Facts of the Case

Based on information available in the Individual Transaction Statement (ITS), the Income Tax Department discovered that the assessee had deposited ₹47,00,000 in a bank account during the relevant year without filing a return of income.

Upon further verification, it was found that the assessee maintained two bank accounts — one with State Bank of India and another with Baroda U.P. Grameen Bank — in which total cash deposits amounted to ₹71,70,000.

In response to notice under Section 148, the assessee filed a return declaring income of ₹5,03,310. The assessee explained that the cash deposits represented proceeds from sale of potatoes. However, no documentary evidence supporting such agricultural or business sales was furnished.

Consequently, the Assessing Officer treated ₹53,78,220 out of the deposits as unexplained income under Section 69A and completed assessment under Sections 147/143(3) at that amount.

The assessee filed an appeal before the first appellate authority, which was transferred to the National Faceless Appeal Centre (NFAC). The NFAC dismissed the appeal ex-parte.

 Issues Involved

  1. Whether cash deposits allegedly arising from sale of agricultural produce could be treated as unexplained income under Section 69A.
  2. Whether the assessment order passed under Sections 147/143(3) was justified on facts.
  3. Whether the ex-parte dismissal of the appeal by NFAC violated principles of natural justice.
  4. Whether the assessee should be granted another opportunity to substantiate the source of deposits.

 Petitioner’s Arguments (Assessee)

  • The addition of ₹53,78,220 was made without considering withdrawals from the bank accounts used for business purposes.
  • Authorities considered only deposits while ignoring the overall bank transactions.
  • Proper opportunity of hearing was not provided.
  • The ex-parte order was unjust and caused undue hardship.

 Respondent’s Arguments (Revenue)

  • The assessee failed to furnish documentary evidence supporting the explanation of potato sales.
  • The addition under Section 69A was therefore justified.

Before the Tribunal, however, the Departmental Representative did not object to restoration of the appeal since the NFAC order had been passed ex-parte.

 Court Order / Findings (ITAT Allahabad)

  • There was complete non-compliance by the assessee during appellate proceedings.
  • Nevertheless, considering the circumstances, the assessee deserved one more opportunity to present his case.
  • The NFAC had dismissed the appeal ex-parte without adjudicating the merits.

Accordingly, in the interest of substantial justice, the Tribunal restored the matter to the NFAC with directions to hear the appeal afresh on merits after providing reasonable opportunity to the assessee.

The Tribunal also cautioned that failure to comply with future notices would allow the NFAC to decide the matter based on available records, even ex-parte.

 Important Clarification

  • Ex-parte orders in faceless appellate proceedings can be set aside where principles of natural justice are not satisfied.
  • Additions under Section 69A require proper examination of evidence regarding source of deposits.
  • Restoration does not validate the assessee’s explanation but ensures fair adjudication.
  • The assessee must cooperate fully in subsequent proceedings.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1771064609_SURENDRAKUMARALLAHABADVS.ITO23ALLAHABAD.pdf

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