ITAT Holds Business Turnover Cannot Be Treated as Unexplained Money Without Proper Verification

The Income Tax Appellate Tribunal (ITAT) Bangalore held that where an assessee claims that bank deposits represent business receipts, the Assessing Officer must verify the explanation and supporting material before treating the entire deposits as unexplained money under Section 69A.

The assessee is an individual engaged in the wholesale distribution of Nandini Milk and its products under the name M/s JMS Distributors and did not file his return of income for assessment year 2017-18. Based on information available with the department about cash deposits made during the demonetization period, the AO initiated proceedings and issued notices under Section 142(1) of the Income Tax Act. But the assessee did not respond to the notices, so the assessment was completed ex parte under Section 144.

The AO treated the entire credit of Rs 12,978,305 appearing in the assessee’s bank account as unexplained money under Section 69A of the Act. Later, the CIT(A) dismissed the assessee’s appeal on the ground of delay in filing the appeal.

Before the Tribunal, the assessee explained that the delay was caused due to the death of his tax consultant, which prevented him from approaching the appellate proceedings in time. It was further submitted that the bank deposits represented business receipts received from customers for the supply of Nandini Milk products, which were thereafter paid to the Karnataka Cooperative Milk Producers Federation Ltd. after withholding a commission of around 3%. Therefore, the entire turnover could not be assessed as unexplained income.

The Tribunal first condoned the delay in filing the appeal, observing that the reasons furnished by the assessee constituted sufficient cause. On merits, the Tribunal noted that the assessee had contended that the deposits represented business turnover earned as a wholesale distributor and that only a small commission was retained and these submissions required proper verification by the AO before invoking Section 69A.

Accordingly, the Tribunal set aside the order and restored the matter to the AO for fresh adjudication. The appeal was accordingly allowed for statistical purposes.