2024 (6) TMI 859 - AT - Income Tax

ITAT Overturns Unexplained Money Addition; Remands Case for Further Review on Demonetization Deposits.

The ITAT set aside the Assessing Officer's addition of Rs. 14,09,000/- as unexplained money under section 69A, deposited during the demonetization period. ... Unexplained cash deposits under section 69A - estimation of business income on gross receipts - verification and opportunity to explain - deposits during demonetisation periodEstimation of business income on gross receipts - Acceptance of the Assessing Officer's estimate of business income at 8% of gross receipts - HELD THAT: - The Tribunal recorded that the Assessing Officer and the parties accepted the rate of 8% for estimating business income on gross receipts. There was no dispute as to the applicability of that estimating rate and the Tribunal endorsed its use for assessing the assessee's business income. The Tribunal therefore accepted the estimation method and rate adopted by the Assessing Officer.The estimation of income at 8% on gross receipts is accepted.Unexplained cash deposits under section 69A - deposits during demonetisation period - verification and opportunity to explain - Addition of Rs. 14,09,000 as unexplained deposits made during the demonetisation period - HELD THAT: - The Assessing Officer had treated the deposits made during the demonetisation period as unexplained and added the amount under section 69A. The Tribunal observed that there was no specific allegation of deposit of specified bank notes and that the assessee's trade (medical shops) was permitted to receive specified bank notes by the relevant government notification. Given that the matter of explanation had not been tested on the merits - the assessee had not been afforded an opportunity to explain the receipts despite notices - the Tribunal found that the addition required verification. Accordingly the Tribunal did not uphold the addition on the record before it but directed that the issue be restored to the file of the Assessing Officer for verification and for affording the assessee an opportunity to explain the deposits during the demonetisation period.The addition of Rs. 14,09,000 is set aside and remitted to the Assessing Officer for verification and to afford the assessee an opportunity to explain the deposits.Final Conclusion: The Tribunal accepted the method and rate of estimating business income at 8% on gross receipts but set aside the addition of Rs. 14.09 lakhs treated as unexplained deposits; that issue is remitted to the Assessing Officer for verification and for affording the assessee an opportunity to explain the demonetisation-period deposits. Appeal allowed for statistical purposes. Issues:The judgment involves issues related to non-filing of income tax return, assessment under section 144 of the Income Tax Act, 1961, addition of unexplained money under section 69A, and the authority's justification for making and sustaining the addition.Non-filing of Income Tax Return:The individual assessee did not file the return of income for the assessment year 2017-18 within the due date, prompting the Assessing Officer to issue a notice under section 142(1) of the Act. Subsequently, the assessment was completed under section 144, determining the total income and making additions based on estimated business income and unexplained money under section 69A.Assessment under Section 144:The Assessing Officer completed the assessment under section 144 of the Act, determining the total income of the assessee by making additions for estimated business income and unexplained money deposited during the demonetization period. The Assessing Officer added Rs. 8,94,076/- as business income and Rs. 14,09,000/- as unexplained money under section 69A.Addition of Unexplained Money under Section 69A:The Assessing Officer added Rs. 14,09,000/- under section 69A of the Act, citing that the amount was deposited during the demonetization period and remained unexplained by the assessee. The Tribunal found that there was no allegation of deposit in specified bank notes and that the addition was not sustainable based on the notification allowing specified bank notes to be deposited during demonetization.Justification for Addition by Authorities:The authorities justified the addition of unexplained money by stating that the assessee failed to appear and explain his case despite notices issued to him. The Tribunal, however, set aside the order and restored the issue of the addition of Rs. 14.09 lakhs to the file of the Assessing Officer for verification, emphasizing the need to afford the assessee an opportunity to explain the receipts during the demonetization period.In conclusion, the Tribunal allowed the appeal of the assessee for statistical purposes, highlighting the importance of providing the assessee with an opportunity to address the issues raised regarding the addition of unexplained money under section 69A.