2025 (3) TMI 1511 - AT - Income Tax

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

Hudhyashwar Nagari Sahakari Path Sansta Maryadit Versus ITO, Ward-1 (1), Nashik

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 ... Unexplained Cash deposits - cash during the demonetization period - HELD THAT:- Though the assessee failed to satisfy both the lower authorities, before us the assessee has furnished copies of submission filed before the AO on 25.11.2019 which seems to have not examined thoroughly by the AO as no further enquiry was conducted to verify the claim of the assessee. Assessee has filed the copy of ledger account of its members who are alleged to have given the cash to the assessee society for opening new account and also filed the copy of paper book along with submission filed before Ld. CIT(A)/NFAC on 08.11.2022. Therefore, since the claim of the assessee is that alleged sums have been received from its members, we deem it appropriate to restore the matter to the file of Ld. JAO to carry out de novo assessment proceedings and shall verify the claim of the assessee after conducting due enquiry from the members who have alleged to have given cash to the assessee society. For carrying out this exercise, AO shall provide reasonable opportunity of being heard to the assessee. Appeal of the assessee is allowed for statistical purposes. 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.