2020 (2) TMI 369 - HC - Income Tax

Addition u/s 69A - Unexplained the deposit of cash collected during the demonetization into their account - HELD THAT - Government of India demonetized ₹ 500 and ₹ 1000 notes on 08.11.2016. Between 01.11.2016 and 08.11.2016, the petitioner had collected a sum of ₹ 57,85,655/-which is also does not appear to be usual as compared to collections made during the November 2015. Out of the total collection of ₹ 57,85,655/-and a closing cash of ₹ 38,72,374/- as on 31.10.2016, the petitioner deposited an amount of ₹ 26,77,716/- which is also not in variance with the cash deposits made by the petitioner during the preceding financial year. Collection of monthly subscription/dues by the petitioner during the aforesaid period appear to be reasonable as compared to be same period during 2015. The Government of India has introduced E-Governance for conduct of assessment proceedings electronically. It is a laudable steps taken by the Income Tax Department to pave way for an objective assessment without human interaction. At the same time, such proceedings can lead to erroneous assessment if officers are not able to understand the transactions and statement of accounts of an assessee without a personal hearing. The respondent should have to be therefore at least called for an explanation in writing before proceeding to conclude that the amount collected by the petitioner was unusual. Petitioner has prima facie demonstrated that the assessment proceeding has resulted in distorted conclusion on facts that amount collected by the petitioner during the period was huge and remained unexplained by the petitioner and therefore same was liable to be treated as unaccounted money in the hands of the petitioner under Section 69A Since the assessment proceedings no longer involve human interaction and is based on records alone, the assessment proceeding should have commenced much earlier so that before passing assessment order, the respondent assessing officer could have come to a definite conclusion on facts after fully understanding the nature of business of the petitioner. It appears that the return of income was filed by the petitioner on 02.11.2017. However, the assessment proceeding commenced much later towards the end of the period prescribed under section 153 of the Income Tax Act, 1961. In our view, assessment proceeding under the changed scenario would require proper determination of facts by proper exchange and flow of correspondence between the petitioner and the respondent Assessing Officer. The impugned order is set aside and the case is remitted back to the respondent to pass a fresh order within a period of sixty days from date of receipt of a copy of this order. Petitioner shall file additional representation if any by treating the impugned order as the show cause notice within a period of thirty days from date of receipt of a copy of this order.

Summary

Issues:
Challenge to impugned order post-demonetization cash deposits.

Analysis:
The petitioner challenged the order regarding cash deposits made between 09.11.2016 and 31.12.2016 post-demonetization. The petitioner claimed to have filed returns for Assessment Year 2017-18 on 07.11.2017. The respondent issued notices under Sections 143(2) and 142(1) of the Income Tax Act, to which the petitioner responded. The petitioner contended that the respondent erroneously concluded that the cash deposits were unexplained. The petitioner argued that the cash deposited post-demonetization was from regular chit fund business collections and had been explained in compliance with RBI requirements.

The petitioner maintained that the cash collected during the period was consistent with usual business operations. The petitioner emphasized compliance with Chit Fund Act and Rules, stating the deposits were from amounts collected and reflected in registers. The petitioner sought setting aside the order for a fresh assessment based on the records filed. The petitioner offered to provide further ledger details if necessary.

The respondent defended the order, stating it was well-reasoned and suggested the petitioner seek appeal before the Commissioner (Appeals). The respondent highlighted the shift to e-proceedings for assessments, allowing for electronic communication between the department and assessee. The respondent mentioned the Commissioner (Appeals) could call for reports and pass appropriate orders.

The court examined the petitioner's records and noted the consistency in closing cash balances over periods. The court compared cash collections, deposits, and closing cash on hand for different months, observing the petitioner's transactions. The court acknowledged the introduction of E-Governance for assessment proceedings but cautioned against potential errors without human interaction. The court found the assessment proceeding's conclusion on unexplained cash to be distorted and set aside the order for a fresh assessment within sixty days.

In conclusion, the court allowed the writ petition, directing a fresh assessment with clear written explanations from the petitioner to ensure an objective conclusion based on records alone. The court emphasized the need for an independent assessment by the respondent uninfluenced by previous observations. No costs were awarded, and connected petitions were closed accordingly.