Facts of the Case

The assessee, a partnership firm engaged in operating a cold storage and ice factory, filed its return for AY 2017-18 along with audited accounts. The case was selected for limited scrutiny to examine cash deposits during the demonetization period.

The Assessing Officer completed assessment under section 143(3) by making an addition of ₹75,87,375 under section 69A, treating cash deposits as unexplained. The CIT(A), NFAC dismissed the appeal for non-representation and confirmed the addition.

The assessee contended that deposits represented hire charges from farmers for storage of agricultural produce and recovery of advances given against pledged goods, typical of a seasonal cold storage business.

Issues Involved

  1. Whether the assessment was invalid due to alleged lack of jurisdiction of the officer issuing notice u/s 143(2).
  2. Whether cash deposits during demonetization were unexplained under section 69A.
  3. Whether dismissal of appeal without effective opportunity violated principles of natural justice.

Petitioner’s Arguments

The assessee argued that the notice under section 143(2) was issued by an officer at Ghaziabad who lacked territorial jurisdiction and that the jurisdictional officer at Kaushambi failed to issue a fresh notice after transfer of the case.

On merits, it was submitted that:

  • Cold storage operations are seasonal, with peak collections occurring near the end of the storage cycle
  • Advances are given to farmers against pledged produce and later recovered in cash
  • All receipts and repayments were duly recorded in books and supported by registers containing details of farmers and transactions
  • Cash deposits were covered by cash balance available in the cash book as on 08.11.2016

It was contended that the Assessing Officer relied on estimated averages rather than actual books, without rejecting the accounts.

Respondent’s Arguments

The Revenue submitted that the notice u/s 143(2) was validly issued by the officer having jurisdiction according to PAN data at the relevant time. It was also argued that the assessee had not challenged jurisdiction within the statutory time limit under section 124(3).

On merits, the Revenue pointed out that the identity of farmers and persons from whom advances were recovered had not been substantiated, and the sources of cash deposits required verification.

Court Order / Findings (ITAT Allahabad)

The Tribunal held that the notice dated 14.08.2018 was issued within time by the officer having jurisdiction based on PAN records. The officer at Ghaziabad retained jurisdiction until transfer of the case on 20.09.2019.

Further, since the assessee did not object to jurisdiction within the prescribed period, section 124(3) barred raising the issue at the appellate stage. Accordingly, the jurisdictional challenge was rejected.

On Addition u/s 69A for Demonetization Deposits

  • Books of account, including the cash book, were produced and not rejected
  • Cash deposits would ordinarily emanate from recorded cash balances
  • The assessee claimed that receipts were supported by separate registers documenting hire charges and recovery of advances from farmers
  • These supporting records had not been adequately verified by the Assessing Officer

Given the need for factual verification of sources recorded in the books, the Tribunal set aside the addition and restored the matter to the Assessing Officer for fresh adjudication after examining the registers and supporting evidence vis-à-vis the cash book.

Important Clarification

The Tribunal did not decide the merits of the addition but emphasized that when books are maintained and not rejected, deposits must be examined in the context of recorded cash balances and supporting business records. Proper verification of documentary evidence is essential before invoking section 69A.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1771062979_MAASHARDACOLDSTORAGEKAUSHAMBIVS.ITOWARD25ALLAHABAD.pdf

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