ITAT Grants Second Opportunity to Assessee in Demonetisation Cash Deposit Case

The present appeal has been filed by Kannadahalli Govindasamy Krishnan against the Income Tax Officer in the Income Tax Appellate Tribunal (ITAT) “C” Bench, Chennai, challenging an order dated January 1, 2025, passed by the CIT(A).

The assessee had not filed his ITR for the Assessment year 2017-18. The AO observed that the assessee had made cash deposits in SBNs amounting to Rs. 12,08,000 into his bank account(s) during the demonetisation period and noticed that the total deposits, including cash deposits, for the period from April 1, 2016, to March 31, 2017, amounted to Rs. 1,02,00,370.

The AO sent notices to the assessee reminding him to file his return. However, the assessee ignored all the notices and did not furnish his return. In conclusion, AO made an addition of Rs. 12,08,000 on account of cash deposits, treating it as an unexplained investment under section 69 of the Act. Further, “8% of such business receipts were adapted as unaccounted business income for A.Y.2017-18, which comes to Rs. 7,19,389 (8% of Rs. 89,92,370/-) and brought to tax by passing an order u/s. 144 of the Act dated 01.11.2019 based on material available on record.”

Since the taxpayer didn’t file their return or respond to notices, the AO used the information he had on hand to make a decision under Section 144 of the Income Tax Act.

The assessee then filed an appeal before the CIT(A) on December 5, 2019. CIT(A) provided three opportunities for the assessee to appear for hearings. However, the assessee did not respond to the hearings and notices. As a result, CIT(A) confirmed the order of AO with available details.

The aggrieved assessee then approached the ITAT Chennai. During the hearing, the AR submitted that the assessee was unaware of the notices issued by the AO and CIT(A). Hence, the assessee requests one more opportunity to be provided so that the assessee can present his case before the AO.

After considering all the facts, ITAT added that the Assessing Officer had passed an order without hearing the assessee, based only on the information available with the department. The CIT(A) dismissed that order because the assessee did not appear or participate either before the AO or the appellate authority.

Since the assessee failed to participate at both levels, the court has imposed a cost of Rs. 5,000, which must be paid to the State Legal Aid Authority, High Court of Madras. The assessee must show proof of this payment to the court registry within 30 days of receiving this order.

To ensure fairness, the court has set aside the CIT(A)’s order and sent the matter back to the AO. Tribunal directed AO to freshly consider the order. ITAT gave the assessee a proper opportunity to present its case. The assessee has been directed to furnish all the relevant arguments, if needed. As a result, ITAT allowed the appeal filed by the assessee.