PRADIPKUMAR ARVINDBHAI KOTHARI,BOTAD vs. THE ITO, WARD-1(10), BHAVNAGAR

The appeal filed by the Assessee is against the order passed by the Ld. Commissioner of Income Tax (Appeals), (in short “Ld. CIT(A)”), National Faceless Appeal Centre (in short “NFAC”), Delhi vide order dated 18.03.2024 passed for Assessment Year 2017-18.

The Assessee has taken the following grounds of appeal:

The brief facts of the case are that the Assessing Officer of the assessee, Shri Pradipkumar Arvindbhai Kothari, observed that the assessee had deposited cash amounting to Rs.14,14,000/- in his bank accounts with State Bank of India and HDFC Bank during the demonetization window from November 8, 2016 to December 30, 2016. The due date for filing the return for Assessment Year (AY) 2017-18 was August 5, 2017, but the assessee failed to file the return under Section 139(1) of the Income Tax Act, 1961. The Assessing Officer issued several notices of hearing, which remained uncompiled with. The Assessing Officer issued a notice under Section 142(1) on March 13, 2018, requiring the assessee to submit a true and correct return of income, which should have been filed by March 31, 2018. Again, the assessee did not comply. Subsequently, a second notice under Section 142(1) was issued on June 12, 2019, requesting clarification about the cash deposits made during the demonetization period, with a deadline of June 24, 2019. The assessee once again failed to respond. A further notice was issued on September 12, 2019, fixing the date of hearing for September 16, 2019; however, there was still no compliance or request for adjournment from the assessee. Therefore, the Assessing Officer observed that throughout the assessment proceedings, the assessee did not provide the required details regarding the cash deposits, and the Assessing Officer issued notice under Section 133(6) to the banks to obtain bank statements and KYC details. The analysis of the bank statements revealed total credits of Rs.1,11,98,244/-, including the cash deposits during the demonetization period, which remained unexplained. The Assessing Officer held that under Section 69A of the Income Tax Act, the unexplained deposits were deemed to be income since the assessee did not offer satisfactory explanations regarding the source of the funds. The Assessing Officer noted that the nature and source of the cash deposits had not been satisfactorily explained, demonstrating that these funds had come from undisclosed sources. Accordingly, the Assessing Officer assessed the total amount of unexplained income assessed at Rs.1,11,98,244/-, which was taxed at 60% under Section 115BBE of the Act.

In appeal before Ld. CIT(Appeals), the assessee submitted he is the proprietor of M/s. Pradip Sales Agency, and is engaged in the wholesale supply of products for the Anchor company. During the Income Tax Department's "Operation Clean Money," it was identified that he had deposited substantial cash in his bank accounts during the demonetization period without filing a return for Assessment Year (AY) 2017-18. The assessee submitted before Ld. CIT(Appeals) that these cash deposits were derived from sales made to various parties and thus should not be categorized as unexplained money. The assessee contended all cash deposits cannot be considered as income, and that notably a significant portion of his business transactions i.e. approximately 90% were conducted with M/s. Anchor Health & Beauty Care Company, a regular taxpayer and a limited company. The assessee submitted that most of the cash deposited during the demonetization period was used to purchase goods from this supplier, Anchor Health & Beauty Care. The addition of total credits in the bank account amounting to Rs.1,11,98,244/- was erroneous, due to a lack of thorough analysis and consideration of the financial circumstances of the assessee. The assessee submitted that the AO focused solely on bank deposits while neglecting the broader context of his business operations, the withdrawals from the bank account and the cash flow statement of the assessee. The assessee submitted that the Assessing Officer failed to examine both sides of the bank statements and relied on presumptions that all cash deposits constituted taxable income. The assessee pointed out that the income reported was below the taxable threshold, which was a primary reason for not filing return of income. The assessee argued that a review of both the bank statements and the ledger of Anchor Health & Beauty Care would confirm that the cash transfers were predominantly for business purchases, as many transactions involved cash due to the nature of his small-scale operations dealing in cosmetic items. The assessee requested that the authorities verify these details against his bank statements and VAT returns, along with sales invoices, to reassess the validity of the demands raised against him.

However, Ld. CIT(Appeals) did not agree with the contentions of the assessee and observed that during the course assessment proceedings, the assessee did not provide any reply to the various show-cause notices issued by the Assessing Officer. During the appellate proceedings, the assessee submitted additional documents and written submissions. However, Ld. CIT(Appeals) observed that these documents were not provided during the original assessment and were incomplete and haphazard. Ld. CIT(Appeals) noted that the AO had been in possession of substantial evidence regarding the cash deposits, and the assessee's consistent lack of response to notices and requests for information further demonstrated his non-compliance. Accordingly, Ld. CIT(Appeals) found no justification for admitting the additional evidence submitted by the assessee, as no petition was filed under Rule 46(1) of IT Rules. Ld. CIT(Appeals) confirmed the AO's findings, in view of non-cooperation by the assessee throughout both the assessment and appellate proceedings. Therefore, the additions made by the AO under Section 69A were upheld, and the appeal of the assessee was dismissed.

