Facts of the Case

The Assessing Officer received information that the assessee had deposited ₹14,94,000 in his bank account. Since no return of income was filed, a notice under Section 142(1) of the Income-tax Act, 1961 was issued. As no response was received, the Assessing Officer proceeded to complete the assessment under Section 144.

Upon obtaining bank details under Section 133(6), the Assessing Officer found that the total cash deposited during the year was ₹3,52,500, out of which ₹2,06,000 was deposited during the demonetization period. The assessee was also found to have salary income and interest income. The Assessing Officer treated the entire cash deposit of ₹3,52,500 as unexplained income and completed the assessment accordingly.

Issues Involved

  1. Whether addition of cash deposits as unexplained income was justified in an ex parte assessment.
  2. Whether rejection of additional evidence under Rule 46A by the CIT(A) was legally sustainable.
  3. Whether CBDT Instruction No. 3/2017 relating to cash deposits of individuals was applicable.
  4. Whether failure to provide effective opportunity vitiated the assessment proceedings.

Petitioner’s (Assessee’s) Arguments

The assessee submitted that he was a teacher drawing a modest salary and was not required to file a return of income. It was contended that the alleged information of deposit of ₹14,94,000 was incorrect and that actual deposits during demonetization were only ₹2,06,000.

The assessee explained that the deposits were sourced from agricultural income, earlier savings, retained earnings, and ₹90,000 received from his sister, supported by bank withdrawals. It was further contended that the assessee was not registered on the income-tax portal at the relevant time and, therefore, did not receive notices, resulting in denial of opportunity. Reliance was placed on CBDT Instruction No. 3/2017, which provides that no further verification is required where cash deposits of individuals without business income do not exceed ₹2.5 lakh.

Respondent’s (Revenue’s) Arguments

The Revenue contended that the assessee failed to respond to statutory notices and did not satisfactorily explain the source of cash deposits before the Assessing Officer. It was argued that additional evidence was rightly rejected under Rule 46A as sufficient cause for non-production before the Assessing Officer was not established.

Court Order / Findings

The Tribunal observed that the assessee claimed inability to comply due to non-registration on the portal and that a significant portion of the deposits was claimed to be from non-taxable sources such as agricultural income. The Tribunal held that receipts not chargeable to tax cannot be brought to tax merely due to procedural lapses.

It was further observed that the CIT(A) ought to have admitted the additional evidence and remanded the matter to the Assessing Officer for verification. In the interest of justice, the Tribunal restored the matter to the file of the Assessing Officer for de novo assessment after providing adequate opportunity to the assessee to substantiate his explanation with evidence.

Important Clarification

The Tribunal clarified that explained or non-taxable receipts cannot be assessed as unexplained income solely due to non-compliance. Where plausible explanations supported by evidence are offered, the Assessing Officer is duty-bound to examine them, particularly in light of binding CBDT instructions and principles of natural justice.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1770711373_SHREESHKUMARTRIPATHIBANDAVS.INCOMETAXOFFICERWARD225BANDA.pdf  

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