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Facts
The assessee, an individual running an English Wine Shop, deposited Rs. 10,00,000 in old currency notes during the demonetization period. The Assessing Officer (AO) treated this as income from undisclosed sources under Section 69A, taxed it under Section 115BBE, and initiated penalty proceedings. The assessee's appeal before the CIT(A) was dismissed.
Held
The Tribunal held that the assessment order was bad in law due to the violation of the principles of natural justice, as the notice under Section 142(1) was not properly served. It also found that the CIT(A)'s order was non-speaking and did not properly adjudicate the grounds of appeal. The Tribunal concluded that the cash deposits were sufficiently explained by the opening cash balance from the previous year.
Key Issues
Whether the assessment order is vitiated due to non-service of notice and violation of principles of natural justice, and whether the cash deposits made during demonetization were sufficiently explained by the opening cash balance.
Sections Cited
144, 142(1), 69A, 115BBE, 271AAC, 272A(1)(d), 271F, 234, 220(2), 145(3)
AI-generated summary — verify with the full judgment below
IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCHES, “SMC” CHANDIGARH HEARING THROUGH: HYBRID HEARING BEFORE: SHRI. LALIET KUMAR, JUDICIAL MEMBER आयकरअपील सं./ /Chd/2025 िनधा�रण वष� / Assessment Year : 2017-18 Jugal Kishore English Wine Shop बनाम The ITO Village Telka Tehsil Salooni, Dist. Ward- Dalhousie Chamba, Himachal Pradesh-176310 �ायीलेखासं./PAN NO:AZWPK7689J अपीलाथ�/Appellant ��थ�/Respondent िनधा�रती की ओर से/Assessee by : Shri P.N. Arora, Advocate (Virtual) राज�की ओर से/ Revenue by : Shri Vivek Vardhan, Addl. CIT, Sr. DR सुनवाई की तारीख/Date of Hearing : 10/07/2025 उदघोषणा की तारीख/Date of Pronouncement : 15/07/2025 आदेश/Order PER LALIET KUMAR, J.M:
This is an appeal filed by the Assessee against the order of the Ld. CIT, Appeal Addl/JCIT(A) Thane dt. 09/01/2025 pertaining to Assessment Year 2017-18. 2. In the present appeal Assessee has raised the following grounds:
1. That the assessment order passed by the Income Tax Officer, Ward Dalhousie as well as the order of the Learned Commissioner of lncome Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi thereby confirming the order of the Assessing Officer are both against the facts of this case and are untenable under the law.
2. That no reasonable and proper opportunity of being heard was allowed by the Assessing Officer before passing the said order. As such the assessment order passed is bad in the eyes of law and the same is liable to be cancelled and similarly the order passed by the worthy CIT(A) thereby confirming the order of AO is also bad in the eyes of law and the same is liable to be cancelled.
3. That the order passed u/s 144 by the AO was bad in the eyes of law as there was no service of notice. The notice should have been served on the assessee through notice server or electronically as well as through Postal Services in view of CBDT Circular F.No. 225136312017-lT{.ll dated 15/11/2017. The CIT(A) did not appreciate that the AO has failed to do so. As such the order passed by the Ld. CIT(A) is bad in the eyes of law and the same is liable to be cancelled.
That the CIT(A) has not decided the case on the basis of grounds of appeal
taken by the assessee and he has not decided the case on merits. As such the order passed by the Ld. CIT(A) is bad in the eyes of law and the same is liable to be cancelled. The CIT(A) did not appreciate the facts explained before him that the appellant was having opening cash balance of Rs.23,77,119/- as per the tax audit report relating to AY 2016-17 filed with the department. As such, there was no justification in confirming the addition made by the AO.
5. That the CIT(A) did not appreciate that there was sufficient cash available with the assessee as on 31103/2016 to the tune of Rs.23,77,1191 and out of this cash was deposited in the bank As such, the addition of Rs.10,00,000/- ls not called for as the source of the same stands explained. The CIT(A) was not justified in deciding the case not on the basis of ground wise. As such the order passed by the CIT(A) is in a summary manner, without application of mind and without deciding each ground of appeal. As such the order passed by the Ld. CIT(A) is bad in the eyes of law and the same is liable to be cancelled and the addition made may be deleted as the case has not been decided by the CIT(A) on merits even. Alternatively. the addition made is very high & excessive.
6. That any other ground of appeal which may be argued at the time of hearing ofthe appeal.
3. Briefly the facts of the case are that Jugal Kishor, an individual running an English Wine Shop in Telka Village, Chamba, Himachal Pradesh, deposited Rs.10,00,000/- in old currency notes (Rs.500 and Rs.1,000 denominations) into his State Bank of India account A/c No. 65094824505 during the demonetization period, Rs.7,00,000/- on November 14, 2016, and Rs.3,00,000/- on November 15, 2016. Despite multiple notices under Section 142(1) of the Income Tax Act, 1961, the assessee failed to file an income tax return or explain the source of the deposits. No ITRs were filed since PAN allotment in 2008, even though bank records indicated ongoing business activity. Consequently, the Assessing Officer conducted a best judgment assessment under Section 144.As the cash deposits were unaccounted for and unexplained, the AO invoked Section 69A and treated Rs.10,00,000/- as income from undisclosed sources. Citing the Supreme Court’s ruling in Chuharmal vs. CIT, the AO taxed the amount at 60% under Section 115BBE and initiated penalty proceedings under Sections 271AAC, 272A(1)(d), and 271F. Interest under Sections 234 and 220(2) was also levied, and demand notices were issued.
