Facts of the Case

The assessee was subjected to reassessment proceedings for the relevant assessment year on the basis of information regarding substantial cash deposits in bank accounts. Notices were issued under statutory provisions; however, the assessee allegedly did not respond adequately.

Consequently, the Assessing Officer completed the assessment ex-parte and treated the cash deposits as unexplained income, making additions to total income. Penalty proceedings were also initiated based on the additions.

Issues Involved

  1. Whether the ex-parte assessment treating bank cash deposits as unexplained income was sustainable.
  2. Whether related penalty proceedings could survive when the quantum matter itself required reconsideration.

Petitioner’s (Assessee’s) Arguments

  • The assessment was completed without granting a proper and effective opportunity of being heard.
  • The cash deposits had explainable sources, which could not be furnished due to lack of adequate opportunity.
  • The order violated principles of natural justice.
  • Penalty proceedings based on such assessment were unjustified.

Respondent’s (Revenue’s) Arguments

  • Statutory notices were duly issued but not complied with.
  • In absence of satisfactory explanation, the Assessing Officer was justified in treating deposits as unexplained income.
  • The assessment was made in accordance with law based on available material.

Court Order / Findings (ITAT Decision)

The ITAT Allahabad Bench held:

  • The assessment had been framed ex-parte without ensuring sufficient opportunity to the assessee.
  • Proper adjudication requires examination of evidence and explanation regarding cash deposits.
  • To meet the ends of justice, the matter should be reconsidered by the Assessing Officer.

Accordingly, the Tribunal:

  • Set aside the assessment order on the disputed issues
  • Remanded the case for fresh adjudication after providing reasonable opportunity
  • Held that penalty proceedings dependent on the quantum addition could not stand independently at this stage

Important Clarification

  • Ex-parte assessments must still comply with principles of natural justice.
  • Additions for unexplained deposits require proper verification of sources.
  • When quantum issues are remanded, related penalties generally cannot be sustained until final determination.

Link to download the order - https://itat.gov.in/public/files/upload/1611219350-129%20Chandra%20Bali%20Singh.pdf

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