CIT (A) and AO Fails to consider CBDT Guidelines on Cash Deposits during Demonetization Period: ITAT remands Case to AO for Fresh Consideration [Read Order]

The two-member bench of the Income Tax Appellate Tribunal (ITAT) in Bangalore remanded the case to the Assessing Officer (AO) for fresh consideration, highlighting that both the AO and the Commissioner of Income Tax (Appeals) [CIT (A)] had failed to consider Central Board of Direct Taxes (CBDT) guidelines on cash deposits during the demonetization period, and noting that the issue had not been thoroughly examined in accordance with the CBDT's instructions for investigating such deposits.

The assessee, Kempapura Srinivasareddy Uday, an individual deriving income from other sources, did not file a return of income under Sections 139(1) or 139(4) of the Income Tax Act for the Assessment Year (AY) 2017-18. A search was conducted on February 5, 2020, at the assessee's premises located at No. 328, B Block, ACES Layout, Bengaluru, in connection with search proceedings related to M/s. Ecstasy Projects Pvt. Ltd. and the NBR Group.

Subsequently, a notice under Section 153A was issued on November 18, 2020. In response, the assessee filed a return of income on December 18, 2020, admitting an income of Rs. 70. Following this, a notice under Section 143(2) was issued, and the assessee's representative submitted the required documents. It was observed that the assessee had deposited Rs. 11, 41,500 in his Savings Bank Account No. 14721000012070 without providing any explanation for the source of this deposit. As a result, a show cause notice was issued, but the assessee failed to provide a satisfactory explanation. Consequently, the amount was treated as income under Section 69A, and tax was calculated as per Section 115BBE of the Income Tax Act.. Aggrieved by this order, the assessee filed an appeal before the First Appellate Authority (FAA).

Get a Copy of Income Tax Refunds (Law & Procedure), Click here

During the appellate proceedings, the assessee submitted additional evidence, which was remanded to the Assessing Officer (AO) for a remand report. The report was shared with the assessee, who then provided a rejoinder. The FAA noted that the assessee had submitted a one-page bank account statement but failed to establish a connection between cash withdrawals from two other accounts and the deposits made into his account. Consequently, the FAA upheld the AO's order, leading the assessee to appeal to the Income Tax Appellate Tribunal (ITAT).

Mr. Siddesh N. Gaddi, representing the assessee, reiterated the submissions made before the lower authorities. He argued that the assessment year in question was an unabated one, with no pending cases on the date of the search. He further contended that the AO did not refer to any incriminating material in the assessment order, implying that no additions could be made under Section 153A of the Income Tax Act, without such material. He relied on the judgment in the case of PCIT v. Abhisar Builders P. Ltd. to support his argument. Additionally, he pointed out that a statement detailing cash withdrawals and deposits had been submitted during the appellate proceedings, but the FAA dismissed the appeal without properly considering this evidence.

Mr. Satish M, representing the revenue, defended the order of the lower authorities. He emphasized that the assessee had not filed a return under Sections 139(1) or 139(4) of the Income Tax Act and only did so after receiving a notice under Section 153A following the search. He argued that since no assessment or reassessment had been concluded before the search, the case did not fall under the category of unabated assessments, and the judgment cited by the assessee was not applicable. Furthermore, he contended that the assessee could not substantiate the linkage between cash withdrawals and deposits, and it was implausible that the assessee would retain large cash withdrawals as cash-in-hand.

Get a Copy of Income Tax Refunds (Law & Procedure), Click here

The bench, comprising Judicial Member Keshav Dubey and Accountant Member Laxmi Prasad Sahu, observed that the assessee filed a return for the first time for the impugned assessment year after receiving a notice under Section 153A. It was noted that the legal issue raised by the assessee, regarding the case being covered under unabated assessment, as held in the Abhisar Builders P. Ltd. case, was not applicable to the current case. The assessee failed to explain the source of cash deposits in his bank accounts, as determined by the lower authorities during the demonetization period.

The tribunal also noted that the issue had not been examined in light of the Central Board of Direct Taxes (CBDT) instructions regarding the investigation of cash deposits during the demonetization period. The ITAT referenced a similar case, Bhoopalam Marketing Services P. Ltd. vs. ACIT, where the Tribunal directed the AO to examine cash deposits during the demonetization period as per CBDT instructions.

Get a Copy of Income Tax Refunds (Law & Procedure), Click here

The ITAT remitted the issue back to the AO for a fresh examination of the cash deposits during the demonetization period, in accordance with CBDT instructions. The assessee was directed to submit the necessary documents to substantiate his case, and the revenue authorities were instructed to ensure a fair hearing. The assessee was also urged to cooperate with the proceedings for the early disposal of the case. Consequently, the appeal by the assessee was allowed for statistical purposes.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates