SHWETA HARISHNKAR PRASAD KANAUJIYA,BALLIA vs. INCOME TAX OFFICER - 2(5), BALLIA

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ITA 46/VNS/2024Status: HeardITAT Varanasi23 July 2026AY 2017-20187 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal found that the NFAC's observation of 'illegal currency' was legally incorrect, as cash deposited may be unexplained but not necessarily illegal. The Tribunal set aside the NFAC's order and restored the case to the AO, granting the assessee one more opportunity to present her case.

What were the facts?

The assessee, a proprietor of an LPG distributorship, failed to file an income tax return. The Assessing Officer (AO) treated cash deposits of Rs. 18,45,000 during demonetization as unexplained income under Section 69A and added it to her total income. The National Faceless Appeal Centre (NFAC) dismissed the assessee's appeal.

What were the issues?

Whether cash deposits during demonetization can be treated as unexplained income under Section 69A without proper verification, and whether the lower authorities correctly characterized the deposits as 'illegal currency'.

Which sections of the Income-tax Act were involved?

Section 69A,Section 144,Section 142(1),Section 133(6),Section 246A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, CIRCUIT BENCH (SMC

Before: SHRI. SUDHANSHU SRIVASTAVA

IN THE INCOME TAX APPELLATE TRIBUNAL CIRCUIT BENCH (SMC), VARANASI BEFORE SHRI. SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA No.46/VNS/2024 Assessment Year: 2017-18 Shweta Harishnkar Prasad Kanaujiya v. The ITO 2(5) D/o Rambilas Ram Ballia M/s Malap Harsenpur Indane Gramin Vitrak, Malap Harsenpur Ballia (U.P) TAN/PAN:DUTPK4832G (Applicant) (Respondent) Applicant by: None Respondent by: Shri Sabayasachi Chakraborty, D.R. O R D E R This appeal has been preferred by the Assessee against the order dated 29.01.2024, passed by the National Faceless Appeal Centre, Delhi (NFAC) for Assessment Year 2017-18.

2.0 The brief facts of the case are that the assessee was the proprietor of M/s Malap Harsenpur Indane Gramin Vitrak, Ballia engaged in distribution of LPG Cylinder and was dealer of Indian Oil Corporation Limited. In this case, the Income Tax Officer, Ward 1, Palghar, Maharashtra issued Notice under section 142(1) of the Act on 24.01.2018, requiring the assessee to the file the return of income for the year under consideration. As the assessee failed to file the return of income, the Assessing Officer (AO) proceeded with consequential action of completing the assessment under section 144 of the Income Tax Act, 1961

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(hereinafter called 'the Act’). The Income Tax Department was in possession of information that the assessee had allegedly deposited illegal currency notes in her two Bank Accounts No.3489966259 and 3469835899 maintained with Central Bank of India, Nagra, Ballia during the demonetization period. In order to verify the transaction, the AO called for information pertaining to assessee’s Bank Accounts under section 133(6) of the Act from Central Bank of India, which furnished the requisite details. Subsequently, the case was transferred to ITO, Ward 2(5), Ballia, who issued Notice under section 142(1) of the Act on 26.09.2019, requiring the assessee to furnish the source of cash deposits of Rs.18,45,000/- during the demonetization period. Since there was no response from the side of the assessee, the AO treated the cash deposits of Rs.18,45,000/- as unexplained money of the assessee and added the same to the total income of the assessee under section 69A of the Act. The AO completed the assessment under section 144 of the Act, assessing the total income of the assessee at Rs.18,45,000/-.

2.1 Aggrieved, the Assessee preferred an appeal before the NFAC, which dismissed the appeal of the assessee and confirmed the order of the AO.

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2.2 Now the assessee has approached this Tribunal challenging the order of the NFAC, by raising the following grounds of appeal:

1.

Notice u/s 142(1) was never served to assessee and therefore compliance could not be made. AO opted for section 144 for conclusion of proceeding invoking section 69A. Even though order is passed u/s 144 but AO has ignored that amount were deposited in current account no. 3489966259 maintained with CBI, Nagra, Ballia and withdrawn by transfer to Indian Oil Corporation. This withdrawal and transfer can be perceived on analyzing bank narration. This shows that there was business connection between deposits of money in bank account. Treating total deposit of Rs. 15,45,000.00 into current account during 09.11.2016 to 31.12.2016 as unexplained is highly objectionable as it has great impact of tax burden on assessee. Further invoking section 69A is applicable where money, bullion, jewellery and any other valuable article is found and which is not recorded into books. But here matter is different. Assessee has financial statement in which he has shown turnover of Rs.62.03 Lakh and profit Rs.3.18 Lakh on NP ratio 5.13 Percent. Further each of bank entry explained. Therefore there is flaw in judgment and addition on current account should be deleted. Similarly there was deposit of Rs.3,00,000.00 in saving bank account, which belongs to my accumulated saving and stridhanwhich was I bound to be deposited due to sudden announcement of demonetization period and therefore cannot be treated as unexplained.