4. Against the order of the Ld. AO the assessee went in appeal before the Ld. CIT(A).
The Ld. CIT(A), dismissed the appeal filed by Jugal Kishore against the assessment order under Section 144 for A.Y. 2017-18, wherein the Assessing Officer had added Rs. 10,00,000/- as unexplained cash under Section 69A, taxed at 60% under Section 115BBE. The appeal challenged the validity of the assessment and the addition made for cash deposits during the demonetization period. However, the CIT(A) found that the assessee failed to maintain books of accounts, and the claimed opening cash balance was unsupported due to unexplained entries of Rs. 6,25,000/- and Rs. 19,000/. As the cash balance did not justify the deposits, the addition was upheld.
Against the order of the Ld. CIT(A) the assessee preferred an appeal before the Tribunal.
The Ld. AR contended that the assessment order was illegal, void, and in violation of the principles of natural justice, as the notice under Section 142(1) was not properly served. It was submitted that the AO neither served the notice electronically nor made service by post or notice server, in contravention of the CBDT Circular mandating such procedure. 7.1 The AR highlighted that the assessee had regularly maintained books of accounts and filed audited returns up to A.Y. 2016–17. The opening cash balance of Rs.23,77,119/- as on 01.04.2016 was verifiable from the tax audit report of the preceding year. Thus, the cash deposit of Rs.10,00,000/- during the demonetisation period stood fully explained. 7.2 The AR further argued that the AO did not reject the books of account under section 145(3) nor pointed out any discrepancy. Therefore, invoking Section 69A and taxing the sum under Section 115BBE was wholly unjustified. 7.3 The assessee emphasized that the CIT(A) did not properly appreciate the facts or examine the audit report and cash book while dismissing the appeal. 7.4 The AR relied on various judicial precedents to support the proposition that cash deposits made during demonetisation out of available cash balance, duly recorded in books, cannot be treated as unexplained under section 69A.
Per contra, the Ld. DR supported the orders of the lower authorities. It was argued that the assessee failed to offer satisfactory explanation for the cash entries dated 18.05.2016 (Rs.6.25 lakh) and 06.10.2016 (Rs.19,000) in the cash book. In the absence of proper substantiation, the DR contended that the available cash balance was insufficient to justify the demonetisation deposit.
8.1 The Ld. DR submitted that despite sufficient opportunities granted by the CIT(A), the assessee failed to fully substantiate the sources of cash, warranting the addition under section 69A.
I have heard the rival contention of the parties and perused the material available on the record. After carefully considering the submissions of the AR, the assessment order passed under Section 144, and the order of the CIT(A), I find merit in the contentions raised by the assessee. It is evident that the Ld. AO proceeded to complete the assessment without affording a proper and reasonable opportunity of being heard, in violation of the principles of natural justice. The assessee had a valid explanation for the cash deposits amounting to Rs. 10,00,000/– during the demonetization period, which were duly supported by an opening cash balance of Rs. 23,77,119/– as per the tax audit report of the preceding year already filed with the department. No specific discrepancies were pointed out in the books of accounts, and there was no rejection of accounts under Section 145(3). Therefore, the addition made under Section 69A was unjustified.
9.1 Further, I am of the view that the order of the CIT(A) is found to be non-speaking and passed without properly adjudicating the grounds of appeal or considering the merits of the case. In view of the above, I am of the opinion that the cash deposits stand sufficiently explained, and the addition of Rs. 10,00,000/- is liable to be deleted. Accordingly, the appeal of the assessee is allowed.
9.2 In light of the facts and circumstances of the case and upon careful consideration of the material placed on record, I am of the considered opinion that the assessment order passed under section 144 of the Act suffers from legal infirmity due to non-service of notice in accordance with the procedure laid down by the CBDT Circular dated 15.11.2017and particularly in relation to the availability of opening cash balance of Rs.23,77,119 as per the audited financial statements of the immediately preceding year, have not been adequately examined by the lower authorities. The CIT(A) failed to consider the cash flow statement and the relevant documentary evidence filed by the assessee. Even if specific entries of cash introduction during the year are questioned, this cannot be the sole ground for ignoring the availability of a substantial cash balance from the previous year, especially when the assessee has been regularly filing returns and maintaining audited books of account. The entire addition of Rs.10,00,000 under section 69A, therefore, cannot be sustained merely based on suspicion or lack of detailed enquiry. In our view, the assessee has discharged the initial onus of explaining the source of cash deposit, and the Revenue has not brought any contrary evidence to dislodge the same. Accordingly, the addition deserves to be deleted, and the orders of the lower authorities are liable to be set aside.
In the result, appeal of the Assessee is allowed.