Demonetisation Cash Deposit Addition Sent Back due to Natural Justice Violation

Lokesh Mittal Vs ITO (ITAT Delhi)

The Income Tax Appellate Tribunal (ITAT), Delhi considered an appeal against the order dated 10.12.2025 passed by the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre under Section 250 of the Income Tax Act, 1961. The CIT(A)/NFAC had partly confirmed additions made by the Assessing Officer under Section 69A of the Act.

The case arose from information gathered during online verification under Operation Clean Money. It was found that the assessee had deposited cash amounting to Rs. 12,44,000 in a Central Bank of India account during the demonetisation period between 10.11.2016 and 05.12.2016. The Income Tax Department also noticed that while the assessee had filed income tax returns for assessment years 2016-17, 2018-19, and 2019-20, no return had been filed for assessment year 2017-18, which was relevant to the demonetisation period.

The Department issued notices under Sections 142(1) and 131 on several dates through the ITBA portal and speed post. According to the assessment order, there was either no compliance or notices remained unserved. A final show cause notice was also issued, but no response was received. Consequently, the Assessing Officer passed an ex parte assessment order under Section 144(1)(b), making an addition of Rs. 85,54,979 under Section 69A and initiating penalty proceedings under Sections 271AAC and 271F.

The assessee challenged the assessment before the CIT(A), but the appeal was also decided ex parte on the ground that the assessee failed to respond to hearing notices issued on multiple occasions. The CIT(A) partly confirmed the assessment and sustained an addition of Rs. 8,16,880 relating to business income under Section 44AD and interest on capital in a partnership firm.

Before the Tribunal, the Departmental Representative supported the order of the CIT(A), arguing that substantial relief had already been granted and that the assessee repeatedly failed to appear despite notices. No one appeared on behalf of the assessee during the hearing before the Tribunal.

The Tribunal examined the record and observed that both the assessment order and the appellate order had been passed ex parte. Referring to Section 250(2)(a) of the Income Tax Act, the Tribunal held that the right of hearing before the appellate authority is a mandatory statutory requirement and part of the principles of natural justice. The Tribunal noted that while notices had been issued by the CIT(A), the impugned order did not mention whether those notices were actually served upon the assessee. Similarly, during assessment proceedings, some notices sent through speed post had remained unserved, and no proof of service was placed on record.

The Tribunal concluded that effective opportunity of hearing had not been granted to the assessee and that the ex parte assessment and appellate orders resulted in miscarriage of justice regarding the addition sustained by the CIT(A). Accordingly, the Tribunal set aside the impugned order to the limited extent of the sustained addition of Rs. 8,16,880 and remitted the matter back to the Assessing Officer for fresh hearing on that issue. The assessee was directed to present the case before the Assessing Officer within 60 days. The appeal was allowed for statistical purposes.

FULL TEXT OF THE ORDER OF ITAT DELHI

The appeal is directed against the order dated 10.12.2025 of Ld. Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre, Delhi (hereinafter referred to as the “CIT(A)/NFAC”) passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) wherein the appeal of the assessee was partly confirmed and addition made by the AO vide Assessment Order dated 30.12.2019 u/s 69A of the Act were confirmed.

2. Facts in brief as culled out from the order of authorities below shows that as per information gathered during online verification under Operation Clean Money, it was revealed that assessee deposited cash amounting to Rs.12,44,000/- in his bank account during demonetization period from 9^th December 2016 to 30^th December 2016, but has not filed the ITR for A.Y. 2017-18 within the time prescribed u/s 139(1) of the Act. The detail of the amount deposited is as under:

3. It was further noticed by the Income Tax Department system that assessee has filed ITR for A.Y. 2016-17 as well as for ITR 2018-19 and 2019-20, but has not filed his ITR for AY 2017-18, which was relevant to the financial year when the alleged amount was deposited during demonetization. Notice u/s 142(1) was issued on 13.03.2018, calling to file a true and correct return of income for A.Y. 2017-18. Subsequent further notices u/s 142(1) issued on various dates as detailed in para 3.3, extracted below as under:

4. Since assessee did not file any response accordingly the order u/s 144(1)(b) of the act was passed making an addition of Rs. 85,54,979/- u/s 69A of the Act. Penalty Proceedings u/s 271AAC and 271F were also initiated separately.

