Facts of the Case

The assessee, engaged in the business of cement and paints under the name M/s A.K. Enterprises, did not file a return of income for the assessment year 2017-18. Information was received by the Department regarding substantial cash deposits during the demonetization period in multiple bank accounts maintained by the assessee.

Notices under Section 142(1) were issued, which were not duly complied with. Consequently, the Assessing Officer completed the assessment ex parte under Section 144 of the Income-tax Act, 1961. Treating total bank deposits as turnover, the Assessing Officer estimated net profit at 8% and made an addition of ₹11,69,631. Further, an addition of ₹1,68,000 was made under Section 69A on account of unexplained cash deposits in the savings bank account. Deduction claimed under Section 80C was also denied.

Issues Involved

  1. Whether estimation of income at 8% of bank deposits without examining books of accounts and audit report was justified.
  2. Whether addition under Section 69A could be sustained without verifying whether the amounts were recorded in the books of accounts.
  3. Whether dismissal of the appeal by the CIT(A) for non-compliance was sustainable in the facts of the case.
  4. Whether the assessee was entitled to claim deduction under Section 80C.

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 hospitalization, including knee replacement surgery, and lack of technological awareness. It was contended that the audit report had been furnished during assessment proceedings and that mere non-availability of the same on the departmental portal could not justify rejection of book results.

It was further submitted that additions under Section 69A were unwarranted as the deposits were duly recorded in the books of accounts, and that estimation of profit at a flat rate without examining past history or comparable cases was arbitrary.

Respondent’s (Revenue’s) Arguments

The Revenue supported the orders of the lower authorities and contended that since the assessee failed to file the audit report on the system and did not produce books of accounts, the Assessing Officer was justified in rejecting the book results and estimating income. It was further argued that deduction under Section 80C could not be allowed as no return of income had been filed within the prescribed time.

Court Order / Findings

The Tribunal observed that even if the audit report was not filed within the prescribed time, the same, if furnished during assessment proceedings, was required to be considered. Failure to file the audit report may attract penal consequences but cannot, by itself, justify outright rejection of book results.

The Tribunal held that the Assessing Officer erred in estimating income at 8% of bank deposits without examining the audit report and underlying books of accounts. Similarly, the addition under Section 69A required verification as to whether the amounts were duly reflected in the books.

Accordingly, the Tribunal set aside the orders of the lower authorities and restored all issues, including estimation of income, addition under Section 69A, and claim of deduction under Section 80C, to the file of the Assessing Officer for fresh adjudication in accordance with law after providing reasonable opportunity of being heard to the assessee. The appeal was allowed for statistical purposes.

Important Clarification

The Tribunal clarified that audit reports furnished during assessment proceedings must be examined on merits and cannot be ignored merely because they were not traceable on the departmental system. Estimation of income and additions under Section 69A must be preceded by proper verification of books of accounts, and principles of natural justice require granting a fair opportunity before drawing adverse conclusions.

 Link to download the order - https://www.mytaxexpert.co.in/uploads/1770710915_SANKARLALJAISWALALLAHABADVS.ITO15ALLAHABAD.pdf 

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.