Facts of the Case

The assessee is a partnership firm engaged in wholesale trading of sugar. It purchases sugar bags in bulk from sugar mills and sells them to retailers in Ballia. The assessee filed its return of income after getting its books of account audited under Section 44AB of the Income Tax Act, 1961.

The Assessing Officer (AO) observed that a sum of Rs. 13,92,18,000/- was deposited in an HDFC Bank account maintained by the assessee. On noticing that no return of income was filed in respect of the said PAN, the AO issued a notice under Section 148 followed by notices under Section 142(1). As there was no compliance from the assessee, the AO completed the assessment under Section 144 read with Section 147 of the Act, treating the entire cash deposits as income.

Before the CIT(A), the assessee contended that although it was originally assessed under PAN No. AAEFJ6725H, it had mistakenly been allotted a second PAN (AAGFJ8468H) while applying for a duplicate PAN during F.Y. 2011-12. The bank account was opened under the second PAN, whereas returns and audit reports were filed under the original PAN. The assessee also submitted that the partner handling the firm’s affairs was unwell during the COVID period and could not access online notices, resulting in non-compliance.

The CIT(A) upheld the assessment and confirmed the addition of Rs. 13,92,18,000/-.

 

Issues Involved

  1. Whether the reopening of assessment under Section 147 by issuance of notice under Section 148 was valid in law.
  2. Whether the best judgment assessment under Section 144 was justified due to non-compliance.
  3. Whether the entire cash deposits of Rs. 13,92,18,000/- could be treated as unexplained income.
  4. Whether the deposits made under a second PAN could be explained through returns and audit reports filed under the original PAN.

 

Petitioner’s Arguments

  • The assessee had duly disclosed all business transactions in its return of income and audit report filed under the original PAN.
  • The second PAN was erroneously allotted while applying for a duplicate PAN, and the bank account was opened under that PAN inadvertently.
  • The deposits in the bank account were business receipts and not unexplained income.
  • The actual cash deposits were Rs. 7,22,69,000/- and not Rs. 13,92,18,000/- as alleged.
  • The assessee was running a regular business and could only be taxed on the profit element, not the entire turnover.
  • The partner was unwell during COVID and not computer literate, which resulted in non-compliance with notices.
  • The reopening was time-barred as the conditions for extended limitation were not satisfied.

 

Respondent’s Arguments

  • Information from the NMS system revealed substantial cash deposits of Rs. 13,92,18,000/- in the bank account.
  • No return of income was filed under the PAN linked to the bank account.
  • Despite issuance of notice under Section 148 and subsequent notices under Section 142(1), the assessee failed to comply.
  • The AO followed due procedure and completed the assessment under Section 144 read with Section 147.
  • The assessee failed to satisfactorily explain the source of deposits or reconcile them with the return filed under the other PAN.
  • Even the admitted deposits disclosed minimal profit, which was below acceptable taxation standards.

 

Court Order / Findings

The Tribunal condoned the delay in filing the appeal considering that the assessee was not literate and had received the order physically at a later stage.

On merits, the Tribunal held:

  • There was no infirmity in the action of the AO in reopening the case under Section 147 based on material indicating cash deposits and non-filing of return under the concerned PAN.
  • The issuance of notice under Section 148 was justified as there was prima facie reason to believe that income had escaped assessment.
  • In the absence of compliance, the AO was justified in completing the assessment under Section 144 (best judgment assessment).

 

Important Clarification

The Tribunal upheld the legality of reassessment proceedings under Sections 147/148 and best judgment assessment under Section 144.

However, it did not affirm the addition on merits and instead restored the matter for fresh adjudication.

The burden of proof lies entirely on the assessee to reconcile deposits made under one PAN with income declared under another PAN.

Mere existence of audit reports under Section 44AB does not absolve the assessee from explaining discrepancies arising from use of multiple PANs.

The order emphasizes that while procedural compliance by the Revenue was proper, substantive justice requires verification of documentary evidence before sustaining additions.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1770878160_JAIMAADURGATRADERSBALLIAVS.COMMISSIONEROFINCOMETAXAPPEALSINCOMETAXDEPARTMENT2.pdf 

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