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Judgment
Per Raj Kumar Chauhan, Judicial Member:
The appeal is directed against the order dated 21.08.2025 of Ld. Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre, Delhi [hereinafter referred to as the “CIT (A)/NFAC”] passed u/s 250 of the Income Tax Act, 1961 [hereinafter referred to as “the Act”] wherein the addition made in the assessment order dated 16th Dec., 2019 were confirmed and the Assessment Order was upheld.
The brief facts as culled out from the order of the authorities below are that the assessee is engaged in proprietorship business of all kinds of fabrics in the name and style of Piyush Enterprises. During the demonetization period, assessee has deposited cash and Rs. 8,92,200/- into his current account in Axis Bank of Rs.40,94,100/- into current account in Punjab National Bank. The said amount was deposited allegedly out of sale before the demonization period and stated to be duly credited and disclosed in the books of account. During the assessment proceedings details were filed vide reply dated 18th March, 2019 mentioning of all facts but the Assessing Officer was not satisfied and accordingly made addition of Rs. 74,78,990/- u/s 69 of the Act without rejecting the books of account of the assessee. The assessment order has been passed u/s 144 of the Act because as per the assessment records, the assessee has failed to file proper replies/documents in response to the notice issued on various dates as find mentioned in para 2 of the assessment order, extracted below as under:
| Sr. No. | Notice u/s | Date of issue | Compliance date | Response |
|---|---|---|---|---|
| 1. | 143(2) | 23.08.2018 | 05.09.2018 | No |
| 2. | 143(2) | 18.09.2018 | 05.09.2018 | No |
| 3. | 142(1) | 15.01.2019 | 23.01.2019 | No |
| 4. | 142(1) | 31.01.2019 | 07.02.2019 | No |
| 5. | 142(1) | 14.03.2019 | 18.03.2019 | No |
| 6. | 142(1) | 26.04.2019 | 29.04.2019 | No |
| 7. | 142(1) | 24.06.2019 | 01.07.2019 | No |
| 8. | 142(1) | 18.10.2019 | 25.10.2019 | No |
Aggrieved by the assessment order, the assessee filed an appeal before the Id. CIT(A) who has dismissed the same observing that the assessee has failed to submit necessary details in response to the notice issued by the AO as he merely furnished the balance sheet and P & L Account but no explanation and necessary evidence was provided with respect to the source of the amount of cash deposited. It was further observed that the assessment order was passed ex-parte u/s 144 of the Act. Hence, the Id. CIT(A) dismissed the appeal on the ground that there was no satisfactory explanation given to the Assessing Officer who was justified in invoking section 69A because mere existence of an audited account does not by itself prove the genuineness of the transactions recorded therein unless the same are supported by the verifiable documentary evidence.
Aggrieved by the impugned order the assessee is in appeal has raised the following grounds of appeal:
"1.On the facts and circumstances of the case as well as law on the subject, the learned Commissioner of Income Tax (Appeals), NFAC has erred in confirming the action of assessing officer who has passed the order under section 144 of the Act without giving proper opportunity and without issuing show cause notice to the assessee, which is unjustified and bad at law.
2.On the facts and circumstances of the case as well as law on the subject, the learned Commissioner of Income Tax (Appeals), NFAC has erred to confirming the action of the Ld. Assessing officer as he has issued notice u/s 143(2) of the act as well as assessment made on the basis of wrong information and also on mere surmises and conjectures without appreciating the correct facts of the case which is not sustainable in the eyes of law and unjustified.
3.On the facts and circumstances of the case and in law the NFAC/CIT(A) erred in confirming the addition of Rs.74,78,990/- made u/s 69A dismissing appeal of the assessee and sustaining order of AO is totally arbitrary, unlawful and contrary to mandate of 1961 Act without appreciating the facts and circumstances of the case.
4.On the facts and circumstances of the case and in law the NFAC/CIT(A) erred in confirming the invocation of 69A in addition of Rs. 74,78,990/- for cash deposit which are duly disclosed and recorded in books.
5.On the facts and circumstances of the case and in laws the NFAC/CIT(A) erred in confirming the addition of Rs. 74,78,990/- made by AO in discarding disclosed cash sales forming part of cash in hand out of books without rejecting such audited books of accounts and following the mandate of law.
6.That impugned order of passed u/s. 250 by NFAC /CIT(A), dismissing appeal of assessee and sustaining of order of AO are totally out of jurisdiction, illegal, unlawful and contrary to mandate of 1961 Act for fatal infraction of binding CBDT instruction no. 20/2015 dated 29.12.2015 for want of valid show cause notice being issued.
7.That impugned order passed u/s. 250 by NFAC/CIT(A) dismissing appeal of the assessee and sustaining order of AO are totally illegal as passed in violation of principles of natural justice as no books of accounts were examined by AO.
8.Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of appeal."
