Assessment proceedings NFAC

Sir I am an Accountant and my income tax case has been fixed for show the cash deposit at the time of demonetization period under the faceless asset centre.Sir now I want to draw your kind attention that my son was an excise contractor and at the time of demonization period an unit of L 14 which belong to another party was declared defaulter by the AETC and my son was interested to take the said shop of wine,the AETC was declared the date of re auction as on 30/10/2016 and my son withdraw a sum of Rs 750000/- and Rs 500000/- from his cash book to purchased the said wine shop,sir on the time to time request of the defaulter party date of re auction was fixed for seize/locked the said 15/11/2016 to 17/11/2016.& on the re auction the said unit of wine was alloted to my son,sir the bank account of my son was in the KCCBLtd which was banned by the govt not to accept the the banned currency so at the time of allotment of said unit my son has not any another account and has been used my bank account to pay the security amount fee and another charges Sir all the amount deposit in my account by my son was transferred in favour of AETC in the shape of Rtgs neft and d/d not a single penny has been withdraw in the shape of cash .Sir after started the proceedings and all facts and figures furnished by me the NFAC has give me a show cause notice which he has want to made the addition under section ,69 and sub section by calculating the tax @ 60% and asked me by not made the addition whereas the reason and sources of cash deposit has been furnished to NFAC,Sir I want to know your forum now what can I do for satisfaction to the NFAC Sir please guide and help me.Thanks.

Hi Rajat,

Thanks for sharing the detailed facts. Here’s a stepwise approach and guidance on dealing with the NFAC (National Faceless Assessment Centre) show-cause notice and the addition under Section 69 (unexplained cash credit):

Understanding the situation:

The cash deposits during demonetization relate to your son’s purchase of a wine shop unit from a defaulter’s re-auction.
Your son withdrew large amounts in cash from his books for this transaction.
Since his bank was banned from accepting demonetized notes, your son deposited money into your bank account, which was then used to make payments to the AETC by banking channels (RTGS/NEFT/DD).
You have explained the source and movement of funds but NFAC is proposing addition under Section 69 at 60% tax rate.

What to do next:

Submit a detailed written response (Reply to show cause notice):
- Prepare a detailed explanation clearly stating:
  - The timeline of events including withdrawal of cash from son’s books.
  - Reason for using your bank account.
  - Documentary evidence proving the cash was not your own money but your son’s (books of account, bank statements, receipts).
  - Proof of payments made via RTGS/NEFT/DD to AETC.
  - Any communication from AETC and documents related to the purchase of the unit.
  - Evidence showing no cash withdrawal was made from your account after deposit.
  - Any affidavits or declarations from your son confirming the source of funds.
Attach documentary proof:
- Bank statements of your account and son’s account.
- Cash book entries of your son.
- Payment challans to AETC.
- Communication with AETC regarding banned currency instructions.
- Copies of contracts, allotment letters etc. for wine shop purchase.
Request a personal hearing or virtual hearing:
- NFAC allows for hearings in some cases; request for the same to explain your position verbally.
If NFAC still insists on addition:
- You may consider filing an appeal before the Commissioner of Income Tax (Appeals) (CIT(A)) against the addition.
- Maintain all your evidence meticulously for the appellate proceedings.

Key legal points to emphasize:

Section 69 addition can only be made when the assessee fails to satisfactorily explain the source of cash.
Since you have documented the cash is from your son and is used only for payment of the wine shop unit, the source is explained.
The use of your bank account was out of necessity due to the banned currency status of son’s bank; this is a valid explanation.
All payments were made via banking channels; no unexplained cash usage.

Final advice:

Submit a well-drafted response with complete documentary evidence.
Keep all communications in writing for future reference.
If needed, take professional help (CA or tax lawyer) to draft submissions and represent you.
Stay proactive and respond within timelines to avoid adverse orders.