A case was remanded for a fresh decision to allow the Assessing Officer to examine crucial additional evidence that was filed late by the taxpayer.

Issue

Should an appellate authority, like the Income Tax Appellate Tribunal, admit additional evidence that is filed for the first time at a late stage of the proceedings, if that evidence appears to be crucial for deciding the case on its merits, even though the taxpayer had failed to produce it earlier when asked?

Facts

An assessee, who had not filed an income tax return, was subjected to a reassessment proceeding because of large cash deposits that were found in his bank account.
During the assessment, the assessee claimed that the deposits were from his business of selling soft drinks. However, he failed to produce any supporting bills or vouchers to prove this claim.
As a result, the Assessing Officer (AO) had no choice but to complete a best judgment assessment, treating the entire deposit as unexplained money under Section 69A of the Income-tax Act, 1961.
When the matter reached the Income Tax Appellate Tribunal, the assessee, for the first time, sought to introduce new, additional evidence. This evidence included GST returns, commercial tax department assessment orders, and some sales invoices, all of which prima facie (on the face of it) supported his claim that he was running a genuine business.

Decision

The Tribunal ruled in favour of the assessee on procedural grounds.

It held that, in the interest of the principles of natural justice, the assessee should be given a fair opportunity to have this new and potentially crucial evidence examined.
The Tribunal therefore exercised its discretion and admitted the additional evidence.
However, since this evidence had never been seen or verified by the original authority, the Tribunal could not decide the matter on its own. The entire issue was remanded back to the file of the Assessing Officer.
The AO was directed to verify the new evidence that had been submitted and then to re-adjudicate the addition under Section 69A on its merits.

Key Takeways

Substantive Justice is Prioritized: Appellate authorities, particularly the final fact-finding body like the Tribunal, will often prioritize substantive justice (deciding a case on its real merits) over a taxpayer’s past procedural failures (like not submitting evidence on time).
Admission of Additional Evidence is a Discretionary Power: The power to admit additional evidence at the appellate stage is a discretionary one, not an absolute right of the taxpayer. The taxpayer usually has to show a good reason why the evidence could not be produced earlier. In this case, the court took a lenient view in the interest of justice.
Remand for Verification is the Correct Procedure: When crucial new evidence is admitted for the first time at an appellate stage, the standard and fairest procedure is to remand the case back to the Assessing Officer. This is because the AO is the primary fact-finding authority who has the investigative tools and the time to properly verify the authenticity and relevance of the new documents.
It is a Second Chance, Not a Clean Chit: The remand gives the taxpayer a valuable second chance to prove their case with the new evidence. However, the addition is not deleted at this stage; it is only set aside for re-examination. The final outcome of the case will depend entirely on the AO’s verification of the new evidence and the subsequent re-adjudication.

IN THE ITAT HYDERABAD BENCH ‘B’

Chinthalapudi Ramakrishna

Income-tax Officer, Ward-1

VIJAY PAL RAO, Vice President
and MADHUSUDAN SAWDIA, Accountant Member

IT Appeal No.473 (Hyd) of 2025
[Assessment year 2018-19]

OCTOBER 8, 2025

S. Rama Rao, Adv. for the Appellant. Dr. Sachin Kumar, SR-DR for the Respondent.

ORDER

Madhusudan Sawdia, Accountant Member.- This appeal is filed by Shri Chinthalapudi Ramakrishna (“the assessee”), feeling aggrieved by the order passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (“Ld. CIT(A)”), dated 03.03.2025 for the A.Y. 2018-19.

2. The assessee has raised the following grounds of appeal:

” 1. The order of the Ld. CIT(A) is erroneous both on facts and in law.

2. The Ld. CIT(A) erred in confirming the action of the Assessing Officer in treating the aggregate of the deposits made into the bank account of Rs.1,44,97,672/- as the income assessable u/s. 69 of the I.T. Act.

