Facts of the Case

The assessee-firm filed its return declaring income of ₹28,59,260. The case was selected for scrutiny, and multiple notices under sections 143(2) and 142(1) were issued. Due to non-compliance, the Assessing Officer completed a best-judgment assessment under section 144, determining total income at ₹1,38,03,159.

Major additions included ₹28,50,000 as unexplained cash deposits under section 69A (including deposits during the demonetization period) and substantial disallowance of salary and interest paid to partners, allegedly due to non-submission of the partnership deed. The appeal before the NFAC was dismissed ex parte.

Issues Involved

  1. Whether a high-pitched ex-parte assessment under section 144 without effective opportunity is sustainable.
  2. Whether cash deposits during demonetization can be taxed under section 69A without verification of source.
  3. Whether partner remuneration and interest can be disallowed merely due to non-production of partnership deed.
  4. Whether appellate dismissal ex parte violates principles of natural justice.

Petitioner’s Arguments

The assessee contended that the assessment order was arbitrary and passed without reasonable opportunity, resulting in unjustified additions based on presumptions.

It was argued that the cash deposits were explainable and that salary and interest to partners were paid in accordance with the partnership deed and accepted status of the firm since inception. The assessee also challenged the treatment of the firm as an AOP merely because the deed was not produced.

Respondent’s Arguments

The Department relied on the assessment order, pointing to repeated non-compliance by the assessee. However, the Departmental Representative did not oppose restoration of the matter to the Assessing Officer for fresh consideration.

Court Order / Findings (ITAT Allahabad)

The Tribunal observed that the assessment had been completed ex parte and the appeal before the NFAC was also dismissed without adjudication on merits. Considering the substantial additions and the principles of natural justice, the assessee deserved one more opportunity to present its case.

Accordingly, the Tribunal restored the entire matter to the file of the Assessing Officer with directions to allow the assessee to produce necessary evidence explaining bank deposits and other issues. The assessee was cautioned to fully comply with directions during the set-aside proceedings, failing which the Assessing Officer would be free to decide the case on available material, even ex parte.

Important Clarification

The Tribunal did not adjudicate the merits of the additions but emphasized that high-pitched assessments based solely on non-compliance should not stand without affording a fair opportunity to substantiate claims. Substantial justice requires verification of facts before sustaining large tax liabilities.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1771066182_RAMESHSTONECRUSHERCO.SONEBHADRAVS.ACIT3MIRZAPUR.pdf

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.