Addition of entire bank receipts without verification was unjustified: ITAT Raipur

Harish Pandey Vs ACIT (ITAT Raipur)

In the case of Harish Pandey Vs Assistant Commissioner of Income Tax (ACIT), the Income Tax Appellate Tribunal (ITAT) Raipur addressed the assessment of unexplained income under Section 69A of the Income Tax Act, 1961. The case arose from the assessment year 2018-19, where the Assessing Officer (AO) reopened the assessment under Sections 147, 144, and 144B based on transactions in the assessee’s bank account. The AO deemed the receipts, including cash withdrawals and contract payments, as unexplained income and added them entirely to the taxable income. The assessee, however, did not respond to multiple notices during the assessment and appellate stages, prompting an ex-parte decision.

The assessee contended before the ITAT that the receipts reflected legitimate business activities, including transportation services for which tax was deducted at source (TDS). However, the AO and Commissioner of Income Tax (Appeals) [CIT(A)] failed to conduct independent inquiries with the parties involved or consider documentary evidence such as TDS records. Citing non-compliance by the assessee, the AO taxed the gross bank receipts and withdrawals totaling ₹4.16 crore. The CIT(A) upheld the AO’s findings without affording the assessee adequate opportunity to present evidence, raising questions about adherence to natural justice principles.

The ITAT noted that the AO did not verify the genuineness of transactions or ascertain whether the receipts were taxable in their entirety. Judicial precedents, such as CIT Vs Premkumar Arjundas Luthra (HUF) (2016) 69 taxmann.com 407 (Bombay), emphasize the need for a fair inquiry before making additions. The Tribunal observed procedural lapses, including failure to consider the assessee’s medical condition and reliance on assumptions. The assessee’s additional evidence, though limited, indicated potential business activity, warranting further examination.

ITAT concluded that the addition of entire bank receipts as taxable income without verification was unjustified. The Tribunal remanded the case to the AO, directing an opportunity for the assessee to furnish evidence supporting the legitimacy of transactions. The ruling underscores the importance of natural justice and due process in income tax assessments, particularly when significant amounts are involved.

This case highlights the need for both taxpayers and tax authorities to comply with procedural requirements. While taxpayers must respond to notices promptly, assessing officers are obligated to conduct thorough inquiries to avoid arbitrary taxation.

FULL TEXT OF THE ORDER OF ITAT RAIPUR

The captioned appeal filed by the assessee is directed against the order of Commissioner of Income Tax, NFAC, Delhi [in short “Ld. CIT(A)”] u/s 250 of the Income Tax Act, 1961 (in short “The Act”), for the Assessment Year 2018- 19, dated 30.09.2024, which in turn arises from the order by Assessment Unit, Income Department, u/s 147 r.w.s. 144 r.w.s. 144B of the Act, dated 17.03.2023.

2. The grounds of grounds of appeal raised by the assessee reads as under:

1. In the facts and circumstances of the case and in law, the Ld. Commissioner of Income-tax (Appeals), NFAC has erred in deciding the appeal ex-parte without providing proper opportunity and without following the principles of natural justice and against the principles of law decided in the case of Commissioner of Income-tax (Central) Nagpur Vs. Premkumar Arjundas Luthra (HUF) [2016] 69 taxmann.com 407 (Bombay).

2. In the facts and circumstances of the case and in law, initiation of re- assessment proceedings is illegal and without jurisdiction being initiated without fulfilling all the requisite conditions specified in section 147 w.s. 148, 148A, 149, 151 and 151A of the Act.

3. In the facts and circumstances of the case and in law, learned Commissioner of Income Tax (Appeals), NFAC has erred in upholding order of learned Assessing Officer making addition of Rs.87,07,200/- as unexplained money u/s.69A of the Income-tax Act, 1961 and charging the same to higher rate of tax u/s 115BBE of the Act.

4. In the facts and circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals), NFAC has erred in upholding order of Assessing Officer treating the gross receipts of Rs.3,27,46,118/- and gross machine rent of Rs.1,93,801/- as business income.

5. In the facts and circumstances of the case and in law, the Ld. Assessing Officer has erred in not allowing credit of TDS amounting to Rs.3,31,337/- which is verifiable from Form-26AS available with the department.

6. The impugned order is bad in law and on facts.

7. The appellant reserves the right to add, alter, omit all or any of the grounds of appeal with the permission of the Hon’ble appellate authority.