We have heard the ld. AR and for the assessee and the ld. DR of the Revenue.
The ld. AR at the outset, submitted that the assessment order was passed u/s 144 of the Act without affording effective opportunities of hearing to the assessee and also without rejecting the books of the assessee which contained sufficient explanation for deposit of cash during the demonetization period. It is further argued that even the ld. CIT(A) has failed to note the said discrepancy of the assessment order and has upheld the same, which has resulted into miscarriage of justice. It is submitted that the impugned order as well as assessment order needs to be set aside by restoring the matter to the file of the AO with the direction to decide a fresh after giving opportunity to the assessee to present necessary materials and submissions, the source of cash deposit during the demonetization period and in the interest of justice, an effective opportunity of hearing should be granted to the assessee for proving its case before the AO.
The ld. DR on the other hand, opposing arguments made on behalf of the assessee, while relying on the impugned order as well as assessment order, submitted that the assessee himself has failed to furnish the necessary documents despite 8 opportunities given by the ld. AO, who was then constrained to pass the order ex-parte u/s 144 of the Act. It is further submitted that the assessee’s case and his own conduct does not deserve any leniency and hence appeal is liable to be dismissed.
We have considered the rival submissions and had examined the record. Opportunity of hearing to the assessee during the assessment proceedings is not a mere formality but a mandatory requirement of principles of natural justice. We have examined the assessment order to find out whether the effective opportunity of hearing is given which is sine-qua-non of quasi-judicial order passed by the Assessing Officer. In para no. 2 of assessment orders are that extracted earlier by us in the beginning of the order would show 8 opportunities of hearing having been given by issuing of notice u/s 143(2) twice and notice u/s 142(1) sixteens but the assessee is stated to have filed only part response in response of notice dated 14th March, 2019 u/s 142(1) of the Act. It is observed by the Assessing Officer in para no. 3 in that regard as extracted below:
“3.In response to abovementioned notices assessee replied to only One notice and provided basic details only e. Balance sheet and Profit & Loss Account but filed no submissions with regard to source of cash deposit made into the bank accounts during demonetization period. Specific queries were raised regarding source of cash deposit vide notice u/s 142(1) dated 15.01.2019. Being a Time Barring Matter, I arm left with no other alternative except to pass an order on the basis of material available on record because number of opportunities had already been provided to the assessee as summarise above.”
From the above extracts of the assessment order, it is evident that the said order has been passed ex-parte, in the absence of necessary materials having not been furnished by the assessee in support of his claim to prove the source of cash deposited during the demonetization period. It is to be noticed that the subsequent to the notice dated 14th March, 2019 in respect to which allegedly part response was filed by the assessee, three more notices were also issued u/s 142(1) of the Act on 26th April, 2019, 24th June, 2019 and 8th April, 2019. It is observed that no response was filed by the assessee. On perusal of the material on records, there is nothing to conclude the said notices were even served on the assessee or received by the assessee. We are not satisfied that the said notices have been proved to have been received by the assessee so as to conclude that effective opportunity of hearing has been granted to the assessee to file material/evidence in support of his claim/case.
We have also examined the impugned order passed by the Id. CIT(A). Even the Id. CIT(A) has not afforded any opportunities to the assessee to file the requisite documents before him as para 7.2.3 to 7.3.4 of the impugned order extracted below would make it clear that the effective opportunities of hearing has been granted to the assessee neither by the AO nor by the Id. CIT(A).
'7.2.3 Considering the repeated opportunities granted and the incomplete compliance on the part of the appellant, it is evident that the Assessing Officer was constrained to complete the proceedings under section 144, especially keeping in view the statutory limitation period. Thus, the allegation of denial of opportunity is without merit. Accordingly, Ground No. 1 and 2 are dismissed.
7.3.4The reliance placed by the appellant on various judicial pronouncements is misplaced. The decisions cited including ITO v. Zee Bangles Pvt. Ltd. and Durga Fire Works v. ITO, are distinguishable on facts as those cases: involved instances where contemporaneous sales records were produced and accepted by the authorities. In the present case, the appellant has failed to produce cogent evidence to establish that the deposits were indeed sourced from recorded sales. Furthermore, audited books of account by themselves do not automatically establish the genuineness of the transactions reflected therein unless supported by corroborative documentary evidence."
For the above discussion, we are of the considered opinion that the impugned order has been passed while upholding the assessment order without following the principles of natural justice, because the effective opportunities of hearing which is mandatory requirement before passing the order of quasi-judicial authorities has not been given. For these reasons, the impugned order is set aside by restoring the matter to the file of the AO for deciding the issue by conducting the de-novo assessment proceedings after affording effective opportunity of hearing to the assessee. The assessee is also directed to file the necessary documents/materials before the Assessing Officer within 60 days from this order.
The appeal of the assessee is allowed for statistical purposes.