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Facts
The assessee, a small-time retailer, filed an Income Tax Return for AY 2017-18 declaring Rs. 3,14,290/-. The AO, during scrutiny, added Rs. 17,05,500/- as unexplained money under Section 69A due to the assessee's inability to explain the source of cash deposits. The CIT(A)/NFAC, without conducting further inquiry or providing the assessee an opportunity to be heard, enhanced the addition to Rs. 52,77,797/- by treating the entire bank deposits as additional turnover and recalculating the presumptive profit.
Held
The Tribunal held that the CIT(A) grossly violated the principles of natural justice by enhancing the assessment without conducting proper inquiry or affording the assessee an opportunity to explain the bank deposits or present evidence, as mandated by Section 250(4) & (6) of the Act. Citing Supreme Court precedents on natural justice, the Tribunal remanded the matter back to the CIT(A)/NFAC for re-adjudication, directing them to pass a speaking order after affording the assessee due opportunity of hearing.
Key Issues
Whether the CIT(A) can enhance an assessment without providing an opportunity of hearing to the assessee, thereby violating principles of natural justice. Whether the enhancement of unexplained cash deposits as turnover without proper verification is justified.
Sections Cited
139(1), 144, 69A, 250(4), 250(6)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, RAIPUR BENCH “SMC”, RAIPUR
Before: SHRI PARTHA SARATHI CHAUDHURY
आदेश / ORDER
PER PARTHA SARATHI CHAUDHURY, JM
This appeal preferred by the assessee emanates from the order of the Ld.CIT(Appeals)/NFAC, Delhi dated 26.02.2025 for the assessment year 2017-18 as per the following grounds of appeal:
1. That the learned CIT (A) erred in treating the entire amount of Rs.52,77,797/-as additional turnover, without appreciating that the declared turnover of Rs.40,52,000/- was already a part of said bank deposits.
2. That the total deposit of Rs.52,77,797/- during the year comprises: o Sales Turnover: Rs.40,52,000/- o VAT on Sales @14.5%: Rs.5,87,540/- o Sale Proceeds from Vehicle (Omni); Rs.1,44,500/- o Capital Introduced (1st Year of Business): Rs.4,93,757/-
3. That the addition of Rs.4,22,224/- to returned income is unjustified and ought to be deleted.
4. That the returned income of the appellant should be accepted as correct and complete.
5. That the appellant may kindly be granted an opportunity to present detailed submissions and evidence regarding the nature of the deposits.”
The facts in this case as emanating from the assessment order are that the return of income was filed by the assessee u/s. 139(1) of the Act declaring total income at Rs.3,14,290/-. Subsequently, the case of the assessee was selected for scrutiny and assessment was completed u/s. 3 Murli Rijhwani Vs. ITO, Raipur 144 of the Income Tax Act, 1961 (for short ‘the Act’) determining total income at Rs.20,19,790/- after making an addition of Rs.17,05,500/- as unexplained money in the hands of the assessee u/s.69A of the Act.
The assessee is a small time retailer of pan masala etc. and he is doing retail trading business at Village: Basna, District: Tilda. The A.O as per the assessment order, Para 3 had added an amount of Rs.17,05,500/- as unexplained money u/s. 69A of the Act, since the assessee was unable to explain the source of such cash deposits to the satisfaction of the A.O.
When the matter travelled before the first appellate authority, the Ld. CIT(Appeals)/NFAC even without going into the issue of unexplained money in the hands of the assesse improvised on the assessment order and enhanced cash deposits at Rs.52,77,797/- by holding as follows: “The A.O completed the assessment in the event of inadequate compliance by the appellant to explain the cash deposits and credit entries in its bank account during the F.Y.2016-17. The appellant has enclosed all his bank statements, from which the following table has been prepared to analyze the deposits and withdrawals during the period demonetization and during the remaining part of the year.
4 Murli Rijhwani Vs. ITO, Raipur ITA No.345/RPR/2025
It is seen that the total deposit in the bank accounts works out to Rs.52,81,476/-, which is inclusive of bank interest of Rs.3,679/-. As such, total deposits other than bank interest
5 Murli Rijhwani Vs. ITO, Raipur is Rs.52,77,797/-, which far exceeds the amount of Rs.17,05,500/-, considered by the A.O in the assessment order as the amount of deposit made during the year. From the copy of the return of income for A.Y.2017-18 at SCHEDULE BP-DETAILS OF INCOME FROM BUSINESS OR PROFESSION, it is seen as follows:
It is seen that the appellant arrived at a profit of Rs.3,24,160/- by adopting a rate of 8% on the turnover by any other mode of Rs.40,52,000/-. As can be seen from the analysis of bank accounts, the deposits amount in the bank is Rs.52,77,797/-. The appellant is not maintaining any accounts neither he has been able to substantiate his case in absence of proper books of accounts, supporting purchase and sale documents and supporting vouchers for incidental expenses. The Trading & profit & loss Accounts now submitted cannot also be relied upon because as per his own admission, he has prepared his return on presumptive basis. A Having regard to the facts of the case. I consider .the 'bank deposit amount of Rs.52,77,797/- as part of the turnover of the business of dealing in pan masala, in addition to the amount of Rs.40,52,000/- declared in the return. The total turnover, thus, works out to Rs.93,29,797/-. Applying the rate of 8%, the profit from business comes to Rs.7,46,384/-. The appeal of the appellant is thus decided by considering business income at Rs.7,46,384/- and bank interest at Rs. 3,679/-. Total income, therefore, comes to Rs.7,50,060/- (R/o). The appellant get relief of Rs.12,69,730/-. In the result, appeal of the appellant is partly allowed.”
