ITAT Orders Re-Assessment of Demonetisation Period Additions

Tosifbhai Tajdin Halani (Individual) Vs DCIT (ITAT Ahmedabad)

Income Tax Appellate Tribunal (ITAT), Ahmedabad bench, has set aside an order passed by the Commissioner of Income Tax (Appeals) [CIT(A)], National Faceless Appeal Centre (NFAC), and directed a fresh assessment in the case of an individual taxpayer concerning significant additions made during the assessment year 2017-18. The tribunal’s decision was based on the principle of allowing the assessee a further opportunity to submit necessary evidence to substantiate their claims against the additions.

The case involves Tosifbhai Tajdin Halani, an individual, whose income tax return for the assessment year 2017-18, filed on March 31, 2018, declared a total income of Rs. 39,00,700. The return was selected for scrutiny assessment by the Deputy Commissioner of Income Tax (DCIT).

Following a detailed examination, the Assessing Officer (AO) made several substantial additions to the declared income, significantly increasing the total assessed income. The additions primarily related to funds and expenditures considered unexplained by the tax authorities. The major additions made by the AO were:

• Unexplained advances received in cash, added under Section 69A of the Income Tax Act, amounting to Rs. 57,55,000.
• Unexplained gift received from father-in-law, also added under Section 69A, amounting to Rs. 9,00,000.
• Unexplained opening cash balance, added under Section 69A, amounting to Rs. 10,45,585.
• Short Term Capital Gain, added at Rs. 7,79,375.
• Unexplained household expenditure, added under Section 69C of the Act, estimated at Rs. 12,00,000.

These additions resulted in the total income being determined by the AO at a significantly higher figure of Rs. 1,35,80,660.

Aggrieved by the assessment order and the substantial additions, Mr. Halani filed an appeal before the CIT(A). The assessee submitted written arguments before the CIT(A), challenging the additions made by the AO. However, the CIT(A), in the appellate order dated April 8, 2024, held that the assessee had not furnished the necessary evidence to support the claims made against the disallowances and additions. Consequently, the CIT(A) confirmed the additions made by the Assessing Officer. The CIT(A)’s order is noted to have “partly allowed” the assessee’s appeal, although the specific details of the relief granted, if any, are not detailed in the provided ITAT order text.

Dissatisfied with the CIT(A)’s decision, the assessee filed an appeal before the ITAT Ahmedabad. In the grounds of appeal before the tribunal, the assessee contended that the orders of the lower authorities were bad in law. The assessee specifically argued that the NFAC (CIT(A)) erred in dismissing the appeal despite submissions, and that the matter should have been referred back to the AO because the AO failed to consider documents submitted during the assessment proceedings. The assessee invoked Rule 46A(d) of the Income Tax Rules, 1962, suggesting that the CIT(A) should have allowed the submission of additional evidence or directed the AO to consider previously submitted evidence.

The grounds of appeal also specifically challenged the confirmation of each major addition: the Rs. 57,55,000 cash receipt on cancellation of ‘banakhat’ (an agreement to sell), arguing it was substantiated with documentary evidence; the Rs. 9,00,000 cash receipt from the father-in-law, claiming it was an exempt gift between relatives under Section 56; the Rs. 10,45,585 opening cash balance, asserting it was withdrawn from the bank as evidenced by bank statements; and the estimated Rs. 12,00,000 household expenses, disputing it as a pure guesswork addition made under Section 69C without ignoring submissions. The assessee also raised grounds against the application of the special tax rate under Section 115BBE on the additions and the initiation of penalty proceedings under Sections 270A and 271AAC, along with the charging of interest under Sections 234A, 234B, and 234C.

During the hearing before the ITAT, the learned counsel representing the assessee made a submission requesting that one more opportunity be granted to the assessee to file the necessary details and evidence before the concerned authorities.

Responding to this request, the learned Senior Departmental Representative (DR) appearing for the Revenue concurred with the assessee’s plea for a fresh opportunity. However, the DR submitted that this should be considered the final opportunity for the assessee to produce the required details. The DR also agreed that the matter could be set aside and sent back to the file of the Jurisdictional Assessing Officer for passing a fresh order on the merits of the case after considering the additional evidence.

Recording the submissions and the agreement between both parties, the ITAT decided to set aside the appellate order passed by the CIT(A). The tribunal directed the Jurisdictional Assessing Officer to conduct a fresh assessment. The ITAT explicitly instructed the AO to provide one more opportunity of hearing to the assessee and to pass the fresh assessment order on merits after considering the details and evidence that the assessee would submit.

