ITAT orders fresh inquiry into unexplained demonetization cash deposits under proper hearing and verification rules

The ITAT Pune allowed the appeal for statistical purposes and set aside the matter to the AO for de novo assessment. The AO was directed to conduct a thorough inquiry into the unexplained cash deposits made during the demonetization period, specifically verifying the assessee's claim that the cash was received from its members. The AO must provide the assessee a reasonable opportunity of being heard and examine the submissions and ledger accounts filed by the assessee. The previous authorities' failure to conduct adequate inquiry warranted this remand for fresh verification.

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ISSUES:

1. Whether an addition can be made treating cash deposits made during the demonetization period by a cooperative credit society as unexplained income when the source is explained as SBNs received from members with identification of such members.

2. Whether the Assessing Officer's framing of assessment under section 144 of the Act without conducting further enquiry after receiving submissions and ledger accounts from the assessee is valid.

3. Whether the delay in filing the appeal can be condoned on the ground of reasonable cause.

RULINGS / HOLDINGS:

1. The Court held that where the source of cash deposits during the demonetization period by cooperative credit societies is explained to be out of SBNs received from members by providing identity of such members, "no addition can be made by treating the said deposits as unexplained income merely on the ground that the cooperative societies were not entitled to accept SBNs from its members."

2. The Court found that the Assessing Officer did not conduct a thorough enquiry despite the assessee furnishing submissions and ledger accounts, and therefore directed restoration of the matter to the Assessing Officer for de novo assessment proceedings with due enquiry and reasonable opportunity of being heard.

3. The Court condoned the delay in filing the appeal, finding that the assessee was "prevented by reasonable cause" in filing the appeal within time.

RATIONALE:

The Court applied the legal framework under section 144 of the Income Tax Act concerning best judgment assessment and considered binding Tribunal precedents which established that cooperative credit societies explaining cash deposits during demonetization through member contributions with proper identification should not face additions merely due to procedural non-entitlement to accept SBNs.

The Court emphasized the need for a "de novo assessment" with proper enquiry rather than summary assessment, noting the absence of thorough examination by the Assessing Officer despite submissions and evidence provided by the assessee.

The decision reflects adherence to principles of natural justice by directing reasonable opportunity of hearing and vigilance against unnecessary adjournments.

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