Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “C” BENCH, AHMEDABAD
Before: S/SHRI T.R. SENTHIL KUMAR & MAKARAND V.MAHADEOKAR
This appeal filed by the assessee is directed against the order dated 21.01.2025 passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as "the CIT(A)"], under section 250 of the Income Tax Act, 1961[hereinafter referred to as "the Act"], for the Assessment Year 2018-19, arising out of the assessment order dated 05.03.2024 passed under section 147 r.w.s. 144 r.w.s. 144B of the Act by the Assessing Officer [[hereinafter also referred to as "AO"].
Facts of the Case
The assessee is an individual engaged in the business of milk and buttermilk sales. Information was received by the Assessing Officer through the INSIGHT Portal under the Non-Filer Monitoring System (NMS), as per the risk management strategy of the Central Board of Direct Taxes (CBDT), that during the Financial Year 2017–18 relevant to A.Y. 2018–19, the assessee had deposited cash aggregating to Rs.56,33,020/- in his bank account with Dena Gujarat Gramin Bank and further cash of Rs.1,63,26,000/- in his bank account with State Bank of India, but had not filed any return of income for the year under consideration. Based on this information, the Assessing Officer initiated proceedings under section 148A and issued notice under section 148 of the Act on 01.04.2022, after recording reasons and obtaining the necessary approval of the competent authority. Though the assessee attempted to file the return of income in response to the said notice, the same was declared invalid by the Central Processing Centre (CPC), and the assessee’s condonation request was not accepted, as per remarks dated 24.02.2023. Thereafter, during the reassessment proceedings, the Assessing Officer issued several statutory notices under section 142(1) dated 05.04.2023, 08.08.2023, and 27.09.2023, as well as follow-up notices including show cause notice dated 08.02.2024. However, the assessee remained non-compliant throughout, except for belated and partial replies filed on 15.02.2024 and 24.02.2024.
In response to the show cause notice, the assessee submitted that the cash deposits in the bank accounts were out of genuine business transactions, namely sale proceeds from milk and buttermilk. The assessee also enclosed profit and loss account, trading account, balance sheet, and a computation of income. However, no primary records such as purchase register, sales register, stock register, milk delivery records, or milk society receipts were furnished, despite specific requisitions made under section 142(1). The Assessing Officer, based on independent verification of bank accounts under section 133(6), concluded that the assessee had total credits amounting to Rs.1,64,87,349/- in his State Bank of India account, including cash/cheque/RTGS/transfer receipts. The AO presumed the said amount to be the assessee’s turnover for the year and applied a profit rate of 4%, computing the business income at Rs.6,59,494/-. After adjusting the income of Rs.2,02,180/- shown by the assessee, the AO made an addition of Rs.4,57,314/- as undisclosed business income. Further, the AO also treated the cash deposit of Rs.56,33,020/- in Dena Gujarat Gramin Bank as unexplained money under section 69A and taxed it under section 115BBE of the Act. Accordingly, the AO passed the reassessment order under section 147 r.w.s. 144 r.w.s. 144B of the Act.
4. The assessee preferred an appeal before the CIT(A). During the appellate proceedings, the assessee filed additional evidence in the form of ledgers, cash books, bank passbooks, and the ledger of Mehsana District Co-operative Milk Union, and sought admission of such evidence under Rule 46A of the Income Tax Rules, 1962. The assessee also contended that the cash deposits were legitimate and fully explained as part of milk business, and that no addition under section 69A was warranted. The CIT(A), however, rejected the assessee’s application under Rule 46A, holding that the assessee had not satisfied the conditions prescribed under clauses (a) to (d) of Rule 46A(1), and had failed to show any sufficient cause for not producing such evidence before the AO, despite having been given eight opportunities. The CIT(A) relied on several judicial precedents including decisions of the Hon’ble Supreme Court, High Courts, and coordinate Benches of the Tribunal to uphold the rejection of additional evidence and the validity of best judgment assessment. On merits, the CIT(A) upheld the addition of Rs.56,33,020/- under section 69A as unexplained money and sustained the addition of Rs.4,57,314/- computed by the AO on a presumptive basis. The appellate authority concluded that the assessee had failed to establish the nexus between the cash deposits and the declared business receipts, and in the absence of contemporaneous evidences, the additions made by the AO were justified.
5. Aggrieved by the order of the CIT(A), the assessee has preferred the present appeal before us raising following grounds of appeal:
1. The CIT(A) erred in upholding the reopening of the assessment under Section 147 of the Income Tax Act, 1961, as there was no valid escapement of income. The whole reopening is bad in law and void-ab- initio. Therefore, the order passed by the Ld. CIT (A) should deserve to be quashed.
2. Ld. CIT(A) erred in: 2.1 The CIT(A) erred in rejecting the appellant's application under Rule 46A of the Income Tax Rules, 1962, for the admission of additional evidence. The additional evidence was crucial for substantiating the appellant's claims. By not admitting this evidence, the CIT(A) has deprived the appellant of a fair and just opportunity to substantiate its case, thereby violating the principles of natural justice. 2.2 The CIT(A) failed to provide the appellant with a fair opportunity of being heard, despite specific written requests made by the appellant in its submissions. This denial of the right to present arguments through video conference contravenes the principles of natural justice and has prejudiced the appellant’s ability to effectively present its case.