The ITAT’s decision to remand the case effectively gives the taxpayer a chance to present their documentation and explanations regarding the source of cash receipts, the nature of the gift, the opening cash balance, and details relevant to the household expenditure estimation. This aligns with the principle that taxpayers should be given a fair opportunity to substantiate their claims and rebut additions during the assessment process.

While the ITAT order does not explicitly cite any specific judicial precedents, the decision to grant a fresh opportunity and remand the case is consistent with the broader principles of natural justice and fair play in tax administration that have been upheld by various courts and tribunals. These principles emphasize that taxpayers should not be subjected to additions without being given an adequate chance to explain their position and provide supporting evidence. The assessee’s reference to Rule 46A(d) in the grounds of appeal implicitly points to the legal framework surrounding the submission of additional evidence during appellate proceedings, which was a point of contention regarding the CIT(A)’s handling of the case.

In the result, the appeal filed by the assessee was allowed by the ITAT, but for “statistical purpose.” This legal term is used when an appellate authority does not decide the substantive issues on their own but sends the case back to a lower authority for re-adjudication. The final outcome of the tax liability will depend on the fresh assessment to be conducted by the AO.

FULL TEXT OF THE ORDER OF ITAT AHMEDABAD

This appeal is filed by the Assessee as against the appellate order dated 08.04.2024 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, (in short referred to as “CIT(A)”), arising out of the assessment order passed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year 2017-18.

2. Brief facts of the case is that the assessee is an individual, filed its Return of Income on 31-03-2018 for the Asst. Year 2017-18 declaring total income of Rs.39,00,700/-. The return was taken up for scrutiny assessment and after elaborate discussions, the Assessing Officer made the following additions:

2.1. Thus the Assessing Officer determined the total income as Rs.1,35,80,660/-.

3. Aggrieved against the assessment order, assessee filed an appeal before Ld. CIT(A). Though the assessee filed written submission however the Ld. CIT(A) held that the assessee has not made necessary evidence in claim of the disallowances/additions made, thereby confirmed the addition made by the Assessing Officer and partly allowed the assessee appeal.

4. Aggrieved against the same, assessee is in appeal before us raising the following Grounds of Appeal:

1. The order passed by lower authorities is bad in law and required to be quashed.

2. NFAC erred in law and on facts in dismissing appeal ignoring submission of the appellant.

3. NFAC ought to have refer the matter to AO for reverification as AO failed to consider documents and case of appellant is covered by rule 46A(d) of the Income 1962. Tax Rules,

4. Appellant prays that matter may be set aside to AO as he failed to consider evidences various submitted during assessment proceedings.

5. NFAC erred in law and on facts in confirming addition of Rs. 57,55,000/- u/s 69A of cash receipt on cancellation of banakhat which was substantiated with documentary evidence.

6. NFAC erred in law and on facts in confirming addition of Rs. 9,00,000/- u/s 69A of cash receipt from father in law which is tax exempt as covered by definition of relative u/s 56 of the Income Tax Act.

7. NFAC erred in law and on facts in confirming addition of Rs. 10,45,585/- u/s 69A ignoring fact that same was withdrawn from bank which is evidence from the bank statement submitted during the assessment proceedings.

8. NFAC erred in law and on facts in not allowing Rs. 5,70,000/- paid to revenue authorities which are incidental to transfer of assets and allowable.

9. NFAC erred in law and on facts in estimating house hold expenses of Rs. 12,00,000/-u/s 69C purely on guess work ignoring submission made by appellant.

10. NFAC erred in law and on facts in taxing addition made by invoking special rate as per section 115BBE of the Act.

11. Initiation of penalty proceedings u/s 270A is unjustified.

12. Initiation of penalty proceedings u/s 271AAC is unjustified.

13. Charging of Interest u/s 234A, 234B, 234C are unjustified.

5. Ld. Counsel for the assessee submitted that one more opportunity be given to the assessee, so as to file necessary details before the authorities concerned. Per contra, Ld. Sr. D.R. appearing for the Revenue submitted that it should be the last opportunity to produce the necessary details. Hence the matter be set aside back to the file of Jurisdictional Assessing Officer for passing fresh order on merits.

6. Recording the same, the appellate order passed by Ld. CIT(A) is hereby set aside with a direction to the Jurisdictional Assessing Officer to pass order on merits by giving one more opportunity of hearing to the assessee.

7. In the result, the appeal filed by the Assessee is allowed for statistical purpose.

Order pronounced in the open court on 23 -01-2025