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Facts
The assessee appealed an order sustaining an addition of Rs. 10,00,000/-. The original assessment order had added Rs. 30,00,000/- on account of cash deposits. The CIT(A) partly allowed the appeal, reducing the addition to Rs. 10,00,000/-.
Held
The Tribunal held that the addition sustained by the CIT(A) was arbitrary, baseless, and lacked reliable evidence, as it was based on presumption and conjecture rather than evidence. The CIT(A)'s insistence on books of account was also deemed unreasonable given the assessee's filing under Section 44AD.
Key Issues
Whether the addition sustained by the CIT(A) on account of cash deposits was based on evidence or conjecture, and if the notice under Section 143(2) was validly issued.
Sections Cited
143(3), 69A, 115BBE, 44AD, 143(2)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, LUCKNOW BENCH “SMC”, LUCKNOW
PER ANADEE NATH MISSHRA, A.M.: 1. The present appeal has been filed by the assessee against the impugned appellate order dated 23.09.2020 passed by the Ld. Commissioner of Income Tax (Appeals)- Bareilly, for the assessment year 2017-18. The grounds of appeal
of the assessee are as under: - “1. BECAUSE, on the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) has manifestly erred in law and on facts in determining the Total Income of assessee by sustaining an addition of Rs. 10,00,000/- over and above the correctly returned income of Rs. 5,09,730/-; the addition of Rs. 10,00,000/- sustained under 69A of the Act is wholly illegal, bad in law and liable to be set- aside and quashed as the same is made on no material and purely on conjecture, particularly when the Ld. CIT(A) categorically acknowledges that the entire addition made by AO is on suspicion. Addition of Rs.10,00,000/-
2. BECAUSE, on the facts and in the circumstances of the case, the Impugned Assessment Order Dt. 16-12-2019 passed by the Ld. Assessing Officer, is wholly without jurisdiction and bad in law as the statutory jurisdictional Notice u/s 143(2) of the Act has not been issued by the jurisdictional Assessing Officer, being the Income Tax Officer- 2(3), Bareilly, who ultimately passed the Impugned Assessment Order.
Page 2 of 5 The Notice u/s. 143(2) of the Act, not been issued by Income Tax Officer-2(3), Bareilly.
BECAUSE, on the facts and in the circumstances of the case, the order passed by the Ld. Commissioner of Income Tax (Appeals) is plain arbitrary and purely based on conjectures and surmises and hence bad in law and liable to be set-aside and quashed.
The humble assessee, craves for leave to add/amend any other ground with the prior permission of your honours.” 1.1 In this case, the assessment order dated 16/12/2019 was passed by the Assessing Officer (“AO”), u/s 143(3) of the Income Tax Act, 1961 (“Act”, for short) whereby the assessee’s total income was assessed at Rs.35,09,730/- as against returned income of Rs.5,09,730/-. In the aforesaid assessment order, an addition amounting to Rs.30,00,000/- was made u/s 69A of the Act on account of cash deposited by the assessee in bank. The assessee’s appeal against the aforesaid assessment order was partly allowed by the Ld. CIT(A) vide impugned appellate order dated 23.09.2020; whereby an addition of Rs.10,00,000/- was sustained and balance amount of Rs.20,00,000/- out of the aforesaid total addition of Rs.30,00,000/- made in the aforesaid assessment order 16.12.2019 was deleted. The relevant portion of the impugned appellate order of the Ld. CIT(A) is reproduced as under: - “5 The entire addition has been made by the AO on presumption and on ‘preponderance of probability’ and not on evidence. Though preponderance of probability is an accepted principle to judge reliability of evidences as held by the Hon'ble Courts in plethora of cases but its application in judging the quality evidences should be done in a reasonable manner. The above action of the AO is not reasonable in treating the entire deposit made on 15.11.2016 amounting to Rs.30,00,000/- as unexplained. Though, there is some force in the argument of the AO that the ITR for the AY. 2016-17 was belatedly filed on 28.02.2017 in which the appellant disclosed cash-in-hand of Rs.35,43,984/- and in the AY. 2017-18 the appellant has disclosed sales of only Rs.25,55,296/- but to still disallow Rs.30,00,000/- out of total deposit in SBN of Rs.35,00,000/- is not reasonable considering the fact that the appellant has regularly filed u/s 44AD and hence maintenance of books of account were not required. Thus, insistence of books of account for verifying the genuineness of source of Page 3 of 5 cash deposits is not reasonable. Considering the facts of the case, it is held that out of Rs.30,00,000/- deposited in SBN Rs.20,00,000/- is treated as explained and addition u/s 69A read with 115BBE is sustained to the extent of Rs.10,00,000/-.” (2) In the course of appellate proceedings in ITAT, a paper book containing the following particulars was filed from the assessee’s side: - S.L No. PARTICULARS PAGE NO 1 Copy of submissions filed before Ld. CIT(Appeals) 1 to 46 2 Copy of submissions filed before AO 47 to 164 (2.1) At the time of hearing, the Ld. Counsel for the assessee submitted that the Ld. CIT(A) erred in upholding the addition of Rs.10,00,000/- without any basis and in the absence of any reasonable cause. He further submitted that the order of the Ld. CIT(A), in confirming the aforesaid adhoc and estimated amount of Rs.10,00,000/- is unsustainable and should be deleted. The Departmental Representative for the Revenue relied on the order of the Ld. CIT(A).
(3) Both sides have been heard. Materials on record have been considered. It is seen on perusal of the impugned appellate order dated 23.09.2020 of the Ld. CIT(A), relevant portion of which has already been reproduced in foregoing paragraph no. (1.1) on this order, that the Ld. CIT(A) has opined that the entire addition was made by the Assessing Officer on presumption and “preponderance of probability” and not on evidence. He has further taken the view that application of “preponderance of probability” in judging the quality of evidences should be done in a “reasonable manner”. He has also stated that the action of the Assessing Officer in treating the entire deposit in bank, amounting to Rs.30,00,000/- as unexplained was not reasonable. He has further taken into cognizance the fact that Page 4 of 5 the assessee in his Income Tax Return for assessment year 2016- 17 had disclosed cash-in-hand amounting to Rs.35,43,984/-, and in the assessment year 2017-18 also the appellant had disclosed sales of Rs.25,55,296/-. The Ld. CIT(A) has also observed that insistence of books of account for verifying the genuineness of source of cash deposits was not reasonable because the assessee had been regularly filing the return under section 44AD of Income Tax Act (under presumptive taxation scheme). In these facts and circumstances, the Ld. CIT(A) has yet sustained the addition of adhoc and estimated amount of Rs.10,00,000/- without adducing any relevant materials. The act of sustaining the aforesaid adhoc and estimated amount of Rs.10,00,000/- is arbitrary, baseless, and devoid of any reliable material or credible evidence. Therefore, the aforesaid amount of Rs.10,00,000/-, which was sustained by the Ld. CIT(A) in his aforesaid impugned appellate order dated 23.09.2020, is hereby deleted. All grounds of appeal are treated as disposed of in accordance with the aforesaid direction.
In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on 07/03/2025.