Facts of the Case

The assessee, an individual engaged in trading of machinery parts and agricultural equipment, did not file a return of income for the assessment year 2017-18 as his income was stated to be below the taxable limit. The Assessing Officer received information regarding cash deposits of ₹9,10,000 and ₹2,10,000 in the assessee’s bank accounts.

Proceedings were initiated under Section 142(1). As the assessee did not file the return or furnish explanations to the satisfaction of the Assessing Officer, an ex parte assessment was completed under Section 144. The Assessing Officer treated the excess deposits of ₹25,90,414 over VAT-reported sales as unexplained money under Section 69A and taxed the same under Section 115BBE.

Issues Involved

  1. Whether addition under Section 69A could be sustained when assessment was completed ex parte due to lack of representation.
  2. Whether dismissal of appeal by the CIT(A) for non-prosecution was justified in the facts of the case.
  3. Whether the assessee deserved an opportunity to explain the source of cash deposits supported by documentary evidence.

Petitioner’s (Assessee’s) Arguments

The assessee submitted that non-compliance before the Assessing Officer and the CIT(A) occurred due to prolonged illness and subsequent death of his authorised counsel, who managed all portal credentials and communications.

On merits, it was submitted that substantial deposits were received through banking channels against supply of water tankers to farmers under a government-subsidised irrigation scheme, which was exempt from VAT. It was contended that VAT returns did not reflect these receipts due to an error by the counsel. Supporting bills and bank entries were available, and only a minor balance represented old debtors and cash in hand.

Respondent’s (Revenue’s) Arguments

The Revenue opposed granting further opportunity, contending that the assessee failed to comply with statutory notices before both the Assessing Officer and the CIT(A), and that repeated non-compliance justified the ex parte assessment and dismissal of appeal.

Court Order / Findings

The Tribunal observed that the non-compliance was not deliberate but resulted from circumstances beyond the control of the assessee, namely the illness and demise of his counsel. The Tribunal noted that the assessee had now placed a plausible explanation regarding the cash deposits and was willing to substantiate the same with supporting documents.

In the interest of justice, the Tribunal set aside the orders of the lower authorities and restored the matter to the file of the Assessing Officer to examine the explanation and evidence afresh and pass an order in accordance with law. The appeal was allowed for statistical purposes.

Important Clarification

The Tribunal clarified that additions made purely on presumption due to non-compliance cannot be sustained where the assessee demonstrates reasonable cause and seeks to explain the transactions with evidence. Principles of natural justice mandate affording a fair opportunity before confirming additions under Section 69A.

 Link to download the order - https://www.mytaxexpert.co.in/uploads/1770710798_GAJENDRAKUMARMAHOBAVS.INCOMETAXOFFICERWARD224BANDA.pdf  

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