Facts of the Case

The assessee, an individual engaged in trading of animal feed, deposited approximately ₹11 lakhs in cash into bank accounts during the demonetization period. The assessee did not file a return within the prescribed time nor respond to notices issued under Section 142(1). Consequently, the Assessing Officer completed a best judgment assessment under Section 144 and made additions of ₹7,91,600 under Section 69 for unexplained income and ₹1,79,792 as estimated net profit.

The assessee subsequently filed a belated return declaring income based on business turnover. However, the Assessing Officer treated the return as non-est and did not consider the explanations. The CIT(A) also dismissed the appeal ex-parte due to non-compliance.

Issues Involved

  1. Whether the best judgment assessment under Section 144 was valid without granting adequate opportunity to the assessee.
  2. Whether additions under Section 69 for cash deposits during demonetization were justified without considering explanations.
  3. Whether the belated return and submissions should have been examined by the Assessing Officer.

Petitioner’s Arguments (Assessee)

  • The cash deposits represented business receipts from sales.
  • The assessee later filed a return declaring turnover and profit exceeding the presumptive rate.
  • Failure to respond earlier was due to lack of technical knowledge.
  • The Assessing Officer passed the order without granting effective opportunity of hearing.
  • Principles of natural justice were violated.

Respondent’s Arguments (Revenue)

  • The assessee failed to file return within time and did not respond to statutory notices.
  • Therefore, the Assessing Officer was justified in invoking Section 144.
  • Additions were made based on available information.
  • The CIT(A) also proceeded ex-parte due to non-compliance by the assessee.

Court Order / Findings (ITAT Allahabad)

The Tribunal observed that the assessee had not been provided a proper opportunity to present his case before the Assessing Officer. The belated return and explanations regarding business receipts were not examined.

Relying on the Supreme Court decision in Tin Box Company v. CIT, the Tribunal held that an assessment order passed without adequate opportunity cannot be sustained and must be set aside for fresh consideration.

Accordingly, the Tribunal:

  • Set aside the orders of the lower authorities
  • Restored the matter to the Assessing Officer
  • Directed framing of a fresh assessment after granting proper opportunity to the assessee
  • Allowed the appeal for statistical purposes

Important Clarification

  • Adequate opportunity of hearing is mandatory before completing assessment, even under Section 144.
  • Failure to consider submissions or evidence violates principles of natural justice.
  • Belated compliance by the assessee does not justify ignoring the explanation altogether.
  • The remand does not decide the merits of additions.

Link to download the order -  https://itat.gov.in/public/files/upload/1694578165-13%20of%202023%20Vijay%20Kumar%20Sahu%20(Assessee%20Appeal)%20uder%20section%20143(3)%20of%20the%20Act%20SMC%20(Corrected).pdf

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