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Facts
The assessee filed an appeal against the order of the NFAC, Delhi for AY 2017-18. The Assessing Officer (AO) treated the assessee's return as non-est due to late filing and made additions under Section 68 and taxed income under Section 115BBE. The assessee argued that cash deposits during demonetization were explained and that the AO's assessment order was bad in law and void ab initio.
Held
The Tribunal condoned the delay in filing the appeal, subject to payment of Rs. 5,000/- as cost. The Tribunal held that the addition made under Section 68 was not sustainable because the assessee had demonstrated that the cash deposits were cash receipts from debtors, details of which were provided. The Tribunal noted that the AO had not properly investigated the issue and that the department lacked material to disprove the genuineness of the transactions.
Key Issues
Whether the addition made under Section 68 for unexplained cash credit during the demonetisation period is sustainable when the assessee provided details of debtors and evidence of cash sales. Whether the assessment order under Section 144 is void ab initio due to procedural infirmities.
Sections Cited
68, 115BBE, 144, 142(1), 143(2), 250, 133(6), 234A, 234B
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘A’ BENCH : BANGALORE
Before: SHRI WASEEM AHMED & SHRI SOUNDARARAJAN K.
ORDER PER SOUNDARARAJAN K., JUDICIAL MEMBER
This is an appeal filed by the assessee challenging the order of the NFAC, Delhi dated 20/11/2023 in respect of the A.Y. 2017-18 and raised the following grounds: “1. The order of the learned Commissioner of Income tax (Appeals) passed under Section 250 of the Income Tax Act 1961 (hereinafter referred to as `Act') in so far as it is against the Appellant is opposed to law, weight of evidence, probabilities, facts and circumstances of the Appellant's case.
Page 2 of The learned Commissioner of Income Tax (Appeals) is not justified in law in confirming the additions made under Section 68 of the Act a sum of Rs. 76,86,822/ - and being taxed under Section 115BBE of the Act by the learned Assessing Officer in the assessment order passed under Section 144 of the Act on the facts and circumstances of the case.
3. The authorities below failed to appreciate that the appellant explained the source of cash deposit and consequently the addition made under section 68 of the Act a sum of Rs. 76,86,822/- is not in accordance with law on the facts and circumstances of the case.
The learned Assessing Officer is not justified in law in passing the assessment order under Section 144 of the Act being without jurisdiction on the facts and circumstances of the case.
5. The learned Assessing Officer is not justified in law in holding that the return of income filed by the Appellant on 31.08.2019 being filed after due date prescribed in the notice issued under Section 142(1) of the Act on the facts and circumstances of the case.
The Assessment Order passed by the learned Assessing Officer is in violation of principles of natural justice and consequently, the assessment order is liable to be set aside on the facts and circumstances of the case.
7. The learned Assessing Officer failed to appreciate that the provisions of Section 68 of the Act is not applicable on the facts and circumstances of the case.
8. Without prejudice the learned Assessing Officer erred in law in making addition under Section 68 of the Act a sum of Rs. 76,86,822 /- as against a sum of Rs. 44,78,500/- proposed in the show cause notice as unexplained cash credit under Section 68 and taxed under Section 115BBE of the Act and consequently the addition made is in violation of principles of natural justice on the facts and circumstances of the case.
9. The order passed by the learned Commissioner of Income Tax (Appeals) is in violation of principles of natural justice in as much as the copy of the remand report has not been provided to the Appellant for filing his reply on the facts and circumstances of the case.
Page 3 of The learned Commissioner of Income Tax (Appeals) fails to appreciate that the written submissions filed and the documents enclosed along with the written submissions during the course of appellate proceedings on the facts and circumstances of the case.
11. The authorities below failed to appreciate that the Appellant explained the source for cash deposit and consequently the addition made under Section 68 taxed under Section 115BBE of the Act is required to be deleted on the facts and circumstances of the case.
The learned Commissioner of Income Tax (Appeals) erred in holding that the Appellant failed to prove the identity, creditworthiness of the debtors and genuineness of the transactions, and failed to discharge his onus under Section 68 of the Act on the facts and circumstances of the case.
The learned Commissioner of Income Tax (Appeals) erred in holding that the learned Assessing Officer passed the order duly following the provisions of the Act and after providing sufficient opportunity to the Appellant and it was failure on part of the Appellant to avail those opportunities by complying with the notices issued by the learned Assessing Officer on the facts and circumstances of the case.
