SHRI. NARAYAN NARAYAN HASSAN PRUTHVI,HASSAN vs. INCOME-TAX OFFICER, WARD-1, HASSAN

This is an appeal filed by the assessee against the order passed by the National Faceless Appeal Centre (NFAC), Delhi, (DIN & Order No. ITBA/NFAC/S/250/2022-23/1051000577(1)) dated 20.03.2023.

The sole and substantiative issue raised in the grounds of appeal by the assessee is that the cash deposited in the erstwhile Syndicate Bank account No. 14003070003081 of Rs.17,51,40,334/- (now merged with Canara Bank) and Karnataka Bank A/c. No.304200102962101 of Rs.10,82,665/- and the CIT(A) passed the ex-parte order. The brief facts of the case are that the assessee filed return of income declaring income of Rs.8,63,520/- and the case was selected under CASS under limited scrutiny. The assessee is a working partner in a partnership firm (M/s. H. G. Narayan and Sons) having its PAN AACFH 2635 L which is in the business of retail trade of IMFL Products. The assessee is deriving income from profit distribution of Coke beverages, rental income, income from other sources, remuneration from partnership firm and share of profit from partnership firm. The books of accounts were audited under section 44AB of the Income Tax Act, 1961 (hereinafter called ‘the Act’). During the course of assessment proceedings, it was noticed that the assessee has deposited huge cash amounts of Rs.69,06,31,111/- in 8 different bank accounts. During the course of assessment proceedings, the assessee was asked to substantiate the cash deposited of Rs.20,88,91,867/- but in the opinion of the AO, the huge cash deposits were not explained and nor offered for taxation by the assessee and further observed that it was the onus on the assessee to prove that the cash deposits made did not bear the character of income accordingly show casue notice was issued to the assessee. The assessee submitted reply that the assessee is a partner in the partnership firm name noted above and the turnover of the partnership firm is more than Rs.76.72 Crores and the partners’ bank accounts have been utilized for the purpose of the business of the partnership firm. Since the partnership firm is engaged in the business of liquor and the sales are taken place in cash only, therefore, the cash sales received by the partnership firm have been deposited into the assessee’s bank account & the amount deposited have been considered in the partnership’s financial statements. From the submissions, the AO noted that the assessee has not explained properly the cash deposited and did not submit any evidence for the deposit in the 2 bank accounts and also is unable to substantiate that these transactions are reflected in the partnership firm accounts and accordingly the AO made additions under section 68 of the Act and calculated tax under section 115BBE of the Act.

Aggrieved from the above order, the assessee filed appeal before the Tribunal.

The learned AR submitted that the CIT(A) has dismissed the appeal of the assessee without affording opportunity of hearing to the assessee. He further submitted that as per order from the CIT(A) he also issued various notices to the assessee but none of the notices were served to the assessee he further submitted that the transactions between the partner and partnership firms are reflected in both the books of accounts and closing balance of the banks are also reflected in the copy of the ledger accounts. The partnership firm has deposited cash sales of the Firm into the partners bank accounts. The books of accounts of the assessee have been audited by a Chartered Accountant (CA) and no adverse comments were made by the CA. There are no profit elements involved in the transactions between the parties. Since both the authorities have not examined the issue in detail, therefore, he requested that the matter may be sent back to the AO for fresh examination and he undertook that the assessee will produce necessary documents.

On the other hand, learned DR relied on the orders of the lower authorities and he submitted that many opportunities were granted by the AO as well as CIT(A) for proving the cash deposited in the assessee’s bank account. Before the AO, the assessee could not explain the cash deposited. The CIT(A) issued notices on various dates inspite of he did not avail the opportunity. Accordingly, he objected for sending back the issue to the file of the lower authorities.

After hearing both the sides and perusal of the material available on record and orders of the lower authorities, from the documents available before us, we notice that the assessee is a partner in the partnership firm named above. The books of accounts have been audited and the assessee filed his return of income. The assessee has maintained various bank accounts in different banks out of which the AO has questioned only on the 2 bank accounts in the erstwhile Syndicate Bank account No. 14003070003081 of Rs.17,51,40,334/- (now merged with Canara Bank) and Karnataka Bank A/c. No.304200102962101 of Rs.10,82,665/-. As per the opinion of the AO, the cash deposited into the bank account have not been explained by the assessee. The CIT(A) also gave many opportunities to the assessee but the assessee did not produced anything. Before us, the submission of the ld. AR that the CIT(A) has not decided the issue on merits of the case. On perusal of the Paper Book filed by the assessee containing Page Nos.1 to 289 in which the assessee has placed copy of the ledger accounts, bank statements and copy of computation of total financial statements, etc but it has not been examined. Considering the totality of the facts, we strongly deprecate the assessee for not responding to the notice of the CIT(A)’s office. However, in the interest of justice and equity, the matter is restored to the file of the AO for de-novo assessment. The assessee is also directed to produce necessary documents for substantiating his case and he will have to prove that the transactions done in assessee’s bank accounts by the partnership firms have been recorded in the books of the partnership firm and no profit elements are involved in these transactions and the assessee has also to prove that the withdrawals from the above noted bank accounts have been utilized for the purpose of the business of the partnership firm. Needless to say, the assessee should be afforded reasonable opportunity of being heard and the assessee is directed not to take unnecessary adjournments.