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Facts
The assessee, a petrol pump owner, made cash deposits of Rs. 1,07,60,000/- during the demonetization period. The AO reopened the assessment under Section 148 and added the amount as unexplained money under Section 69A, citing the assessee's failure to respond to notices due to alleged email communication issues and illness. The CIT(A) upheld the addition, noting the assessee's insufficient documentary evidence to explain the cash source.
Held
The ITAT ruled that the reasons recorded by the AO for reopening the assessment under Section 147 were invalid, as they failed to establish a prima facie belief of income escapement by not examining the assessee's audited accounts or business nature. The AO's conclusion was based solely on the cash deposit amount, without cogent reasons. Therefore, the notice under Section 148 and the subsequent reassessment proceedings were held to be bad in law and void ab initio.
Key Issues
1. Whether the reassessment proceedings initiated under Section 147 were valid when the recorded reasons for reopening did not establish a proper 'reason to believe' escapement of income. 2. Whether cash deposits made during demonetization by a petrol pump owner can be added as unexplained money under Section 69A without considering the nature of the business or audited accounts.
Sections Cited
250, 147, 144, 148, 142(1), 69A, 115BBE, 151(1), 144B, 44AB
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Income Tax Appellate Tribunal, LUCKNOW ‘A’ BENCH, LUCKNOW
Before: SH. SUDHANSHU SRIVASTAVA & SH. NIKHIL CHOUDHARY
O R D E R PER NIKHIL CHOUDHARY, A.M.: This is an appeal filed by the assessee against the order of the ld. CIT, NFAC under section 250 of the Income Tax Act, 1961 dated 3.01.2025 dismissing the appeals of the assessee against the order of the ld. AO passed under section 147 r.w.s. 144 of the Income Tax Act, 1961 on 30.03.2022. The grounds of appeal
1. are as under:- “1. The addition of 1,07,60,000/- on account of cash deposits during the demonetization period appears to be erroneous, as the said deposits duly represent sales proceeds from the appellant's regular business of petrol and diesel.
2. The reassessment proceedings may not have been conducted in strict compliance with legal provisions, and the assessment order dated 30.03.2022 requires reconsideration. The reassessment was initiated without reference to A/w S.A. No.1/LKW/2025 Devendra Pratap Singh A.Y. 2017-18 CBDT Instruction No. 03/2017 dated 21.02.2017, which provides guidelines for verifying cash transactions during demonetization.
The Ld. Assessing Officer may not have fully reconciled the cash deposits with the appellant's financial statements, including the Profit & Loss Account and Audit Report, which were already submitted along with the Income Tax Return.
The reasons recorded for reopening the assessment lack specific details and do not establish a valid "reason to believe" as mandated under Section 147 r.w.s. 148 of the Income Tax Act, 1961.
The additional documentary evidence submitted by the appellant was forwarded for examination during the appellate proceedings. The observations in the remand report were general in nature, and an independent assessment of the submitted documents may be appropriate.
6. That the appellant craves leave to add, amend or alter any of the ground to this appeal with the request to allow to submit written submission at the time of hearing of appeal."
