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Facts
The assessee, a contractor, filed a return of income declaring Rs.2,72,960/-. The case was selected for scrutiny, and the AO issued notices under Section 142(1). The assessee submitted replies, but the AO, observing unexplained cash deposits of Rs.19,18,000/- and bank credits of Rs.29,61,382/-, treated them as income under Section 69A of the Act. The assessment was completed under Section 143(3) read with Section 144, computing total income at Rs.51,52,342/-.
Held
The Tribunal set aside the order of the NFAC and restored the file to the Assessing Officer. The assessee was granted one more opportunity to present their case, with a caution to comply with the AO's directions, failing which the AO would be at liberty to pass an order based on available material.
Key Issues
Whether the NFAC erred in dismissing the appeal for non-compliance without adjudicating on merits, and whether the additions made by the AO under Section 69A were justified without proper verification of evidence.
Sections Cited
142(1), 144, 69A, 143(3), 115BBE, 271AAC, 250(6), 234A, 234B, 234C, 271(1)(c)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, LUCKNOW BENCH “B”, LUCKNOW
Before: SHRI. SUDHANSHU SRIVASTAVA & SHRI NIKHIL CHOUDHARY
PER SUDHANSHU SRIVASTAVA, J.M.: This appeal has been preferred by the Assessee against the order dated 28.06.2024, passed by the National Faceless Appeal Centre, Delhi (NFAC) for Assessment Year 2017-18.
2.0 The brief facts of the case are that the assessee was a Contractor. The assessee filed his return of income for the year under consideration on 31.03.2018 declaring a total income of Rs.2,72,960/-. The case of the assessee was selected for scrutiny under CASS. The Assessing Officer (AO) issued notices under section 142(1) of the Income Tax Act, 1961 (hereinafter called “the Act’) fixing the date for compliance on 13.11.2019. The assessee submitted his reply on 29.11.2019, stating therein that he had a limit account of Rs.1,00,000/- in Canara Bank, Hardoi, a car loan of Rs.7.00 lakhs and one more loan of Rs.6.00 lakhs and that he had withdrawn the amount within the limit to purchase machinery and to meet out other expenses for business purposes and that due to demonetization he had deposited all the cash in his limit account and FD. The AO also obtained bank account statements for the financial years 2015-16 and 2016-17 from the respective banks under section 133(6) of the Act. However, the AO observed that the assessee had made cash deposits of Rs.19,18,000/- during the year under consideration in his bank accounts and had offered no explanation about the nature and source of acquisition of those cash deposits and that, therefore, the AO invoked the provisions of section 144 of the Act and treated the cash deposits as the income of the assessee under section 69A of the Act.
2.1 Further, from the analysis of the bank statements, the AO observed that there were credits of Rs.29,61,382/- during the year under consideration and that since the assessee had failed to submit any explanation/reply regarding these credit entries, the AO invoked the provisions of section 144 of the Act and treated these credits of Rs.29,61,382/- also as the income of the assessee under section 69A of the Act.
2.2 The AO completed the assessment under section 143(3) read with section 144 of the Act, computing the total income of the assessee at Rs.51,52,342/-.
2.3 The AO also invoked the provisions of section 115BBE of the Act and initiated penalty proceedings under section 271AAC of the Act, separately..
2.4 Aggrieved, the Assessee preferred an appeal before the Ld. First Appellate Authority. Subsequently, the appeal was migrated to the NFAC, which dismissed the appeal of the assessee for the reason of non-compliance by the Assessee.
2.5 Now, the assessee has approached this Tribunal challenging the order of the NFAC, by raising the following grounds of appeal:
Ex-parte dismissal bad in law The learned Commissioner of Income-tax (Appeals), National Faceless Appeal Centre ["CIT(A)"] erred, both on facts and in law, in dismissing the appeal for alleged non-compliance, without adjudicating the issues on merits, in violation of section 250(6) and the settled principles of natural justice. Addition of 48,79,382 u/s 69A unjustified The CIT(A) confirmed the entire addition made by the Assessing Officer ("AO")-cash deposit 19,18,000 and bank credits 29,61,382-without examining the primary records that fully explain the source of these funds (cash-book, bank- limit account withdrawals, fixed-deposit redemption proofs, sales receipts, etc.), which the appellant now seeks to place on record. Failure to verify business withdrawals and recycling of funds The lower authorities ignored contemporaneous evidence that the impugned cash represented redeposit of earlier withdrawals from an overdraft/limit account and routine business collections; hence section 69A is inapplicable. Mechanical reliance on low returned income Merely comparing returned income of 2,72,960 with demonetisation-period deposits, without analysing cash-flow statements, books of account and capital introduction, is arbitrary and contrary to CBDT Instruction No. 1916 (11- May-1994) read with post-demonetisation guidelines. Non-consideration of peak theory/telescoping The AO ought to have granted telescoping of cash withdrawals against redeposits and should have applied the peak-credit method; failure to do so has led to double taxation and an excessive addition. Interest under sections 234A/B/C excessive & consequential Levy of interest is automatic only on correct assessed income; once the quantum addition is deleted or reduced, the interest must be recomputed accordingly. Initiation of penalty u/s 271(1)(c) unsustainable In the absence of any concealment or furnishing of inaccurate particulars-more so when full facts are now being produced the penalty proceedings deserve to be dropped. Order non-speaking & devoid of independent reasoning
The CIT(A) merely reproduced judicial excerpts on dismissal for default but recorded no finding on each ground of appeal or on facts pleaded before the AO, rendering the order liable to annulment. Rule 29 application - additional evidence The appellant craves leave to file additional evidence (books of account, bank statements, affidavits of creditors/customers, audit report, cash-flow statement, etc.) which could not be produced earlier for bona-fide reasons. Admission of such evidence is essential for arriving at the real income and to serve the ends of justice. Alternative relief - restoration to CIT(A) Without prejudice, if the Hon'ble Tribunal is not inclined to decide the appeal on merits at this stage, the matter may kindly be restored to the file of the CIT(A) with directions to adjudicate afresh after granting adequate opportunity. General The appellant reserves the right to alter, amend or raise further grounds at or before the time of hearing. 3.0 None was present for the assessee when the appeal was called out for hearing nor was any adjournment application moved in this regard. However, looking into the facts of the case, we proceed to adjudicate the appeal ex-parte qua the assessee.
4.0 Since the order passed by the AO was under section 143(3) read with section 144 of the Act and the NFAC had dismissed assessee’s appeal in limine, the Ld. Sr. D.R. had no objection to the restoration of appeal to the file of the Assessing Officer.
5.0 We have heard the ld. Senior Departmental Representative and have also perused the material on record. It is evident that the orders passed by both the authorities are ex- parte qua the assessee. Looking into the facts of this case, we are of the considered view that the assessee deserves one more opportunity to present his case and, therefore, we set aside the order of the NFAC and restore this file to the Office of the Assessing Officer with the direction to provide one more opportunity to the assessee to present his case. We also caution the assessee to fully comply with the directions of the Assessing Officer in the set-aside proceedings when called upon to do so, failing which, the Assessing Officer would be at complete liberty to pass the order in accordance with law, based on material available on record even if it is ex-parte qua the assessee.
6.0 In the result, the appeal of the assessee stands allowed for statistical purposes.
Order pronounced in the open Court on 31/12/2025.