Facts of the Case

The assessee, Lokhit Gram Vikas Seva Samiti, a registered society engaged in running educational activities, maintained bank accounts with HDFC Bank. Information was received by the Income Tax Department that cash deposits amounting to ₹28,91,850 were made during the demonetization period. On verification, it was found that the assessee had not filed its return of income for the relevant assessment year.

The Assessing Officer issued notices under Section 142(1) requiring filing of return and explanation of cash deposits, but there was no initial compliance. A show-cause notice was subsequently issued proposing best judgment assessment under Section 144.

In response, the authorized representative submitted that the deposits represented fees collected from students. The Assessing Officer obtained bank statements under Section 133(6) and observed that total deposits during the year amounted to ₹1,24,48,100. Treating ₹28,91,850 deposited during demonetization as undisclosed income and the remaining ₹95,56,250 as unexplained income, the AO added the entire amount under Section 69 and completed assessment under Section 144 at ₹1,24,48,100.

The AO also invoked Section 115BBE and initiated penalty proceedings under Sections 271AAC(1) and 272A(2)(b).

On appeal, the NFAC dismissed the appeal ex-parte.

 Issues Involved

  1. Whether cash deposits in bank accounts, including those during demonetization, could be treated as undisclosed income under Section 69.
  2. Whether assessment under Section 144 was justified in the circumstances.
  3. Whether the ex-parte appellate order violated principles of natural justice.
  4. Whether deposits claimed to be student fee collections required proper verification.
  5. Whether the assessee should be granted an opportunity to produce supporting evidence.

 Petitioner’s Arguments (Assessee)

  • The assessment framed under Section 144 was illegal and unjustified.
  • The society was registered under Section 12A and had approval under Section 80G.
  • It had been running educational institutions for several years.
  • Cash deposits represented receipts from student fees, while withdrawals were towards educational expenses.
  • Authorities wrongly treated credit entries as income without considering debit entries and overall bank transactions.
  • Necessary details and evidence were filed but not properly considered.
  • The ex-parte order of the CIT(A) (NFAC) was passed without providing reasonable opportunity.

 Respondent’s Arguments (Revenue)

  • The assessee failed to comply with statutory notices.
  • Cash deposits remained unexplained due to non-submission of documentary evidence.
  • The Assessing Officer was justified in invoking Section 144 and making additions under Section 69.

Court Order / Findings (ITAT Allahabad)

  • Both the assessment order and appellate order were passed ex-parte.
  • The assessee sought an opportunity to produce evidence explaining the source of cash deposits.
  • The Assessing Officer would be in a better position to examine the evidences relating to deposits and activities of the society.

In the interest of substantial justice, the Tribunal restored the matter to the Assessing Officer with directions to provide one more opportunity to the assessee to present its case along with necessary evidence.

The Tribunal cautioned that failure to comply with directions during set-aside proceedings would allow the Assessing Officer to decide the matter on available records, even ex-parte.

 Important Clarification

  • Additions for cash deposits, including during demonetization, must be based on proper examination of evidence regarding source.
  • Ex-parte assessments and appellate orders may be set aside to ensure compliance with principles of natural justice.
  • Restoration does not imply acceptance of the assessee’s explanation but ensures fair adjudication.
  • Educational institutions and charitable societies must substantiate fee collections with proper records.

 Final Outcome

 Delay in filing appeal condoned

 Ex-parte orders set aside
 Matter remanded to the Assessing Officer for fresh adjudication
 Appeal allowed for statistical purposes

Link to download the order - https://www.mytaxexpert.co.in/uploads/1771064098_LOKHITGRAMVIKASSEVASAMITIALLAHABADVS.ITOEXEMPTIONALLAHABAD.pdf

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