The facts of the case are that the ld. AO received information through the, ‘insight portal’ that the assessee had made a cash deposit of Rs.1,07,60,000/- during the financial year 2016-17 i.e. during demonetization period. For this reason, the ld. AO held that income chargeable to tax for the assessment year had escaped assessment and he issued a notice under section 148. However, the assessee did not file a return in response to the notice under section 148, nor to the subsequent notice under section 142(1). However, in response to the notice under section 142(1), the assessee submitted a reply in which it was stated that his firm dealt in petrol and diesel and the Finance Ministry had allowed that all petrol pumps may receive notes of Rs. 500/- and Rs. 1000/- even after 8.11.2016. It was also submitted that he had filed his income tax returns on time and paid the tax according to it. However, since the assessee had not filed a return in response to the notice under section 148 and not filed details regarding the source of cash deposits made by him in his Bank of Baroda account to the tune of Rs. Rs.1,07,60,000/-,the ld. AO added back the amount of cash deposited to his income as income from undisclosed sources / unexplained money under section 69A. Penalty proceedings were also initiated as a consequence of this assessment. 2 A/w S.A. No.1/LKW/2025 Devendra Pratap Singh A.Y. 2017-18 3. Aggrieved by the said assessment order, the assessee filed an appeal before the ld. CIT(A), NFAC. The ld. CIT(A) duly noted from the assessment order that the assessee was an individual engaged in the business of selling petroleum products under the dealership of Indian Oil Corporation in the name and style of his proprietorship concern, M/s Kisan Sewa Kendra, and that he had filed a return of income on 29.10.2017, declaring his total income at Rs.8,92,400/- for the assessment year 2017-18. Before the ld. CIT(A), the assessee challenged the satisfaction drawn by the ld. AO before the issuance of notice under section 148. He pointed out that the reasons to believe that were recorded, were only to verify the source of cash deposits of Rs. Rs.1,07,60,000/- made in the bank account, which did not amount to requisite satisfaction for formation of belief of escapement of income within the meaning of section 147 and due to such fundamental deficiency in the recording of reasons, the assessment proceedings were completely vitiated rendering the assessment as null and void. It was also submitted that the various notices issued by the NFAC were not served on the assessee as a result of which the same could not be complied with and consequently, the order had been passed ex parte. It was also submitted that the decision of the ld. AO was completely incorrect because the deposits had been made out of sales / realization of book debts and the NFAC was not correct in taking the view that the assessee had failed to explain the source of cash deposits in the bank account, because no defect or discrepancy had been found in the audited financial statements, which were available on record. Furthermore, the provisions of section 69A were not applicable to the instant case since the assessee had already accounted for the income represented by cash deposited in the bank account. Furthermore, it was submitted that the NFAC had erred in making the addition on account of cash deposits without making adjustment in respect of the profit of the assessee, since the assessee had already credited the amount of cash deposit by way of sales in the profit and loss account. Therefore, it was submitted that the same amounted to double A/w S.A. No.1/LKW/2025 Devendra Pratap Singh A.Y. 2017-18 taxation. Furthermore, it was argued that invocation of section 115BBE for determining tax liability was violative of the Act, because the income which had already been declared in the return, could not be deemed to be unexplained money under section 69A of the Act. The assessee also filed a statement of facts in which a request was made to consider certain documents as given below as additional evidences, reads as under:-
Sl Particulars of Additional Evidence Annexure No. No. (i) Letter of Intent (LOI) regarding Dealership of Indian Annexure-I Oil Corporation Ltd., (IOCI.) (ii) Memorandum of Agreement with IOCL for Annexure-II dealership in Petroleum Products (iii) License for dealership in HSD & LDO Annexure-III (iv) Cash Book, Ledgers & Cash Flow Statement for F.Y. Annexure-IV 2016-17 (v) Bank Statements of all bank accounts held during Annexure-V F.Y. 2016-17 (vi) Purchase & Sale Details for F.Y. 2016-17 Annexure-VI It was submitted that the same could not be submitted earlier because sufficient opportunity had not been given to the assessee. It was submitted that all the notices prior to 3.02.2022 could not be complied with for the reasons that the same was sent to the email ID poojaconstruction@gmail.com , which was not used by the assessee. It belonged to the staff of a Chartered Accountant of the assessee, who was handling the income tax matters of the assessee in the past. As such the assessee was not aware of the said email ID and therefore none of the notices came to his knowledge, resulting in non-compliance. However, during the pendency of assessment proceedings, the assessee on 12.02.2022 updated his email ID to devendrapratapsingh27115@gmail.com on the e-filing account and it was then that he came to know of the notice dated 3.02.2022 as well as earlier notices. Thereafter, on 