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Facts
The assessee did not file a return for AY 2017-18, but had made cash deposits of Rs.11,40,000/- (including Rs.10,51,000/- in SBNs) during demonetization. The AO added the SBN deposits under section 68, estimated business income at 8% of total deposits, and completed an ex-parte assessment under section 144. The NFAC dismissed the assessee's appeal as un-admitted for non-payment of tax and incomplete Form 35.
Held
The Tribunal condoned the delay in filing the appeal. It held that the notice under section 142(1) was issued on 09.03.2018, beyond the prescribed date of 31.12.2017 as per CBDT Circular. Following precedent, the Tribunal quashed the assessment proceedings as void ab initio due to the delayed notice, thus not adjudicating the case on merits.
Key Issues
Validity of assessment proceedings where the notice under section 142(1) of the Income Tax Act was issued beyond the prescribed statutory time limit as per CBDT circulars.
Sections Cited
Section 144, Section 133(6), Section 68, Section 115BBE, Section 271AAC, Section 271F, Section 249(4), Section 145(3), Section 144A, Section 142(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, SMC BENCH, LUCKNOW
Before: SHRI. SUDHANSHU SRIVASTAVA
O R D E R This appeal has been preferred by the Assessee against the order dated 27.12.2023, 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 had not filed the return of income for the year under consideration. The Income Tax Department was in possession of information that the assessee had deposited Rs.11,40,000/- during the demonetization period, i.e., from 09.11.2016 to 30.12.2016 in his bank account No.752530110000014 maintained with Bank of India, Subeha Bazar, Haidergarh. Thereafter, the Assessing Officer (AO) issued statutory notices to the assessee, requiring the assessee to explain the source of cash deposits in his bank account. Since there was no compliance from the side of the assessee, the AO issued show cause notice under section 144 of the Act to the assessee proposing to pass an ex-parte assessment order. In response to the show cause notice, the assessee furnished reply, stating therein that the assessee was a trader of manure, seeds, medicines and pesticides during the year under consideration and that the said business was being carried out in the name and style “M/s Maurya Agro Agencies”. The AO also obtained details of assessee’s bank account from the Bank under section 133(6) of the Act, from which it was found that a sum of Rs.11,40,000/- was deposited during the period of demonetization, out of which Rs.10,51,000/- were in Specified Bank notes (SBNs). The AO held that as the sale and purchase were not allowed in SBNs during the demonetization period, the cash deposits of Rs.10,51,000/- cannot be accepted as business receipts. He accordingly added the same to the income of the assessee under section 68 of the Act.
2.1 It was further noticed by the AO that the assessee had made cash deposits, amounting to Rs.39,87,400/- and Rs.9,41,206/-, totaling to Rs.49,28,606/- through banking channels during the year under consideration in addition to cash deposits in SBNs during the demonetization period. Since the assessee failed to furnish the books of account or any other document to verify the nature of business or actual profit earned by the assessee, he estimated 8% of Rs.49,28,606/- (which came to Rs.3,94,288.94) as the business income of the assessee and added Rs.3,94,288/- also to the assessee’s income.
2.2 The AO completed the assessment under section 144 of the Act, assessing the total income of the assessee at Rs.14,45,290/-.
2.3 The AO also invoked the provisions of section 115BBE of the Act and initiated penalty proceedings under sections 271AAC and 271F of the Act, separately.
2.4 Aggrieved, the Assessee preferred an appeal before the NFAC, which dismissed the appeal of the assessee as un- admitted for the reasons that ‘(1) Tax on returned income not paid/particulars of payment not mentioned and (2) Form 35 is incomplete/not filled properly especially Column No.8 & 9’ and confirmed the order of the AO.
