ITAT deletes Section 68 addition on demonetization cash deposits lacking evidence-based nexus with undisclosed income

ITAT Delhi allowed the appeal, deleting the addition made under section 68 regarding cash deposits during demonetization. The tribunal held that when the AO accepted the audited books of accounts and cash sales without questioning them, he could not make adverse inferences without contrary material evidence. The AO's conclusion that 60% of cash deposits constituted unaccounted income was based on suspicions and conjectures rather than cogent evidence. The addition was deemed legally impermissible as the AO failed to establish any nexus between cash deposits and undisclosed income.

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Issues:
1. Arbitrary ad-hoc addition of cash deposit during demonetization period.
2. Legality of the assessment order passed under section 143(3).
3. Consideration of additional ground of appeal regarding show cause notice.

Analysis:
1. The appeal was filed against the order of the NFAC, Delhi regarding an arbitrary ad-hoc addition of cash deposit during the demonetization period. The assessee contended that the cash deposits were from sales made before demonetization and were duly recorded in the stock register and cash ledger. The Tribunal found that the Assessing Officer did not question the cash sales or reject the books of accounts. The addition was deemed based on suspicions and conjectures, lacking legal basis. The Tribunal allowed the appeal, holding that the addition was not permissible, and the CIT(A) erred in upholding it.

2. The assessee sought to challenge the legality of the assessment order passed under section 143(3), claiming it was null and void for not issuing a mandatory show cause notice as per CBDT Instruction No. 20/2015. The additional ground was contested by the Department, arguing it was purely factual. However, the Tribunal admitted the additional ground, considering it a legal issue. The Tribunal found that the Assessing Officer's conclusion lacked material evidence and was based on conjectures, leading to the nullification of the assessment order.

3. The Tribunal addressed the consideration of the additional ground regarding the show cause notice. The assessee argued that the absence of a show cause notice prior to the assessment was fatal to the validity of the assessment. Citing CBDT Instruction No. 20/2015, the Tribunal emphasized the importance of natural justice in issuing show cause notices for proposed additions or disallowances. The Tribunal found that the Assessing Officer's failure to issue a show cause notice was a fatal defect, further supporting the nullification of the assessment order.

In conclusion, the Tribunal allowed the appeal, setting aside the arbitrary addition of cash deposit during demonetization, nullifying the assessment order for lack of a show cause notice, and emphasizing the importance of natural justice in assessment proceedings. The Tribunal's decision was based on the absence of material evidence supporting the addition and the failure to follow procedural requirements outlined by the CBDT.

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