Facts of the Case

The assessee had not filed a return of income for the relevant year. The Department received information that cash deposits amounting to ₹1,46,63,200 had been made in his savings bank account. Despite issuance of notice under section 142(1), there was no response from the assessee.

The Assessing Officer completed assessment under section 144 read with sections 147 and 144B by estimating income at 8% of the total deposits (₹11,73,056) under section

The assessee’s appeal before the CIT(A), NFAC was dismissed primarily on the ground that advance tax particulars were not mentioned in Form 35 and the appeal was treated as defective.

Issues Involved

  1. Whether income can be estimated at 8% of bank deposits under section 44AD without establishing business activity.
  2. Whether dismissal of appeal on technical grounds relating to advance tax payment is justified when income is claimed to be below taxable limits.
  3. Whether principles of natural justice require granting an opportunity to explain bank deposits before sustaining additions.

Petitioner’s Arguments

The assessee contended that his income was below the taxable threshold and therefore no advance tax was payable, which is why “Not Applicable” was mentioned in Form 35.

He further submitted that financial statements, tax audit report, and explanations had been filed, but were not considered. The assessee requested one more opportunity to present evidence regarding the source of bank deposits.

Respondent’s Arguments

The Revenue maintained that the assessee had failed to respond to statutory notices and comply with proceedings. However, it did not object to remanding the matter if the Tribunal deemed fit, provided the assessee cooperates.

Court Order / Findings (ITAT Allahabad)

The Tribunal observed that the appeal had been dismissed on technical grounds without adjudicating the substantive issues raised by the assessee. Given the claim that income was below taxable limits, the requirement relating to advance tax needed proper examination rather than outright rejection.

On Estimation of Income u/s 44AD

The Tribunal noted that income had been estimated purely on the basis of bank deposits without verification of the nature of transactions or whether the deposits represented business receipts. Such estimation required factual enquiry.

Direction for Fresh Opportunity

In the interest of substantial justice, the Tribunal restored the matter to the Assessing Officer with directions to provide the assessee a fresh opportunity to produce evidence explaining the bank deposits. The assessee was cautioned to fully cooperate, failing which the Assessing Officer could decide the case on available material.

The primary appeal was allowed for statistical purposes, while a duplicate appeal was dismissed as infructuous.

Important Clarification

The Tribunal did not decide the merits of the addition but emphasized that technical defects or procedural lapses should not prevent adjudication on merits, especially where substantial additions are involved. Proper enquiry into the nature and source of deposits is essential before applying presumptive taxation provisions.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1771065688_GUDDUKUMARGUPTAMAHARJAGANJVS.ACITITONFACDELHIDELHI.pdf

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