Failure to Serve Notices at Correct Address: ITAT orders Reassessment of Unexplained Deposits and Income [Read Order]

The Ahmedabad Bench of the Income Tax Appellate Tribunal ( ITAT ) recently set aside the assessment order against the assessee, citing violations of natural justice and failure to consider additional evidence.

The assessee, Badrinath Shreenivas, a resident of Bangalore, had not filed his Income Tax Return in the Assessment Year ( AY ) 2011-12. The Income Tax Department, based on information regarding bank deposits, initiated reassessment proceedings under Section 147 of the Income Tax Act, 1961. The Assessing Officer ( AO ), upon obtaining approval, issued a notice under Section 148, alleging that the assessee made time deposits amounting to ₹ 9 lakhs with Indian Bank and received total credits of ₹15 Lakhs as reflected in Form 26AS.

Know Practical Aspects of Tax Planning, Click Here

Despite multiple notices under Section 142(1), the assessee failed to respond, which made the AO to conduct a best judgment assessment under Section 144. The final assessment order determined unexplained investments under Section 69, leading to an assessed income of ₹24,30,980.

Following a rectification application under Section 154, the assessed income was revised to ₹20,70,980, allowing a 30% standard deduction on rental income and TDS credit amounting to ₹1 lakh.

Aggrieved with the AO’s assessment, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)], arguing that the notices were sent to an outdated address in Vadodara, when the assessee resided in Bangalore. The assessee also claimed no legal notice was served to him, preventing him from responding or defending his case. The assessee also provided evidences of the deposits and income in his account

However, CIT(A) upheld the assessment of the AO, stating that the notices were sent to the PAN address on record, and it was the appellant’s responsibility to update it.the CIT(A) held that the rectification application under Section 154 implied that the assessee was aware of the assessment proceedings. The additional evidence, including bank statements and rental agreements, was not admitted by the CIT(A) under Rule 46A of the Income Tax Rules, 1962.

GST Compliance Calender from 1-03-2025 to 31-03-2026

Upon appeal to the ITAT, the Tribunal took a firm stand on natural justice and procedural fairness. ITAT noted that notices were sent to an outdated address without proof of proper service, violating fundamental principles of natural justice. ITAT found merit in the assessee’s claim that the deposits originated from the maturity of an FD and a security deposit. The tribunal held that Rule 46A should not be used to block relevant evidence, mainly when such evidence could relieve the assessee.

The tribunal bench, consisting of Suchitra Kamble ( Judicial Member ) and Makarand V. Mahadeokar ( Accountant Member ), set aside the CIT(A) order and remanded the case for fresh adjudication, directing that additional evidence, including bank statements and rental agreements are to be admitted. The ITAT asserted that the Assessing Officer be allowed to verify the documents and submit a remand report. A fresh decision is to be made only after providing the assessee a full and fair opportunity to present his case.

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