The Chennai bench of the Income Tax Appellate Tribunal (ITAT) held that no fault could be found in the observation that the assessment was framed without making due enquiries. In such a case, revision would be justified in terms of the decision of Supreme Court.
The assessee’s case was selected for complete scrutiny under CASS since there was abnormal increase in cash deposits during demonetization period as compared to average rate of cash deposit during predemonetization period. In response to various notices issued by the AO, the assessee filed financial statements, bank statement of ICICI and United Bank of India, Profit & Loss account, Balance Sheet, statement of total income and cash book etc. The assessee further clarified with evidence that as on 8th November, 2016, the assessee had cash balance of Rs. 95.06 Lacs.
During demonetization, the assessee deposited Rs.93 Lacs in denominations of Rs.500/- and Rs.1000/- and he did not collect any SBN currency post demonetization. The cash was stated to be sourced out of earlier cash withdrawals and the amounts introduced by the partners of the assessee firm. Having satisfied with the assessee’s reply, AO accepted the returned income filed by the assessee.
Subsequently, upon perusal of case records, Pr. CIT sought revision of the order and alleged that submissions of the assessee were accepted without any verification and without calling for any further details. The AO did not call for any further details in order to verify additional capital claimed to have been introduced by the partners of the assessee firm which is stated to be cash withdrawal from banks during the period of 15 to 30 days prior from introduction of capital in firm. This issue was not properly examined by AO. The AO ought to have examined whether cash withdrawal cou have been utilized by the partners for any event such as marriage, foreign trip, house construction, purchase of property etc. where this cash could have been utilized.
After hearing both the parties, the tribunal noted that the bank statements of the partners were not examined and no confirmation was placed on record. Pertinently, the amount so received has subsequently been repaid to the partners within short interval.
Another observation in the impugned order is that the assessee could not explain as to why large cash was kept in hand despite having bank account particularly in the light of nature of business being carried on by the assessee. No findings have been rendered as to whether the balance reflected in the cash book as on 08-11-2016 was correct or not. Lastly, the assessee reflected lower net profit rate but it failed to fulfill the obligations casted under Section 44AB of the Income Tax Act.
The two member bench consisting of Manomohan Das (Judicial member) and Manoj Kumar Aggarwal (Accountant member) he that no fault could be found in the observation that the assessment was framed without making due enquiries. In such a case, revision wou be justified in terms of the decision of Supreme Court in the case of Malabar Industrial Company Ltd. The case law of Denial Merchants P. Ltd. vs. ITO, as referred to by CIT-DR, also supports the revision of the order. Thus the appeal was allowed.
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