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2.

In assessment order AO has said that whole of Rs.18,45,000.00 deposited during demonetization period was illegal currency notes (old notes) which is not correct. This shows that AO has overlooked material facts without going deeply into information. 3. Assessee has stock register, ledger account, cash book, bank book, purchase invoice and bill books which justify all the transactions. Therefore all transactions are well explained and therefore invoking section 69A in such situation is not justifiable. 4. Appeal u/s 246A has been dismissed on the basis of Remand Report received from Jurisdictional AO. This Remand Report was prepared without giving any opportunity to appellant to put his contention. It is only reproduction of original assessment order without going into any facts. It is evident from original assessment order that this case was initially started at ITO ward-1, Palghar. It was transferred to Ballia (U.P.) Jurisdiction vide letter dated 11/09/2019. First letter was issued on dated 26/09/2019. Neither of the notices whether from Palghar (Maharashtra) or from Ballia were received to the appellant. 5. Ld. AO has contended that mail was sent to email id assesseeiicaiica@gmail.com. But this email id does not associated with appellant. 6. Ld. CIT (A) has quoted that "I do not accept this because the place Harsenpur, where she was doing business was only 18 km from Moradabad, a big town in Uttar Pradesh and 167 km only from national capital, New Delhi. This contention for disposal of appeal is highly objectionable. I have never claimed that I am from Moradabad. I reside in

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Ballia which is approx. 1000 km from National Capital, New Delhi. Without going through the factual matters of aggrieved appellant and disposal made in this way is neither lawful nor expected in any manner. Assessment order, Remand Report and order passed by CIT (A), all are in same manner i.e., passed overlooking the facts of the case. CIT (A) has not given any chance to hear the appellant and passed the order in very arbitrary manner overlooking the principle of natural justice. 3.0 None was present for the assessee when the appeal was called out for hearing. However, an application dated 07.05.2026, seeking adjournment, on behalf of the assessee was placed before me citing the reason that the Counsel of the assessee was out of station due to some ceremonial work and, therefore, the appeal may be adjourned. However, looking into facts of the case, I reject the adjournment application and proceed to adjudicate the appeal.

4.0 The Ld. Sr. D.R., supporting the orders of the authorities below, submitted that the appeal of the assessee may be dismissed.

5.0 I have heard the ld. Senior Departmental Representative and have also perused the material on record. It is evident that the order passed by the AO was ex-parte qua the assessee and the NFAC dismissed the appeal of the assessee by observing that

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the assessee had deposited illegal currency. The currency notes allegedly deposited by the assessee in his Bank Account are valid legal tender under the law of the land. There is a distinct legal contradiction between an "unexplained source of income" and "illegal currency." A cash asset may be treated as "undisclosed income" or "unexplained cash" if the Assessee fails to offer a satisfactory explanation regarding its nature and source to the AO. However, treating the currency itself as "illegal" implies a violation of monetary laws or counterfeiting, which falls entirely outside the domain of regular income tax assessment and is not backed by any finding on record. Consequently, the observation of the learned First Appellate Authority branding the disputed amount as "illegal currency" is textually and legally incorrect. The lower authorities are fully empowered to examine the taxability, source, and statutory character of the cash under the provisions of the Income Tax Act, but they cannot characterize valid legal tender as illegal currency. Accordingly, looking into the facts of this case, I am of the considered view that the assessee deserves one more opportunity to present her case and, therefore, I set aside the order of the NFAC and restore this file to the Office of the Assessing Officer with the direction to provide one more opportunity to the assessee to present her case. I also caution the assessee to fully comply with the directions of the Assessing

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Officer in the set-aside proceedings when called upon to do so, failing which, the Assessing Officer would be at complete liberty to pass the order in accordance with law, based on material available on record even if it is ex-parte qua the assessee.

6.0 In the result, the appeal of the assessee stands allowed for statistical purposes.

Order pronounced in the open Court on 23/07/2026.

Sd/- [SUDHANSHU SRIVASTAVA] JUDICIAL MEMBER DATED:23/07/2026 JJ: Copy forwarded to: 1. Appellant 2. Respondent 3. CIT(A) 4. CIT 5. DR By order Assistant Registrar/DDO

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