Cash deposits cannot be taxed without considering debit entries in Bank: ITAT

The applicant, Israma Dudh Utpadak, is a Co-operative Society that supplies milk to the federal co-operative society, selling cattle feeds and other related material. Cash deposits of Rs 79,08,610 were found in the assessee’s bank account, but no income tax return had been filed for the same. Therefore, due to this, the Assessing Officer had issued a notice under section 148 of the Act to the assessee.

After receiving this order, the assessee filed a return showing income of Rs 4,67,770. However, the assessee did not respond to further notices under Section 142(1). Therefore, the Assessing officer considered the cash deposit of Rs 79,08,610, as an unexplained deposit under section 69 of the Act.

The assessee filed an appeal to the Ld. CIT(A) to challenge the order, but there was a delay of 129 days in filing the appeal. This appeal was rejected by CIT(A), saying the reason for the delay was not properly explained. Therefore, the assessee again filed an appeal to the Income Tax Appellate Tribunal (ITAT).

Ground of Appeal

The following grounds were taken in the appeal:

• The CIT(A) has rejected the appeal without considering the reason for delay submitted by the applicant.
• The CIT(A) has passed an ex parte order ignoring the facts on record and adjudicating the case on merits.
• The AO wrongly treated Rs 79,08,610 of cash deposits as unexplained income, even though they were recorded in audited books and came from regular business.

Arguments by AR of Assessee

• Shri Dushyant Maharshi, Ld. AR of the assessee stated that notices were received on the registered e-mail ID of the office bearers, who did not respond to them.
• The tax consultant did not handle the case properly, due to which the assessing officer passed an ex parte order.
• The cash deposits came from milk sales, cash collections, and previous withdrawals.
• The assessee requested the case to be reopened and heard again by the AO.
• The AR also stated that the assessee has submitted the supporting documents, which explained the source of the cash deposit.

ITAT Decision

The Income Tax Appellate Tribunal (ITAT) observed that the assessee had accepted the delay in filing the appeal and also gave the reason for the delay. CIT(A) rejected the appeal, saying that the reason for the delay was not sufficient or acceptable. However, CIT(A) itself did not give any reason or explain why the reason submitted by the assessee explaining the 129-day delay was not acceptable.

It further noted that the AO ignored the debit entries in the bank account, and the AO considered the whole cash deposit of Rs 79,08,610 in the bank account as the income of the assessee.

It cited the Gujarat High Court judgment in the case of Nimesh Dilipbhai Brahmbhatt vs. Hitesh Jayantilal Patel (Special Civil Application No.6547 of 2020) dated 02.05.2022 that ruled that cases should be decided on merit, especially when the delay was due to the assessee’s consultant, not the assessee itself.

The ITAT disagreed with the decision of CIT(A) and set aside the case. It directed the Assessing Officer to re-do the assessment and give the assessee a fair chance to explain the source of the cash deposits.

The assessee is also directed to make compliance before the AO, and the AO can decide the matter based on available records. Therefore, Assessee’s appeal was allowed for statistical purposes.