2019 (9) TMI 1292 - AT - Income Tax

Reopening of assessment - Addition u/s 68 - HELD THAT - Since mere cash deposit in the bank account cannot justify such belief or interference the Co-ordinate Bench was pleased to quash the entire proceeding following the judgment passed in the matter of Bir Bahadur Singh Sijwali-vs-ITO 2015 (2) TMI 60 - ITAT DELHI . Nothing more than the cash deposit of ₹ 22,99,411/- in the bank account of the assessee is available to justify the reopening of assessment on apprehension that income has escaped assessment - we quash reopening of assessment. Penalty u/s 271(1)(c) - unexplained cash credit u/s 68 - HELD THAT - Finding in the assessment proceeding, howsoever relevant and good may not be conclusive so far as penalty proceedings are concerned. Further that it is a settled principle that parameters of judging the justification for addition made in assessment proceedings are different from penalty imposed on account of concealment of income or filing inaccurate particulars of income. Certain disallowances/additions can be legally made in the assessment proceedings on the preponderance of probabilities but penalty cannot be imposed on preponderance of probability. Rather, revenue has to prove that the claim of the assessee is not genuine. Merely because an addition has been confirmed in appeal or no appeal has been filed by assessee against such addition, the same cannot be the sole ground for coming to a conclusion that assessee has concealed any income. As decided in DISHMAN PHARMACEUTICALS CHEMICALS LTD, AHMEDABAD VERSUS ACIT (OSD) , RANGE-1, AHMEDABAD 2015 (2) TMI 1105 - ITAT AHMEDABAD certain disallowance and/or reasons could legally be made in the assessment proceeding on the preponderance of the probabilities but no penalty could be imposed u/s 271(1)(c) of the Act on preponderance of probabilities and the revenue has to prove that the claim of the assessee was not genuine or was inflated its tax liability. we observe that merely because addition u/s 68 is accepted by the assessee that cannot be a ground for levy of penalty; penalty cannot be levied in the absence of any such concrete finding that the amount deposited is the actual income of the assessee even if such addition has been confirmed by the first appellate authority. - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of reopening of assessment under section 147 of the Income Tax Act, 1961.
2. Validity of reassessment proceedings based on cash deposits in bank accounts.
3. Justification for penalty under section 271(1)(c) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Legality of Reopening of Assessment under Section 147:
The assessee filed returns declaring an income of ?1,74,630. Based on AIR details, the Assessing Officer (AO) noted cash deposits exceeding ?10,00,000 in the assessee's bank accounts, leading to a belief that ?22,99,411 had escaped assessment. The case was reopened under section 147 by issuing notice under section 148. The assessee challenged the reopening, arguing that reasons for reopening were not provided, violating natural justice principles. The CIT(A) upheld the reopening. The Tribunal found that the AO failed to provide reasons for reopening within a reasonable time, denying the assessee an opportunity to object. The Tribunal quashed the reopening, citing a lack of nexus between the material and the belief of income escapement.

2. Validity of Reassessment Proceedings Based on Cash Deposits:
The Tribunal noted that mere cash deposits in bank accounts do not justify the belief of income escapement. The AO's reasons lacked a direct nexus or live link between the deposits and the formation of the belief. The Tribunal referenced precedents, including the case of Bir Bahadur Singh Sijwali, where similar reassessment proceedings were quashed. The Tribunal emphasized that reasons must be self-explanatory and indicate income escapement, not merely suspicion. The reassessment proceedings were quashed as the reasons recorded did not justify the reopening.

3. Justification for Penalty under Section 271(1)(c):
For A.Y. 2008-09, the assessee faced a penalty of ?3,15,890 based on an addition under section 68, which was modified to the peak balance of ?8,95,166. The assessee argued that penalty under section 271(1)(c) cannot be imposed solely based on fictional additions under section 68. The Tribunal agreed, noting that penalty proceedings are distinct from assessment proceedings. It cited the case of CIT vs. Baroda Tin Works, emphasizing that penalties require proof of concealment or furnishing inaccurate particulars, not just an addition in assessment. The Tribunal quashed the penalty, stating that the revenue failed to prove that the assessee's claim was not genuine.

Conclusion:
The Tribunal allowed both appeals, quashing the reassessment proceedings and the penalty imposed under section 271(1)(c). The judgment underscores the necessity for clear, substantiated reasons for reopening assessments and the distinct nature of penalty proceedings from assessment proceedings.