3. The Ld. CIT(A) ought to have seen that during the year under consideration and appellant carried on the business activity and the sales during the year amounted to Rs.1,55,09,900/- and the said amount was available with the appellant to deposit the same into the bank account.

4. The Ld. CIT(A) ought to have considered the evidences filed before him and deleted the addition made by the Assessing Officer.

5. Any other ground /grounds that may be urged at the time of hearing.”

3. The assessee has raised additional grounds as under :

” The order of assessment is invalid as the notice u/s. 148A(b), the order passed u/s. 148A(d) and the notice u/s. 148 was issued by the IncomeTax Officer, Ward-1, Kothagudem who has no jurisdiction and all the consequent proceedings are invalid as held by the Hon’ble High Court of Telangana in the case of Kanakala Ravindra Reddy v. ITO stated supra.

The Ld. CIT(A) ought to have annulled the assessment order for want of jurisdiction.”

4. In this context the Ld. AR submitted that the additional ground so raised are admissible in view of judgment rendered by the Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT 358/229 ITR 383 (SC). The prayer for admission of additional ground noted above which are not in memorandum of appeal are being admitted for adjudication in terms of Rule 11 of the ITAT Rules owing to the fact that objections raised in additional grounds are legal in nature for which relevant facts are stated to be emanating from the existing records.

5. The brief facts of the case are that, the assessee is an individual who had not filed any return of income under section 139 of the Income Tax Act, 1961 (“the Act”) for A.Y. 2018-19. On the basis of information available, the Learned Assessing Officer (“Ld. AO”) noticed substantial transactions aggregating to Rs.136,25,180/- in the Andhra Bank account of the assessee. Accordingly, after passing an order under section 148A(d) on 25.04.2022, the Ld. AO issued notice under section 148 of the Act on 26.04.2022. In response, the assessee filed his return of income on 13.05.2022 declaring a total income of Rs.2,93,100/-. During the reassessment proceedings, the Ld. AO found that the assessee had deposited cash of Rs.136,68,180/- along with other credits of Rs.8,29,492/- in his bank account, totalling Rs.144,97,672/-. The Ld. AO called for the sources of such deposits in the bank account from the assessee. The assessee submitted that he was engaged in the business of soft drink purchase and sales and the deposits were out of business receipts. The assessee filed a tax audit report and claimed that the total turnover of the assessee for the year under consideration was Rs.155,09,900/. However, as no supporting bills/vouchers were produced by the assessee during the reassessment proceedings, the Ld. AO treated the entire deposit of Rs.144,97,672/- in the bank account as unexplained money under section 69A of the Act and completed the assessment under section 147 r.w.s. 144 & 144B on 16.03.2024 assessing total income of the assessee at Rs.1,47,90,772/-.

6. Aggrieved with the order of Ld. AO, the assessee filed appeal before the Ld. CIT(A). The Ld. CIT(A) confirmed the addition made by the Ld. AO holding that mere production of GST registration certificate dated 18.07.2018, though effective from 01.07.2017, without any copy of invoices, returns or supporting evidence was insufficient to establish that deposits were business receipts. The observations of the Ld. CIT(A) in this regard are placed at para nos.7 to 7.1.10 of his order, which is to the following effect :

7. Aggrieved with the order of Ld. CIT(A), the assessee filed the present appeal before this Tribunal. At the outset, the Learned Authorised Representative (“Ld. AR”) submitted that the additional ground raised by the assessee is regarding the validity of notice issued under section 148 of the Act by the Jurisdictional Assessing Officer (“JAO”) instead of the Faceless Assessing Officer (“FAO”). He invited our attention to copies of notice issued under section 148A(b), order under section 148A(d) and notice issued under section 148 of the Act placed at page nos.1 to 5 of the paper book. However, the Ld. AR fairly submitted that the identical issue raised in the case of Hexaware Technologies Ltd. is currently pending adjudication before the Hon’ble Supreme Court. The Ld. AR, therefore, requested that these legal grounds be kept open and a suitable direction be issued to the Ld. AO to follow the outcome of the decision of the Hon’ble Supreme Court in the case of Hexaware Technologies Ltd., while giving effect to the present order of the Tribunal.

