Bengaluru ITAT Remands Ex Parte Assessment Based on Demonetisation Cash Deposits; AO Directed to Recompute Income on Proper Evidence

Thaladammanahalli Muninarayanappa Ravikumar Vs ITO (ITAT Bangalore)

Bengaluru ITAT Remands Ex Parte Assessment Based on Demonetisation Cash Deposits; AO Directed to Recompute Income on Proper Evidence

The Bengaluru ITAT has set aside an ex parte assessment where the Assessing Officer estimated the assessee’s income at 8% under section 44AD solely on the basis of cash and non-cash deposits reflected in the bank account during the demonetisation period. The Tribunal held that such estimation, without examining supporting material regarding the actual business turnover and income, was not sustainable and required fresh consideration.

The assessee, engaged in the wholesale business of edible oils, had not filed his return of income on the ground that his income was below the taxable limit. On receiving information regarding substantial cash deposits during demonetisation, the AO treated the total bank deposits as turnover and estimated income at 8% under section 44AD. The CIT(A) also dismissed the appeal ex parte after the assessee failed to respond to multiple notices.

Before the Tribunal, the assessee contended that the AO had adopted an incorrect figure of bank deposits, ignored the concept of peak/quick credit, and arbitrarily applied the 8% profit rate, whereas the assessee had disclosed a net profit of around 2% in subsequent assessment years. The Tribunal observed that the AO had made the estimation only on the basis of bank deposits, without relying on any other material to determine the correct income, and that the assessee had now undertaken to produce the necessary records.

Considering that both the assessment order and the appellate order were passed ex parte, and that the assessee claimed a substantially lower profit rate in subsequent years, the Tribunal restored the matter to the Assessing Officer for fresh adjudication after granting adequate opportunity of hearing. It, however, cautioned that the assessee must fully cooperate in the proceedings, failing which the Revenue would be at liberty to complete the assessment in accordance with law.

FULL TEXT OF THE ORDER OF ITAT BANGALORE

This is an appeal filed by the assessee challenging the order of the NFAC, Delhi dated 24/02/2026 in respect of the A.Y. 2017-18.

2. The brief facts of the case are that the assessee is an individual and running a proprietary concern in the name and style of M/s. Ravi Enterprises dealing in the wholesale business of edible oils. During the year, the assessee had not filed his return of income since his income is below the taxable limit. The AO based on the information that the assessee had deposited cash during the demonetisation period had issued a notice u/s. 142(1) of the Act. Later on, the AO got the bank statement from the SBI bank and noticed that the assessee had deposited Rs. 3,38,82,108/-and on that basis, the AO had estimated the income of the assessee at Rs. 27,10,570/- being the 8% of the total turnover effected by the assessee u/s. 44AD of the Act.

3. As against the said order, the assessee filed an appeal before the Ld.CIT(A). The Ld.CIT(A) had issued 5 notices and the assessee had not corresponded to the said notices and therefore the Ld.CIT(A) had considered the appeal and confirmed the order of the AO.

4. As against the said order, the present appeal has been filed by the assessee.

5. At the time of hearing, the Ld.AR submitted that the assessment order passed u/s. 144 is not correct and also submitted that the estimation of income based on the bank deposits is not correct. The Ld.AR further submitted that the correct figure as per the bank statement was not adopted by the AO and therefore the other estimation of income without any supporting materials is not correct. The Ld.AR further submitted that the assessee is getting a net profit of 2% in the subsequent years and therefore the adoption of 8% for the current year is without any evidence and liable to be set aside. The Ld.AR also further submitted that the AO had not followed the principle of quick credit and therefore the estimated addition is not warranted. The Ld.AR also submitted that the order of the Ld.CIT(A) is a non-speaking order and also against the principles of natural justice liable to be set aside.

6. The Ld.DR submitted that the AO had granted sufficient opportunity and also the assessee had filed their objections and therefore there is no violation of the principles of natural justice. Further, the Ld.DR submitted that the assessee is into the business of oil and also made huge deposits into his bank account but no return of income was filed by the assessee voluntarily or after notice u/s. 142(1) was issued and therefore the order of the AO is in order. The Ld.DR further submitted that the Ld.CIT(A) had granted 5 opportunities and the assessee had not responded and therefore the Ld.CIT(A) had considered the issue on merits based on the materials available before him and confirm the addition made by the AO by way of a speaking order and therefore the order of the lower authorities may be confirmed.

7. We have heard the arguments of both sides and perused the materials available on record.

8. We find from the records that the assessee is a dealer is edible oils but not filed his return of income declaring the income earned through the said business. The assessee had also not filed his return of income in spite of the notice issued by the AO. Further, the AO had estimated the income at 8% u/s. 44AD of the Act since he is doing the business of oil. On one occasion, the assessee had filed his reply but not satisfied with the said reply, the AO had estimated the income. While estimating the income, the AO had taken the entire cash deposits and also the non-cash deposits and estimated the income. On going through the assessment order, the AO had not made the estimation of income on any other material evidences except the deposit of cash and non-cash into his bank account. It shows that the AO had not correctly computed the income based on any materials. The assessee had also failed to explain the facts before the AO as well as before the Ld.CIT(A) by producing cogent material evidences. Now the assessee undertook to appear before the AO and produce the necessary documents to show that the estimation made by the AO is unwarranted.

9. Considering the fact that the assessment order as well as the CIT(A) order are ex-parte orders and also considering the fact that the assessee had declared his net profit at 2% in the subsequent assessment years, we are inclined to set aside the orders of the lower authorities and remit this issue to the file of the AO for fresh consideration. We also made it clear that the assessee should co-operate with the department otherwise, the revenue is at liberty to make the assessment in accordance with law. It is also made clear that the assessee should be granted an opportunity of being heard before passing the order.

10. In the result, the appeal filed by the assessee is allowed for statistical purposes.

Order pronounced in the open court on 06^th July, 2026.