Facts of the Case

The assessee did not file a return for the relevant year. Information was received regarding substantial deposits in a current bank account maintained with Punjab National Bank in the name of “Sri Ram Traders,” which was linked to the assessee’s PAN.

During the financial year, cash deposits of ₹4,53,60,250 (prior to demonetization) and ₹19,89,500 during the demonetization period were made in the account. Due to repeated non-compliance with notices, the Assessing Officer completed a best judgment assessment under section 144, estimating income at 8% of bank credits (₹36,28,820) and separately adding demonetization deposits as unexplained money under section 69A.

Issues Involved

  1. Whether deposits in a bank account linked to an assessee’s PAN can be taxed in his hands when the account allegedly belongs to another person.
  2. Whether estimation of income based on bank credits is justified in absence of verification of ownership and business activity.
  3. Whether ex parte assessment without examining relevant documents violates principles of natural justice.

Petitioner’s Arguments

The assessee contended that he was merely an authorized signatory to the bank account, which actually belonged to his father’s proprietorship concern, M/s Sri Ram Traders. The business was engaged in wholesale trading of kirana and general goods, and the father was separately assessed to tax.

It was submitted that the bank account was duly recorded in the books of the proprietorship concern, and all deposits—including those during demonetization—represented business receipts from sales. Audited financial statements, tax audit reports, income tax returns of the father, and bank statements were produced before the Tribunal to support this claim.

Respondent’s Arguments

The Revenue relied on the orders of the lower authorities but acknowledged that the documentary evidence produced before the Tribunal had not been examined earlier and required verification.

Court Order / Findings (ITAT Allahabad)

The Tribunal observed that the documents suggested the bank account was a business account of the father’s proprietorship concern and that the entries, including cash deposits, appeared to be recorded in the regular books of that business.

Since these materials had not been produced before the Assessing Officer or the CIT(A), proper verification was necessary. The Tribunal emphasized that determination of the true owner of the account and the source of deposits was essential before making additions.

Accordingly, the matter was set aside to the Assessing Officer for fresh examination of the documents and for passing a new assessment order in accordance with law after due enquiry. The appeal was allowed for statistical purposes.

Important Clarification

The Tribunal did not decide the taxability of the deposits on merits but clarified that additions cannot be sustained merely because an account is linked to an assessee’s PAN. Ownership of the account and genuineness of business transactions must be established through verification.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1771062648_RAHULSHARMAMIRZAPURVS.ITOWARD32MIRZAPUR.pdf

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