The learned Commissioner of Income Tax (Appeals) failed to adjudicate on the following grounds of appeals: 2A. The order of assessment passed u/s. 144 of the Act is bad in law and void-ab-initio in as much the conditions precedent to invoke the provisions of sec. 144 of the Act viz., failure to make return of income or fails to comply with the terms of notices issued u/s. 142(1) or 142(2A) or fails to comply with the terms of a notice issued u/s. 143(2) of the Act for the year under appeal is totally absent and consequently deserves to be cancelled. 2B. The order u/s. 144 of the Act are bad in law and void- ab-initio as there is no satisfaction reached and recorded by the learned A.O. as required u/s. 144 of the Act and hence, the impugned order of assessment passed requires to be cancelled.
6. Based on the above facts, it is clear that the action of assessing officer passing the order under section 144 is totally erroneous and is not tenable as per law. The Page 4 of assessing officer may resort to best judgment assessment, the power of which shall be exercised judicially and not violating the principles of natural justice.
7. The learned AO concluded the assessment by making addition u/s 68 taxable for tax u/s 115BBE of the Income Tax Act, 1961.
The learned Assessing Officer is not justified in law in charging the interest under Section 234A and 234B of the Act and further the calculation of interest under section is not in accordance with law since the rate, method of calculation, quantum is not discernible from the order of assessment and interest is not accordance with respective provisions of section on the facts and circumstances of the case.
16. The Appellant craves leave to add, alter, amend, substitute or delete any or all of the grounds of appeal
urged above.
17. For the above and other grounds to be urged during the course of hearing of the appeal the Appellant prays that the appeal be allowed in the interest of equity and justice.”
2. The brief facts of the case are that the assessee is an individual and earned income from business. The AO based on the information that the assessee had deposited in his bank accounts during the demonetisation period, had issued a notice u/s. 142(1) of the Act on 28/11/2017. The assessee, thereafter, filed his return of income on 31/08/2019. The AO had treated the said return as non-est since the same was filed beyond the due date. The AO issued a letter u/s. 133(6) of the Act to the bankers and sought for the bank statements, KYC documents. Based on the said statements supplied by the banks, the AO had computed the cash deposits made during the demonetisation period. The AO had computed the SBN notes at Rs.43,02,000/- and Rs. 1,71,000/- in the Corporation Bank and HDFC Bank respectively. The AO sought for the details about the persons from whom the cash deposits were received. The assessee submitted his cash book for the A.Y. 2017-18. The AO based on the cash book furnished by the assessee had alleged that so many cash receipts were raised against each customer on a single day and therefore the AO had computed about
Page 5 of the cash sales effected. Thereafter notice u/s. 142(1) was issued seeking the cash receipts and the complete postal address of 12 parties and their PAN to verify the genuineness of cash sales. The assessee submitted that the cash receipts are the amount collected from debtors in SBN which was deposited into his bank account. The assessee also enclosed the cash receipts for the cash received by him. The assessee also submitted the other details. The AO visited the premises of the assessee on 04/12/2019 and recorded a statement and sought for the details of the party-wise ledger and other sales invoices. At that time, the assessee had filed the details about the 7 of the vendors and sought for the time to file the details about the balance five dealers. The AO on verification of the ledger account extracts, had alleged that the purchaser had paid the advance amount for the purchases made from 17/01/2016 which was also accepted by the assessee. The AO sought for the confirmation letters from the said dealers who have paid the advance amount but the assessee was not able to give the confirmation letters within the time granted by the AO. Therefore the AO had treated the cash receipts as unexplained cash credit u/s. 68 of the Act. As against the said order, the assessee filed an appeal before the Ld.CIT(A). Before the Ld.CIT(A), the assessee filed his written submissions and the list of debtors. The Ld.CIT(A) considered the same as additional evidences and sought for a remand report from the AO. The AO in the remand report had stated that out of 42 debtors, only two have replied to the notices and therefore gave a report that the appellant failed to prove the identity and credit worthiness of the debtors and the genuineness of the transactions. The Ld.CIT(A) relied on the said remand report and confirmed the addition.
As against the said order, the present appeal has been filed by the assessee before this Tribunal with a delay of 418 days.
4. The assessee filed an application to condone the said delay. In the said application, the assessee submitted that he has completed his 10th Std and thereafter he studied ITI and therefore he has no knowledge about the e-assessment proceedings and therefore he has no knowledge about the Page 6 of order passed by the Ld.CIT(A). The assessee also submitted that initially one Chartered Accountant had looked after the assessee’s file and later on, for filing the appeal, the assessee was asked to engage another Chartered Accountant and the appeal was filed through the another Chartered Accountant and subsequently, another GST practitioner had looked after the appeal proceedings. In view of the said confusions and also in view of the health issues faced by the assessee, he was not able to approach the authorised representatives at Bangalore. Further, the assessee submitted that he had financial difficulties and he took care of his mother who was sick during that period and finally through the supplier company’s manager, the assessee engaged the present counsel and the appeal was filed with a delay of 418 days.
