Facts of the Case

The assessee, Mohammad Irfan Jafri, did not file a return of income for Assessment Year 2017-18. During verification under “Operation Clean Money”, the Department found that the assessee had deposited cash of Rs. 10,09,500 in three bank accounts at Baroda Uttar Pradesh Gramin Bank between 09.11.2016 and 30.12.2016 during the demonetization period.

Notices under Section 142(1) were issued but initially not complied with. Eventually, the assessee submitted that he was engaged in small-scale trading of iron and also derived agricultural income. It was stated that the cash deposits were sourced from agricultural income, business income, and past savings of his wife and parents.

The Assessing Officer observed that purchase bills produced related to subsequent financial years and not the relevant year. Further, no documentary evidence was furnished in support of agricultural income. Consequently, the AO treated the cash deposits as unexplained money under Section 69A and taxed the same under Section 115BBE.

The CIT(A), after issuing multiple notices electronically, dismissed the appeal ex parte due to non-compliance and confirmed the addition.

The appeal before ITAT was filed with delay of 497 days, which was condoned after accepting the explanation that notices were served on the email of the assessee’s erstwhile counsel who failed to inform him.

 Issues Involved

  1. Whether the addition of Rs. 10,09,500 under Section 69A on account of cash deposits during demonetization was justified.
  2. Whether the explanation of agricultural income and past savings required verification before sustaining addition.
  3. Whether ex parte dismissal by CIT(A) without substantive examination was sustainable.
  4. Whether delay in filing appeal before ITAT was liable to be condoned.

 Petitioner’s Arguments (Assessee)

  • The cash deposits were from agricultural income, small business income, and past savings of family members.
  • The assessee was availing agricultural credit facility (Kisan Credit Card) against his agricultural land holdings.
  • Documentary evidence regarding agricultural activity and land holdings could be produced.
  • Non-compliance occurred due to failure of earlier counsel to inform about notices and orders.
  • The addition was made without proper appreciation of facts and in violation of principles of natural justice.

 Respondent’s Arguments (Revenue)

  • The assessee was given multiple opportunities by the Assessing Officer and CIT(A).
  • Replies furnished before the AO were vague and unsupported by documentary evidence.
  • No compliance was made before CIT(A), justifying ex parte confirmation of addition.
  • Therefore, the addition under Section 69A was correctly sustained.

 Court Order / Findings (ITAT Allahabad)

  • The delay in filing the appeal was reasonably explained and deserved condonation.
  • The assessee consistently maintained that the source of cash deposits was agricultural income and savings.
  • If agricultural income was genuine, it would fall outside the ambit of taxation.
  • For issuance of Kisan Credit Card facilities, banks require documentary proof of landholding and cropping pattern, which could substantiate the assessee’s claim.
  • The assessment order did not examine the nature of the three bank accounts or verify agricultural land details and related evidence.
  • Since the addition was made solely due to lack of documentary evidence without proper inquiry into the claims, the matter required reconsideration.

Accordingly, the Tribunal restored the matter to the file of the Assessing Officer for de novo assessment after allowing the assessee opportunity to furnish documentary evidence.

The assessee was cautioned that under faceless assessment mode, notices are served electronically and it is the duty of the assessee to remain vigilant and ensure compliance.

The appeal was allowed for statistical purposes.

 Important Clarification

  • The Tribunal did not delete the addition on merits but remanded the case for fresh verification.
  • Agricultural income, if substantiated, is exempt and cannot be treated as unexplained money.
  • Documentary evidence such as land records, cropping details, and bank records must be examined before invoking Section 69A.
  • Non-compliance in faceless proceedings can result in adverse inference.
  • Electronic service of notices is valid under the faceless regime.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1771231765_MOHAMMADIRFANJAFRIKAUSHAMBIVS.ITOWARD25KAUSHAMBI.pdf

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