Taxpayer declared Rs 1.79 lakh in ITR, faced Rs 11.22 crore income addition on large cash deposits, unsecured loans; ITAT grants him chance to substantiate case with condition he plant 500 trees

The taxpayer has now received what could be described as a rare opportunity to substantiate his case and contest the Rs 11.22 crore addition.

Your income tax return comes under scrutiny and you are given a chance to present your case before ITAT as part of your appeal you propose planting trees. A Haryana resident who reported an income of Rs 1,79,160 in his income tax return (ITR) for Assessment Year 2017-18, along with agricultural income of Rs 3 lakh, faced an income addition of Rs 11.22 crore after his return was selected for scrutiny.The Income Tax Department issued statutory notices during the assessment proceedings, but according to the assessment order, the taxpayer did not provide the required information or supporting documents. The assessment consequently resulted in total income being determined at Rs 11,23,87,670 under Section 143(3) of the Income-tax Act, 1961.The taxpayer has now received what could be described as a rare opportunity to substantiate his case and contest the Rs 11.22 crore addition.

What the case is about

The Assessing Officer examined the taxpayer’s financial transactions and identified substantial cash deposits, unsecured loans running into crores and agricultural income of Rs 3 lakh that was not backed by supporting evidence.The assessment proceedings brought the following transactions to the tax officer’s notice:

The Assessing Officer consequently treated the amounts as unexplained credits or income, according to an ET report. These additions totalling Rs 11.22 crore were made to the taxpayer’s income, taking his assessed total income to Rs 11.23 crore under Section 143(3) of the Income-tax Act, 1961.Karanjot Singh Khurana, Partner, DMD Advocates, told ET that the assessment order does not specify why the return was selected for scrutiny. However, he said the circumstances of the case themselves represented a typical trigger for scrutiny.“It can be speculated that a return declaring Rs 1.79 lakh of income and Rs 3 lakh of agricultural income, against cash deposits of nearly Rs 86 lakh in the demonetisation window and a balance sheet carrying Rs 9.26 crore of unsecured loans could have been flagged in CASS for scrutiny assessment.”

What ITAT Chandigarh ruled

After the income additions were confirmed in the first appeal, the taxpayer approached the CIT(A), Gurgaon. His challenge before that authority did not succeed, following which he filed a further appeal before the ITAT Chandigarh.This time, however, the taxpayer did not ask the tribunal to simply delete the entire income addition. Instead, he sought one final opportunity to place the necessary evidence before the Assessing Officer and substantiate his case.His representative told the tribunal that the taxpayer was prepared to comply with any conditions that the Bench considered appropriate. As part of the proposal, he also offered to undertake the plantation of 500 trees as a measure of social and environmental responsibility.The plantation was proposed to be carried out with the assistance of NGO Hari Yamuna Sehyog Samiti at the Yamuna Bank, Panipat, Samalakha Site.The proposal covered the preparation of the land, labour expenses and the requirements for plantation. These activities could either be undertaken by the assessee himself or with the assistance of the NGO. In addition, he agreed to pay Rs 30 per plant per year towards maintenance for one year.After examining the case details and considering the submissions made by both sides, the tribunal decided to give the taxpayer the final opportunity he had requested. The matter was sent back to the Assessing Officer, but only for the limited purpose of checking whether the condition imposed by the tribunal had been fulfilled.Under the condition, the assessee has to plant 500 trees at the specified Yamuna Bank location within one month from the date of the tribunal’s order. He is also responsible for ensuring their plantation, installation, protection and maintenance.If the taxpayer chooses not to carry out the plantation himself, he has to deposit or pay the required amount for planting, installing, protecting and maintaining all 500 trees to the specified NGO within the same one-month period.“It is, however, made absolutely clear that this relief is conditional,” ITAT Chandigarh said.The tribunal further made it clear that failure to comply with the plantation requirement would result in the order of the CIT(A) being restored.In other words, the tax dispute has not been finally settled at this stage. The unexplained money has also not yet been established or explained. The tribunal has simply provided the taxpayer with another opportunity to substantiate his explanation regarding the unexplained cash.Why did the ITAT accept the assessee’s willingness to plant 500 trees?Karanjot Singh Khurana said three factors appear to have influenced the tribunal while considering the taxpayer’s request.The first was that the proposal to plant the trees appears to have originated with the taxpayer himself. The order indicates that the tribunal accepted an undertaking that had been voluntarily offered by the assessee.Second, the Income Tax Department did not strongly oppose the proposal. Its submission was essentially that, if another opportunity was granted, the taxpayer should be required to comply with the conditions strictly and within a specified period.The third factor was the evidentiary basis of the additions made by the lower authorities. The additions were based on the absence of supporting evidence before those authorities. Where important factual claims are sought to be supported before the tribunal for the first time through additional evidence, the tax tribunal would ordinarily consider sending the matter back to the lower authorities for examination.