Loading judgment…
Facts
The assessee filed an appeal against the order of the CIT(A) for AY 2017-18. The Assessing Officer (AO) added cash deposits during demonetization as income under Section 68 of the Act. Further, disallowances were made for advertisement expenses and donations. The CIT(A) dismissed the appeal, citing non-compliance with notices.
Held
The Tribunal observed that both the AO and CIT(A) did not deal with the case appropriately and failed to consider the assessee's request. The Tribunal found that proper opportunities for being heard were not provided to the assessee.
Key Issues
Whether the revenue authorities provided adequate opportunity of being heard to the assessee and if the addition of cash deposits under Section 68 and other disallowances were justified.
Sections Cited
68, 143(3), 40A(3), 40a(ia), 37, 201(1), 234A, 234E, 270A, 271AAC(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI LAXMI PRASAD SAHU & KESHAV DUBEY
PER SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER
This appeal is filed by the assessee against the DIN & Order No.ITBA/NFAC/S/250/2023-24/1061127901(1) dated 19.02.2024 by the NFAC, New Delhi for the AY 2017-18 with the following grounds of appeal:-
“1. That the order passed by the Commissioner of income- tax (Appeals), National Faceless Appeal Center ("CIT(A)", "NFAC") under section 250 of the Income Tax Act, 1961 ("the Act") is contrary to the provisions of law and liable to be quashed. 2. a. The learned CIT(A) has erred in in not providing an effective opportunity of being heard before passing an order under Section 250 of the Act. b. The learned CIT(A) has erred in serving hearing notices to the wrong email address, even though email address on income-tax portal was corrected at the time of filing an appeal before the CIT(A). c. The learned CIT(A) has erred in upholding that the Appellant is liable to pay taxes as per the provisions of Section 68 of the Act by non-consideration of affidavits and statements of witnesses in support of the appellant's claim regarding the nature of cash deposits. d. The learned CIT(A) has erred in upholding the order of Assessing Officer under section 143(3) of the Act, by not deliberating on the fact that the Assessing Officer has arbitrarily calculated the cash deposits as income for the year without verifying the details submitted by the appellant and not obtaining the explanation from the appellant. 3. a. That the learned Assessing Officer has erred in passing the assessment order without issue of show cause notice thereby taking away the right of the appellant to defend his case by producing documents and by providing an explanation. b. That the impugned assessment order is passed without affording fair and effective opportunity of being heard to the appellant. Hence the order is violative of principles of natural justice and deserves to be quashed. c. That the learned Assessing Officer has erred in treating the aggregate of cash deposits during the year in the Appellant's bank account as 'cash credits' under section 68 of the Act by disregarding the evidence provided by the appellant to substantiate their claim. d. The learned Assessing Officer failed to take into account the fact that the cash deposited into bank is out of earlier cash withdrawals and out of amount collected from the staff over a number of months towards a scheme which was introduced by the appellant company to professionally assist the long standing employees in identifying a suitable residential plot for their benefit and the same is duly reflected in the financial statements of the appellant company. e. The learned AO, while disallowing the donation, ought to have appreciated that deciding on the allowability of an expense is a long drawn process and cannot be decided only based on the nomenclature of the expenses. The learned AO ought to have appreciated that donation paid for the purpose of smooth functioning of business is allowable as held in Mysore Kirloskar Ltd. V. CIT (1987) 166 ITR 836 Kar. f. The learned AO, while disallowing the expenses under section 40A (3), failed to apply their mind, since they failed to recognize that some of the payments disallowed were not at all claimed as expenses, while other payments were not made to single person but to different persons and accounted under one head. g. The learned assessing officer erred in not affording an opportunity to the appellant to produce the certificate prescribed under first proviso to section 201(1) of the Income Tax Act 1961, so that the disallowance under section 40a(i) is not attracted.
That consequential relief be granted for levy of interest under sections 234A and 234E of the Act.
5. The learned AO has erred in initiating penalty proceedings under section 270A and section 271AAC(1) of the Act even though there was there was no under-reporting of income alleged by the learned Assessing Officer and the income alleged u/s 68 is not sustainable. The appellant craves leave to add, alter, amend or vary any of the ground either at or before the hearing of the appeal.
The brief facts of the case are that the assessee filed return of income on 01/11/2017 for the assessment year 2017-18 declaring the total loss of Rs.1,32,89,821/-. The case was selected for scrutiny and statutory notices were sent to the assessee. The AO noticed that the assessee deposited cash during demonetization period and further noticed that the assessee had disclosed the cash in hand as on 08/11/2016 of Rs.64,26,720/-. In this regard, the assessee was asked to furnish the details of the cash deposited of SBNs and non SBNs with the other details vide notice dated 29/12/2019 but the assessee failed to file any explanation regarding the cash deposits. Even, the assessee did not file any supporting documents and explanation regarding source of cash deposits, hence the same was added u/s 68 of the Act. Further, the AO noted that the assessee deposited a sum of Rs.5 lakhs towards payment of advertisement, however, the assessee has not deducted TDS as per sec. 40a(ia) of the Act, therefore, 30% of Rs.5 lakhs i.e 1,50,000/- was disallowed. Further, from financial statements, it was noticed that the assessee debited towards payment of donation to the tune of Rs.71,972/- under the other expenses and this expenditure cannot be allowance u/s 37 of the Act. Accordingly, it was also disallowed. Further, from the books, it was observed that the assessee has made cash payment more than Rs.20,000/- to a person in a day as per page Nos.3 and 4 of the assessment order of Rs.4,25,278/-, which was also not allowed following the section 40A(3), accordingly the AO completed the assessment .
Aggrieved from the above order, the assessee filed appeal before the CIT(A).
4. The ld. CIT(A) issued 3 notices on different dates but none of the notices were complied. Accordingly, the ld. CIT(A) decided the issue on the basis of documents available before him and dismissed the appeal of the assessee.
Aggrieved from the above order of the CIT(A), the assessee filed appeal before us.
The ld.AR of the assessee submitted that the ld. CIT(A) has not given proper opportunity of being heard to the assessee before deciding appeal of the assessee. The notices were sent to the wrong email address, even though email address at the portal was corrected at the time of filing the appeal. He has also not accepted the Affidavit filed in support of cash deposits during the demonetization. The AO has also wrongly decided the issue without issuing any show cause notices before completing the assessment. Accordingly, the revenue authorities did not allow proper opportunity of being heard to the assessee and other additions also made by the AO was in a hasty manner. However, the ld.AR of the assessee pleaded that if a chance is given to the assessee to explain the disputed facts, the assessee would be able to substantiate its case.
The ld.DR supported the orders of the authorities below.
Considering the rival submissions of the both the parties, we are of the opinion that both the revenue authorities have not dealt the case in appropriate manner and also not considering the request made by the assessee. Considering the facts of the case and in the interest of justice, we are remitting the issue back to the file of the AO for fresh consideration. The AO is directed to give reasonable opportunity of being heard to the assessee and decide the issue as per law. The assessee is directed to co-operate with the proceedings before the revenue authorities and to file the relevant submissions/documents which would be essential and required by the revenue authorities for proper adjudication of the case. We clarify that in case of further default the assessee shall not be entitled for any leniency.
In the result, the appeal by the assessee is allowed for statistical purposes.