SHAILENDRA SRINET,UTTAR PRADESH vs. ITO-BASTI-NEW, BASTI

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, LUCKNOW BEFORE SHRI. SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA No.220/LKW/2025 Assessment Year: 2016-17 Shailendra Srinet v. The ITO Chilhiya Basti-New Shohratgarh Siddharthnagar (U.P) TAN/PAN:CAEPS6209R (Applicant) (Respondent) Applicant by: Shri Akash Agarwal, C.A. Respondent by: Shri R.R.N. Shukla, D.R. O R D E R This appeal has been preferred by the Assessee against the order dated 13.01.2025, passed by the National Faceless Appeal Centre, Delhi (NFAC) for Assessment Year 2016-17.

2.0 The brief facts of the case are that the assessee was engaged in the business of distribution of LPG Cylinders of Indian Oil Corporation (IOCL). The assessee had not filed the return of income for the year under consideration. The Income Tax Department was in possession of information that the assessee had made cash deposits totaling to Rs.2,16,55,900/- in his Bank account during the year under consideration. The Assessing Officer (AO) reopened the case of the assessee under section 147 of the Income Tax Act, 1961 (hereinafter called 'the Act’) after issuing notice to the assessee under section 148 of the

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Act. As per the AO, the assessee had neither filed the return of income nor responded to the notice under section 148 of the Act. Subsequently, the AO issued notices under section 142(1) of the Act, requiring the assessee to furnish the details of source of cash deposits of Rs.2,16,55,900/- in his Bank account during the year under consideration. However, there was still no compliance from the side of the assessee. The AO, therefore, proceeded to complete the assessment on the basis of Best Judgment Assessment and, accordingly, issued a show cause notice under section 142 of the Act, requiring the assessee to furnish the source of cash deposited in his Bank account. In response to the show cause notice, the assessee submitted that he has filed the return in response to notice under section 148 of the Act, which ccould be viewed on the Income Tax Portal. It was further submitted that the assessee was running an LPG cooking gas agency of IOCL in the name and style ‘BBS Indane Gramin Vitrak’ at Village Chihiya, Siddharthnagar (U.P) and the cash deposits made in the Bank account were out of the sale proceeds of LPG cylinder, which were mostly realized in cash. After considering the written submissions filed by the assessee, the AO treated the cash deposits of Rs.2,16,55,900/- in the Bank account of the assessee as business receipts and estimated the Net Profit of the assessee from business @ 8%, which came to

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Rs.17,32,472/- and added the same to the income of the assessee. The AO completed the assessment under section 147 read with section 144B of the Act, assessing the total income of the assessee at Rs.17,32,472/-.

2.1 The AO also initiated penalty proceedings under sections 271(1)(c), 271(1)(b) and 271F of the Act, separately.

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

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

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rejected which is a condition precedent as the assessee had duly filed the Tax Audit report on the due date which contains the balance sheet and profit and loss of the assessee and which were available in revenue records and thus the said rejection is without any basis thereby leading to entire addition being null and void. 3. That the Ld. AO has erred in law by rejecting the books of account without following the due procedure prescribed in section 145 of the Income Tax Act, 1961 which specifically mentions that once books are rejected, the assessment has to be completed in the manner provided in Section 144 whereas the assessing officer has completed the assessment us/143(3) r.w.s 144B which per-se means that the rejection of books of accounts was without any basis and the consequential addition made deserves to be deleted. 4. That the Ld. AO has erred on facts by estimating a profit margin on ad-hoc basis without appreciating the fact that the very business in which the assessee is engaged does not have such higher net profit ratio and the percentage calculated by the assessing officer is without any basis and unreasonably high, arbitrary and irrational. Moreover, the profit margin declared by the assessee is completely overlooked and the past trend has been ignored as well. Thus, the said addition does not stands valid. 5. That the Ld. Assessing Officer has erred in law and on facts by only considering the total cash deposits in the bank account of the appellant for the purpose of the estimation of profits ignoring the debits/expenses/amounts utilised towards his business. Thus, this unreasonably high estimation of cash receipts is nowhere justified especially