8. Per contra, the Learned Departmental Representative (“Ld. DR”) also admitted that, the issue is presently pending before the Hon’ble Supreme Court in the case of Hexaware Technologies Ltd., and requested to keep the issue open.

9. We have considered the rival submissions and perused the paper book, including notice issued under section 148A(b), 148A(d) order, and 148 notice (page nos. 1 to 5 of the paper book). Since both the parties admitted that the issue regarding validity of notice is pending before the Hon’ble Supreme Court in Hexaware Technologies Ltd., we keep this ground open and restore it to the file of the Ld. AO to follow the outcome of the decision of the Hon’ble Supreme Court in the case of Hexaware Technologies Ltd., while giving effect to the present order of the Tribunal.

10. On merits, the Ld. AR submitted that, the assessee is engaged in the business of purchase and sale of soft drinks. Inviting our attention to the Audited financial statements for the relevant year placed at page nos.8 to 10 of the paper book, submitted that the turnover of the assessee during the year under consideration was Rs.155,09,900/-. He also submitted that, the copy of the audited financial statements were filed before the lower authorities also. He also invited our attention to GST registration certificate issued on 18.07.2018 (page no.39 of the paper book), which clearly mentions effective liability of the assessee under GST is from 01.07.2017. However, the Ld. CIT(A) erred in disregarding a document issued by a government agency.

11. The Ld. AR also filed additional evidence in the form of GST returns (September 2017 to March 2018), commercial tax assessment order dated 15.05.2019 for the period from 01.04.2013 to 30.06.2017 and copies of some invoices now before the Tribunal (page nos. from 17 to 39 of paper book). He also submitted that, most of the purchases of the assessee were from one supplier, Sri Sarvaraya Sugars Ltd. (“Creditor”). He also submitted that, copy of account of the Creditor (page nos. 43 to 68 of paper book) demonstrates that amounts deposited in bank were paid towards purchases, thereby proving business nexus. The Ld. AR submitted that these evidences could not be filed earlier as they were damaged in floods and had to be rebuilt. He prayed for their admission under Rule 29. The Ld. AR submitted that, the documents already filed before the revenue authority and the additional evidences now filed before the Tribunal, sufficiently demonstrate that the entire deposits in the bank account of the assessee are from business receipts only. Accordingly, he prayed for deletion of the entire addition.

12. The Ld. DR objected for acceptance of the additional evidence contending that the assessee fails to submit the same before the revenue authority. He further contended that the audit report was dated 30.04.2022, i.e., four years after the close of the relevant financial year, raising doubts about its authenticity. He thus prayed that the matter be restored to the file of the Ld. AO for verification of additional evidences, purchases, sales, and the bank account trail.

13. We have heard the rival submissions and perused the material available on record. On merits, we note that the assessee has now filed for the first time before us additional evidences such as GST returns (Sept. 2017 – Mar. 2018), Commercial Tax Department’s assessment order dated 15.05.2019 and copies of some sales invoices placed at page nos. 17 to 39 of the paper book. On perusal, these documents prima facie support the assessee’s claim of being engaged in genuine business activities. However, since these evidences were never examined by the lower authorities, the verification of the same is required. The genuineness of the audit report dated 30.04.2022 also needs to be examined.

14. In view of the principle of natural justice, we admit the additional evidences filed by the assessee and set aside the impugned order. The matter is remanded to the file of the Ld. AO with the directions to verify the GST returns, commercial tax order, sales invoices and creditor’s accounts filed by the assessee. The Ld. AO shall also examine the audit report and cross-check with purchases, sales and bank account deposits. It is also directed to readjudicate the addition under section 69A of the Act after granting reasonable opportunity to the assessee.

15. In the result, the appeal of the assessee is allowed for statistical purposes.