2024 (10) TMI 853 - AT - Income Tax

Addition of cash deposit during demonetization period u/s 68 - assessee has not explained the holding of cash receipt in hand instead of depositing the same in bank as was done in A.Y 2016-17 - assessee submitted that having accepted the books of accounts by both the authorities, book results could not be disturbed once it is admitted that cash sales are recorded in books and forming part of turnover of the business HELD THAT - We find that the AO has not questioned the cash sales and has also not rejected the books of account. The AO has accepted the sales made during the year and the books of accounts of the assessee. We find considerable force in the ld AR argument that when the AO has not questioned the audited books of account and the cash flow statement and cash book, he cannot draw an adverse view without bringing any contrary cogent material. AO has also not pointed out any element of undisclosed income in the form of cash sales and has also not substantiated as to how the cash deposits relates to the assessee s unaccounted income. When the AO draws the conclusion that the cash in hand definitely bears some unaccounted income of the assessee , we find that the AO has travelled in the realm of conjectures. We also note that the Assessing Officer s conclusion that 60% of the cash deposited constitute unaccounted deposits to be added u/s 68 is not supported by any cogent and material evidence. Thus we hold that the addition made by the AO is based on suspicions, conjectures and surmises. Addition is not legally permissible and the CIT(A) fell in error in sustaining the addition. Decided in favour of assessee.

Summary

Issues:
1. Arbitrary ad-hoc addition of cash deposit during demonetization period.
2. Legality of the assessment order passed under section 143(3).
3. Consideration of additional ground of appeal regarding show cause notice.

Analysis:
1. The appeal was filed against the order of the NFAC, Delhi regarding an arbitrary ad-hoc addition of cash deposit during the demonetization period. The assessee contended that the cash deposits were from sales made before demonetization and were duly recorded in the stock register and cash ledger. The Tribunal found that the Assessing Officer did not question the cash sales or reject the books of accounts. The addition was deemed based on suspicions and conjectures, lacking legal basis. The Tribunal allowed the appeal, holding that the addition was not permissible, and the CIT(A) erred in upholding it.

2. The assessee sought to challenge the legality of the assessment order passed under section 143(3), claiming it was null and void for not issuing a mandatory show cause notice as per CBDT Instruction No. 20/2015. The additional ground was contested by the Department, arguing it was purely factual. However, the Tribunal admitted the additional ground, considering it a legal issue. The Tribunal found that the Assessing Officer's conclusion lacked material evidence and was based on conjectures, leading to the nullification of the assessment order.

3. The Tribunal addressed the consideration of the additional ground regarding the show cause notice. The assessee argued that the absence of a show cause notice prior to the assessment was fatal to the validity of the assessment. Citing CBDT Instruction No. 20/2015, the Tribunal emphasized the importance of natural justice in issuing show cause notices for proposed additions or disallowances. The Tribunal found that the Assessing Officer's failure to issue a show cause notice was a fatal defect, further supporting the nullification of the assessment order.

In conclusion, the Tribunal allowed the appeal, setting aside the arbitrary addition of cash deposit during demonetization, nullifying the assessment order for lack of a show cause notice, and emphasizing the importance of natural justice in assessment proceedings. The Tribunal's decision was based on the absence of material evidence supporting the addition and the failure to follow procedural requirements outlined by the CBDT.