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when the entire bank credits have already been incorporated in the audited books of the assessee, including the cash flow and cashbook. 6. That the appellant was covered by sufficient cause for not being able to respond to the notices as the year was 2021 which was COVID period and the said notices were never brought to the attention of the assessee and infact ITR has not been filed was never communicated to the assessee by the then counsel which lead to each issue of default and thus the appellant pleads to kindly restore the matter to the file of the Ld. Assessing Officer so that deliberate and detailed submission can be filed against the issues raised herein. 7. That the appellant craves leave to add / alter any of the grounds of appeal on or before the date of hearing. 3.0 The Ld. Authorized Representative for the assessee (Ld. A.R.) submitted that the assessee had filed his return of income declaring income of Rs.4,01,231/-, but the AO had taken the entire Bank deposits of Rs.2,16,55,900/- as gross receipts of the assessee and had, thereafter, applied a net profit rate of 8% and had assessed the income of the assessee at Rs.17,32,472/-, which was very much against the facts on record. It was submitted that the assessee’s turnover was above Rs.2 crores and, therefore, the provisions of section 44AD of the Act would not be applicable in the case of the assessee for determining the presumptive income @ 8%. It was also submitted that the assessee had been regularly filing his return of income for the

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past many years and even his books of account are audited and, therefore, the estimation by the AO, without taking into account the past history of the assessee, was not tenable in the eyes of law.

3.1 It was further submitted that the assessee was also challenging the validity of reassessment proceedings inasmuch as the AO had not issued the statutory notice under section 143(2) of the Act prior to completion of the assessment, which was mandated by the Act if return has been furnished under sections 139 or 148 of the Act. He referred to the Report submitted by the Department vide communication dated 19.01.2026 (already on record) and it was submitted that the AO had submitted a wrong report in this regard inasmuch as the return of income was filed in response to notice issued under section 148 of the Act and not in response to notice under section 142(1) of the Act. It was further submitted that there is no mention in the assessment order with respect to the return of income as being treated invalid or non est. It was submitted that the assessee had inadvertently mentioned wrong section, i.e., 142(1) of the Act rather than section 148 of the Act while filing the return of income. It was submitted that the Income Tax Portal itself does not allow any assessee to file the Income Tax Return against a notice issued under section 142(1) of the Act.

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3.2 The Ld. A.R. also filed written submissions which have been taken on record and will be duly considered. The Ld. A.R. also placed reliance on certain orders of ITAT to support his contention that completion of assessment or reassessment proceedings without issuance of notice under section 143(2) of the Act would make the entire assessment or reassessment proceedings void ab initio.

3.3 The Ld. A.R. also drew my attention to other grounds raised in the Memorandum of Appeal and argued that the books of account had been incorrectly rejected by the AO because the same had been rejected without specifying the reason for such rejection and also by ignoring the fact that the accounts of the assessee were duly subjected to audit. The Ld. A.R. also argued against the application of net profit rate on estimation without considering the past history of the assessee.

4.0 Per contra, the Ld. Sr. D.R. placed reliance on the orders of the AO as well as the Ld. First Appellate Authority and submitted that the ground pertaining to non-issuance of notice under section 143(2) of the Act was never raised before the Ld. First Appellate Authority and further he highlighted the fact that during the proceedings before the AO, the assessee was non- compliant as a result of which the reassessment proceedings had

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to be completed under section 144 read with section 147 of the Act. He prayed that the appeal of the assessee be dismissed.

5.0 I have heard the rival submissions and have also perused the material on record. A perusal of the record shows that the AO had issued notice under section 148 of the Act on 26.03.2021 wherein the assessee was required to file the return of income within 30 days of service of notice. As per the Report submitted by the Income Tax Officer, Basti, the notice was duly served on the assessee via e-mail on 26.03.2021 at 01.08.08 PM and, thus, the due date to file the return in response to notice under section 148 of the Act was 24.04.2021. It is further seen that the assessee had filed the return of income on 04.01.2022, i.e., almost after a lapse of eight months and ten days after the due date for filing the return of income under section 148 of the Act.

5.1 The Ld. A.R. has argued that the issuance of statutory notice under section 143(2) of the Act was sine-qua-non for proceeding with the reassessment and has also placed reliance on certain judicial precedence of ITAT wherein it has been held that notice under section 143(2) of the Act is a must before assessment or reassessment proceedings can be legally taken up by the AO. The Ld. A.R. has specifically relied on the order of