3. The CIT(A) failed to recognize that cash deposits of Rs. 56,33,020/- were legitimate business income from milk and buttermilk sales, which were fully disclosed in the appellant’s Return of income. It is therefore submitted that, the addition so made u/s 69A r.w.s. 115BBE of the Act amounting to Rs. 56,33,020/- is prayed to be deleted.
The CIT(A) upheld an arbitrary Gross Profit estimation of 4% on all credit entries of Rs. 1,64,87,349/- in the SBI bank account. The addition of Rs.4,57,314/- (Rs. 6,59,494/- @ 4% Gross receipts of Rs. 1,64,87,349/- Less Rs.2,02,180/- declared total income in the ITR) is presumptive/ad- hoc basis, unreasonable and same should be deleted.
The Order passed by the Ld. CIT(A) is bad in law and contrary to the provisions of law and facts. It is submitted that the same be held so now.
Your appellant craves leave to add, alter, and/or amend all or any of the grounds before the final hearing of the appeal.
6. During the course of the hearing before us the Learned Authorised Representative (AR) submitted that the additions made by the Assessing Officer and sustained by the CIT(A) are unjustified and contrary to the material placed on record. It was submitted that the assessee is engaged in a small-scale dairy business involving sale of milk and buttermilk in a rural area of Gujarat, and the cash deposits reflected in the assessee’s bank accounts represent sale proceeds generated from such business. The AR contended that during the course of reassessment proceedings, the assessee had filed its financial statements, including the Profit & Loss Account, Balance Sheet, Trading Account, and computation of income, wherein the business turnover was duly disclosed. It was submitted that the assessee had disclosed income of Rs.2,02,180/- and explained that the cash deposited in the bank accounts was sourced from daily milk sales, collected in cash from local vendors and cooperative society members. However, despite such submissions, the Assessing Officer proceeded to make an addition of Rs.56,33,020/- under section 69A of the Act, treating the deposits in Dena Gujarat Gramin Bank as unexplained money and further computed income at 4% of the total credits of Rs.1,64,87,349/- in the State Bank of India account. The AR also submitted that the CIT(A) failed to appreciate that the assessee, during appellate proceedings, had produced supporting documents such as cash book, milk society ledger, and bank statements which corroborated the flow of funds and the linkage with business operations. However, these were disregarded merely on technical grounds without examining their substance.
The Learned Departmental Representative (DR) supported the concurrent findings of the Assessing Officer and the CIT(A) and submitted that during the reassessment proceedings, the assessee failed to comply with multiple statutory notices issued under section 142(1) and only responded belatedly to the final show cause notice under section 144B. Even then, the assessee did not produce any primary records such as purchase register, sales register, or stock records, which were essential to substantiate the claim of business activity and to explain the source of cash deposits. In such circumstances, the AO was fully justified in invoking best judgment assessment under section 144 and drawing reasonable inferences from the material available.
We have carefully considered the rival submissions and perused the orders of the authorities below. It is evident that the additions made by the Assessing Officer and sustained by the Learned CIT(A) are premised primarily on the assessee’s failure to produce contemporaneous documentary evidence during the assessment proceedings in support of the claim that the cash deposits were out of regular business activity. At the same time, it is also a matter of record that the assessee had, during the course of appellate proceedings, filed financial statements and supporting documents including the cash book, bank statements, and milk society ledger, which prima facie establish the linkage between the banking transactions and the asserted business activity. The CIT(A), however, declined to admit such documents on the ground of non-fulfilment of the conditions under Rule 46A of the Income-tax Rules, 1962, and consequently sustained the additions without examining the evidentiary worth of such materials.
In our considered view, once such documents relevant to the core issue are placed on record and the assessee seeks to substantiate the nature and source of the impugned cash deposits, the matter ought to be examined on merits in the interest of substantive justice. The rejection of such material merely on technical grounds, without considering whether the documents are essential for proper adjudication of the issue, results in a decision that is procedurally correct but potentially unjust. We are also mindful of the fact that the assessment was framed under section 144 of the Act due to earlier non-compliance, which may have contributed to the Assessing Officer's limited appreciation of facts. Nonetheless, where the assessee seeks to rectify this position by subsequently producing relevant evidence, and especially where the documents pertain to the core of the dispute i.e., the genuineness of the business activity and the source of funds, such evidence cannot be ignored without examination on merits.
In view of the above, and considering the totality of the circumstances, we are of the considered opinion that it would be just and proper to provide the assessee an opportunity to substantiate its contentions before the Assessing Officer. Accordingly, we set aside the order of the Learned CIT(A) and restore the matter to the file of the Assessing Officer for fresh adjudication of the issues involved, after examining the evidences filed by the assessee and after affording due opportunity of being heard. We make it clear that the Assessing Officer shall consider all submissions and documentary evidences placed by the assessee, including those earlier rejected under Rule 46A, and adjudicate the matter in accordance with law, uninfluenced by the findings in the earlier orders. The assessee is directed to extend full cooperation in the proceedings before the Assessing Officer and to ensure timely compliance with all notices and requisitions, failing which the Assessing Officer shall be at liberty to proceed in accordance with law.
In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced in the Court on 4th July, 2025 at Ahmedabad.