ITAT Chennai Directs Fresh Assessment in Demonetization Cash Deposit Case

Ramesh Sreenivasalu Vs DCIT (ITAT Chennai)

The Income Tax Appellate Tribunal (ITAT) Chennai has remanded the case of Ramesh Sreenivasalu for fresh assessment, allowing him another opportunity to present evidence regarding cash deposits made during the demonetization period. The case, pertaining to the assessment year 2017-18, involved an addition of ₹22,94,500 under Section 69 of the Income Tax Act, 1961, as unexplained income. Additionally, an estimated income of 8% was applied to other cash deposits made outside the demonetization period, leading to a further addition of ₹3,54,217. The assessee, engaged in the business of supplying Pepsi products and homemade snacks, had failed to submit sufficient documentation to justify the source of the deposits before the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)].

During the appeal proceedings, the assessee presented an agreement with PepsiCo India Holdings Pvt. Ltd., along with profit and loss statements, to support his claim that the cash deposits originated from business sales. However, he admitted that these documents were not furnished before the lower authorities. In light of this, the ITAT decided to provide him one last opportunity to substantiate his claim. The tribunal observed that the failure to produce relevant evidence at the earlier stages had led to unnecessary judicial delays, justifying a conditional remand of the case.

The ITAT bench, after considering arguments from both the assessee’s representative and the Departmental Representative (DR), held that while justice demanded another chance for the assessee to explain the deposits, a cost should be imposed for the delay caused. Accordingly, the tribunal directed the assessee to deposit ₹20,000 with the Tamil Nadu State Legal Services Authority at the Madras High Court within one month and present the receipt to the AO. The tribunal also instructed the assessee to cooperate fully with the assessment proceedings and appear before the AO on the scheduled hearing date without fail.

This ruling underscores the importance of timely compliance in tax proceedings while balancing fairness in allowing an assessee to present a valid defense. ITAT’s decision ensures due process while holding the assessee accountable for procedural lapses. The outcome of the fresh assessment will now depend on the assessee’s ability to present conclusive proof regarding the source of the demonetization cash deposits.

FULL TEXT OF THE ORDER OF ITAT CHENNAI

Aforesaid appeal filed by the assessee for Assessment Year (AY) 2017-18 arises out of the order of Learned Commissioner of Income Tax, Appeal, National Faceless Appeal Centre (NFAC), Delhi [hereinafter “CIT(A)”] dated 11.01.2024 in the matter of assessment framed by the Assessing Officer [AO] u/s. 143(3) of the Income-tax Act,1961 (hereinafter “the Act”) on 21.12.2019.

2. The effective ground of appeal in this appeal of assessee is against the order of Ld. CIT(A) in confirming the addition of cash deposit during demonetization period of Rs. 22,94,500/- and estimating further the income @ 8% of cash deposits in rest of the period.

3. The assessee is engaged in the business of supplying of Pepsi products like soft drinks, mineral water, confectionaries, etc. and also homemade snacks items to various petty shops in and around Salem on cash basis and has filed return of income declaring total income of Rs. 10,37,550/-. The assessee during demonetization period has made a cash deposit of Rs. 22,94,500/- in his saving bank account as under:

4. The A.O held the cash deposited as unaccounted income and added u/s. 69 of the Act. The A.O has also estimated the income @8% of total cash deposit in other than demonetization period at Rs. 44,27,718/- and thus making further addition of Rs. 3,54,217/-. The Ld. CIT(A) has confirmed the addition as the assessee has not filed any documentary evidence/explanation regarding the cash deposit.

5. The Ld. Authorized Representative (A.R) of the assessee before us has submitted a copy of agreement between assessee and PepsiCo India Holdings Pvt. Ltd. and also submitted that profit and loss account and balance sheet in support of his contention that the cash deposit was out of sale made . The Ld. AR however admitted that evidences could not be produced before the lower authorities and one more opportunity be provided to prove his case , in the interest of justice.

6. The Ld. Departmental Representative (DR), on the other hand, has relied on the orders of lower authorities and argued that order of LD CIT(A) be upheld.

7. We have heard the rival submissions, and perused the materials available on record. The assessee did not provide essential documents to substantiate his claim before both the AO and the Ld CIT(A). This non compliance has resulted in unnecessary delay and inconvenience not only to the department but also in terms of judicial resources, The assessee has failed to provide a reasonable cause for such omission. Therefore in the interest of justice and to provide the assessee with one final opportunity to present his case, the matter is remanded back to the AO. The AO shall conduct a fresh assessment after allowing assessee an opportunity to submit relevant documents. However, considering the assessee’s failure to provide necessary documentation at the initial stages, we find appropriate to impose cost. Accordingly, the assessee is directed to pay the costs of Rs.20,000/-. The same shall be paid by the assessee to Tamil Nadu State Legal Services Authority at Hon’ble High Court of Madras within a period of one month from the date of receipt of this order and produce the receipt before the A.O. We also direct the assessee to appear before the A.O. on the date of hearing without fail. In view of the above, the appeal filed by the assessee is allowed for statistical purposes.

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

Order pronounced on 30^th October, 2024.