3. The brief facts of the case are that the assessee claims to be engaged in the business of Transportation of Construction Material, who as stated, had not filed his return for the AY 2018-19. The case of assessee was reopened based on information available with the department as under:

a) Cash withdrawals to the tune of 87,07,200/- from State Bank of India Account during the Financial Year 2017-18.

b) Cash withdrawals to the tune of 2,12,500/- from State Bank of India Account during the Financial Year 2017-18.

c) Received contract payments to the tune of 3,27,46,118/- during the financial year 2017-18.

d) Received rental income to the tune of Rs.1,93,801/- during the financial year 2017-18.

4. On the basis of aforesaid information pertaining to transaction in the Bank account of the assessee, AO observed that the aforesaid transaction remains unexplained and untaxed, accordingly, a notice u/s 148 dated 30.03.2022 was issued, and however, there was no response by the assessee. In absence of any response, despite several opportunities granted to the assessee, Ld. AO decided to complete the assessment u/s 144 of the Act, for which a show cause notice was issued on 21.02.2023, however, assessee again remain non responsive, therefore, based on material available on record, Ld. AO, concluded the assessment with the following observations:

5.4 Conclusion drawn: It is amply clear from above mentioned discussion that the assessee has failed to furnish any response in the whole assessment proceedings even after giving so many opportunities. Therefore, this office is left with no option other than to complete the assessment ex-parte, based on the materials available on record. Hence, the assessment in this case is finalized u/s 144 r.w.s. 147 r.w.s. 144B by making total addition of Rs.4,16,47,119/- to the returned income and taxed accordingly as per table of variation.

6. Final computation of Taxable Income:

5. Aggrieved with the aforesaid additions by the Ld. AO, assessee preferred an appeal before the Ld. CIT(A), however, the assessee remain non-compliant again before the First Appellate Authority also, therefore, after dealing briefly on the merits of the issue, Ld. CIT(A), affirmed the findings by Ld. AO and had confirmed the additions, the appeal of the assessee, thus, was dismissed.

6. Dissatisfied with the order of First Appellate Authority, the assessee is in appeal before us in the present case.

7. Before us, Ld. AR of the assessee have raised certain contentions qua the additions made by the Ld. AO, as per statement of facts furnished before us, the same is culled out as under:

1. During the assessment year 2018-19 i.e. financial year 2017-18. Assessee has doing transporting business. They have transporting the Sand & Mu rum to their party.

2. TDS has been deducted by the parties on bill raised to the parties for transporting of Sand & Murum.

3. In the fact and circumstance of the case and in law the Id assessing officer has earned in making addition of 87,07,200/- U/s 69A of the Income tax Act 1961 unexplained money.

4. In the fact and circumstance of the case and in-law the assessing officer has earned in making of gross contract receipts of Rs. 3,27,46,118/- and gross machine rent Rs.1,93,801/- as business income. There will be provision U/s 44AD on pre-assumptive profit to be made 6% on gross receipts.

5. In the notice period assesse has complete medical leave for bedrest so they have not respond to the notice U/s 144. Medical certificate enclosed for verification.

6. The learned officer is not Justify in not offering another opportunity to the assesse to produce return on income.

7. The learned assessing officer did not conduct any independent enquiry to the parties and make addition on the basis of assumption solely based on referred 26AS and bank statements.

8. The assesse has filed his return of income before and after these accounting period i.e. 2017-18 assessment year 2018-19.

9. Please approve condonation of delay to be file our return of income of said assessment year.

8. On being confronted about the failure of assessee before both the revenue authorities to make the necessary compliances / submissions, Ld. AR submitted that the assessee was suffering from urinary and renal ailments, due to which he could not make requisite compliances during assessment proceedings before the Ld. AO and before the Ld. CIT(A), the appeal was filed by the erstwhile counsel providing his e-mail address in Form 35 for communications, who had neither informed the assessee nor have made the necessary compliances, whereas the assessee was under Bonafide belief that all the due compliances are being taken care of by the then Ld. Counsel. Further, when the Ld. AR was confronted with the issue that if the assessee was in real business than what is the evidence to substantiate existence of such business, to which AR requested to furnish additional evidence to substantiate the business of activities of the assessee, accordingly, an application under Rule 29 of the Income Tax Appellate Tribunal Rule, 1963 is furnished before us along with affidavit singed by the assessee. The same is culled out, as under:

