2026 (2) TMI 364 - AT - Income Tax

Notice requirement for framing assessment on belated return - assessment upheld; limited cash addition and normal tax applied.

Where a belated return filed in response to a notice under inquiry provision was treated by the assessing officer as invalid and showcause notices warned ... Requirement of notice u/s 143(2) for framing assessment u/s 144 on a return filed belatedly in response to notice u/s 142(1) - HELD THAT:- AO has issued show cause notices clearly making aware the assessee regarding the additions proposed and indicating that the assessment would be completed u/s 144 of the Act, in absence of any explanation from the assessee. In such circumstances therefore, we are of the considered view that once the AO has treated the belated return filed against notice u/s 142(1) as invalid, there was no requirement to issue notice u/s 143(2) of the Act and the assessment completed u/s 144 is valid. The additional ground 4 is dismissed. Unexplained cash deposits - Although the assessee, prima facie, appears to have discharged its onus of explaining source of cash deposit, it’s contentions to prove the source, hardly deserves to be accepted in entirety especially when the cash deposit vis a vis the business income was not justified. Revenue’s endeavour to disbelieve the assessee’s contention that cash deposit has been made out of operation from trucks and cash withdrawals, cannot be fully justified. In this factual matrix, there is some element of failure to explain some of the cash deposit, cannot be ruled out. Be that as it may, it is deemed appropriate, in larger interest of justice, that a lump-sum addition of ₹ 2 lakh only would be just and proper with a rider that the same shall not be treated as a precedent, so as to cover all loopholes. The ground of appeal no 1 is partly allowed. Levy of tax at a higher rate u/s 115BBE - We find that the Madras High Court in the Writ petition in the case of S.M.I.L.E. Microfinance Ltd [2024 (11) TMI 1444 - MADRAS HIGH COURT] has held that the impugned statutory provision would come into effect on the transaction done on or after 01.04.2017 only. Accordingly, we direct the AO to tax the addition under normal provisions of tax and not under the provisions of 115BBE. Issues: (i) Whether an assessment framed under Section 144 of the Income-tax Act, 1961 is valid where a belated return was filed in response to a notice under Section 142(1) and no separate notice under Section 143(2) was issued; (ii) Whether the addition made under Section 69A should be taxed under Section 115BBE or under normal provisions; (iii) Whether the claimed cash deposits during demonetisation were fully explained or require any addition in the hands of the assessee; (iv) Whether the date of service of notice under Section 142(1) (as uploaded in ITBA) could be treated as a later date for purposes of assessing the validity of proceedings.Issue (i): Validity of assessment framed under Section 144 without issuance of notice under Section 143(2) where a belated return was filed in response to notice under Section 142(1).Analysis: The Tribunal considered the nature of the proceedings - a belated return filed in response to notice under Section 142(1) which the Assessing Officer treated as invalid - and the sequence of statutory steps taken by the AO including issuance of show-cause notices under Section 144 prior to completing assessment. The Tribunal distinguished precedents dealing with reassessment under Section 148/notice under Section 143(2) and held those decisions not directly applicable to an assessment under Section 144 arising from a belated return to a Section 142(1) notice. The Tribunal also noted absence of cogent evidence from the assessee to show non-service of the ITBA-uploaded notice.Conclusion: The assessment framed under Section 144 is valid and the grievance that notice under Section 143(2) was required is dismissed (decision against the assessee on this issue).Issue (ii): Whether the addition determined under Section 69A should be taxed at the special higher rate under Section 115BBE or under normal provisions.Analysis: The Tribunal examined the applicability of Section 115BBE and relied on higher court pronouncements holding the provision operative for transactions on or after 01.04.2017. Applying the relevant authority, the Tribunal directed that the addition be taxed under normal provisions rather than under Section 115BBE.Conclusion: The addition shall be taxed under normal provisions and not under Section 115BBE (decision in favour of the assessee on this issue).Issue (iii): Quantum of addition under Section 69A - whether entire cash deposits during demonetisation were explained or a limited addition is warranted.Analysis: On the factual materials, the Tribunal found that the assessee had partially discharged the onus of explanation but that the explanation was not wholly satisfactory to account for all cash deposits. Balancing the evidence and in the interest of justice, the Tribunal exercised judicial discretion to quantify a lump-sum addition rather than sustaining the full addition made by the AO/CIT(A).Conclusion: The addition is substantially reduced and a lump-sum addition of Rs. 2,00,000 is made (decision partly in favour of the assessee on this issue).Issue (iv): Legality of the assertion that the notice uploaded in ITBA was not served and that its effective date should be the date the assessee first became aware.Analysis: The Tribunal observed that the assessee failed to place on record cogent facts or evidence to support non-service or delayed knowledge of the ITBA-uploaded notice. Absent factual foundation, the Tribunal could not accept the contention and declined to admit the ground raised for the first time.Conclusion: The contention regarding the effective date of service of the Section 142(1) notice is rejected (decision against the assessee on this issue).Final Conclusion: The appeal is partly allowed - the validity of assessment under Section 144 is upheld; the impugned addition under Section 69A is substantially reduced to a lump-sum of Rs. 2,00,000 and shall be taxed under normal provisions (not under Section 115BBE); other jurisdictional/contention of defective service is rejected for lack of supporting facts.Ratio Decidendi: Where a return belatedly filed in response to a notice under Section 142(1) is treated as invalid by the Assessing Officer, there is no requirement to issue a separate notice under Section 143(2) before framing assessment under Section 144, provided the facts do not show improper service or other jurisdictional infirmity.