ITAT Hyderabad: Appeal Dismissal Under Section 249(4)(b) Unsustainable Where No Advance Tax Was Payable; Medical Agency's Demonetisation Deposits Directed for Re-examination

Overview of the Case

The Income Tax Appellate Tribunal, Hyderabad Bench, delivered a significant ruling in the matter of Shri Natraj Challa Vs ITO (ITAT Hyderabad) concerning two critical issues — the maintainability of an appeal under Section 249(4)(b) of the Income Tax Act, 1961, and the treatment of cash deposits made during the demonetisation period by an assessee engaged in medical agency business. The Tribunal's findings carry considerable relevance for assessees who have not filed returns and face summary dismissal of appeals without adequate consideration of their actual advance tax liability.

Background and Factual Matrix

The assessee in this case was an individual running a medical agency business. No return of income was filed for Assessment Year 2017–18. The Assessing Officer (AO), acting on information received, observed that the assessee had deposited cash amounting to Rs. 16,79,500/- during the demonetisation window, specifically between 09.11.2016 and 30.12.2016.

A notice under Section 142(1) of the Income Tax Act, 1961 was issued on 24.01.2018, directing the assessee to file a return. However, neither a return was filed nor were subsequent notices during assessment proceedings complied with.

Through information obtained from the bank under Section 133(6) of the Act, the AO established that:

  • Total credits in the assessee's bank account for the year stood at Rs. 83,90,910/-
  • Out of this, Rs. 69,88,000/- comprised cash deposits
  • Cash deposited during the demonetisation period amounted to Rs. 16,79,500/-

In the absence of any explanation from the assessee, the AO proceeded as follows:

  1. The demonetisation-period cash deposit of Rs. 16,79,500/- was treated as unexplained money and added to income under Section 69A of the Act.
  2. The remaining amount of Rs. 67,11,410/- (arrived at after reducing the above sum from total credits) was treated as business turnover.
  3. Income on such turnover was estimated at 8%, amounting to Rs. 5,36,913/-.
  4. A best judgment assessment was completed under Section 144 of the Act on 30.11.2019, fixing total income at Rs. 22,16,413/-.

Grounds of Appeal Raised by the Assessee

The assessee challenged the AO's order before the CIT(A), raising multiple grounds. Key among them were: