Non-Filer Gets a Second Chance as ITAT Sets Aside Tax Demand, Asks AO to Reconsider Unexplained Cash Deposits [Read Order]
A notice under section 148 was issued but went unanswered. Subsequent statutory notices also drew no response. Consequently, the Assessing Officer completed the assessment under section 147 read with section 144 and 144B, treating the entire deposits as unexplained money under section 69A and taxing it under section 115BBE.
The Agra Bench of the Income Tax Appellate Tribunal (ITAT) set aside an ex parte assessment order and directed the Assessing Officer to reconsider unexplained cash deposits after giving the assessee a proper opportunity of hearing. The Tribunal was hearing the appeal of Mahesh Kumar Sharma against the order of the Commissioner of Income Tax (Appeals), NFAC, Delhi, which had earlier dismissed his first appeal without representation.
Mahesh Kumar Sharma, a resident of Bhind, Madhya Pradesh, was treated as a non-filer by the department. Based on information that he had deposited cash, including bearer’s cheques, amounting to Rs. 1.19 crore in his current account with Central Bank of India, the Assessing Officer initiated reassessment proceedings under section 147 of the Income Tax Act. A notice under section 148 was issued but went unanswered. Subsequent statutory notices also drew no response. Consequently, the Assessing Officer completed the assessment under section 147 read with section 144 and 144B, treating the entire deposits as unexplained money under section 69A and taxing it under section 115BBE.
Aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals). However, the appellate authority also proceeded ex parte and dismissed the appeal on 26 February 2025 after repeated notices failed to secure compliance from the assessee. The assessee then approached the Tribunal, challenging both the assessment order and the appellate order on the ground that no effective opportunity of hearing had been provided.
During the hearing before the Tribunal, the assessee’s counsel initially sought remand of the matter to the Commissioner of Income Tax (Appeals). However, he later submitted that since the assessment itself was framed under section 144 without considering any explanation, the matter should be sent back to the Assessing Officer so that the assessee could present evidence regarding the source of deposits. The Departmental Representative supported the orders of the lower authorities and opposed the plea.
The Tribunal observed that the assessee’s conduct had been non-cooperative, which compelled both the Assessing Officer and the Commissioner of Income Tax (Appeals) to proceed ex parte. At the same time, the Bench noted that in the interest of justice, one more opportunity should be given to the assessee to explain the deposits. The matter was therefore remitted to the Assessing Officer to pass a fresh order after considering the submissions of the assessee. The Tribunal also directed the assessee to remain diligent and cooperative in the proceedings and instructed the Assessing Officer to ensure observance of the principles of natural justice. The bench, comprising Sunil Kumar Singh (Judicial Member) and S. Rifaur Rahman (Accountant Member), allowed the appeal for statistical purposes. They set aside the orders of both the lower authorities and remanded the matter back to the file of the Assessing Officer. The ITAT directed the Assessing Officer to pass a fresh order after considering the submissions and explanations that Sharma will now provide regarding the cash deposits. The tribunal also explicitly directed Sharma to be diligent and cooperative in the fresh proceedings to ensure an expeditious disposal of the case.
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