ITAT Bangalore Remands Demonetization Period Cash Deposit Case

Chandrappa Nalina Vs ITO (ITAT Bangalore)

In the case of Chandrappa Nalina vs. ITO, the primary issue revolves around cash deposits made during the demonetization period, totaling Rs. 19,24,000, which were treated as unexplained investments by the tax authorities. Here’s a breakdown of the key points discussed in the order of ITAT Bangalore:

1. Assessee’s Background: Chandrappa Nalina operates a proprietorship business under the name M/s Harshitha Enterprises, dealing in the purchase and sale of biscuits and confectioneries.
2. Assessment Proceedings: The assessment order was passed on 26/09/2018, and the assessee filed the income tax return on 25/09/2019, which was subsequent to the notice issued under section 142(1) of the Income Tax Act, 1961. During the assessment, the Assessing Officer (AO) observed cash deposits made on different dates during the demonetization period, treating them as unexplained investments.
3. AO’s Action: The AO, noting the lack of explanation from the assessee regarding the cash deposits, treated the entire amount of Rs. 19,24,000 as unexplained investment under section 69A of the Act and taxed it under section 115BBE. The assessment was completed under section 144 of the Act.
4. Appeal Before CIT(A): The assessee appealed against the AO’s order to the Commissioner of Income Tax (Appeals) [CIT(A)]. However, during the appellate proceedings, the assessee failed to respond to several notices issued by the CIT(A). Ultimately, the CIT(A) dismissed the appeal based on the available materials.
5. Appeal Before ITAT: Aggrieved by the CIT(A)’s decision, the assessee filed an appeal before the Income Tax Appellate Tribunal (ITAT), Bangalore.
6. Contentions Before ITAT: The assessee’s representative argued before the ITAT that the cash deposits were from legitimate sales made during the demonetization period. They emphasized that the return of income was filed on 25/09/2019, and the AO overlooked this fact while passing the assessment order. Additionally, the turnover as per VAT return was provided as Rs. 1,88,15,594, indicating substantial business activity.
7. Department’s Response: The Department, represented by the ld. DR, supported the decisions of the lower authorities, stating that the AO’s actions were justified and that the CIT(A) had provided ample opportunities for the assessee to present their case.
8. ITAT’s Decision: After considering the arguments from both sides, the ITAT noted that the AO had not treated the entire cash deposits as unexplained money but only those made on specific dates during the demonetization period. Considering the business activities of the assessee and the VAT turnover, the ITAT decided to remit the issue back to the AO for fresh consideration. The AO was directed to examine the matter in accordance with the instructions issued by the CBDT and provide a reasonable opportunity for the assessee to present their case.
9. Outcome: The ITAT partially allowed the appeal for statistical purposes, indicating that the issue was sent back to the AO for reconsideration.

In conclusion, the ITAT’s decision reflects a fair and procedural approach to the assessment of the unexplained cash deposits, ensuring that the assessee has the opportunity to substantiate their claims and present relevant documents before the tax authorities.