Facts of the Case

Based on data analytics and information gathered under “Operation Clean Money,” the Income Tax Department found that the assessee had deposited ₹13,78,500 in his bank account during the demonetization period and had not filed any return of income for the relevant year.

In response to notices issued by the Assessing Officer, the assessee stated that the funds had been received from family members—grandfather, father, mother, wife, brothers—as well as from his business activities.

Out of the total deposits, the Assessing Officer accepted ₹3,00,000 and treated the balance ₹10,78,500 as unexplained money under Section 69A of the Income Tax Act, 1961.

Further, from the bank statement, the AO noted additional receipts of ₹30,79,388 (excluding demonetization deposits), which were treated as business receipts. Profit was estimated at 8% (₹2,46,351) and added to income.

The assessment was completed under Section 144 determining total income at ₹13,24,850. The AO also invoked Section 115BBE and initiated penalty proceedings under Section 271AAC.

The assessee filed an appeal before the CIT(A), which was later handled by the NFAC and dismissed ex-parte.

Issues Involved

  1. Whether cash deposits during demonetization could be treated as unexplained money under Section 69A.
  2. Whether estimation of profit on bank receipts at 8% was justified.
  3. Whether assessment under Section 144 was valid in the circumstances.
  4. Whether dismissal of the appeal ex-parte violated principles of natural justice.
  5. Whether the assessee should be granted an opportunity to produce evidence explaining the deposits.

Petitioner’s Arguments (Assessee)

  • The assessment and appellate orders were arbitrary and unjustified.
  • No adequate opportunity was provided, and both authorities acted ex-parte.
  • Bank deposits included payments received from government departments for supply of building materials.
  • Entire bank credits cannot be treated as income.
  • Authorities considered only the credit side of the bank account while ignoring withdrawals and prior balances.
  • In similar cases, profit is generally estimated at a reasonable rate rather than treating total deposits as income.
  • Interest charged under various provisions was also unjustified without proper opportunity.

The assessee requested restoration of the matter to the Assessing Officer to present evidence regarding sources of deposits.

Respondent’s Arguments (Revenue)

The Revenue relied on the assessment order but did not object to restoration of the case for fresh examination by the Assessing Officer.

 Court Order / Findings (ITAT Allahabad)

  • Both the assessment order and the appellate order were passed ex-parte.
  • The assessee sought an opportunity to produce supporting evidence.
  • The Assessing Officer would be in a better position to examine such evidence.

In the interest of substantial justice, the Tribunal restored the matter to the file of the Assessing Officer with directions to provide a fresh opportunity to the assessee to present his case along with necessary evidence.

The Tribunal 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

  • Additions under Section 69A for cash deposits must be based on proper examination of evidence regarding sources of funds.
  • Best judgment assessments under Section 144 must still conform to principles of natural justice.
  • Ex-parte orders can be set aside where the assessee demonstrates willingness to cooperate.
  • Restoration for fresh adjudication does not imply acceptance of the assessee’s explanation but ensures fair consideration.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1771064151_PUSHPENDRABAHADURSINGHMIRZAPURVS.INCOMETAXOFFICER32MIRZAPUR.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.