9. Based on aforesaid submissions, it was the prayer by Ld. AR that the assessee was in actual business during the year under consideration, to substantiate such contentions Ld. AR took us to the Balance sheet and P & L A/c of the assessee, showing sale of 5,05,80,978/- including GST Sale and VAT sale, however, on being queried about the GST / VAT registration and returns under such statutes filed by the assessee, Ld. AR was unable to substantiate with any documentary evidence, but tried to satisfy the query by submitting a copy of e-registration certificate issued by office of the Engineer-in- Chief, Public Works Department (PWD), CG, dated 16.09.2020 (printed on 17.09.2020), which in fact is a document came into existence after 31.03.2018 i.e., after the end of relevant FY 2017-18, thus, was not of any help for the assessee in the present case. It is further submitted that the receipts in Form 26AS are further supporting the aforesaid claim. It was the submission, therefore, that the addition of entire receipt in Bank account and addition on account of withdrawal during the relevant year cannot be subjected to tax in its entirety, only for the reason that, assessee could not substantiate such facts before the revenue authorities on account of sufficient cause beyond the control of the assessee, therefore, the assessee may be granted with another opportunity to substantiate by restoring the matter back to the file of Ld. AO.

10. Per contra, CIT-DR vehemently supported the orders of Ld. AO and Ld. CIT (A).

11. We have considered the rival submissions, perused the material available on Under the admitted facts of the present case, it is beyond doubt that the assessee herein is a persistent non-compliant before both the revenue authorities, also the reasons assigned for non-compliance does not inspire any confidence to accept the contentions of the assessee. However, there were certain entries in the Form 26AS of the assessee, which is available on record with the Ld. AO, from where it is apparent that the assessee had received income in the form of contractual receipts from several parties namely (i) M S Khurana Engineering Ltd, (ii) UMSL Ltd., (iii) G.K.C. Project Ltd. And (iv) DEE VEE Projects, aggregating to approx. Rs.5.66 Crore and TDS has been deducted u/s 194C of the Act. Approximately identical value of turnover is shown by the assessee in its P & L A/c, which is observed to be unaudited and unsigned, showing sale under GST/VAT for which no documentary evidence could have been furnished before us, such uncorroborated facts raises serious doubts about the veracity of the facts and figures reflecting in the copy of accounts furnished before us, which is a subject matter of verification by the Ld. AO.

12. Though, the contention to operating actual business transactions by the assessee, cannot be ruled out at threshold, but the same is the matter of in- depth examination. Further, the fact about contractual receipts and TDS along with name of the parties are a fact borne from the record which was readily available before the AO, however, the Ld. AO had all the authority to initiate an enquiry from the concerned parties from whom the assessee had received such contractual receipts so as to reach at a logical conclusion, particularly in a case, wherein the assessee was not responsive. Under such circumstances, without making necessary inquiries, putting the entire amount of Bank deposits under the tax net on the basis of presumption to treat the same as taxable income of the assessee found to be excessive. Such exercise could have been done either by the Ld. CIT(A), may be by himself or by directing the Ld. AO, however, the First Appellate Authority, who has the powers coterminous with that of the Ld. AO, had not think it fit to exercise the same. On perusal of the additional evidence furnished before us like copy of Form 26AS, copy of bank account with State Bank of India, Axis Bank and certain other documentary evidence including Balance Sheet and Proft & Loss A/c for the relevant period to substantiate that the assessee was carrying on real business activities of transportation, it can be inferred that the assessee was engaged in such activities. However, since such additional evidence (having certain uncorroborated facts as discussed hereinabove) are not furnished by the assessee before the revenue authorities, though there was no sufficient cause for which the assessee was unable to substantiate his non-compliance, still the addition of entire receipt without causing any enquiry from any of the parties from whom the assessee had received such sums in his bank accounts, cannot be considered to be justified or reasonable, therefore, in the interest of justice, we find it appropriate to restore the matter back to the file of the Ld. AO for verification of the additional evidence furnished before us and to make an assessment denovo, in the present case.

13. Needless to say, reasonable opportunity of being heard and liberty to furnish necessary submissions along with corroborative evidence to substantiate the contentions shall be granted to the assessee in the set aside assessment proceedings.

14. Resultantly, the appeal of the assessee in ITA No. 503/RPR/2024, stands partly allowed, in terms of our aforesaid observations.

Order pronounced in the open court on 10/01/2025.