ITAT Remands Demonetisation Cash Deposit Case to CIT(A) for De Novo Consideration with Costs on Assessee

Background of the Dispute

The matter in Harish Kumar Vs ITO reached the ITAT Chandigarh arising from an appellate order dated 05.09.2024 passed by the Commissioner of Income Tax (Appeals), NFAC, Delhi for AY 2017-18.

The assessee, an individual, had filed a return declaring total income of Rs. 3,28,250. The case was selected for scrutiny under CASS, and during the course of assessment, the Assessing Officer (AO) invoked best judgment provisions as the assessee failed to respond to repeated statutory notices.

Proceeding ex parte under Section 144 read with Section 143(3) of the Income Tax Act 1961, the AO:

  • Noted cash deposits of Rs. 16,88,000 during the demonetisation window, and
  • Found credit card payments aggregating to Rs. 19,99,621.

In the absence of any explanation:

  • The cash deposits were treated as unexplained money under Section 69A, and
  • Income was estimated at 1% of credit card transactions, leading to an addition of Rs. 19,896.

Consequently, the AO assessed total income at Rs. 20,36,150 and applied Section 115BBE for higher rate taxation on the Section 69A addition.

The assessee then carried the matter in appeal before the CIT(A), NFAC, and subsequently to the ITAT Chandigarh after the appellate authority dismissed the appeal.

Grounds Raised Before the CIT(A) and ITAT

In the appeal before the first appellate authority, and reiterated before the Tribunal, the assessee challenged the assessment on several fronts, including:

  1. Procedural violation of appellate provisions

    • It was contended that the order of the CIT(A) was passed in violation of Section 250 of the **Income Tax Act 1961`, which mandates a speaking order dealing with points in dispute.

  2. Addition of Rs. 16,88,000 under Section 69A

    • A specific and crucial ground was taken that the bank account in which the alleged cash deposits were made did not belong to the assessee.
    • On this basis, the assessee claimed that the foundation of the Section 69A addition itself was incorrect and, therefore, unsustainable.

  3. Treatment of credit card transactions as business receipts

    • The AO’s action in treating credit card usage of Rs. 19,89,621 as business receipts and estimating income at 1% (Rs. 19,896) was disputed.
    • The assessee argued that there was no evidence to support the presumption that the credit card transactions represented business turnover.

  4. Application of Section 115BBE

    • The assessee contested the levy of tax at 60% plus surcharge under Section 115BBE on the Section 69A addition.
    • It was argued that even on an academic assumption that the addition survived, the income, if at all, ought to have been taxed at normal slab rates.

  5. Denial of effective opportunity of hearing

    • A grievance was raised that both the assessment order and the appellate order were passed without providing a reasonable and effective opportunity of being heard.

Conduct of Proceedings Before the AO and CIT(A)

Assessment Stage

During assessment:

  • Statutory notices were issued on multiple occasions.
  • The assessee did not appear or file any explanation.
  • Due to this repeated non-compliance, the AO resorted to an ex parte best judgment assessment under Section 144 r.w.s. 143(3).

The AO relied solely on:

  • Information available in the departmental system,
  • Bank deposit details during the demonetisation period, and
  • Credit card usage data.

On this basis, the AO made the following key findings: