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Assessee Loses Appeal before ITAT for Lack of Participation and Evidence

Introduction

In the matter of M/s Adim Jati Seva Sahkari Samiti Maryadit v. The Income Tax Officer – 2, Korba[i], the Income Tax Appellate Tribunal (‘ITAT’) upheld the addition under s. 69A of the of the Income Tax Act, 1961(‘the IT Act’) as a result of the lackadaisical and evasive approach adopted by the Assessee. The ITAT dismissed the appeal of the Assessee, citing the Assessee’s lack of interest in pursuing the case, and confirmed the Assessing Officer’s (‘AO’) decision to add Rs. 2,47,65,369/- to the Assessee’s income as unexplained money as the Assessee failed to provide any evidence to contest the addition.


Brief Facts

  • The Assessee was a society that had made cash deposits of Rs. 20,24,520/- in its bank account during demonetization but failed to file its IT return within the time prescribed under s. 139(1) of the IT Act.

  • The AO issued a notice under s. 142(1)(i) of the IT Act dated 06.02.2018 to the Assessee directing the Assessee to file its IT return for the assessment year (‘AY’) 2017-18 by 03.02.2018. The Assessee did not comply with the notice.

  • The AO further issued a notice under s. 142(1) of the IT Act along with a detailed query letter. Simultaneously, the AO called upon the bank of the Assessee under s. 133(6) of the IT Act to provide details of the cash deposits. The bank provided details which revealed that the Assessee deposited a total of Rs. 2,47,65,369/- during the period from 01.04.2016 to 31.03.2017. Despite receiving two statutory notices, the Assessee failed to comply with the notices.

  • Owing to this the AO issued a Show Cause Notice (‘SCN’) dated 06.09.2019 seeking an explanation from the Assessee about the cash deposits of Rs. 20,24,520/- and as to why they may not be treated as undisclosed income with the assessment being completed under s. 144 of the IT Act. However, there was no compliance made by the Assessee.

  • In view of the repeated non-compliance of the Assessee, the AO issued a final SCN on 12.09.2019 to which the Assessee again did not respond. This led the AO to proceed with the best judgment assessment under s. 144(1)(b) of the IT Act, whereby the AO treated the cash deposits of Rs. 2,47,65,369/- as unexplained money under s. 69A of the IT Act, resulting in an addition to the Assessee’s income.

  • The Assessee challenged the AO’s order before the Commissioner of Income Tax (Appeals) (‘CIT(A)’) but here also the Assessee did not participate effectively, leading to the dismissal of the appeal. The CIT(A) upheld the AO’s order based on the lack of evidence or submissions from the Assessee, which was challenged before the ITAT.

Held

  • The ITAT ruled against the Assessee, affirming that the CIT(A) rightly approved the AO’s order under s. 144 of the IT Act. The ITAT observed that the Assessee was given sufficient opportunities by the AO to present its case and provide evidence during the proceedings. Notably, the Assessee failed to file a return of income for the relevant year, did not provide written submissions in response to the AO’s queries, and offered no justification for the cash deposits. The ITAT concluded that the Assessee’s approach was evasive and indifferent despite being given multiple opportunities and hence could not substantiate the claim related to cash deposits amounting to  Rs. 2,47,65,369/-.

  • The ITAT further observed that the Assessee possesses a statutory right under s. 253 of the IT Act. However, the provision specifies that it can only be invoked when the Assessee is aggrieved with ‘any order of assessment’, which was not the case in this matter. Therefore, the ITAT held that the appeal is liable to be dismissed based on the grounds on which the order of the CIT(A) had been assailed.

  • The ITAT found that CIT(A) did not discard any material but sustained the addition due to the absence of any evidence justifying the treatment of the said cash deposits.

  • The ITAT also clarified that it is not a forum for appellants who, at their discretion, adopt an evasive or lackadaisical approach before lower authorities, fail to participate in the proceedings or present a case before the Tribunal. They cannot, as a matter of right, seek to have the impugned order sent back to the lower authorities for fresh adjudication.

Analysis

This decision underscores the significant consequences of an evasive approach by an Assessee in matters related to the IT Act, which may result in penalties, interest, prosecution, and potential blacklisting by tax authorities.


Failure to file timely returns or provide accurate disclosures can lead to overpayment of taxes, as tax authorities may estimate the Assessee’s income and tax liability based on the best available information.


Assessees must approach their income tax obligations with seriousness. A lackadaisical approach can result in profound financial and non-financial consequences. In this case, the Assessee’s non-participatory conduct and the absence of evidence or submissions left no basis to challenge the AO’s treatment of cash deposits. This case highlights the importance of active participation, submission of evidence, and compliance with statutory notices during assessment proceedings to avoid adverse outcomes.


Authored by Aishwarya Pawar, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.


End Note

[i] 2023 TAXSCAN (ITAT) 2405

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