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Facts
The assessee, a chit fund company, deposited cash during demonetization. The AO treated a deposit of Rs. 29,05,910/- as unexplained income under Section 69A as the assessee failed to provide documentary evidence. The CIT(A) enhanced the addition to Rs. 44,21,458/-.
Held
The Tribunal noted that the assessment was framed ex parte without adequate consideration of submissions and that the CIT(A) enhanced the addition without providing sufficient opportunity. Therefore, the matter was set aside and remitted back to the AO for fresh adjudication.
Key Issues
Whether the AO and CIT(A) correctly assessed unexplained cash deposits made during demonetization without affording sufficient opportunity to the assessee, and whether the assessment order under Section 144 reflects proper application of mind.
Sections Cited
144, 69A
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Income Tax Appellate Tribunal, ‘SMC’ BENCH, BANGALORE
Before: SHRI WASEEM AHMED
PER WASEEM AHMED, ACCOUNTANT MEMBER:
This is an appeal filed by the assessee against the order passed by the NFAC, Delhi dated 11/10/2023 in DIN No. ITBA/NFAC/S/250/ 2023-24/1056971821(1) for the assessment year 2017-18.
At the outset, I note that there was delay in filing the appeal by the assessee before me for 415 days. The assessee filed the condonation petition by way of furnishing the Affidavit. It was submitted by the assessee in the Affidavit that the assessee company was closed its operation for the assessment year 2020-21 but the company is still existing to settle down its assets and liabilities. Since the employees stopped coming to the office, there was no one to check the emails or the posts. Thus, the assessee was not aware of the order passed by the ld. CIT-A. Only on receipt of the demand notice for payment, the assessee came to know about the order having been passed by the ld. CIT-A. However, in this process, the delay of 415 days was occurred, therefore, it was submitted that the delay has occurred in filing the appeal before the ITAT due to unavoidable circumstances. In view of the above, the ld. AR requested to condone the delay in filing the appeal and adjudicate the matter on merit.
2.1 On the other hand, the ld. DR did not raise serious objection if the delay is condoned.
2.2 I have heard the rival contentions of both the parties and perused the materials available on record. In view of the aforesaid discussion and considering the length of the delay in filing the appeal, I am inclined, in the interest of justice and fair play, to condone the delay. But the negligent approach of the assessee in pursuing the income tax matter cannot be neglected for such an inordinate delay in filing the appeal. Accordingly, I am inclined to impose some cost on the assessee amounting to ₹ 5000 which will be deposited in the income tax department. Accordingly, I condone the delay and proceed to adjudicate the matter on merit.
The assessee has raised as many as 8 grounds of appeal and the issue raised therein is interconnected pertaining to the addition of Rs. 44,21,458/- only.
The relevant facts are that the assessee is a private limited company and engaged in the business of chit fund. The AO received information that the assessee has made cash deposits during the demonetization period in 2 bank accounts detailed as under: S. No. Bank name Cash Deposit 1. Vijaypur District Central Cooperative Bank Rs. 22,40,500/- 2. Union Bank of India Rs. 29,05,910/- Total Rs. 51,46,410/-
The assessee with respect to Vijaypur District Central Cooperative Bank stated that the impugned bank account does not belong to it. Regarding the cash deposit of Rs. 29,05,910/- the assessee claimed that cash was collected from chit fund holders and deposited into the impugned bank account.
However, the AO found that the assessee has not provided details of nature and sources of cash deposit of Rs. 29,05,910/- only. The assessee was provided with several opportunities to furnish the necessary documentary evidence such as cash book, availability of cash in hand on day before the demonetization (8th November 2016) etc but the assessee failed. Hence, the AO proceeded to frame assessment as per section 144 of the Act.
The AO further found that the specified banknotes was no more a legal tender effective from 9th November 2016 by virtue of the gazette notification bearing No. 2652 dated 8 November 2016. Accordingly, the old currency received by the assessee after 8th November 2016 in its books is valueless but at the same time the assessee deposits the same in the bank account against the zero value of cash in the bank account. Therefore, the AO treated the deposits of specified banking note of Rs. 29,05,910/- in the union bank of India as unexplained money of the assessee and added under section 69A of the Act to the total income.
