Facts of the Case

The assessee, proprietor of M/s Pawan Traders, was engaged in the business of coal, liquor, and truck plying. During assessment proceedings under Section 143(3), the Assessing Officer (AO) noted that income from truck plying was not disclosed in the return of income. Accordingly, income from truck business was estimated under the presumptive taxation provisions of Section 44AE.

The assessee had purchased a truck during the relevant year. Out of the purchase cost, a portion was financed, while the balance amount was treated by the AO as unexplained investment due to lack of satisfactory explanation. Consequently, addition was made under Section 69.

Further, the AO discovered cash deposits in an undisclosed Axis Bank account. In the absence of adequate explanation regarding the source, the deposits were treated as unexplained income. The Commissioner of Income Tax (Appeals) partly confirmed the additions, granting relief for a portion of deposits but sustaining the balance.

Issues Involved

  1. Whether the addition under Section 69 for alleged unexplained investment in truck purchase was justified.
  2. Whether cash deposits in an undisclosed bank account could be treated as unexplained income when claimed to be from business receipts.
  3. Whether the assessee should be granted further opportunity to substantiate explanations with evidence.

Petitioner’s Arguments (Assessee)

  • A significant portion of the alleged unexplained investment represented advance finance charges and insurance paid by the financier and included in the loan amount.
  • Certain payments were already made and acknowledged.
  • Cash deposits in the undisclosed bank account were claimed to be business receipts, particularly from truck plying activities.
  • The additions were made without properly considering the factual explanations.

Respondent’s Arguments (Revenue)

  • The assessee failed to provide credible documentary evidence to substantiate the claimed sources of investment and cash deposits.
  • The explanations offered were unsupported by third-party evidence.
  • Therefore, the additions made by the AO and sustained by the CIT(A) were justified.

Court Order / Findings (ITAT Allahabad)

Regarding Addition under Section 69 (Truck Purchase Investment):

The Tribunal observed that the assessee’s explanation regarding advance finance charges and insurance payments required proper verification. Since no adequate evidence had been produced earlier, the Tribunal held that the assessee should be granted another opportunity to substantiate the claim.

Accordingly, the matter was remitted to the AO for fresh adjudication after examining relevant documentary evidence.

Regarding Addition on Cash Deposits in Undisclosed Bank Account:

The Tribunal noted that although part of the deposits had been explained and accepted, the remaining amount claimed to be from truck business required verification. The cash book produced before the Tribunal was incomplete and needed examination.

Thus, this issue was also remanded to the AO for de novo consideration after allowing the assessee to produce supporting evidence.

Important Clarification by the Tribunal

  • The Assessing Officer must admit all relevant evidence produced by the assessee.
  • Fresh adjudication must be conducted on merits.
  • Adequate opportunity of being heard must be provided in accordance with the principles of natural justice.

Final Outcome

The appeal was partly allowed for statistical purposes, with disputed additions remanded to the Assessing Officer for fresh examination.

Link to download the order – https://itat.gov.in/public/files/upload/1606388868-Yogesh%20kumar%20pandey%20pdf.pdf

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