5.03.2022, the assessee had submitted his response which was duly acknowledged by the NFAC. Thereafter, the assessee had fallen ill on 5.03.2022 and recovered from 4 A/w S.A. No.1/LKW/2025 Devendra Pratap Singh A.Y. 2017-18 a prolonged illness only on 20.05.2022. Upon recovery from illness, he came to know on checking the status on e-filing portal, that a show cause notice had been issued on 12.03.2022 and a draft assessment order sent on 22.03.2022, but the same had not been sent on the updated email ID, ‘devendrapratapsingh27115@gmail.com’. The assessee only then came to know that an assessment order had been passed under section 147 r.w.s. 144 r.w.s. 144B on 30.03.2022 and therefore, on account of all these factors, the necessary evidences that could have been produced before the ld. AO were not produced. Accordingly, it was prayed that the same may be admitted as additional evidences. Furthermore, the appeal of the assessee was delayed by 21 days. Along with the Form 35, the assessee submitted a condonation application where he drew reference to his illness and the facts stated above. However, the ld. CIT(A) was not convinced with the submissions of the assessee. He held that the assessee had not justified the delay but in the interest of justice, he decided to condone it all the same. On the merits of the case, he rejected the contention of the case that the proceedings were not validly initiated, holding that the proceedings had been opened under section 147 after obtaining approval from the competent authority under section 151(1) of the Act. He also rejected the plea of the assessee that he was not aware of the proceedings, pointing out that the notice under section 148 dated 30.03.2021, had been duly served on the assessee through speed post also and the assessee had not responded to the same. However, he forwarded the additional evidence filed by the assessee to the Ld AO, for examination. In response to the same, the ld. AO submitted a remand report in which it was submitted, that the assessee had neither provided any supporting documents nor sought further adjournment and in the absence of substantial documents and satisfactory reply from the assessee, it could not be Suo Moto held that the cash deposits were receipts from sales of petrol pump dealership. The addition was made on account of cash deposits which remained unexplained during the assessment proceedings and this has been well discussed in the order of assessment. The ld. CIT(A) went through the 5 A/w S.A. No.1/LKW/2025 Devendra Pratap Singh A.Y. 2017-18 submissions of the assessee and the response of the ld. AO and recorded his views that during the course of assessment proceedings, remand proceedings and appellate proceedings, the assessee had not submitted any documentary evidence such as books of accounts for the year 2015-16 and 2016-17, cash sales along with invoices, reconciliation of cash sale and cash deposit in bank, bank statement, ledger of the said parties, confirmation letter, PAN number and correspondence details. Thus, the explanation offered by the assessee were duly considered and not found tenable in the absence of such documentary evidences. Therefore, he held that the assessee had failed to justify the source of cash deposits and he rejected the appeal of the assessee on this account.
4. Aggrieved with this rejection of his appeal, the assessee has come before us. Sh. Purnodaya Kumar Singh, Advocate (hereinafter referred to as the ‘ld. AR’) represented the assessee and argued the case before us. It was submitted that the assessee was an individual engaged in the business of selling petroleum products, including petrol and HSD/LDO under a dealership of an Indian Oil Corporation through his proprietary concerned M/s Kisan Sewa Kendra, Kumarganj, Faizabad. He duly maintained books of accounts, which were audited under section 44AB of the Income Tax Act. The return of income for the A.Y. 2017-18 had been e-filed on 29.10.2017 declaring a total income of Rs. 8,92,396/-. After more than three years, the assessment was reopened under section 148 on account of deposit of cash of Rs. Rs.1,07,60,000/- made during the demonetization period. It was submitted that the notices under section 148 and 142(1) had been sent to an outdated email ID which was no longer in use, causing unintentional non-compliance. Upon realizing this, the assessee had updated his email ID on 12.02.2022 and filed a response on 5.03.2022 explaining that the cash deposits were regular business transactions. Thereafter, the assessee fell sick and did not recover from his illness until 20.05.2022. It was only after his recovery and upon checking the portal that he came to know of subsequent A/w S.A. No.1/LKW/2025 Devendra Pratap Singh A.Y. 2017-18 show cause notices and the fact of the assessment order having been passed in this case. However, the assessee wished to challenge the assessment so made, on the grounds that the reopening under section 147 was based on erroneous reasoning and does not meet legal requirements; that the addition of Rs. Rs.1,07,60,000/- under section 69A was unjustified and lacked any factual or legal basis and that the assessment proceedings had been carried out without considering the nature of the assessee’s business and the cash intensive transactions that were inherent to petroleum retail operations. It was further submitted that the cash deposits were duly explained as part of the assessee’s business activities and were reflected in the books