Facts of the Case

The assessee did not file a return of income for Assessment Year 2017-18. The Income Tax Department received information that substantial cash deposits and credit entries were made in the assessee’s bank account maintained with Farrukhabad District Central Co-operative Bank, Kannauj.

The Assessing Officer issued notice under section 142(1) of the Income-tax Act, 1961, which was returned by the postal authorities with the remark that the assessee had refused to receive the notice. Treating the notice as duly served, the Assessing Officer proceeded to complete the assessment under section 144 of the Act.

During the assessment, the Assessing Officer treated cash deposits of ₹15,29,500, credit entries of ₹22,20,000 and interest income of ₹92,198 as unexplained money under section 69A. After allowing deduction under section 80TTA, total income was assessed at ₹38,31,700. The First Appellate Authority dismissed the appeal ex-parte.

 Issues Involved

  1. Whether additions under section 69A for cash deposits, credit entries, and interest income could be sustained in a best judgment assessment under section 144.
  2. Whether refusal of notice constituted valid service and justified ex-parte proceedings.
  3. Whether denial of effective opportunity of hearing violated principles of natural justice.

 Petitioner’s (Assessee’s) Arguments

The assessee contended that the cash deposits represented proceeds from sale of agricultural land, while credit entries of ₹22,20,000 were compensation received through NEFT on account of highway land acquisition transferred from a joint bank account. It was further submitted that the interest income and agricultural income were below the taxable limit.

The assessee also argued that notices were not properly served, that he was seriously ill on the date fixed for hearing, and that the assessment as well as appellate orders were passed ex-parte without granting reasonable opportunity of being heard.

 Respondent’s (Revenue’s) Arguments

The Department opposed the appeal and supported the orders of the Assessing Officer and the NFAC, contending that the assessee remained non-compliant and that the best judgment assessment was correctly framed based on material available on record.

Court Order / Findings

The Tribunal observed that both the Assessing Officer and the First Appellate Authority had passed ex-parte orders due to non-compliance by the assessee. However, considering the overall facts and circumstances, the Tribunal held that the assessee deserved one more opportunity to explain the source of credit entries in his bank account.

Accordingly, the matter was restored to the file of the Assessing Officer with directions to provide reasonable opportunity of hearing and decide the issue afresh in accordance with law. The appeal was allowed for statistical purposes.

Important Clarification

The Tribunal specifically cautioned that the assessee must fully comply with the directions of the Assessing Officer in the set-aside proceedings. Failure to do so would entitle the Assessing Officer to pass an order in accordance with law based on the material available on record, even on an ex-parte basis.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1770627837_RAMENDRASINGHKANNAUJVS.INCOMETAXOFFICERWARD423KANNAUJ.pdf  

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