Facts of the Case

Based on information available with the Income Tax Department, the assessee, Smt. Iris Henry, had deposited cash amounting to ₹51,30,000 in her bank account with Punjab National Bank during the relevant financial year, while no return of income had been filed for that year.

Reassessment proceedings were initiated under Section 147 by issuing notice under Section 148. The assessee did not respond to the notice. Subsequent notices under Section 142(1) also remained uncomplied with. The Assessing Officer then sought confirmation of bank transactions directly from the bank under Section 133(6).

Even thereafter, the assessee did not participate in the proceedings. Consequently, the Assessing Officer completed assessment under Section 144 read with Section 147, determining total income at ₹51,31,000 by treating the cash deposits as undisclosed income under Section 68. Penalty proceedings were also initiated.

On appeal, the Commissioner (Appeals), NFAC dismissed the appeal ex-parte.

 Issues Involved

  1. Whether the ex-parte assessment treating cash deposits as undisclosed income under Section 68 was justified.
  2. Whether reassessment proceedings under Sections 147/148 were properly conducted.
  3. Whether dismissal of the appeal ex-parte by the appellate authority violated principles of natural justice.
  4. Whether the assessee should be granted another opportunity to explain the source of bank deposits.

 Petitioner’s Arguments (Assessee)

The assessee contended that:

  • The assessment order passed under Sections 144/147 was bad in law and on facts.
  • The appellate authority erred in dismissing the appeal ex-parte without providing reasonable opportunity.
  • In response to the notice under Section 148, the assessee had submitted that an earlier return may be treated as filed in compliance, but this submission was ignored.
  • Reasons recorded for reopening were not provided.
  • The cash deposits represented disclosed sources, specifically sale proceeds of M/s Mangalam Service Station.
  • Proper verification of facts was not undertaken before making the addition.

The assessee requested restoration of the matter so that evidence regarding the source of deposits could be produced.

Respondent’s Arguments (Revenue)

The Revenue relied on the assessment order, emphasizing that:

  • The assessee failed to comply with multiple statutory notices.
  • The Assessing Officer was justified in completing the assessment under Section 144 on the basis of available information.
  • Cash deposits remained unexplained due to non-cooperation by the assessee.

Before the Tribunal, however, the Departmental Representative did not object to restoration of the matter to the Assessing Officer.

 Court Order / Findings (ITAT Allahabad)

The Tribunal observed that:

  • Both the assessment order and appellate order were passed ex-parte.
  • The assessee sought an opportunity to present evidence explaining the cash deposits.
  • In the interest of substantial justice, the assessee deserved one more opportunity.

Accordingly, the Tribunal restored the matter to the Assessing Officer with directions to provide a reasonable opportunity to the assessee to present her case along with necessary evidence.

The Tribunal also cautioned that failure to comply in the set-aside proceedings would allow the Assessing Officer to pass an order based on available material, even ex-parte.

Important Clarification

Best judgment assessments under Section 144 must still adhere to principles of natural justice.

Additions under Section 68 for cash deposits require proper examination of evidence regarding source.

Ex-parte orders may be set aside where the assessee demonstrates willingness to cooperate and produce evidence.

Restoration does not imply acceptance of the assessee’s explanation but ensures fair adjudication.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1771063970_IRISHENRYALLAHABADVS.ITO12ALLAHABADALLAHABAD.pdf

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