2023 (7) TMI 133 - AT - Income Tax

Reopening of assessment u/s 147 - cash deposit made by the assessee in his bank account - reason to believe - whether there was prima-facie some material on the basis of which the Department could reopen the case? - HELD THAT - We observe that in the instant set of facts, there was a substantial cash deposit made by the assessee in his bank account. Assessee has been non-filer of income tax return. It is a well-settled principle of law that for initiation of proceedings u/s 147 of the Act, only a prima facie belief has to be formed by the assessing officer that the income has escaped assessment. In the case of Raymond Woollen Mills Ltd. 1997 (12) TMI 12 - SUPREME COURT observed that the Court has only to see whether there was prima-facie some material on the basis of which the Department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at this stage. In the instant case AO had sufficient material to form a prima facie belief that there was escapement of income in the instant set of facts. Therefore, we find no infirmity in the order of Ld. CIT(Appeals) when he held that proceedings u/s 147 of the Act were validly initiated, looking into the facts of the instant case. Decided against assessee. Unexplained cash deposits in bank account - As considering the well-established legal proposition that was only the profit element embedded in any receipts which may be taxed in the hands of the assessee, it would be fair to estimate profit @10% of the total cash deposits in the hands of the assessee, which may be subject to tax in the hands of the assessee. In the case of President Industries 1999 (4) TMI 8 - GUJARAT HIGH COURT held that the entire cash deposit should not be added to the income of the assessee had only the element of profit element should be considered as the taxable income of the assessee. The above proposition was also followed in the case of Dineshbhai Mathai Vala 2015 (4) TMI 712 - ITAT AHMEDABAD - Accordingly, in the interest of justice 10% of the total deposits may be taken as a taxable income and thus taxed in the hands of the assessee.

Summary

Issues Involved:
1. Reopening of assessment under Section 148 of the Income Tax Act, 1961.
2. Addition of Rs. 32,70,525/- as unexplained money under Section 69A of the Income Tax Act, 1961.
3. Initiation of penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961.
4. Justification and legality of the CIT(A)'s findings.

Condonation of Delay:
The appeal was time-barred by 126 days. The delay was condoned as the assessee provided a medical certificate showing he was suffering from a spinal injury and was advised complete bed rest.

On Jurisdiction:
The assessee challenged the initiation of proceedings under Section 147 of the Act. The Tribunal observed that substantial cash deposits were made by the assessee, who was a non-filer of income tax returns. It was held that for reopening under Section 147, only a prima facie belief is necessary. Citing the Supreme Court's decision in Raymond Woollen Mills Ltd. v. ITO and other relevant cases, the Tribunal upheld the CIT(A)'s decision that the proceedings under Section 147 were validly initiated.

On Merits:
The assessee deposited Rs. 32,70,525/- in his bank account but failed to explain the source. The CIT(A) noted discrepancies in the assessee's statements regarding the source of the deposits, oscillating between business income and agricultural proceeds. The CIT(A) directed the AO to calculate the peak credit and add it to the total income, rather than taxing the entire deposit.

The Tribunal acknowledged the assessee's claim of having substantial landholdings and agricultural income but noted inconsistencies in his statements. It was decided that only the profit element embedded in the receipts should be taxed. Following the legal precedent set by the Gujarat High Court in President Industries and ITAT Ahmedabad in Dineshbhai Mathai Vala, the Tribunal estimated a profit @10% of the total cash deposits to be taxed in the hands of the assessee.

Conclusion:
Ground No. 1 of the appeal was dismissed. Ground No. 2 was partly allowed, with 10% of the total deposits being taxed. Other grounds were deemed general and required no specific adjudication. The appeal was partly allowed.