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ITAT Jaipur Bench in the case of M/s Bhaval Synthetics (India) Ltd. vs. DCIT in ITA No.1043/JP/2019 wherein vide order dated 28.10.2020, the Jaipur Bench of the Tribunal had opined that the legal necessity to issue notice under section 143(2) of the Act arises when the AO considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not under-paid the tax in any manner. However, it is seen that in this case decided by the Jaipur Bench of the Tribunal, the facts were different inasmuch as the return filed by the assessee in response to notice under section 148 of the Act had been accepted and there was no variation or addition made by the AO to the returned income and under such circumstances, the Jaipur Bench of the Tribunal ruled that there was no necessity for the AO to call for explanation from the assessee and for the purpose of issue of notice under section 143(2) of the Act. The Bench went on to conclude that on the facts of that case where reassessment order has been passed under section 147 of the Act accepting the returned income, there was no infirmity in the order so passed in the absence of notice under section 143(2) of the Act. Thus, in my considered opinion, this judicial precedent will be of no help to the captioned assessee on the facts before me.

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5.2 The provisions of Income Tax Act are quite clear that return under section 139(1) of the Act can only be filed before the due date of filing of that return. However, if a person fails to file the return under section 139(1) of the Act, then he may furnish a return under section 139(4) of the Act before expiry of one year from the end of the relevant assessment year or before completion of assessment, whichever is earlier. The provisions of section 142(1) of the Act read that where a person has not filed the return within time allowed under section 139(1) of the Act or before the end of the relevant assessment year, a notice may be served upon him to furnish the return and finally the provisions of section 148(1) of the Act read that before making any assessment or reassessment or re-computation under section 147 of the Act, the AO shall serve upon the assessee a notice requiring him to furnish within such period, as may be specified in the notice, a return of his income for which he is assessable under the Act in the prescribed Form and verified in the prescribed manner, etc., the provisions of this Act would thereafter apply as if such return was the return required to be furnished under section 139(1) of the Act. What emerges from reading of these sections is that the assessee cannot file return any time of his choice and claim it to be a valid return, unless it is in accordance with the timeline stipulated within these

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sections. Thus, it flows from the provisions that once a valid return is filed even under section 148 of the Act, a notice under section 143(2) of the Act is required to be issued to the assessee so that the assessment can thereafter be completed under section 147 read with section 143(3) of the Act. This has been specifically laid down by the Hon'ble Apex Court in the case of ACIT vs. Hotel Blue Moon [2010] 321 ITR 362 (SC) and the Hon'ble Allahabad High Court in the case of CIT vs. Rajiv Sharma [2011] 336 ITR 678 (Alld). However, if the assessee did not file the return or did not file return within the time period allowed under the law or under the extended period allowed to such assessee by way of various notices, then that return would not be a valid return in the eyes of law and the language of section 143(2) of the Act itself suggests that there may not be any obligation upon the AO to issue a notice under section 143(2) of the Act before completing the assessment. The assessment could also be completed under section 147 of the Act read with section 144 of the Act, as in the case of the present assessee, and such an assessment would not be invalid. Therefore, I reject assessee’s ground challenging the validity of reassessment proceedings in absence of issuance of notice under section 143(2) of the Act inasmuch as the assessee had filed the return of income after a lapse of almost eight months from the expiry of

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time permitted for filing of return in response to notice under section 148 of the Act. The assessee, in my considered view, cannot take refuge behind alleged inaction of the Department to escape the rigors of tax when he himself has been non-compliant.

5.3 As far as the merits of the case are concerned, it is apparent that the assessee did not furnish any document before the AO to explain with evidence the source of Bank deposits and the AO, in absence of any evidence, proceeded to bring to tax the Bank deposits by treating them as gross receipts chargeable to tax @ 8%. It is also seen that the assessee did not respond to various notices issued by the Ld. First Appellate Authority and the Ld. First Appellate Authority also dismissed the appeal of the assessee by upholding the addition made by the AO on account of non-compliance by the assessee. However, in the interest of substantial justice, I deem it fit to restore this file to the Office of the AO for framing the assessment de novo after giving an opportunity to the assessee to substantiate with evidence, the source of various Bank deposits. I also caution the assessee to fully comply with the directions of the AO in the set-aside proceedings when called upon to do so, failing which, the AO would be at complete liberty to pass the order in accordance with law, based on the material available on record even if it is ex- parte qua the assessee.

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

Order pronounced in the open Court on 08/05/2026.

Sd/- [SUDHANSHU SRIVASTAVA] JUDICIAL MEMBER DATED:08/05/2026 JJ: Copy forwarded to: 1. Appellant 2. Respondent 3. CIT(A) 4. CIT 5. DR By order

Assistant Registrar/DDO