Case Law Details
Nagaraju Kesturkoppal Ramegowda Vs ITO (ITAT Bangalore)
The assessee faced an ex-parte assessment under Section 144 where the AO treated entire bank deposits as unexplained income under Section 69A due to lack of response. The CIT(A) dismissed the appeal on grounds of massive delay (1969 days) without examining merits.
The ITAT condoned the delay considering financial hardship, business closure, and lack of awareness, emphasizing that substantial justice must prevail. It observed that even in ex-parte cases, the AO is duty-bound to make a fair and scientific assessment, and cannot arbitrarily treat gross receipts as income without examining their nature and source.
Holding the assessment to be non-sustainable, the Tribunal set aside the orders of lower authorities and remanded the matter to the AO for fresh adjudication, directing proper inquiry and opportunity to the assessee.
However, due to the assessee’s lapse, a cost of ₹11,000 was imposed payable to the Prime Minister’s Relief Fund. The appeal was allowed for statistical purposes.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This appeal filed by the assessee is directed against the order of the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, for the Assessment Year 2017–18.
2. There is a delay of 1969 days in filing the appeal before the learned CIT(A) and a further delay of 51 days in filing the present appeal before this Tribunal. The assessee submitted that the delay occurred due to severe financial hardship, closure of business, and lack of knowledge of the orders passed, as a result of which the appellate remedies could not be pursued in time. It is noticed that the assessment in the present case was completed ex parte under section 144 of the Act and the additions have been made by treating gross receipts as unexplained income without proper verification. Though the delay before the learned CIT(A) is inordinate, considering the peculiar facts, the ex parte nature of the assessment, and the settled principle that the Revenue is duty-bound to frame assessments on a proper and scientific basis irrespective of the conduct of the assessee, we are inclined to condone the delay both before the learned CIT(A) and this Tribunal in the interest of substantial justice.
3. The Assessing Officer completed the assessment under section 144 of the Act and observed that there were substantial deposits in the bank accounts of the assessee. In the absence of explanation, the Assessing Officer treated the entire deposits as unexplained income under section 69A of the Act and brought the same to tax by effectively treating the gross receipts as income of the assessee.
3.1 The learned CIT(A) dismissed the appeal of the assessee, primarily on account of the inordinate delay and non-prosecution, without adjudicating the issues on merits.
3.2 The learned Authorised Representative submitted that the assessee was engaged in business which suffered losses and was eventually closed, and that the deposits in the bank account represent loans from relatives and banks, recovery of dues from debtors, and business receipts during the process of closure. It was further submitted that during the demonetization period, cash deposits were made out of genuine recoveries and that the assessee could not appear before the lower authorities due to financial hardship and lack of awareness. It was contended that the Assessing Officer erred in taxing gross receipts as income, which is contrary to settled principles of law.
3.3 The learned Departmental Representative supported the orders of the lower authorities and submitted that the assessee failed to comply with statutory notices and did not furnish any evidence to explain the deposits, and therefore the Assessing Officer was justified in completing the assessment under Section 144 and making the additions.
4. We have heard the rival submissions of both the parties and perused the materials on record. It is an admitted position that the assessment was completed ex parte. On perusal of the assessment order, it is evident that the Assessing Officer has treated the entire gross receipts/deposits as unexplained income without carrying out any meaningful inquiry or verification, which in our considered view is not in accordance with law, as gross receipts cannot be brought to tax as income without examining their nature and source. Even in an ex parte assessment, the duty of the Revenue is to make a fair and reasonable assessment on a scientific basis, and the absence of the assessee does not justify an arbitrary determination of income. Considering the totality of facts, including the inordinate delay, the non-scientific manner of assessment, and in the interest of substantial justice, we set aside the orders of the lower authorities and restore the matter to the file of the Assessing Officer for fresh adjudication after providing adequate opportunity to the assessee to furnish necessary documentary evidence.
The Assessing Officer shall pass a speaking order in accordance with law. The assessee is directed to cooperate in the proceedings and not seek unnecessary adjournments. However, considering the lapse on the part of the assessee, we direct the assessee to deposit a sum of ₹11,000/- in the Prime Minister’s Relief Fund as a condition for granting the above relief. Hence, the ground of appeal of the assessee is allowed for statistical purposes.
5. In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in court on 16th day of April, 2026
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