Ishtiaq Ahmad Rather v ITO Srinagar: ITAT Amritsar on Section 68 Cash Deposits and Section 271(1)(c) Penalty

In ITA Nos. 316 and 317/Asr/2024, the Income Tax Appellate Tribunal at Amritsar considered two connected appeals filed by Ishtiaq Ahmad Rather, a hardware and ceramics trader from Srinagar, against the order of the CIT(A) National Faceless Appeal Centre (NFAC), Delhi, which had confirmed both a substantial addition under Section 68 on account of cash deposits and the consequential penalty under Section 271(1)(c) for Assessment Year 2016-17. Both appeals were allowed by the Tribunal, making this case a useful reference point for practitioners dealing with Section 68 additions arising from bank cash deposits in cases where the assessee files returns on a presumptive basis under Section 44AD.

This page is a research summary of one specific Indian tax judgment, NOT legal advice. Always verify against the full judgment and consult a professional for case-specific guidance.

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The case at a glance

• Parties: Ishtiaq Ahmad Rather, Jammu And Kashmir vs Income Tax Office Ward 1, Srinagar
• Bench: Income Tax Appellate Tribunal - Amritsar
• Date: 10 September 2024
• Court level: Tribunal (ITAT)
• Sections engaged: 68, 271(1)
• Outcome: Taxpayer succeeded — both ITA Nos. 316 and 317/Asr/2024 are allowed.

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Facts of the case

Ishtiaq Ahmad Rather, a proprietor of M/s Muble Impex at Hyder Pora, Srinagar, was engaged in the retail trading of hardware and ceramics items. For Assessment Year 2016-17, he filed an e-return on 16 May 2016 declaring total presumptive income of Rs. 5,20,912/- under Section 44AD of the Income Tax Act. The case was selected for limited scrutiny under CASS specifically to examine whether cash deposits had been made from disclosed sources. The case was subsequently reopened on the basis of information obtained from HDFC Bank's AL Rehman Shopping Complex, HS High Street, Srinagar branch, relating to cash deposits made into the assessee's accounts.

The Assessing Officer passed an assessment order under Section 144 of the Act on 12 December 2018, assessing total income at Rs. 1,03,73,912/- against the returned income of Rs. 5,20,912/-. The additions under Section 68 totalled Rs. 98,53,000/-, comprising Rs. 11,95,000/- in respect of one HDFC Bank account and Rs. 86,58,000/- in respect of a second account, without, per the assessee's grounds, considering opening cash in hand or bank withdrawals during the year. A separate penalty order under Section 271(1)(c) was passed on 4 June 2019. The CIT(A) NFAC, Delhi, confirmed both the addition and the penalty vide order dated 19 February 2024.

The assessee filed two appeals before ITAT Amritsar — ITA No. 316/Asr/2024 against the quantum addition and ITA No. 317/Asr/2024 against the penalty — with a delay of 33 days. The Tribunal condoned the delay on the basis that the delay arose from the previous counsel, CA Junaid Qadir, failing to hand over case documents to the newly appointed counsels, Sh. Virsain Aggarwal and CA Rohit Kapoor, and that there was no negligence or deliberate act on the assessee's part.

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Issues raised

• Whether the addition of Rs. 98,53,000/- under Section 68 on account of cash deposits in two HDFC Bank accounts was sustainable, given that the assessee was a retail trader filing on a presumptive basis under Section 44AD and, per the assessee's case, not maintaining books of accounts to which Section 68 could attach.
• Whether the AO had properly accounted for the assessee's opening cash in hand, bank withdrawals, and actual turnover (declared at Rs. 65,11,400/- against the AO's figure of Rs. 32,92,560/-) before making the additions.
• Whether the assessment order under Section 144 was valid in law, given the assessee's contention that the notice under Section 143(2) dated 8 August 2017 was not on the portal and that a subsequent notice dated 13 June 2018 was time-barred.
• Whether the penalty under Section 271(1)(c) on income of Rs. 32,71,507/- was sustainable when the underlying quantum addition itself was contested, and when the CIT(A) had confirmed the penalty merely on the basis of confirming the quantum addition without independent adjudication on merits.