We have gone through the submissions made by the assessee and even though the assessee had sufficient reasons, we do not think that these are the valid reasons for condoning such a delay. We have also considered the fact that if we have not condoned the said delay, the assessee would loose an opportunity to decide the issue on merits. On the other hand, if one more opportunity is granted and the appeal is decided on merits, nothing prejudice would be caused to the respondent department. Considering the facts, we are inclined to grant an opportunity and to decide the appeal on merits on condition that the assessee should pay a sum of Rs. 5,000/- by way of cost to condone the said delay. We are granting this concession only on the condition that the assessee should pay a cost of Rs. 5,000/- within a period of four weeks from the date of receipt of this order otherwise it is deemed that this Tribunal had not condoned the said delay of 418 days in filing the appeal and the findings given in the subsequent paragraphs would not be applicable.
6. At the time of hearing, the Ld.AR submitted that the Ld.CIT(A) had not considered the other grounds raised by the assessee. The Ld.AR also submitted that the assessment u/s. 144 is not in accordance with the provisions and prayed to allow the appeal. The Ld.AR further submitted
Page 7 of that the AO had erred in making an addition of Rs. 76,86,822/- as against the proposed addition of Rs. 44,78,500/- and therefore the order of the AO is against the principles of natural justice. The Ld.AR also relied on the other grounds. The Ld.AR filed a synopsis of arguments and a paper book enclosing the various notices and the replies filed by the assessee including the bank account statements and a comparable chart of cash deposits made during the entire year. The Ld.AR also filed three volumes of case law compilation and prayed to allow the appeal. The Ld.AR also filed an application to admit the additional grounds in which he raised the ground that the assessment order passed without issuing the notice u/s. 143(2) of the Act is bad in law.
The Ld.DR relied on the order of the lower authorities and submitted that the appeal deserves to be dismissed.
We have heard the arguments of both sides and perused the materials available on record.
On going through the assessment order, we found that the AO had taken the cash deposits made during the demonetisation period in SBN as well as the new notes. In the paper book, the assessee had furnished the copy of the 142(1) notice issued on 28/11/2017 and 14/12/2017. No doubt the assessee had filed his return of income on 13/08/2019 i.e. well beyond the period granted by the AO. Therefore, the AO had treated the said return as non-est and again the AO had sought for the details about the cash deposits made during the period 08/11/2016 to 31/12/2016 and the source for the said cash deposits. The AO also sought for the name, PAN and address of the debtors and also the cash book for the relevant period. Subsequently, a show cause notice was issued on 23/09/2019 in which the AO had alleged that the assessee had deposited SBN during the demonetisation period and the total comes about Rs. 44,78,500/- and sought for the details about the persons from whom the said SBN notes were received and the valid reasons for accepting the said notes. Then
Page 8 of based on the details submitted by the assessee, the AO had sought for more details about the persons from whom the SBN was received. It seems that the AO had not properly investigated the issue before imposing the addition u/s. 68 of the Act. The AO based on the cash receipts, had concluded that the cash receipts are not genuine and treated the same as unexplained credit u/s. 68 of the Act.
Before the Ld.CIT(A), the assessee filed their written submissions on 16/03/2023. A detailed submission was made by the assessee and the assessee also enclosed a consolidated statement showing the cash deposits made during the year and submitted that the cash deposits made in all the months are almost similar and therefore submitted that there was no abnormal increase in cash deposits during the demonetisation period. For the sake of easy reference, we are extracting the consolidated statement filed by the assessee before the Ld.CIT(A).
