The appellate authority must ensure a complete fact-finding process, including obtaining remand reports, especially in cases involving disputed facts like unexplained cash deposits.

PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER:

This appeal has been filed by the Department against the order passed by the Ld. Commissioner of Income Tax (Appeal), (in short “Ld. CIT(A)”), National Faceless Appeal Centre (in short “NFAC”), Delhi vide order dated

20.03.2024 passed for A.Y. 2017-18.

2. The Department has raised the following grounds of appeal:

“(a) The Ld.CIT(A) has erred in law and on facts in deleting the addition of Rs. 99,50,160/- made by AO on account of unexplained cash deposit in bank accounts treated as unexplained money u/s 69A of IT Act.

(b) The appellant craves leave to add, alter and /or to amend all or any the ground before the final hearing of the appeal.”

3. The Department has also raised the following additional grounds of appeal:

“Whether on the facts and circumstances of the case and in law the Ld.CIT(A) has erred in allowing the appeal of the assessee on the basis of information called rom Indus Bank by issuing notice u/s 133(6) of the IT act by him, without giving an opportunity of being heard to the AO by calling the remand report”

4. The brief facts of the case are that in the assessment proceedings, the Assessing Officer issued notices seeking various details / information from the assessee company, including cash book, sales and purchase registers, stock register, and justification for large cash balances and deposits during FY 2016- 17, particularly in the demonetisation period. However, the Assessing Officer noted that the assessee failed to provide satisfactory replies along with supporting documentary evidence in response to notices issued by him. Despite show cause notices asking for details of abnormal cash deposits amounting to ₹1,42,55,660/- (including ₹1,14,76,410/- during the demonetisation period), the Assessing Officer observed that the assessee’s explanation remained vague and uncorroborated. On further examination, the Assessing Officer noted that the assessee failed to clarify whether the cash deposited, especially ₹28,10,245/- claimed to be received from cash sales was in demonetised currency or legal tender. The records indicated that ₹12,57,000/- of the deposits in the YES Bank account were in old demonetised notes and further the assessee could not establish the legal source of ₹99,50,160/- out of the total deposits. Accordingly, the Assessing Officer held that the assessee failed to discharge the burden of proving the nature and source of the cash deposits. Consequently, ₹99,50,160/- was treated as unexplained money and added to the assessee’s income under Section 69A of the Act. Penalty proceedings under Section 271AAC were also separately initiated.

5. In appeal, CIT(Appeals) deleted the addition made by the Assessing Officer with the following observations:

“I have considered the submission of the appellant and gone through the AO’s observation & decision in assessment order. I find during the course of assessment proceedings, with the help of submission of the appellant the AO verify the veracity of the accounts and accepted the incident of cash sales except discrepancy of Rs. 23,13,756/- as per column 6 of the table C vide para 4.4 of assessment order. I find the AO opined vide said para 4.4 of the assessment order that “the required details /information are still awaited from the Indusind Bank, Nehru nagar Branch, Ahmedabad till date despite repeated request”. Therefore I find the AO is unable to bring any adverse material on record to treat the said invalid cash sales as unexplained despite taking resort to notice u/s 133(6) of the I.T Act. I also find the appellant has given detailed representation to explain the source of cash deposit and the AO is unable to point out either any specific defects in the books of accounts or any violation of any