Reopening us 147 on the basis of cash deposits in bank invalid as there was no basis to form reason that cash deposits represented assessee’s income – ITAT

Reopening us 147 on the basis of cash deposits in bank invalid as there was no basis to form reason that cash deposits represented income of the assessee – ITAT

Reopening us 147 on the basis of cash deposits

ABCAUS Case Law Citation:
ABCAUS 1128 (2017) (02) ITAT

Assessment Year : 2008-09
Date/Month of Pronouncement: February, 2017

Brief Facts of the Case:
During the relevant assessment year, the assesse had not filed any return of income (ITR) and the case was reopened under section 147 of the Income Tax Act, 1961 (“the Act”) on the basis of an information that the assessee had made cash deposits in his savings bank account.

The assessee was engaged in small scale business of sale / purchase of motor vehicles on commission basis. During the course of proceedings, the assessee was confronted with the fact that there were deposits in his bank account and explanation was sought for the same. However, on non-receipt of the reply, a sum of Rs. 40,49,500/- was added as cash credit under section 68 of the Act and accordingly, the Assessing Officer (“AO”) completed the assessment u/s. 143(3).

Against the Order of the AO, assessee appealed before the CIT(A), who partly allowed the appeal of the sssessee.

Not satisfied with the partial relief granted by the CIT(A), the assessee was in appeal before the Tribunal and argued only the legal grounds alleging that:

  1. reopening u/s 148 was made in violation of mandatory jurisdictional conditions stipulated under the Act;
  2. reopening was made on non existing basis of cash deposits which was not proved till passing of final order; and
  3. reopening was made on the sole basis of unsubstantiated & vague AIR information.

Contentions of the Appellant Assessee:
It was stated that the reasons recorded by the AO for reopening:

(a) were totally silent on the contents of information available to the AO and
(b) no details whatsoever of any bank a/c were mentioned and
(c) mere cash deposits was treated to be equivalent to income escaping assessment.

It was further contended that reopening u/s 148 was without legal and valid mandatory service of notice u/s 148 of the Act. There is no nexus between the prima facie inference arrived in the reasons recorded and information available with the office of the AO.

The assessee further stated that the information was restricted to cash deposits in bank account but there was no material much less tangible, credible, cogent and relevant material to form a reason to believe that cash deposits represented income of the assessee.

It was also the contention of the assessee that the proceedings initiated were based on surmises, conjectures and suspicion and therefore, the same were without jurisdiction. He further stated that the reasons recorded were highly vague, far-fetched and cannot by any stretch of imagination lead to conclusion of escapement of income and there were merely presumption in nature. He stated that it was a case of mechanical action on the part of the AO as there was non-application of mind much less independent application of mind so as to show that he formed an opinion based on any material that such deposits represented income.

Observations made by the Tribunal:
After going through the reasons recorded, the Tribunal observed that there was no nexus between the prima facie inference arrived in the reasons recorded and information; the information was restricted to cash deposits in bank account but there was no material much less tangible, credible, cogent and relevant material to form a reason to believe that cash deposits represented income of the assessee; that the proceedings initiated were based on surmises, conjectures and suspicion and therefore, the same were without jurisdiction; that the reasons recorded were highly vague, far-fetched and cannot by any stretch of imagination lead to conclusion of escapement of income and there are merely presumption in nature; that it was a case of mechanical action on the part of the AO as there was non-application of mind much less independent application of mind so as to show that he formed an opinion based on any material that such deposits represented income.

The Tribunal opined that the reopening in the case of the assessee was bad in law and deserves to be quashed.

The Tribunal placed reliance on the following judgments

Case Law

Held

Amrik Singh vs ITO

The AO proceeded on the fallacious assumption that the bank deposits constituted undisclosed income, over-looking the fact that the source of the deposits need not necessarily be the income of the assessee.

Praveen Kumar Jain v ITO

The basic requirement for reopening of assessment that the AO must apply his mind to the materials in order to have reasons to believe that the income of the assessee escaped assessment was found to be missing when the AO proceed to reopen the assessment which is in nature of a post mortem exercise after the event of reopening of the assessment.

Munni Devi

there is no nexus between the prima facie inference arrived in the reasons recorded and information; the information was restricted to cash deposits in bank account but there was no material much less tangible, credible, cogent and relevant material to form a reason to believe that cash deposits represented income of the assessee;

Bir Bahadur Singh Sijawali

Cash credits (Bank deposit) – Assessment year 2008-09 – Assessee deposited certain sum in his saving bank account but no return of income was filed by him – Assessing Officer issued notice under section 148 on ground that there was an escapement of income – Whether where Assessing Officer proceeded on fallacious assumption that bank deposits constituted undisclosed income and overlooked fact that source of deposit need not necessarily be income of assessee, reassessment proceedings “was to be set aside – Held. Yes

Amrik Singh vs ITO

“information cannot form a valid basis for initiating assessment proceedings under section 147 of the LT. Act. As observed in ‘Bir Bahadur Singh Sijwali’ (supra), the mere fact that the deposits had been made in the bank account does not indicate that these deposits constitute income which has escaped assessment. 50. Thus, it was a mere suspicion of the AO, that prompted him to initiate assessment proceedings under section 147, which is neither countenanced, nor sustainable in law. Too, the AO proceeded on the fallacious assumption that the bank deposits constituted undisclosed income, over-looking the fact that the source of the deposits need not necessarily be the income of the assessee

Parimisetti Setharamamma vs. CIT

the Act does not provide that whatever is received by a person must be regarded as income liable to tax

Held:
The reassessment was held to be bad in law

Reopening us 147 on the basis of cash deposits

Download Full Judgment

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