Afterthought Evidence cannot Override Voluntary Returns: Kerala HC dismisses Income Tax Appeals in Cash Seizure Case [Read Order]

In a recent ruling, the Kerala High Court dismissed income tax appeals filed by two individuals who had cash seized during a travel inspection, holding that afterthought evidence cannot be used to override voluntarily filed income tax returns.

The appellants, Sravan Kumar Neela and Uma Maheshwara Rao Chinni, challenged the common order dated 15.04.2024 of the Income Tax Appellate Tribunal (ITAT), which had rejected their appeals against the finalization of assessments for the year 2017-18. The case originated from the seizure of Rs.2,39,57,500/- from three passengers, including the appellants, traveling from Hyderabad to Kozhikode on 19.07.2016.

Both appellants had initially declared the seized amounts as income from other sources for the financial year 2016-17, which were treated as unexplained income under Section 69A of the Income TaxAct. After their appeals before the Commissioner of Income Tax (Appeals) were rejected, they approached the ITAT with additional evidence in the form of affidavits claiming the cash was sourced from friends, relatives, or belonged to a third person.

The ITAT refused to act on this additional evidence, leading to the current appeals before the High Court. The appellants, represented by senior counsel Sri. Joseph Markose and other advocates, argued that the additional evidence should have been admitted under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963. The Revenue, represented by Sri. Jose Joseph and other counsel, contended that the appellants had taken contradictory stands at various stages.

The Division Bench of Justice A. Muhammed Mustaque and Justice Harisankar V. Menon acknowledged that while the ITAT can accept additional evidence, it is not obligated to do so. The Court examined Rule 29, which allows the Tribunal to accept additional evidence only in specific circumstances, such as when the assessee was prevented from adducing evidence by the assessing authority.

The Court noted that the appellants had not raised the claims about the source of cash at earlier stages and only produced affidavits at the Tribunal level. The Court observed that accepting this belated evidence would lead to the revision of voluntarily filed returns, which is not permitted under the statute.

The High Court of Kerala stated, "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."

The Kerala High Court thus concluded that the additional evidence was an afterthought and the ITAT was justified in refusing to act on it. Accordingly, the High Court dismissed both appeals, answering the questions raised against the assessee and in favor of the revenue.

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