we find no reason to interfere, and the appeals would stand dismissed, answering the questions raised in these appeals against the assessee and in favour of the revenue.