2025 (5) TMI 2035 - AT - Income Tax

Unexplained cash deposits case remanded for fresh consideration after ITAT finds entire addition wrong

Rajesh Baghela Versus ITO-2 (4), Indore

ITAT Indore allowed the appeal for statistical purposes and remanded the matter to the Assessing Officer. The case involved unexplained cash deposits in ... Unexplained cash deposits in bank a/cs of assessee - one of the bank a/c in which the major portion of deposit was made is claimed to be a joint a/c owned by assessee and his brothers - HELD THAT:- As claimed that the deposit so made was sale proceed of a land jointly owned by assessee's mother/assessee/assessee's brothers. Looking to these facts, the entire addition made in assessee's hands is apparently wrong. Further, the assessee wants to explain the sources of entire deposit to AO with reference to the documents filed as additional evidences. Ld. Representatives of both sides are in agreement to remand this matter to the file of AO. Thus, we admit assessee's Application of additional evidences and also agree to the proposal agreed by both sides to restore this matter back to the file of AO. Appeal is allowed for statistical purpose. The core legal questions considered by the Tribunal in this appeal are:1. Whether the ex-parte orders passed by the Assessing Officer (AO) and Commissioner of Income-Tax (Appeals) [CIT(A)] due to non-compliance of notices were legally valid, particularly in light of alleged improper service of notices to incorrect email addresses.2. Whether the addition of Rs. 41,81,390/- on account of unexplained cash deposits in bank accounts was justified, considering the assessee's claim that the deposits represented sale proceeds of jointly owned agricultural land, which is exempt from income tax.3. Whether the AO erred in making the entire addition of Rs. 30,01,000/- deposited in a jointly held bank account solely in the hands of the assessee.4. Whether the matter should be remanded back to the AO for fresh adjudication after considering additional evidence produced by the assessee.Issue 1: Validity of Ex-Parte Orders Due to Non-Compliance of NoticesThe relevant legal framework includes the principles of natural justice and procedural fairness under the Income-tax Act, 1961, and the procedural safeguards prescribed for issuing notices and providing opportunities to the assessee to be heard. The Tribunal noted that both the AO and the CIT(A) had passed ex-parte orders because the assessee failed to comply with notices issued to him.The assessee contended that notices issued by the CIT(A) were sent to an incorrect email ID, different from the one provided in Form No. 35, thereby depriving the assessee of the opportunity to participate in the appeal proceedings. The Tribunal found merit in this contention, recognizing that improper service of notices undermines the fairness of proceedings.The Tribunal emphasized that the assessee resides in a small village, earns income solely from agriculture, and lacks familiarity with tax law compliances, which contributed to the non-response. The Court held that the ex-parte orders were passed without giving the assessee a proper opportunity of being heard, rendering such orders legally unsustainable.Issue 2: Justification of Addition on Account of Unexplained Cash DepositsThe AO invoked section 147 read with section 144 of the Income-tax Act, 1961, to make an addition of Rs. 41,81,390/- on account of unexplained cash deposits exceeding Rs. 10 lakh, as reflected in the Annual Information Return (AIR). The addition comprised Rs. 41,70,900/- on account of cash deposits and Rs. 10,490/- as interest income.The assessee claimed that these deposits represented cash received as 'on money' from the sale of agricultural land jointly owned by the assessee, the mother, and brothers. The sale deed dated 04.01.2011 showed part consideration received through account payee cheques and a substantial part in cash. The agricultural land sale proceeds are exempt from income tax under the Act.The Tribunal noted that the AO had not verified the merit of the case and had treated the entire cash deposits as unexplained income. The assessee also pointed out that cash withdrawn from the bank was re-deposited, indicating no unexplained source of income. The Tribunal found that the AO's addition was made without proper inquiry or consideration of the nature of the transaction and source of funds.Issue 3: Treatment of Jointly Held Bank Account DepositsA significant point raised was that Rs. 30,01,000/- out of the total deposits were made in a joint savings bank account held by the assessee and his brothers. The AO made the entire addition in the hands of the assessee alone, which the assessee challenged as erroneous.The Tribunal observed that the AO's approach was flawed because the joint ownership of the bank account and the underlying agricultural land was not taken into account. The Tribunal held that the entire addition of Rs. 30,01,000/- could not be attributed solely to the assessee, as it was jointly owned, and hence the AO's action was apparently incorrect.Issue 4: Remand for Fresh Adjudication Considering Additional EvidenceThe assessee filed an application under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963, seeking admission of additional evidence and remand of the case to the AO for fresh adjudication. The additional evidence included documents proving the source of cash deposits as sale proceeds of agricultural land.The Revenue did not object to the admission of additional evidence and agreed to remand the matter for fresh examination. Both parties agreed that the AO should consider the new evidence and provide the assessee with an opportunity to be heard.The Tribunal admitted the additional evidence and remanded the matter to the AO with clear directions that the AO shall adjudicate afresh without being influenced by the previous order, after giving due opportunity to the assessee. The assessee was also directed to ensure adequate participation in the proceedings, failing which the AO could pass an order as per law.Significant HoldingsThe Tribunal held:'The orders passed by both of the lower authorities are ex-parte. We also find that the AO has made an addition of Rs. 41,70,900/- on account of unexplained cash deposits in bank a/cs of assessee. But one of the bank a/c in which the major portion of deposit amounting to Rs. 30,01,000/- was made is claimed to be a joint a/c owned by assessee and his brothers. It is further being claimed that the deposit so made was sale proceed of a land jointly owned by assessee's mother/assessee/assessee's brothers. Looking to these facts, the entire addition of Rs. 30,01,000/- made in assessee's hands is apparently wrong.''Considering the entire conspectus of case and in the interest of justice, we admit assessee's Application of additional evidences and also agree to the proposal agreed by both sides to restore this matter back to the file of AO. The AO shall adjudicate this matter afresh after giving necessary opportunities to assessee and after considering assessee's all submissions including the evidences filed as above. In doing so, the AO shall not be influenced by his previous order in any manner.'The Tribunal established the core principle that ex-parte orders passed without proper service of notices and opportunity to be heard are legally unsustainable. It also underscored the necessity of verifying the nature and source of deposits before making additions and respecting joint ownership in bank accounts and property in tax assessments.Consequently, the Tribunal allowed the appeal for statistical purposes and remanded the matter for fresh adjudication, ensuring procedural fairness and proper examination of facts and evidence.