6 Murli Rijhwani Vs. ITO, Raipur ITA No.345/RPR/2025
It is evident from the order of the first appellate authority that the Ld. CIT(Appeals)/NFAC has neither commented on the issue of unexplained cash deposits in the bank account of the assessee as examined by the A.O nor has conducted any enquiry in that regard as per mandate of Section 250(4) & (6) of the Act. Rather, as clearly evident from the order of the Ld. CIT(Appeals)/NFAC, it had analyzed the bank account, financial statements and enhanced such addition. That in the entire exercise, the Ld. CIT(Appeals)/NFAC has not provided any opportunity to the assessee in terms with principles of natural justice. The deposited amount whether it is Rs.52,77,797/- or whether it is actually as calculated by the A.O of Rs.17,05,500/-, these facts require ground verification and the assessee should also be provided an opportunity to explain the correct amount of cash deposits in the bank account vis-à-vis the business carried out by the assessee. That such opportunity was not provided by the Ld. CIT(Appeals)/NFAC to the assessee which amounts to gross violation of principles of natural justice, wherein it is enshrined that all the quasi-judicial authority shall provide reasonable opportunity of hearing to the assessee before taking any decision more particularly before imposing any liability on the assessee and the principles of natural justice provides the fundamental basis in the judicial system and working therein so to establish equality and fair play in dispensing justice. In the present case as examined the principles of natural justice have not been complied
7 Murli Rijhwani Vs. ITO, Raipur with by the Ld.CIT(Appeals)/NFAC, therefore, as per the mandatory principles, the same have to be complied with through revisiting the matter.
The Hon’ble Supreme Court has consistently emphasized the importance of adequate natural justice in the judicial and quasi-judicial proceedings. This principle ensures fairness, reasonableness and due process preventing arbitrary action and upholding fundamentality of the legal process. In the case of Maneka Gandhi Vs. Union of India (UOI) and Ors. AIR 1978 SC 597, the Hon’ble Apex Court expanded the scope of natural justice holding that any action violating fairness, reasonableness and due process is arbitrary and unconstitutional. In the case of State of Orissa Vs. Dr. (Miss) Binapani Dei, 1967 AIR 1269, the Hon’ble Apex Court has established that even administrative orders affecting a person’s rights must adhere to the principles of natural justice. There are certain principles ensuring within the parameters of natural justice, one of them is “audi alterm partem” which mandates that before taking any action against the party, they must be given an opportunity to be heard and present their case.
The right to be heard is the cornerstone of natural justice and in this regard in the case before the Hon’ble Uttarakhand High Court in 2022 regarding a practising advocate, Dushyant Mainali (CLR No.22/2022)
8 Murli Rijhwani Vs. ITO, Raipur wherein the Hon’ble High Court had observed that the said advocate Mainali was accused of professional misconduct for allegedly misleading the litigant and causing the delay in filing revisional petition. The Hon’ble High Court directed the Bar Counsel of Uttarakhand to initiate disciplinary proceedings against the lawyer. Mainali challenged these remarks before the Hon’ble Supreme Court, contending that he was neither a party to the case before the High Court nor was involved in any capacity. The remarks, therefore, not only tarnished his professional reputation but were also made in clear violation of the principles of natural justice. The Hon’ble Apex Court in Civil Appeal No.15191/2022, arising out of a Special Leave Petition filed by Dushyant Mainali examined the Hon’ble High Court’s order and found the approach to be legally untenable. Hon’ble Justice Gavai (as he was at that time) speaking for the bench, noted that “we are of the considered view that the approach of the High Court in making the observations against the appellant without giving him any opportunity of being heard is totally unsustainable in law.” The bench went on to delete the entire portion of the high court’s order that contained the contentious remarks and directives against Mainali, holding that that such a move violates the fundamental principles of fairness and due process.
9 Murli Rijhwani Vs. ITO, Raipur ITA No.345/RPR/2025
That on examination of facts afore-stated and following the mandate of binding decisions, accordingly, I remand the matter to the file of the Ld. CIT(Appeals)/NFAC with a direction to pass a speaking order in terms with Section 250(4) & (6) of the Act while complying with the principles of natural justice. At the same time, the assessee is directed to file written submission/documentary evidence, if any and comply with hearing notices from office of the Ld. CIT(Appeals)/NFAC.
As per the above terms, the grounds of appeal of the assessee are allowed for statistical purposes.
In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in open court on 21st day of May, 2025.