2025 (6) TMI 1741 - AT - Income Tax

Assessment u/s.144 - addition of the deposits in the bank account as well as in the Post Office account - Non filing of return of income for the impugned assessment year - HELD THAT - From the perusal of the computation of total income and balance sheet etc filed in the paper book we find that all the deposits in the form FDs RDs account and other cash deposits find place in the assets shown in the balance sheet and also the income earned thereon in the shape of interest etc are duly taken to the computation of total income where after considering other incomes and investments made for deduction under Chapter VIA the total income of the assessee was computed which is lower than the amount maximum not chargeable to tax. Further from the perusal of the fund flow statement we find that there was opening balance taken from the balance sheet of preceding year and the closing balance was taken to the next year where the return was also not filed being income not exceeding the amount not chargeable to tax. It would be fair and reasonable to set aside the matter to the file of the Assessing Officer with the direction to examine whether all these deposits are forming part of the balance sheet submitted before us. On verification if the AO found that all these forming part of balance sheet then no addition is required to be made as the income computed on such Balance Sheet is lower than the amount not chargeable to tax. Appeal of the assessee stands partly allowed for statistical purposes.

Summary

The core legal questions considered by the Tribunal in this appeal primarily revolve around the validity and legality of the assessment completed under section 144 of the Income Tax Act, 1961, in the absence of a filed return of income, and the consequent additions made under section 68 of the Act on unexplained cash deposits. The issues include:

1. Whether the assessment completed under section 144 without proper opportunity to the assessee and without considering explanations furnished is lawful and justified.

2. Whether the additions made under section 68 on deposits in bank accounts (Recurring Deposits, Fixed Deposits, Loan Account) and Post Office account are justified, or whether these deposits were adequately explained and supported by evidence.

3. Whether the alleged double addition of certain deposits (Rs. 1,89,000/- and Rs. 2,24,000/-) by the Assessing Officer was made, and if so, whether it is justified.

4. Whether the failure to file return of income and non-payment of advance tax as mandated under section 249(4)(b) of the Act justifies dismissal of the appeal by the Commissioner of Income Tax (Appeals).

5. The procedural propriety of the assessment and appeal process, including whether the Assessing Officer and CIT(A) applied their mind and followed due process.

Issue 1: Legality of Assessment under Section 144 without Proper Opportunity and Explanation

The legal framework under section 144 of the Income Tax Act empowers the Assessing Officer to complete assessment on best judgment basis where the assessee fails to file return or comply with notices. However, principles of natural justice require that the assessee be given an opportunity to explain and furnish evidence before adverse conclusions are drawn.

Precedents hold that the Assessing Officer must consider the explanations and documents furnished by the assessee before making additions. The Tribunal noted that the assessee had submitted details including bank statements, balance sheet, computation of income, and fund flow statements, which were not adequately considered by the AO. The AO completed the assessment without verifying these details, treating all deposits as unexplained cash credits under section 68.

The Tribunal found that the assessment was arbitrary and unjustified to the extent that the AO did not give proper opportunity or verify the explanations. The Court emphasized that even in best judgment assessments, the AO must apply mind and consider evidence before making additions.

Issue 2: Justification of Additions under Section 68 on Bank and Post Office Deposits

Section 68 of the Income Tax Act deals with unexplained cash credits. The AO added Rs. 23,60,893/- comprising deposits in various bank accounts and post office accounts as unexplained income. The assessee contended that these deposits were part of the opening balance, income earned during the year, and gifts received from parents, all duly reflected in the balance sheet and supported by fund flow statements.

The Tribunal examined the documents filed, which showed that the deposits were accounted for in the balance sheet and the income computed was below the taxable threshold. The AO's failure to verify these documents and reliance on assumptions was held to be improper. The Tribunal directed the AO to re-examine the deposits in light of the submitted balance sheet and fund flow statements, and to verify whether these deposits were already accounted for.

The Tribunal also noted that some of the deposits related to accounts not belonging to the assessee, and such amounts should be excluded from additions.

Issue 3: Alleged Double Addition of Deposits

The assessee raised that certain amounts (Rs. 1,89,000/- in RD accounts and Rs. 2,24,000/- in loan accounts) were added twice by the AO, once as part of the total Rs. 18,12,393/- and again separately. The Tribunal acknowledged this contention and directed the AO to verify and ensure no double addition is made while reassessing.

Issue 4: Non-Compliance with Section 249(4)(b) and Dismissal of Appeal by CIT(A)

The CIT(A) dismissed the appeal on the ground that the assessee had not paid advance tax equal to the amount payable, a mandatory condition under section 249(4)(b) for admission of appeal where no return of income is filed. The assessee failed to provide clarification or sufficient reasons for exemption from this condition.

The Tribunal did not expressly overturn this procedural dismissal but focused on the substantive issues relating to assessment and additions. The directions for reassessment implicitly allow the assessee an opportunity to comply and present explanations.

Issue 5: Procedural and Substantive Fairness in Assessment and Appeal Process

The Tribunal observed that both the AO and CIT(A) passed orders ex parte without properly considering the explanations and documents submitted by the assessee. The AO completed the assessment on surmises and assumptions without verifying records, and the CIT(A) dismissed the appeal summarily.

The Tribunal held that such approach is arbitrary and unjustified, and directed restoration of the issues to the AO for fresh examination with due opportunity to the assessee.

Significant Holdings and Legal Reasoning

The Tribunal held that "the assessment as made and completed u/s. 144 of the I.T. Act. is arbitrary, unlawful and unjustified" where the AO failed to consider explanations and documents furnished by the assessee.

It was emphasized that "all the deposits in the form FDs, RDs account and other cash deposits find place in the assets shown in the balance sheet and also the income earned thereon in the shape of interest etc are duly taken to the computation of total income."

The Tribunal stated that if on verification "the Assessing Officer found that all these forming part of balance sheet, then no addition is required to be made as the income computed on such Balance Sheet is lower than the amount not chargeable to tax."

The Tribunal also underscored the necessity of giving "proper opportunity of hearing" to the assessee before making any addition.

On the procedural aspect, the Tribunal implicitly recognized the mandatory nature of advance tax payment under section 249(4)(b) for admission of appeal but prioritized substantive justice by ordering reassessment.

Ultimately, the Tribunal restored the matter to the Assessing Officer for fresh examination of the deposits and directed that the assessee be given opportunity to explain, verifying that no double addition is made and that only unexplained deposits, if any, are added.