2025 (5) TMI 882 - AT - Income Tax

Unexplained credits appearing in the bank account - HELD THAT -AO was not correct in treating the entire cash deposits and credit entries in the bank account as income of the assessee without taking into account the debit transactions. Assessee has submitted that a detailed explanation in respect of cash deposits and credit transactions have been prepared which will be filed in the set aside proceeding. We therefore deem it proper to set aside the matter to the file of the JAO with a direction to allow another opportunity to the assessee to explain the source of cash deposits and the credit entries appearing in the bank accounts. The ground is allowed for statistical purpose.

Summary

Several core legal questions were considered in this appeal arising from the order of the Commissioner of Income Tax (Exemption) for the Assessment Year 2017-18. Primarily, the issues revolved around the validity of procedural notices and actions under the Income Tax Act, the correctness of additions made under section 69A relating to unexplained cash and bank credits, the applicability of section 115BBE concerning taxation of unexplained income, the levy of interest under various provisions of the Act, and the initiation of penalty proceedings under section 271AAC(1). Additionally, the Tribunal considered the question of condonation of delay in filing the appeal and the procedural fairness in allowing the assessee an opportunity to explain the bank transactions.

The first issue concerned the delay of 267 days in filing the appeal before the Tribunal. The assessee, a housewife dependent on her husband and accountant for income tax compliance, had failed to file the appeal timely due to the accountant's lapse and lack of vigilance on her part. The respondent Revenue objected to condonation on grounds of inadequate explanation and non-compliance before lower authorities. The Tribunal referenced the precedent set by the Gujarat High Court in Vareli Textile Industries, which emphasized that meritorious cases should not be dismissed solely on limitation grounds. Given that the Assessing Officer had treated the entire bank credits as income without examining the merits, the Tribunal found that denying condonation would cause injustice. Hence, the delay was condoned to enable adjudication on substantive issues.

The second issue related to the validity of notices issued under section 142(1) and subsequent proceedings, including alleged procedural irregularities such as transfer of the case without passing an order under section 127. Although raised by the assessee, this ground was later not pressed and dismissed by the Tribunal.

The third and principal issue concerned the addition of Rs. 2,87,37,661/- under section 69A, which pertains to unexplained cash credits. The Assessing Officer, after noting the assessee's failure to file return or respond to notices, and based on information from banks under section 133(6), treated the entire cash deposits and credit entries in three bank accounts as unexplained income. The assessment was completed under section 144, which permits best judgment assessment in absence of compliance. The Tribunal noted that the assessee had not complied before either the Assessing Officer or the first appellate authority, despite multiple opportunities. However, the Tribunal also observed that the Assessing Officer erred in treating the entire credits as income without considering debit transactions in the bank accounts, which could affect the net income position.

In its reasoning, the Tribunal emphasized the principle that the entire bank credits cannot be presumed as income without considering withdrawals or debits, which may represent legitimate expenditures or transfers. The assessee's representative submitted that a detailed explanation of the deposits and credits was prepared but not yet presented due to procedural lapses. Accordingly, the Tribunal set aside the matter to the Assessing Officer for fresh adjudication, directing that the assessee be granted an opportunity to explain the source of the deposits and credits, and to produce evidence accordingly. The assessee was also directed to cooperate and avoid unnecessary adjournments. This approach reflects the legal principle of audi alteram partem (right to be heard) and the necessity of examining facts on merit rather than relying solely on presumptions.

Regarding the applicability of section 115BBE, which provides for taxation of unexplained income at a special rate, the Tribunal did not make a substantive ruling but treated this ground as consequential and allowed it for statistical purposes, pending fresh examination of facts. Similarly, the grounds relating to levy of interest under sections 234A/B/C/D and initiation of penalty proceedings under section 271AAC(1) were also allowed for statistical purposes, contingent on the outcome of the reassessment.

The Tribunal imposed a cost of Rs. 10,000/- on the assessee payable to the Prime Minister National Relief Fund, citing the failure to comply with multiple opportunities granted by the Assessing Officer and the first appellate authority. This sanction underscores the importance of procedural diligence and timely cooperation in tax proceedings.

In conclusion, the Tribunal held that while the assessee was at fault for non-compliance, the Assessing Officer's approach of treating all bank credits as income without considering debit transactions was incorrect. The matter was remanded for fresh adjudication with directions to allow the assessee to present evidence and explanations. The Tribunal's decision preserves the principle that assessments must be based on a fair and comprehensive examination of facts, not merely on presumptions arising from unexplained credits. The delay in filing the appeal was condoned in the interest of justice, and procedural grounds not pressed were dismissed.

Key holdings include the Tribunal's observation: "The Assessing Officer was not correct in treating the entire cash deposits and credit entries in the bank account as income of the assessee without taking into account the debit transactions." Additionally, it reaffirmed the principle from Vareli Textile Industries that "meritorious case should not be thrown out on ground of limitation." The final determination was to set aside the assessment order and remand the matter for fresh consideration, allowing the assessee a fair opportunity to explain the bank transactions, with all consequential grounds reserved accordingly.