The assessee is in appeal before us against the aforesaid order passed by Ld. CIT(Appeals). Before us, the counsel for the assessee drew our attention to pages 1-2 of paper book and submitted that the assessee had submitted substantial details before Ld. CIT(Appeals) during the course of appellate proceedings, including financial statements along with the VAT return of the assessee, which were omitted to be considered by the Ld. CIT(Appeals), while dismissing the appeal of the assessee. The counsel for the assessee submitted that the assessee is the main distributor of M/s. Anchor Health and Beauty Care products and most of the deposits are coming out of sale proceeds of the above health and beauty care products. The counsel for the assessee submitted before us that Ld. CIT(Appeals) erred in facts and in law in confirming the entire cash credits/deposits in the bank account of the assessee as income for the assessee. The counsel for the assessee drew our attention to pages 3 and 5 of Paper Book, wherein substantial details like the ledger account of anchor, the reconciliation with bank statement, which sales register, purchase bills, sales register with sample bills, cash book etc. were sought to be filed before CIT by the assessee in support of its contention, but all these details were omitted to be considered by Ld. CIT(Appeals), while dismissing the appeal of the assessee. The counsel for the assessee drew our attention to page 7 of the paper book, wherein vide submission dated 19.08.2023, substantial details were filed by the assessee before the Ld. CIT(Appeals) viz. the reconciliation of Anchor ledger with bank statement, bank statement held with the SBI and HDFC Bank, purchase register of the assessee, sample copies of purchase bills, sales register with sample sale bills, cash book and VAT returns with financial statements and computation of income, however, Ld. CIT(Appeals) completely omitted to consider the various details filed by the assessee during the course of appellate proceedings and summarily dismissed the appeal of the assessee. Further, the counsel for the assessee submitted that the reason why the assessee did not file return of income for the impugned year under consideration was that the income of the assessee was below the taxable limit, as evident from the computation of income, which was filed at page 9 of the paper book before us. Further, the counsel for the assessee drew our attention to the trading account of the assessee for the impugned year under consideration and submitted that the figure of sales for the impugned year under consideration amounting to Rs.83.84 lakhs tallied with the VAT return filed by the assessee for the impugned year under consideration, which was produced before us at page 149 of paper book. Further, the counsel for the assessee drew our attention to the fact that out of the total credits in the bank account amounting to Rs.1.11 crores, only a sum of Rs.14 lakhs approximately was deposited by the assessee during the demonetisation period, and even on perusal of bank statement for the previous years, these amounts of deposits were being regularly made by the assessee in its bank account as part of it’s regular business activity. Further, the counsel for the assessee drew our attention to page 74 of the paper book and submitted that the assessee has been making sales in small quantum to various traders, and the sale consideration was deposited by the assessee in the bank account for the impugned year under consideration. Accordingly, it was submitted that the appellate order was passed by Ld. CIT(Appeals) without taking into consideration the various details filed by the assessee in support of the source of cash deposited during the impugned year under consideration. Further, with regards to non-compliance during the course of proceedings before the lower authorities, the counsel for the assessee submitted that the assessee is carrying on business in a small town and the assessee was not informed regarding the tax proceedings by the previous tax consultant of the assessee, which led to non-compliance on part of the assessee, before the lower tax authorities. Further, the counsel for the assessee submitted that it is also not been disputed by the tax authorities that the income of the assessee is below the taxable limit for the impugned year under consideration and computation filed by the assessee has also not been challenged/disputed by the tax authorities. Accordingly, the counsel for the assessee submitted that in light of the voluminous submissions made by the assessee, it is a fit case that the matter may be restored to the file of Ld. CIT(Appeals) for de novo consideration, after giving due opportunity of the assessee to present its case on merits.

In response, DR placed reliance on the observations made by the assessing officer and Ld. CIT(Appeals), in their respective orders.

We have heard the rival contentions and perused the material on record. Looking into the instant facts, and the submissions made by the counsel for the assessee, coupled with the supporting device evidences/documents sought to be filed by the assessee in support of the source of cash deposits made in the demonetisation period, we are of the considered view that it is a fit case that the matter may be restored to the file of Ld. CIT(Appeals) to allow an opportunity to the assessee to present its case on merits. However, we also observe that the assessee has been non-compliant during most part of the proceedings before the lower authorities. Accordingly, if it is seen that the assessee continues to still remain non-compliant in response to notices issued by Ld. CIT(Appeals), then Ld. CIT(A) would be at liberty to pass appropriate orders, the basis of material available on record, in accordance with law.

In the result, the appeal of the assessee is allowed for statistical purposes. This Order pronounced in Open Court on 23/09/2024