2.5 Now, the assessee has approached this Tribunal challenging the orders of the AO as well as the NFAC, by raising the following grounds of appeal:
1. Because the CIT(A) has erred on facts and in law in dismissing the appeal ex-parte for reasons of non-compliance of the provisions of section 249(4) of the Act, in as much as, the tax payable on the income returned having not been deposited, such a conclusion as arrived by the CIT(A) is contrary to facts, bad in law, the order passed be set-aside.
2. Because the CIT(A) has failed to appreciate, that the assessee having no income exceeding the taxable limit, during the year or in the preceding years there was no liability cast on the assessee to file the return of income hence, there being no default under section 249(4)(b) of the Act, the order passed by the CIT(A) is bad in law, be set aside.
3. Because the CIT(A) has erred on facts and in law in not giving finding on the merits of the case/appeal, which even otherwise should ought to have been given, the order passed by the CIT(A) being contrary to the provisions of law be set aside.
4. Because the authorities below have erred on facts and in law in not appreciating the nature of business carried on by the assessee, in as much as, he being in retail business of purchase and sale of manure, the cash deposited by him in bank during demonetization period amounting to Rs.11,40,000/- being all out of the business proceeds, there was no justification, basis for treating the cash deposited in bank at Rs.10,51,000/- as unexplained, the same ought to have not been added to the income of the assessee, the addition made be deleted.
5. Because the addition of Rs.10,51,000/- being cash deposited in bank itself have been made under section 68 of the Act, which provisions are not applicable, both the AO as well as the CIT(A) have erred in making and upholding the addition, the addition made be deleted.
6. Because the CIT(A) has erred on facts and law and in not appreciating the fact that assessee is not maintaining any books of account (no accounts case), the provisions of section 68/69 are not applicable, the addition of Rs.10,51,000/- is against the provisions of the act, the same be deleted.
7. Because the CIT(A) was not justified in upholding the addition of Rs.3,94,288/- made by the AO estimating the profit @8% on the total receipts of Rs.49,28,606/- which is inclusive of cash deposits, resulting into double taxation, besides the fact the provisions u/s145(3) are not applicable.
8. Because the CIT(A) was not justified in passing the order U/s 144 of the Act, under specific directions issued U/s 144A of the act by Ld. JCIT, in this regard, in so far it is concerned to directing the Ld. A.O. to make the assessment in a particular and specific manner.
9. Because the CIT(A) was not justified in passing the order Whereby, the cash deposited during demonetization period was never assessed or questioned in show cause notice, and subsequently added in the order issued u/s 144 of the act, following the directions issued by Ld. JCIT.
3.0 The Ld. Authorized Representative for the assessee (Ld. A.R.) submitted that there is a delay of 480 days in filing the appeal before the Tribunal. He further submitted that the assessee had filed an application dated Nil for condonation of delay, duly supported by an Affidavit, stating therein that the assessee resided in a rural area and was not conversant with tax laws and was not computer savvy also, and further that none of the orders or notices had been delivered to the assessee physically, and further that the assessee was totally unaware of the procedures and technicalities of tax laws and that, therefore, the assessee could not access the order of the Ld. First Appellate Authority for taking further course of action. It was further stated that only when the bank account of the assessee was attached towards recovery of outstanding demand, that the assessee had come to know about the proceedings and the order passed by the NFAC and, thereafter, the assessee had contacted the tax advisor and, thereafter, as per his advice, had filed the appeal before the Tribunal with a delay of 480 days. The prayer of the Ld. A.R. was that the delay caused in filing the appeal was not deliberate and that it was beyond the control of the assessee, which may please be condoned and the appeal be heard on merits.
3.1 The Ld. Sr. D.R. objected to the delay being condoned.
3.2 In view of the prayer made by the Ld. A.R., I condone the delay in filing of the appeal and admit the appeal for hearing.
