Tribunal Upholds Assessment Order with Some Disallowances, Partially Allows Appeal

The Tribunal upheld the assessment order, ruling it was not void ab-initio due to the AO providing ample opportunities for the assessee to explain claims. The lack of opportunity claim was dismissed as the AO had given sufficient chances for the assessee to respond. The disallowance of cash deposit under Section 68 was overturned as the amount was explained from earlier withdrawals. However, the disallowance of expenditure under Section 69C was upheld, limiting it to 10% due to lack of proper evidence. The appeal was partly allowed, with Ground No.3 succeeding, and the others (Ground Nos. 1, 2, and 4) being dismissed.

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Issues Involved:
1. Whether the assessment order is void ab-initio.
2. Alleged lack of opportunity in the final notice served.
3. Disallowance of cash deposit in IDBI Bank Rs. 2,00,000/- under Section 68 of the Income Tax Act, 1961.
4. Disallowance of expenditure claimed under Section 69C of the Income Tax Act, 1961.

Issue-Wise Detailed Analysis:

1. Void Ab-initio Assessment Order:
The assessee contended that the assessment order was void ab-initio. The Ld. CIT(Appeal) held that the Assessing Officer (AO) had given reasonable opportunities to the assessee to explain the return and substantiate claims made in the return of income with respect to the expenditure. Despite multiple opportunities, the assessee did not respond or attend to explain the return. The AO, considering the time constraints and the need to complete assessments within the prescribed time limit, invoked the provisions of Section 144 of the Income Tax Act, 1961, for best judgment assessment. The AO had also communicated the intention to frame the assessment under Section 144 to the assessee, who still did not respond. The Tribunal upheld the Ld. CIT(Appeal)’s observation that the AO acted correctly as per the provisions of the Act, and the assessment order was not void ab-initio. Thus, Ground No.1 raised in appeal by the assessee was dismissed.

2. Lack of Opportunity in Final Notice:
The assessee argued that there was a lack of opportunity in the final notice served. The Ld. CIT(Appeal) noted that the assessee was given many opportunities to support his return of income but failed to respond. The AO had given a final call cum warning to present the case, which was ignored by the assessee and his Authorized Representative (AR). The Tribunal found that the AO acted appropriately by proceeding with the assessment under Section 144 of the Act after providing sufficient opportunities. The Tribunal upheld the Ld. CIT(Appeal)’s observation that there was no infirmity in the AO’s action. Thus, Ground No.2 raised in appeal by the assessee was dismissed.

3. Disallowance of Cash Deposit under Section 68:
The issue pertained to the disallowance of a cash deposit of Rs. 2,00,000/- in IDBI Bank under Section 68 of the Act. The Ld. CIT(Appeal) observed that the assessee had enough cash balance from earlier withdrawals and that the explanation provided by the assessee was not tenable. However, the Tribunal found that the Revenue had not disputed the earlier withdrawals or the cash balance. The Tribunal held that the amount of Rs. 2,00,000/- was well explained as being deposited from earlier withdrawals and set aside the order of the Ld. CIT(Appeal). Thus, Ground No.3 raised in appeal by the assessee was allowed.

4. Disallowance of Expenditure under Section 69C:
The issue involved the disallowance of 10% of the expenditure claimed, amounting to Rs. 19,52,270/-, under Section 69C of the Act. The Ld. CIT(Appeal) noted that the assessee failed to provide corroborating evidence or confirmations to support that the payments were incurred for business purposes. The remand report indicated that about 70% of expenditures were made in cash and through self-made vouchers. The Tribunal observed that the assessee did not refute these findings with proper evidence and upheld the Ld. CIT(Appeal)’s decision to restrict the disallowance to 10% of direct expenses. Thus, Ground No.4 raised in appeal by the assessee was dismissed.

Conclusion:
The appeal of the assessee was partly allowed, with Ground No.3 being allowed and the rest of the grounds (Ground Nos. 1, 2, and 4) being dismissed. The order was pronounced on 02nd December 2020.

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