of accounts. Therefore, no addition was possible in the matter under section 69A. It was, therefore, prayed that the Tribunal may quash the re-assessment proceedings as being without jurisdiction and delete the addition of Rs. Rs.1,07,60,000/- made under section 69A as the deposit was duly accounted for in the assessee’s books. The ld. AR also drew our attention to the paper book filed by him in which he had submitted copies of his balance-sheet and profit and loss account along with annexures, the audit report in Form 3CB and Form 3CD extracts from the accounts in the form of purchase and sales ledgers, cash flow statements and ledgers from Indian Oil Corporation showing the purchases made by the assessee from the said oil marketing company. A copy of memorandum of agreement with IOC limited and the dealership license was also submitted. The ld. AR also submitted the cash book for the period 1.11.2016 to 25.11.2016, the daily sales report, the bank statement and the bank book and it was submitted that all these documents would have shown that what the assessee was saying regarding the cash deposit in its bank account was backed up with documentary evidences. It was further submitted that all these documents had been submitted before the ld. CIT(A) and subsequently forwarded to the ld. AO but then neither the ld. CIT(A) nor the ld. AO had taken any cognizance of the same and had simply proceeded to ignore these documents. It was submitted that the case of the assessee had been treated like any other case of cash deposit without 7 A/w S.A. No.1/LKW/2025 Devendra Pratap Singh A.Y. 2017-18 realizing that the assessee was allowed to accept specified bank notes even after 8.11.2016 vide D.E.A. Notification S.O. No.3408(E) dated 8.11.2016. It was, therefore, submitted that the assessment framed may either be quashed or that the additions may be deleted as they were made without reference to materials which had been furnished before, and accepted by the ld. CIT(A).
5. On the other hand, Sh. Amit Kumar, ld. DR (hereinafter referred to as the ‘ld. DR’) pointed out that the assessee had been duly served with a notice under section 148 but had not made compliance to it and even after coming to know of the fact of the assessment proceedings. had not furnished the details before the ld. AO when the opportunity was available to do so. He, therefore, submitted that the ld. AO had no option but to make the addition and furthermore, even the ld. CIT(A) had recorded that proper documents and books of accounts had not been furnished before him. He, therefore, submitted that since there was no irregularity in the reopening of assessment, at best the matter could be referred to the AO for fresh examination if the Tribunal so desired.
We have duly considered the facts and circumstances of the case. Ground No. 4 challenges the validity of the reasons recorded by the ld. AO. It is seen from the perusal of the assessment order that the reasons that have been recorded draw a satisfaction of escapement of income only on account of the fact that the assessee had made cash deposit of Rs.1,07,60,000/-. This cannot be the sole basis for presuming escapement in a case where an assessee file returns and is regularly assessed to tax. We have also perused the approval under section 151 of the Income Tax Act, 1961 that has been accorded by the Joint CIT, Faizabad Range and which is given on page 9 and 10 of the assessee’s paper book. It appears that before putting up the said case for the approval of the JCIT, the ld. AO went through the return of the assessee filed for the assessment year 2017-18 and recorded the fact that the assessee had shown gross total income of Rs. 10,42,396/- and total taxable income of Rs. 8,92,400/-. It 8 A/w S.A. No.1/LKW/2025 Devendra Pratap Singh A.Y. 2017-18 also appears that the information available with the ld. AO was the fact of cash deposits of Rs.1,07,60,000/- during the demonetization period and from the same the Ld AO concluded that income had escaped assessment. However, the reasons submitted for approval do not reveal any study of the assessee’s audited accounts to determine what was the nature of the assessee’s business or whether the assessee had the turnover to deposit the said amount in cash. Now it is self-evident, that without examination of the nature of the business or the business turnover, the assessing officer is not in a position to come to a conclusion that any cash deposited is unexplained, only on the basis of the returned income, because returned income will always be at a much lesser figure than cash receipts. Accordingly, it is apparent that the assessing officer has not brought out any cogent reasons to believe escapement, in either the reasons recorded in the Assessment order or in the proposal for approval. Thus, since there was no material brought on record by the Assessing officer from which a reasonable person could form a prima facie belief of escapement of income, the issue of the notice under section 148 without recording of valid reasons is held to be bad in law and the proceedings are therefore held to be void ab initio. Ground no 4 is accordingly allowed.
In view of the fact that the appeal of the assessee succeeds on the legal ground, the remaining grounds of appeal
become infructuous. They are accordingly dismissed as such. The stay application is also dismissed as infructuous.
8. In the result, the appeal of the assessee is partly allowed. Order pronounced on 31.07.2025 in the Open Court.