4.0 The Ld. A.R. submitted that the NFAC had dismissed the assessee’s appeal on the ground that the assessee has not paid the amount of tax due before filing of the appeal, which is factually incorrect, as Rs.42,440/- had been deposited under Self-Assessment Tax (300). The assessee has filed the copy of challan dated 26.12.2023 which is placed at page 14 of the paper book. The Ld. A.R. submitted that the objection of the NFAC does not remain. The Ld. A.R., inviting my attention to paragraph 2, page 2 of the assessment order, submitted that as per order sheet, notice under section 142(1) of the Act was issued on 27.11.2017. However, the order sheet is dated 13.03.2018 which is of a later date. The Ld. A.R. submitted that the notice under section 142(1) of the Act for the year under consideration was to be issued upto 31.12.2017 but the same has not been issued as is evident from the order sheet entry, which is dated 13.03.2018. The Ld. A.R. has drawn my attention to CBDT Circular F.No.225/363/2017-ITA.II dated 15.11.2017 and submitted that the issuance of notice beyond the prescribed date make the proceedings itself void ab initio and, therefore, the order of the AO is liable to be quashed on this ground. The Ld. A.R. also placed reliance on the order of this Bench of the Tribunal in Smt. Suraiya Begum vs. The Income Tax Officer in and submitted that the view taken by the Tribunal in that case may be followed in the case of the present assessee also.
5.0 Per contra, the Ld. Sr. D.R. submitted that the issue of notice having been issued beyond the period of limitation was never raised before either of the authorities below and, therefore, raising this ground before the Tribunal should not be permitted. The Ld. Sr. D.R. prayed that the appeal of the assessee should be restored to the file of the AO for the purpose of verification as to whether notice under section 142(1) of the Act was issued on time or not.
6.0 I have heard the rival submissions and have also perused the material on record. The plea of the Ld. A.R. was that the notice under section 142(1) of the Act was not issued within the stipulated period, i.e., before 31.12.2017. The ld. D.R. could not demonstrate that notice under section 142(1) of the Act was in fact issued before 31.12.2017.
6.1 In the case of Smt. Suraiya Begum vs. The Income Tax Officer (supra), identical issue was decided by this Bench of the Tribunal vide order dated 19.09.2025. For the sake of ready reference, relevant portion of the order is being reproduced hereunder:
“5.0 I have heard the rival submissions and have also perused the material on record. The Ld. A.R. has drawn attention to letter F No.225/363/2017-ITA.II dated 15.11.2017 and it will be relevant, at this juncture, to reproduce the contents of the above said letter:
5.1 A perusal of the last paragraph, i.e., paragraph 4 in the above said letter, specifically lays down that the process of service of notice under section 142(1) of the Act should be completed by 31.12.2017. A perusal of the assessment order itself shows that the notice under section 142(1) of the Act in the case of the present assessee was issued on 09.03.2018 and, therefore, undisputedly, the statutory notice under section 142(1) of the Act has been issued beyond the date prescribed and, as such, the Instruction of the Department being binding on the Revenue Authorities, the issuance of notice beyond the prescribed date makes the proceedings itself void ab initio. Accordingly, I am of the considered view that in the present case the assessment proceedings deserve to be quashed. Accordingly, the assessment proceedings are hereby quashed, as notice under section 142(1) of the Act was issued beyond the prescribed limit. 5.2 Since the asseessee has already been granted relief on the legal ground, the arguments raised by both the parties on merits of the case become academic in nature and are being not adjudicated upon.” 6.2 Following the above said order dated 19.09.2025 in Smt. Suraiya Begum vs. The Income Tax Officer (supra) and in view of CBDT Circular F No.225/363/2017-ITA.II dated 15.11.2017, the assessment proceedings in the case of the present assessee are hereby quashed, as notice under section 142(1) of the Act was not issued within the prescribed limit as per the records before me.
6.3 Since the asseessee has already been granted relief on the legal ground, the grounds raised by the assessee on merits of the case become academic in nature and are being not adjudicated upon.
7.0 In the final result, the appeal of the assessee stands partly allowed.
Order pronounced in the open Court on 07/01/2026.