Consolidated view of Cash Deposit during the year
Corporation HDFC BANK - HDFC BANK - IDBI BANK - Month Total Bank-CBCA-68 00186 88432 11671 Apr-16 - 19,95,500.00 19,45,800.00 - 39,41,300.00 May-16 - 27,37,400.00 25,000.00 - 27,62,400.00 Jun-16 - 30,61,130.00 50,000.00 - 31,11,130.00 Jul-16 12,00,000.00 20,25,100.00 - - 32,25,100.00 Aug-16 27,83,900.00 5,65,500.00 50,000.00 - 33,99,400.00 Sep-16 21,45,471.00 4,52,000.00 - - 25,97,471.00 Oct-16 39,03,500.00 1,55,000.00 - - 40,58,500.00 Nov-16 46,06,500.00 1,05,500.00 - 6,00,000.00 53,12,000.00 Dec-16 37,03,630.00 22,000.00 2,30,800.00 - 39,56,430.00 Jan-17 28,34,150.00 40,000.00 4,92,100.00 - 33,66,250.00 Feb-17 5,03,000.00 2,72,500.00 4,080.00 - 7,79,580.00 Mar-17 21,63,700.00 1,11,710.00 - - 22,75,410.00 Total 2,38,43,851.00 1,15,43,340.00 27,97,780.00 6,00,000.00 3,87,84,971.00
Along with the written submissions, the assessee had also filed the details of the 42 debtors and also furnished their address as well as GSTIN
Page 9 of numbers. The assessee also filed the bank statements of the Union Bank of India, HDFC bank and the Corporation Bank statement in support of his submissions. The Ld.CIT(A) had treated the said details filed by the assessee as an additional document and therefore sought for a remand report from the AO. The AO also gave a remand report in which he had stated that out of the 42 debtors, only two had responded and therefore based on that, the Ld.CIT(A) had confirmed the additions. It is a fact that the Ld.CIT(A) had not furnished the copy of the remand report to the assessee before proceeding to decide the appeal. This mistake was pointed out by the assessee in their grounds of appeal filed before us.
12. Further, the assessee before the Ld.CIT(A) filed some documents on 14/11/2023 and enclosed the cash flow statement for the F.Y. 2016-17 and submitted that all the receipts were duly declared in the return of income. Similarly, the assessee had also filed their VAT returns and submitted that the turnover declared in the VAT return is Rs. 8,23,04,716/- whereas the turnover declared in ITR is Rs. 8,22,85,741.08/- and therefore submitted that there is no concealment of any income on his part. Along with the submissions, the assessee also filed the cash flow statement and the VAT returns which were all accepted by the authority under the VAT Act.
13. On going through the submissions made by the assessee, before the Ld.CIT(A) on two occasions, and considering the documents submitted by the assessee, we do not think that the addition made u/s. 68 of the Act is in order. In fact, the assessee took much pain to establish the genuineness of his case and also proved that there is no discrepancy between the turnover reported in the VAT return as well as in the ITR. When the turnover declared under the VAT Act has been accepted by the authorities, the said proceedings may be taken as a clue to decide the issue under the Income Tax Act.
14. We have also perused the details furnished by the assessee in which the purchaser’s name and address were given including their GSTIN number
Page 10 of and therefore to disprove their bonafideness, the department has no material in their hands except making guess work. When the assessee had given the GSTIN numbers of the dealers, it could have verified by the AO through online and no such exercise was done by the AO for doubting about the genuineness of the cash transactions. Moreover, it is a fact that in order to improve the sales, the dealers like assessee would get the payments through the SBN so that the same can be deposited into their bank account and the said cash can be converted into a regular currency. The act of receiving the SBN notes by the assessee would not treat the cash deposits made by way of SBN notes as invalid.
15. Further, we have perused the consolidated statement filed by the assessee which shows that almost in all the months, before and after the demonetisation period, almost equal amount of cash has been credited into his bank account and therefore to treat the cash deposits made during the demonetisation period as not genuine one, the AO ought to have given some more details than confirming the same on mere surmise.
We have also considered the grounds raised
by the assessee that the Ld.CIT(A) had not considered the other grounds raised in ground nos. 2A, 2B, 6 and 7. It is true that the Ld.CIT(A) had not decided this issue in his order. We have also considered the additional ground raised by the assessee that no notice u/s. 143(2) has been issued before passing the order. We are of the considered opinion that the legal grounds raised by the assessee need not be adjudicated since we are satisfying that the grounds raised on merits. Similarly, the assessee had raised a plea that the show cause notice contains an addition of Rs. 44,78,500/- whereas in the order the AO had made an addition of Rs. 76,86,822/-. We are accepting that this ground may be a good ground but since we are allowing the appeal on merits, we are not adjudicating this ground also.
In view of the facts that the assessee had demonstrated that the cash deposits are nothing but the cash receipts from the debtors whose details
Page 11 of were given to the Ld.CIT(A), we are accepting the case of the assessee and held that the addition made u/s. 68 is not sustainable subject to the condition that the assessee should deposit a sum of Rs 5000/ towards cost in the account of P.M.National Relief Fund within a period of four (4) weeks from the date of receipt of this order. In the event of any default the relief granted in this appeal by condoning the delay in filing the appeal would not be available to the assessee.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 30th December, 2025.