Belief of income escapement must indicate income escaping assessment than need of probe

Belief of income escapement must indicate income escaping assessment than need of probe which may, or may not, lead to income escaping assessment. Reopening to verify source of cash deposits in bank is no requisite satisfaction

ABCAUS Case Law Citation:
ABCAUS 3231 (2020) (01) ITAT

Important case law relied upon by the parties:
Bir Bahadur Singh Sijwali, Haldwani vs. ITO
ITO Vs Lakhmani Mewal Das [(1976) 103 ITR 437
CIT Vs Nova Promoters & Finlease Pvt Ltd [(2012)342 ITR 169]
Phool Chand Bajrang Lal Vs ITO [(1993) 203 ITR 456]
Mithila Credit Services Limited Vs ITO

In the instant case, an appeal was filed by the Assessee against the impugned order passed by the CIT (Appeals) in upholding the reassessment proceedings under section 147 of the Income Tax Act, 1961 (the Act).

In the instant case the Assessing Officer (AO) issued notice u/s 148 after recording belief of escapement of income. The said reasons were solely based on the AIR information whereby it was noticed that during the relevant assessment year, the assessee had made large cash deposits in saving bank account with Bank.

The AO went on to record that the source of money deposited in Saving Bank account from the perusal of the return of income of the assessee, cash deposits in the bank account could not be verified at the time.

The AO further stated that the source of cash deposit, extent of business, nature and source(s) of deposits were required to be examined in the case of assessee.

Finally, the AO recorded the satisfaction stating that he had reason to believe that amount to the tune of the cash deposits made had escaped assessment for the relevant assessment year. Hence, proceedings u/s 147 of the Act were initiated.

Before the Tribunal, the assessee contended that the reasons were recorded only with a view to verify the source of the cash deposits in the savings bank account, which did not amount to requisite satisfaction for belief of escapement of income, and owing to such a fundamental deficiency in the recording of the reasons, the entire proceedings of the assessment, in pursuance of such reasons, had become wholly vitiated and consequently the assessment order deserved to be quashed.

The Tribunal noted that the ground had been raised for the first time, before it. However, it being a legal issue, going to the root of the matter and not requiring anything further to be brought on record, the Tribunal allowed it to be raised.

The Tribunal noted that ITAT Delhi had held that even though reasons, as recorded, may not necessarily prove escapement of income at the stage of recording the reasons, such reasons must point out to an income escaping assessment and not merely need of an inquiry which may result in detection of an income escaping assessment.

The Coordinate Bench had held that Undoubtedly, at the stage of recording the reasons for reopening the assessment, all that is necessary is the formation of prima facie belief that an income has escaped the assessment and it is not necessary that the fact of income having escaped assessment is proved to the hilt. What is, however, necessary is that there must be something which indicates, even if not establishes, the escapement of income from assessment. It is only on this basis that the Assessing Officer can form the belief that an income has escaped assessment. Merely because some further investigations have not been carried out, which, if made, could have led to detection to an income escaping assessment, cannot be reason enough to hold the view that income has escaped assessment.

Further, the Tribunal noted that the Coordinate Bench had further opined that the mere fact that these deposits have been made in a bank account does not indicate that these deposits constitute an income which has escaped assessment unless the reasons recorded for reopening the assessment make out a case that the assessee was engaged in some business and the income from such a business has not been returned by the assessee.

Such an opinion proceeds on the fallacious assumption that the bank deposits constitute undisclosed income, and overlooks the fact that the sources of deposit need not necessarily be income of the assessee. Of course, it may be desirable, from the point of view of revenue authorities, to examine the matter in detail, but then reassessment proceedings cannot be resorted to only to examine the facts of a case, no matter how desirable that be, unless there is a reason to believe, rather than suspect, that an income has escaped assessment.

In view of the above, the Tribunal opined that it is only belief of escapement of income, which would enable the Assessing Officer to reopen a completed assessment. In the present case, however, the Assessing Officer himself was of the belief that what has escaped assessment was the amount of bank deposits. Now, these deposits, as also held by the Coordinate Bench, by themselves, do not lead to income being taxed in the assessee’s hands.

Accordingly, it was held that the reasons recorded by the Assessing Officer were not reasons sufficient enough to enable reopening of the completed assessment. The reassessment proceedings and all further proceedings pursuant thereto, culminating in the impugned order, were held to be null and void.

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