ITAT Chandigarh Sets Aside Unexplained Cash Addition Due to Denial of Fair Hearing in Faceless Assessment

Case Background and Factual Matrix

The Income Tax Appellate Tribunal at Chandigarh recently adjudicated a dispute in the matter of Chaman Lal Vs ITO, wherein an addition amounting to ₹1,77,13,895 was contested by the assessee. The impugned order dated 04 February 2025 was issued by the Commissioner of Income Tax (Appeals) functioning through the National Faceless Appeal Centre, dealing with the assessment for the year 2017–18. The core controversy revolved around the invocation of Section 69A of the Income-tax Act, 1961, wherein substantial cash deposits were characterized as unexplained income.

The genesis of the dispute lay in data retrieved from the Insight Portal under the category SFT-003[D]. The revenue authorities discovered that during the financial year 2016–17, the assessee had deposited cash totaling ₹1,77,13,895 across two current accounts maintained with Punjab National Bank. The first account bearing number 7560002100000850 reflected deposits of ₹1,74,41,895, while the second account numbered 7560002100001194 showed deposits of ₹2,72,000.

Initiation of Reassessment Proceedings

A critical factor in the case was the absence of any return of income filed by the assessee under Section 139(1) of the Act. This non-filing triggered the machinery of reassessment under Section 147 of the Income-tax Act, 1961. Accordingly, a notice dated 28 March 2021 was dispatched under Section 148, which unfortunately went unanswered by the assessee.

Following the initial notice, the tax authorities issued several communications under Section 142(1) requesting comprehensive information including:

  • Complete details regarding the origin of cash deposits
  • Cash flow statements for the relevant period
  • Books of account and supporting documentation

Despite the issuance of multiple notices and a final show cause communication dated 16 March 2022, the assessee maintained complete silence and failed to respond to any correspondence.

Assessment Order Under Section 144

Confronted with persistent non-cooperation and the continued absence of any statutory compliance, the Assessing Officer proceeded to finalize the assessment under Section 144 of the Income-tax Act, 1961. This provision permits completion of assessment on a best judgment basis when the assessee fails to cooperate with the proceedings.

In the absence of any explanation, documentary evidence, or return of income, the entire cash deposit amount of ₹1,77,13,895 was characterized as unexplained money falling within the ambit of Section 69A read with Section 115BBE of the Act. The total assessed income was computed at ₹1,77,13,900. Additionally, penalty proceedings were initiated under both Section 271AAC and Section 271F of the Income-tax Act, 1961.

Appellate Proceedings Before CIT(A)

Aggrieved by the assessment order, the assessee approached the Commissioner of Income Tax (Appeals) through the National Faceless Appeal Centre. During the appellate proceedings, the assessee asserted that the cash deposits represented legitimate business receipts from trading operations conducted under two proprietary concerns named "Chaman Lal Avinashi Fruit Suppliers" and "Chaman Fruit Company," dealing in fruits and vegetables.

The First Appellate Authority observed that the singular issue requiring determination was the validity of the addition of ₹1,77,13,895 as unexplained money under Section 69A. However, despite being granted five separate hearing opportunities spanning from December 2022 through January 2025, the assessee neither filed written submissions nor produced any corroborative evidence to substantiate the claimed business activities.

CIT(A)'s Observations

The Commissioner of Income Tax (Appeals) noted the following critical aspects:

  • Continuous non-cooperation exhibited by the assessee throughout both assessment and appellate stages
  • Absence of any return of income for Assessment Year 2017–18
  • Failure to demonstrate any reasonable cause for statutory non-compliance
  • Lack of documentary evidence supporting the claim that cash deposits originated from business activities

Applying established judicial principles, the appellate authority decided to adjudicate the matter based solely on the available record. Finding the source of cash deposits entirely unexplained and unsupported by evidence, the CIT(A) affirmed the action of the Assessing Officer in treating ₹1,77,13,895 as unexplained money under Section 69A read with Section 115BBE. Consequently, the appeal was dismissed in its entirety.

Second Appeal Before the Tribunal

Dissatisfied with the confirmation of the addition, the assessee preferred a second appeal before the Income Tax Appellate Tribunal, Chandigarh Bench.

Grounds of Appeal Before ITAT

The assessee raised several substantive grounds challenging the lower authorities' orders:

Ground 1: The assessee tendered an apology for non-attendance during assessment proceedings and explained that severe illness prevented participation in online proceedings. The inability to provide additional documents before the National Faceless Appeal Centre was attributed to health complications, particularly kidney-related ailments requiring multiple hospitalizations.