Notice u/s 148 was valid as assessee was non-filer & failed to respond to preliminary enquiry

Notice u/s 148 for cash deposit after preliminary enquiry was valid as assessee was a non-filer and failed to respond

ABCAUS Case Law Citation
ABCAUS 3397 (2020) (09) ITAT

Important case law relied upon by the parties:
Vinod Commodities Ltd. Vs. ACIT (2019) 182 DTR 49 (Jodh)
Sh. Mahavir Parsad Vs. ITO

In the instant case, the assessee had challenged the notice issued u/s 148 of the Income Tax Act, 1961 (the Act) and the consequent order passed u/s 147 as illegal & bad in law. The assessee also challenged the CIT(A) confirming the addition treating the cash deposit in the bank account as unexplained.

The AO had specific information that there was large amount of cash deposit in the bank account maintained by the appellant for which no satisfactory explanation was available looking to the fact that no return of income was filed by the assessee.

Accordingly, the AO issued a letter to the assessee to furnish the return of income along with computation of income.  However, there were no compliance on part of the assessee.

Therefore, AO concluded that there was sufficient material in his possession to form the belief that income chargeable to tax had escaped assessment.

Consequently, the assessee issued notice u/s 148 of the Act. The assessee in response to notice u/s 148, filed his return of income declaring profit u/s 44AF and u/s 44AD of the Act.

The assessment was completed by the AO by making addition for cash deposits in the savings bank account of the assessee.

Before the CIT(A), assessee challenged the validity of notice issued u/s 148 of the Act.

The CIT(A), however, upheld the reopening by holding that the assessment was reopened after obtaining approval of the competent authority u/s 151.

Before the Tribunal It was inter alia submitted that the AO solely on the basis of information that there was cash deposit in the bank account of the assessee had presumed that income has escaped assessment as return of income was not filed by the assessee.

It was contended that only on presumption, notice u/s 148 cannot be issued as the primary condition for reopening is that AO should have reasons to believe that income has escaped assessment.

It was contended that for arriving at reason to believe, the AO must make at least some primary enquiry at his end to come to believe that income has escaped assessment. No such enquiry was made by the AO before issuance of notice u/s 148. Hence, the reopening was bad in law.

Notice u/s 148 after preliminary enquiry for cash deposit was valid

The Tribunal found that AO did try to make a primary enquiry and had tried to reach out to the assessee and had issued a letter seeking details of filing of return of income and the income so disclosed therein. However, for reasons best known to the assessee, the latter had chosen to ignore and not even responded to such enquiry and letter issued by the AO.

The Tribunal opined that in such a scenario, the assessee cannot plead that the AO must make atleast some primary enquiry before coming to believe that income has escaped assessment.

The Tribunal noted that in the present case, the AO had the  tangible  material  in  form  of  information  that  the  assessee  had deposited large cash in his bank account and on the basis of such information in his possession, the AO tried to make preliminary enquiry directly from the assessee and the latter having failed to respond to such enquiries and in absence of past tax history of the assessee, the AO had rightly exercised his jurisdiction u/s 147 and issued notice u/s 148 of the Act.  

The Tribunal opined that at the time of issuance of notice, what is required is that the AO should be  in  possession  of  tangible  information  and  material  which  in  the present case was cash deposit in the bank account and it was not the case of the assessee that the bank account doesn’t belong to it or the fact that he was not aware of the cash so deposited in the said bank account.  Where the assessee was not disputing the bank  account and cash transactions so reflected in such bank account, there is thus no dispute that  such  information  qualify  as tangible piece of information duly substantiated.  

The Tribunal further opined that in  terms  of  establishing  nexus  between  such  tangible information and formation of belief that the same represent the income which has escaped assessment, the AO did try to make the preliminary enquiry  from  the  assessee  and  having  failed  in  his efforts  to  solicit assessee’s response and the fact that the assessee

was not a regular tax filer and has thus no past tax history, there was no fault where the AO  forms  a  prima  facie  belief  that  cash  so  deposited represents the income which has escaped  assessment.

The Tribunal pointed out that there  may  be a  situation where after issuance of notice u/s 148, the assessee decide to respond and  explain  the  source  of  such  cash  deposit  and  the  explanation  so offered by the assessee may or may not find favour with the AO fully or there could be a scenario where only part of the cash deposit is finally assessed  to  tax,  the  same  cannot  preclude  the  AO  in  exercising  his jurisdiction u/s 147 as all that is required at the time of recording of the reasons is that the formation of a prima facie view that the income has escaped assessment.

The Tribunal accordingly upheld the issuance of notice u/s  148  and  the consequent assessment order  u/s 147 and the ground of appeal was dismissed.

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