Income Tax Tribunal Chennai Sets Aside Ex-Parte Demonetization Addition

In a recent ruling, the Income Tax Appellate Tribunal (ITAT), Chennai ‘A’ Bench, has addressed an appeal filed by an assessee, Palanivel Nandakumar, for the assessment year 2017-18¹. The case centered on additions made on account of cash deposits during the demonetization period².

The Tribunal set aside the orders of the lower authorities and remitted the matter back to the Assessing Officer (AO) for a fresh decision³. However, this relief was granted as a “one last opportunity” ⁴and was made conditional upon the assessee paying a cost for previous non-compliance⁵.

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⏳ 368-Day Delay Explained: Consultant’s Negligence Condoned

The appeal first faced a significant hurdle: a delay of 368 days in being filed before the Tribunal⁶.

In an affidavit, the assessee explained the reason for the delay:

• They were using their former tax consultant’s email for communication with the Income Tax Department⁷.
• This consultant did not provide the departmental communications regarding the assessment or appellate proceedings⁸.
• The assessee only learned of the issue when recovery proceedings were initiated⁹.

The assessee argued the delay was “neither willful nor wanton”¹⁰. The Tribunal, satisfied with the justification and noting that “no litigant gains by intentionally delaying its own matters,” condoned the delay and proceeded to hear the appeal^11111111.

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⚖️ Ex-Parte Orders and Natural Justice

The assessee’s primary argument was that both the Assessing Officer (AO) and the CIT(A) had passed ex-parte orders¹². The Ld. Counsel submitted that the first appellate authority had confirmed the addition (related to demonetization cash deposits) “without giving sufficient opportunity of being heard”¹³.

In the interest of justice, the assessee pleaded for the matter to be restored to the AO for readjudication, assuring full compliance with statutory notices moving forward¹⁴.

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📜 ITAT’s Verdict: Matter Set Aside for De Novo Adjudication

After hearing both sides, the ITAT reviewed the materials and made several crucial findings:

• Not a “Speaking Order”: The Tribunal noted that the order passed by the Ld. AO was “not a speaking order”¹⁵.
• Lack of Enquiry: Clear facts had not been brought on record, and there were “indications of no enquiries conducted by the Ld.AO” before making the addition¹⁶.
• Non-Compliant Conduct: The Tribunal also observed that the assessee’s conduct before the first appellate authority was “far from satisfactory” regarding compliance¹⁷¹⁷.
• Core Issue: The controversy’s core was the “inadequate submission of details and evidences” explaining the source of the bank deposits¹⁸.

Concluding that the “ends of justice would be met,” the Tribunal decided to give the assessee “one last opportunity” to present their case and file all supporting evidence before the AO¹⁹.

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⚖️ Final Order Highlights

1. Set Aside: The ITAT set aside the orders of the lower authorities on the issue²⁰.
2. Remitted: The case was remitted back to the AO to readjudicate the matter de novo (afresh)²¹²¹.
3. Fresh “Speaking Order”: The AO is directed to examine the matter in accordance with the law and pass a “speaking order” after giving the assessee opportunities to be heard^22222222.
4. Cost Imposed: The Tribunal found force in the argument that the assessee’s repeated non-compliance “caused loss of precious time”²³. Therefore, the relief was made subject to the payment of a cost of Rs. 5,000 by the assessee to the Tamil Nadu State Legal Services Authority²⁴.
5. Appeal Allowed: The appeal was ultimately “allowed for statistical purposes”²⁵.

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🔑 Key Takeaways from the Order

• Assessment Orders Must Be Reasoned: The Tribunal specifically called out the AO’s order for not being a “speaking order,” reinforcing that tax additions must be based on clear facts and enquiries²⁶.
• Compliance is Not Optional: The assessee’s “far from satisfactory” compliance led to the dismissal of the first appeal and the imposition of a cost by the ITAT^27272727.
• Natural Justice Upheld: Despite poor compliance, the Tribunal provided a final opportunity in the “ends of justice,” highlighting the importance of allowing a taxpayer to be heard²⁸.
• Communication is the Assessee’s Responsibility: The case serves as a caution, as the reliance on a consultant’s email for official communications led to a 368-day delay and recovery proceedings²⁹.