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Facts
The assessee, a retired government employee, filed a return for AY 2017-18 showing income of Rs. 5,45,270. A cash deposit of Rs. 34,59,500 was made during the demonetization period. The assessee explained that the funds were from retirement benefits withdrawn due to low interest rates and used for lending to friends and relatives to supplement his pension.
Held
The Tribunal held that the FAA passed the order on a deceased person and admitted additional evidence which was crucial for substantial justice. The matter was restored to the AO for fresh examination.
Key Issues
Whether the FAA's order passed on a deceased assessee is valid, and if additional evidence can be admitted and considered for fresh examination by the AO.
Sections Cited
250, 69, 115BBE
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘B’ (SMC
Before: SHRI GEORGE GEORGE K
आदेश/ O R D E R This appeal filed by the assessee is directed against the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi dated 20.05.2025 passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Year is 2017-18.
The grounds raised read as follows:-
2 -:
1. 1. The Learned CIT(A) has erred in passing an appellate order dated 20.05.2025 on a deceased assessee even though it was informed on 01.03.2024 that the assessee has died on 18.11.2023.
2. Without prejudice to the above ground, the Learned CIT(A) has erred in confirming the addition of Rs 34,59,500.
3. Without prejudice to the abovementioned grounds, the Learned CIT(A) has erred in holding that the conditions mentioned u/s 69 are satisfied. 4, The Learned CIT(A) has erred in concluding that the Assessee has failed to satisfactorily explain the source of the cash deposits of Rs.34,59,500, with credible evidence, without calling for the same 5. The Learned CIT(A) has violated the principles of natural justice by not giving the Assessee an opportunity of being heard through a personal hearing. 6 Any other ground that may be taken at the time of hearing.
Brief facts of the case are as follows: The assessee is a retired Government Employee. For the assessment year 2017-18, the return of income was filed on 30.12.2017 declaring total income of Rs.5,45,270/-. The assessment was selected for scrutiny to examine the source of cash deposit of Rs.34,59,500/- made during the demonetization period (09.11.2016 to 30.12.2016). To the show-cause notice issued from the office of the AO to explain the source of cash deposit, assessee filed reply on 19.12.2019 stating that the retirement benefits of his Central Government services were withdrawn from the bank account on account of low interest rate and utilized for giving loans to trusted friends and relatives to supplement the pension for assessee’s day to day living. It was 3 -: stated that during the demonetization period the persons to whom the funds were advanced had returned principal and interest on various dates and same were deposited. The AO however disbelieved the claim of the assessee. The AO held subsequent to announcement of demonetization, bank notes with denomination of Rs.500/- and Rs.1000/- were no longer legal tender and assessee was not one of authorized person to collect the demonetized notes. Therefore, the AO added a sum of Rs.34,59,500/- u/s.69 of the Act as unexplained investment. The AO also applied the special rate of taxation u/s.115BBE of the Act while computing the tax liability and arrived at the total tax at Rs.28,08,918/-. The finding of the AO reads as follows:- “According to the Gazette Notification dated 08.11.2016 issued by the Government of India, bank notes with denomination of Rs.500/- and Rs.1000/- were held as ceased to be a legal tender. The assessee has stated that the source for the cash deposited during the demonetization period are the money received from the borrowers who have paid the money back with interest in the demonetized notes of in Rs.500/- and Rs.1000/-, which was in violation of Government order as the Government has announced that the demonetized notes have to be deposited in banks only and no other person should accept payments in old notes.
Therefore, the cash deposited during the demonetization period amounting to Rs.34,59,500/- is assessed as unexplained investment u/s 69 of the Act and taxed u/s 115BBE of the Act.”
4 -: 4. Aggrieved by the assessment completed, assessee filed appeal before the First Appellate Authority (FAA). The FAA held that the Government notification with regard to demonetization period restricted new transaction but does not clearly address repayment of existing liabilities. It was further held by the FAA, the repayment of existing loan cannot be equated with the new transaction or exchange of goods or services. However, FAA after detailed analysis concluded that assessee had failed to satisfactorily explain the source of cash deposits of Rs.34,59,500/- Hence, he confirmed the AO’s order by treating the cash deposits as unexplained investment u/s.69 and taxing same u/s.115BBE of the Act.
Aggrieved by the order of the FAA, assessee has filed the present appeal before the Tribunal. The assessee’s legal representative has filed a petition for admission of additional evidence as per Rule 29 of Income Tax Appellate Tribunal Rules, 1963. The Ld.AR submitted that the additional evidence now produced before the Tribunal are three bank statements of the late assessee evidencing withdrawal of cash to the tune of Rs.44,09,120/- It was submitted that these bank statements were never called for by the AO nor by the FAA and assessee was under 5 -: the bonafide belief that the source of cash deposits of Rs.34,59,500/- would be accepted. It was submitted by the Ld.AR that these three bank statements are very important for proper adjudication of the issue raised and for substantial justice and equity, the same may be taken on record. Further, the Ld.AR by relying on the grounds raised submitted that the FAA has passed the impugned order on a deceased person despite the fact of bringing to his knowledge that assessee had expired on 18.11.2023. The Ld.AR has placed on record a copy of death certificate evidencing the same.
The Ld.DR on the other hand, strongly supported the orders of the AO and the FAA.
I have heard rival submissions and perused the material on record. The AO had not examined the source of cash deposit. The AO had rejected the assessee’s explanation by stating that he was not one of the authorized person to collect the demonetized currency subsequent to 08.11.2016. Thereby, treating the entire cash deposit as unexplained and adding the same u/s.69 r.w.s.115BBE of the Act. The Chennai Bench of the Tribunal in the case of Tamilnadu State Marketing Corporation Ltd., vs. ACIT in (order dated 07.10.2024) had held that ‘specified date’ mentioned in the notification for deposit of demonetized notes being 30.12.2016, there is no bar from accepting these demonetized notes and assessee only needs to explain only the source of the cash deposit.
The Ld.AR had produced three bank statements of the assessee evidencing withdrawal of Rs.44,09,120/-. This bank statements now produced before the Tribunal have never called for by the AO nor by the FAA. On perusal of these bank statements, I find some of the cash withdrawals are in the current financial year i.e., 01.04.2016 up to the date of demonetization. On perusal of the statement of The Vellore District Central Co-operative Bank Limited, I find that the cash withdrawals are made in the months of May, June and October totaling to a sum of Rs.5,20,000/-. Some portion of sum withdrawn would be naturally available for making cash deposits during the demonetization period. The AO as well as the FAA has not given any credit for the source of cash deposit of Rs.34,59,500/- and the entire cash deposits have been added. The additional evidence now produced before the Tribunal goes to the root of the issue and for substantial cause and justice, I admit the same on record. Since additional evidences are taken 7 -: on record, I deem it appropriate to restore the matter to the file of the AO to examine the issue afresh. Moreover, the FAA has passed the impugned order on a deceased person. For this reason also, I deem it appropriate to set the impugned order of the FAA and restore the matter to the files of the AO. The AO is directed to afford a reasonable opportunity of hearing to the legal representative of the assessee before a decision is taken in the matter. It is ordered accordingly.
In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced in the open court on 8th September, 2025 at Chennai.