Belated income tax return validity and bank cash deposit additions - assessment without jurisdictional notice overturned; partial cash book rejection disallowed

The ITAT held that a belated income tax return cannot be treated as invalid where statutory interest applies for late filing, because treating it as invalid would nullify the interest provision; consequently framing assessment without issuing the jurisdictional notice was erroneous and the assessment under summary procedure was set aside. Separately, the tribunal found no basis for partially accepting a taxpayer's cash book for the demonetization period while rejecting other entries without reasons; having accepted earlier entries, the appellate authority could not sustain additions for unexplained bank deposits and those enhancements were disallowed.

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Issues: (i) Whether an assessment framed under section 144 of the Income-tax Act after treating a belated return (filed in response to notice under section 142(1)) as invalid, without issuing a notice under section 143(2), is valid; (ii) Whether additions made to the assessee's income on account of unexplained cash deposits during the demonetisation period are sustainable where the assessee furnished a cash book attributing deposits to business receipts.

Issue (i): Whether assessment under section 144 is valid when the Assessing Officer treated a belated return filed in response to a section 142(1) notice as invalid and did not issue a notice under section 143(2).

Analysis: The legal framework includes section 142(1) (notice to file return), section 143(2) (jurisdictional notice before assessment), section 139(9) (defective return treated as invalid), and section 234A (interest for late filing). Section 139(9) relates to defective returns whose defects are curable; belated filing is not a curable defect identified by section 139(9). Section 234A recognizes belated returns by prescribing interest, indicating such returns are valid for assessment purposes. Where a return exists, the Assessing Officer must issue a notice under section 143(2) to assume jurisdiction unless the legal requirements for non-filing or invalidity under the statute are properly satisfied.

Conclusion: The assessment framed under section 144 without issuing the jurisdictional notice under section 143(2) is invalid because the belated return filed in response to the section 142(1) notice could not be treated as an invalid return merely for delay.

Issue (ii): Whether additions on account of unexplained cash deposits during demonetisation are sustainable where the assessee produced a cash book showing business cash receipts.

Analysis: The legal framework includes section 69A and section 115BBE concerning unexplained cash/credits and special taxation provisions, together with the evidentiary principle that the primary onus to prove source rests on the assessee but such proof may be discharged by reliable books of account. The Tribunal examined the CIT(A)'s approach of accepting part of the cash book (opening cash balance) and rejecting the remainder without reason, noting that partial acceptance without explanation is arbitrary. Where the cash book was accepted for the pre-demonetisation period, consistent treatment required acceptance or valid rejection of the demonetisation-period entries with reasons.

Conclusion: The additions confirmed by the Commissioner (portion of Rs. 7,70,693 and enhancement Rs. 3,05,000) are not sustainable; the assessee's cash book explanation is acceptable and the additions are to be deleted on merits.

Final Conclusion: The assessment order is quashed for lack of jurisdictional notice under section 143(2) and, on merits, the additions relating to demonetisation-period cash deposits are deleted; the appeal is therefore partly allowed.

Ratio Decidendi: A return filed belatedly in response to a notice under section 142(1) cannot be treated as an invalid return merely for delay; the Assessing Officer must issue the jurisdictional notice under section 143(2) before framing assessment, and where the assessee furnishes cogent books of account explaining cash deposits, additions for unexplained cash cannot be sustained without reasoned rejection of such accounts.

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