The aggrieved assessee preferred an appeal before the learned CIT(A).
The assessee before the learned CIT(A) claimed that, in relation to cash deposit, it has submitted detailed reply online as on 23 January 2019 and physically as on 5th August 2019. However, the AO without considering the same framed assessment as per section 144 of the Act.
The assessee further submitted that the cash deposit of Rs. 29,05,910/- was made put of cash collected from chit’s fund member and claimed having furnished the list of members along with their PAN and amount collected from them which is also attached herewith.
However, the learned CIT(A) found that the assessee has not furnished any documentary evidence establishing the nature and sources of cash deposit. The learned CIT(A) further found that the there were total cash deposits of Rs. 55,86,500/- by the assessee during the demonetization period whereas the AO made addition only for Rs. .
29,05,910/-. Therefore, the AO after giving credit of opening cash in hand of Rs. 11,83,260/- made the addition of Rs. 40,89,170/-. In other words, the learned CIT(A) enhanced the addition by Rs. 11,83,260/- (40,89,170 - 29,05,910) only.
Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before the Tribunal.
The learned AR before me submitted that the cash was deposited in bank out of the money received from the chit fund holder which was duly recorded in the books of accounts. It was prayed by the learned AR to set aside the issue to the file of the AO for filing the supporting documents to justify the source of cash deposits.
On the other hand, the learned DR before me opposed to condone the delay but also suggested to impose some cost on the assessee if the delay is condoned by the Tribunal.
I have heard the rival contentions of both the parties and perused the materials available on record. Upon a careful examination of the facts on record and the contentions raised by both the assessee and the revenue authorities, I observe that the central issue for adjudication relates to the addition of ₹ 29,05,910/- made by the AO under section 69A of the Act, pertaining to unexplained cash deposits made during the demonetization period which was further enhanced by the learned CIT(A) up to ₹ 44,21,458/- only.
15.1 The assessee, Devinidhi Chits Pvt. Ltd., is engaged in the business of chit funds and has explained that the cash deposits in question— specifically ₹ 29,05,910/- was deposited into its Union Bank of India account—were sourced from collections from chit members. However, the assessee has not satisfactorily demonstrated the nature and source of these deposits with documentary evidence during the assessment proceedings. Though, it was submitted that the relevant details and evidence were uploaded online on 23rd January 2019 and submitted physically on 5th August 2019, the AO has framed the assessment ex parte under section 144 of the Act, apparently without adequate consideration of the submissions.
15.2 The CIT(A), instead of restricting the scope of appellate adjudication to the amount added by the AO, proceeded to enhance the addition to ₹44,21,458/- on the basis of total cash deposits made during the demonetization period (₹55,86,500/-), after reducing the opening cash in hand of ₹11,83,260/-. This enhancement was made despite the lack of discussion on whether the AO had examined the complete set of submissions provided by the assessee or not.
15.3 I am of the considered view that the assessment framed under Section 144 of the Act does not reflect complete application of mind in light of the claimed, submissions and supporting documents allegedly filed before the AO. Further, the CIT(A)'s enhancement of income without affording sufficient opportunity to the assessee to rebut or explain the same also lacks procedural requirements. Accordingly, in the interest of justice and fair play, I set aside the impugned order of the ld. CIT(A) and remits the matter back to the file of the AO for fresh . adjudication. The AO is directed to verify afresh the evidentiary material relating to the source of cash deposits, including the details of chit members, their contributions, and the cash book reflecting such transactions. The assessee shall be granted adequate opportunity to furnish the necessary documents and explanations in support of its claim. This matter is thus restored to the AO with the express direction to conduct the assessment de novo, strictly in accordance with law and after providing reasonable opportunity of being heard to the assessee.
In the result, the appeal of the assessee is hereby partly allowed for the statistical purposes.