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What the court held

Both appeals filed by the assessee — ITA No. 316/Asr/2024 (quantum) and ITA No. 317/Asr/2024 (penalty) — were allowed by the Tribunal. The outcome_reasoning recorded in the source states: "both the appeals of the assessees in ITA Nos. 316 and 317/Asr/2024 are allowed," confirming a clear win for the taxpayer on both the addition and the penalty limbs.

As a threshold matter, the Tribunal condoned the 33-day delay in filing the appeals. The Tribunal found that the affidavit of the previous counsel established that the delay was caused by the failure of CA Junaid Qadir to hand over documents to the successor counsels, and that this constituted sufficient cause, with no negligence or deliberate act attributable to the assessee.

On the substantive grounds, the assessee's case before the Tribunal included the argument that Section 68 is not applicable where no books of accounts are maintained — which is consistent with filing under the presumptive scheme of Section 44AD — and that the cash deposits represented business receipts from the hardware and ceramics trading activity. The assessee further challenged the jurisdictional validity of the assessment on the ground that the Section 143(2) notice was not traceable on the portal, and that any subsequent notice was time-barred. The penalty in ITA No. 317/Asr/2024 was challenged on the additional ground that the CIT(A) had confirmed it without independent adjudication on merits, treating the quantum confirmation as automatically dispositive of the penalty, and without any cogent material establishing concealment of income.

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Strategy observations

1. Two-appeal structure — quantum and penalty filed separately: The assessee filed distinct appeals for the quantum addition (ITA No. 316) and the penalty (ITA No. 317), allowing each to be argued on its own footing. The penalty appeal independently raised the ground that confirmation without independent adjudication on merits was bad in law, separate from the substantive merits of the quantum addition.

2. Jurisdictional ground raised alongside merits: An additional ground concerning the absence of a valid Section 143(2) notice was raised before the Tribunal. The assessee's grounds noted that the notice dated 8 August 2017 did not appear on the portal and that a subsequent notice issued on 13 June 2018 was time-barred — a jurisdictional challenge that, if accepted, would have rendered the assessment void ab initio.

3. Applicability of Section 68 to presumptive-scheme filers: The assessee specifically contended that Section 68, which operates on unexplained entries in books of accounts, cannot apply where no books of accounts are maintained, as is the position for assessees opting for the presumptive taxation scheme under Section 44AD. This argument was framed as a standalone ground before the Tribunal.

4. Condonation supported by notarised affidavit of outgoing counsel: The delay condonation application was supported by a notarised affidavit from the previous counsel, CA Junaid Qadir, explaining the document handover failure. The Tribunal accepted this as sufficient cause, underscoring that delays arising from counsel transitions, supported by affidavit evidence, can satisfy the "sufficient cause" standard.

5. Factual discrepancy on turnover placed on record: The assessee's grounds highlighted that the AO had recorded turnover of Rs. 32,92,560/- against the actual declared turnover of Rs. 65,11,400/- under Section 44AD — a factual inaccuracy in the assessment record that formed part of the challenge to the reliability of the AO's findings.

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Why this case matters

This order is relevant to the recurring question of how Section 68 interacts with the presumptive taxation scheme under Section 44AD. The assessee's contention — that Section 68 cannot be invoked against a taxpayer who is not required to maintain books of accounts — is a substantive legal argument that has arisen in multiple ITAT decisions. An ITAT Amritsar order allowing the appeal on these facts adds to the body of Tribunal-level authority on this point and is a useful reference for practitioners advising small traders or proprietors who file on a presumptive basis and face cash-deposit additions.

The case also illustrates the distinct treatment of penalty proceedings under Section 271(1)(c) where the CIT(A) has confirmed the penalty solely on the basis of confirming the quantum addition, without independent adjudication. The Tribunal's allowance of both appeals signals that the penalty limb must be independently examined on its own merits — specifically, whether there is cogent material to establish concealment or furnishing of inaccurate particulars — and cannot ride automatically on the back of a confirmed addition at the appellate stage.

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Source

This case is drawn from the TaxNoticeAI structured legal corpus (16,101 Indian tax judgments, CBIC circulars, ITAT rulings, AAR rulings, GSTAT rulings), sourced from indiankanoon.org and official court portals. Original document: https://indiankanoon.org/doc/54601832/