2025 (7) TMI 1797 - AT - Income Tax

No natural justice violation; best judgment under Sec 144 upheld; partial disallowance under Sec 69A for unexplained cash deposits

Rohit Goel Versus The A.C.I.T Central Circle – 20, Delhi

ITAT DELHI upheld that no violation of natural justice occurred as the assessee was given multiple opportunities to explain discrepancies in accounts but ... Violation of natural justice - HELD THAT:- Assessee was accorded multiple opportunities to explain the mismatch/discrepancy in his books and the ones found in his bank statement - assessee submitted part replies but did not submit cogent evidence or materials to explain the discrepancies found in the books of the assessee. Accordingly, ground regarding violation of natural justice is dismissed. Assessment made u/s 143(3) - books of accounts are found to be fabricated, then rejection of books is found to be justified and best judgement assessment under section 144 is needed - HELD THAT:- We find that the AO has found various mismatch in the accounts but has not specifically rejected the books of accounts invoking the provisions of section 145(3). We find however, that the AO has proceeded to make the assessment in the manner provided under section 144 of the Act. As narrated above, the AO, after taking into account all relevant material which he had gathered, gave the assessee several opportunities of being heard by serving several notices u/s 142(1) and show causes to make the assessment of the total income to the best of his judgment and determine the sum payable by the assessee on the basis of such assessment. In view of the same, ground is dismissed. Addition u/s 69A - cash deposit made during the impugned financial year being treated as unexplained money - HELD THAT:- We are of the considered view that such an approach is not legally justified as this approach has taxed the same amount twice under different heads. The AO has accepted the debit entries in the Central Bank of India account as purchases but is treating the sales recorded in bank account as unexplained money. In the above factual matrix, we are of the considered view that when the debit entries in the Central Bank of India account is treated as purchases, it would be a necessary corollary that the credits in the Central Bank of India account be considered as sales. Accordingly in our view, a percentage of the total credits in the Central Bank of India be taken as profits of the assessee from the business of trading in dry fruits. AO, while determining the profit from undisclosed sales from purchases made from M/s Dry Nut Enterprises, has worked out the rate of profit at 7.99 % on the basis of profit rate declared by the assessee himself. It would therefore, meet the end of justice if the profit rate be taken at 7.99% of the entire credit in the Central Bank Account of Rs 4,48,19,235/- and determine the income of the assessee after reducing the income already declared. In accordance with this direction to determine the additional income of the assessee, the other additions on account of unexplained money u/s 69A and unexplained expenditure u/s 69C is directed to be deleted. The ground no. 2 is partly allowed. Since the entire credits in the bank account is considered as sales, there is no occasion to invoke the provision of section 115BBE. Undisclosed credits in the undisclosed bank account in Indian overseas Bank - assessee replied that there was a sale of property in Delhi and the deposit represents the sale consideration - HELD THAT:- We find that the assessee has filed a sale deed dated 3rd March 2017 wherein the said property was sold to the assessee for ₹ 6,20,000/-. The assessee has explained that the aforesaid property was again sold by him for ₹ 8,30,000/- in FY 2019-20. However, there is no evidence of sale deed of the said property or any capital gains declared in the sale of the said property. We are of the considered view that the issue of sale of the said property and its ensuing capital gains arising out of the said sale, be remitted back to the AO for a fresh adjudication. The assessee is also directed to furnish relevant documents/evidence to substantiate its claim that the deposit in its bank account. ISSUES: Whether the addition of cash deposits as unexplained money under section 69A read with section 144(B) is justified.Whether assessment under section 143(3) is valid when books of account are found fabricated but not formally rejected under section 145(3), or whether best judgment assessment under section 144 is required.Whether the application of section 69A and 69C read with section 115BBE for unexplained purchases and unexplained credits is proper when debit entries in bank accounts are accepted as purchases but credits are treated as unexplained money.Whether the principles of natural justice were violated by depriving adequate opportunity to present submissions.Whether the addition of estimated profits on alleged out-of-books purchases using gross profit rate is sustainable.Whether unexplained credits in an undisclosed bank account can be added as unexplained money under section 69A without substantiation of source.Whether penalty proceedings under section 271AAC and interest under sections 234B and 234C are justified.Whether double taxation of the same amounts under different heads (unexplained money and unexplained expenditure) is legally permissible. RULINGS / HOLDINGS: The addition of cash deposits as unexplained money under section 69A read with section 144(B) was partly allowed; however, certain additions were deleted where the same amounts were taxed twice under different heads.The assessment under section 143(3) was held valid despite discrepancies in books because the books were not formally rejected under section 145(3), and the AO followed the procedure for best judgment assessment under section 144 after providing multiple opportunities to the assessee.The invocation of section 69A and 69C read with section 115BBE was set aside where the AO accepted debit entries as purchases but treated credits as unexplained money, holding that 'when the debit entries ... is treated as purchases, it would be a necessary corollary that the credits ... be considered as sales.'The principles of natural justice were found to be complied with, as the assessee was given multiple opportunities to explain discrepancies but failed to submit cogent evidence.The addition of estimated profits on alleged out-of-books purchases at a gross profit rate of 7.99% was modified to apply the profit rate on the entire credits in the bank account, rather than only on purchases from one party, to avoid arbitrary estimation.The addition of Rs. 8,30,000/- as unexplained money under section 69A from an undisclosed bank account was remitted to the AO for fresh adjudication, directing the assessee to furnish relevant evidence regarding the sale of property purportedly generating that amount.Penalty proceedings under section 271AAC were held premature, and interest under sections 234B and 234C were considered consequential and not separately adjudicated.The AO's approach of taxing the same amount twice under different heads (unexplained money under section 69A and unexplained expenditure under section 69C) was held legally unjustified and directed to be deleted. RATIONALE: The Court applied the statutory provisions of the Income Tax Act, 1961, particularly sections 69A, 69C, 115BBE, 143(3), 144, 145(3), 271AAC, 234B, and 234C.The Court relied on the procedural framework requiring formal rejection of books under section 145(3) before invoking best judgment assessment under section 144 and emphasized the necessity of providing adequate opportunity to the assessee as per principles of natural justice.The Court recognized that treating debit entries as purchases logically entails treating corresponding credits as sales, thereby avoiding double taxation and arbitrary estimation of income.The Court remitted the issue of unexplained credits in an undisclosed bank account to the AO for fresh adjudication to ensure proper evidentiary support, reflecting adherence to the requirement of substantiation before addition.No dissent or doctrinal shift was indicated; the Court followed established principles and precedent, including reliance on a recent High Court decision regarding assessment validity when books are fabricated but not rejected.