5. Aggrieved by the assessment order, assessee filed appeal before the ld. CIT(A) which was decided ex-pate as assessee has allegedly failed to respond to the notice of hearing on four dates as detained in paragraph 1 of the impugned order.

6. Aggrieved by the impugned appellate ex-parte order, the assesse is in appeal before us and has raised the following grounds of appeal:

“On the facts and in the circumstances of the case and in law the ld. NFAC/CIT(A) erred in sustaining an addition of Rs.8,16,680/- on account of business income u/s 44AD and interest on capital in partnership firm against income determined by the Assessing Officer invoking section 69A of the Act in a sum of Rs.85,54,979/-.”

7. We have heard the ld. DR who has supported the judgment of CIT(A) stating that the ld. CIT(A) has already given the substantial relief to the assessee and the addition confirmed has been lawfully done on the basis of meticulous examination of the material and further the assessee has failed to make any submissions despite service of notice on various date by the ld. CIT(A) and therefore prayed for dismissal of the appeal. No one argued on behalf of the assessee as no one appeared during the hearing.

8. We have considered the submissions of the ld. DR and examined the record. It is an admitted fact that the assessee could not participate in the proceeding before the ld. CIT(A) which is evident from para No. 1 where detail of notice issued and non-compliance made by the assessee is mentioned. We have noticed that further notices were issued from 21.03.2023 to 18.10.2024 but assessee has not filed any response. Accordingly, the ld. CIT(A) decided the appeal ex-parte and partly confirmed the ex-parte assessment order u/s 144 of the Act. Section 250(2)(a) provides as under:

“250(2) The following shall have the right to be heard at the hearing of the appeal- (a) the appellant, either in person or by an authorized representative;”

9. Thus, the hearing mandated by Section 250(2)(a) of the Act is not a mere formality but a mandatory statutory requirement for following the principle of natural justice by the quasi-judicial authority. From the perusal of the impugned order, we have noticed that only notices has been issued but nothing is mentioned if the said notices were ever served upon the assessee or were received by the assessee.

10. In these circumstances, we are satisfied that the effective opportunity of hearing as contemplated by section 250(2)(a) has not been granted by the ld. CIT(A). Further, we have noticed that the assessment order wherein the alleged addition sustained by the ld. CIT(A) was also ex parte as assessee could not join the proceedings because as observed in paragraph number 3.3 of the assessment order, the notices were sent on 5 dates but there was non-compliance as on some dates the notice was un-served when sent by speed post. No proof has been filed that the notice sent through speed post during the assessment proceeding was ever served upon the assessee. In these circumstances, because of ex-parte assessment order which was partly confirmed by the ld. CIT(A) and also the ld. CIT(A) order is ex-parte, the same has resulted into miscarriage of justice in respect of addition sustained during the first appellate authority proceedings. The assessee need to be given a fair opportunity with regard to the said addition made in the assessment order and sustained in the first appellate authority’s order. The ends of justice shall be met in case the ground raised in the appeal is allowed qua addition of Rs.8,16,880/- confirmed in the impugned order and the appeal is allowed and matter is remitted back to the AO for limited purpose of hearing the assessee with regard to the addition of Rs. 8,16,880/- sustained in the impugned order passed by the ld. CIT(A). The impugned order is accordingly set aside to that extent only wherein addition of Rs. 8,16,880/- has been sustained. The assessee shall present its case in that regard before the ld. AO within a period of 60 days.

11. In the result, the appeal of the assessee is allowed in above terms for statistical purposes.

Order Pronounced in the Open Court on 30/04/2026.