2016 (10) TMI 100 - HC - Income Tax

Reopening of assessment - Addition u/s 68 - Held that - Assessing Officer cannot without there being anything further on record, reopen the assessment of the same assessee for an earlier year on the same grounds. His attempt to tax income for the assessment year 2007-2008 by passing order of assessment and his action of reopening the assessment of the same assessee on the same ground for the assessment year 2006-2007, would be incongruent. It may be that the Tribunal upheld the order of the Commissioner(Appeals) on two ground. Firstly, on the ground of additions and also fleetingly on the question of correct year under which the same could be done. This would neither expand the scope of the order passed by the Commissioner(Appeals) nor convert the proceedings into one in which the higher authority could be seen to have held that the additions though justified were made in a wrong assessment year. Secondly, even on merits, the Tribunal has finally concluded against the Revenue that in facts of the case, section 68 cannot be invoked in case of the bank, a view with which we have a strong prima facie agreement. If at all, it was a transaction of depositing the amount by individual depositors, the source of such deposits being M/s. Radhe Finance. Whether such a transaction was genuine, whether the source was properly explained and the creditworthiness of the depositors was also established, are the issues which we fear may not be open for the Revenue to verify in case of the bank. In any case, this issue is not before us since the Revenue, we are informed by counsel that the appellant has not carried the judgement of the Tribunal in appeal.

Summary

Issues:
1. Validity of notice to reopen assessment for the assessment year 2006-2007.
2. Escapement of income in the hands of the petitioner.
3. Proper recording of reasons for reopening assessment.
4. Objections raised by the petitioner against the notice.
5. Dispute regarding the addition of unexplained cash credit in the hands of the bank.
6. Appeal and decisions made by CIT(Appeals) and Tribunal.
7. Incongruence in the actions of the Assessing Officer in trying to tax income for the assessment year 2007-2008 and reopening the assessment for the assessment year 2006-2007.

Analysis:

1. Validity of notice to reopen assessment for the assessment year 2006-2007:
The petitioner challenged a notice issued by the Assessing Officer to reopen the assessment for the assessment year 2006-2007. The notice was based on certain transactions involving the opening of 250 fixed deposit accounts by the bank. The High Court analyzed the reasons recorded for reopening the assessment and found that the notice must be set aside for several reasons, as detailed in the subsequent analysis.

2. Escapement of income in the hands of the petitioner:
The Assessing Officer sought to add a sum as unexplained cash credit in the hands of the bank under section 68 of the Income Tax Act. This addition was related to the opening of 250 fixed deposit accounts without proper verification, leading to a penalty imposed by the Reserve Bank of India. However, the CIT(Appeals) and the Tribunal both ruled in favor of the bank, stating that the source of the deposits was explained satisfactorily, and the bank's regular customers were involved in the transactions. The Tribunal rejected the Revenue's appeal, emphasizing that the bank had proven the source of the deposits and the genuineness of the transactions.

3. Proper recording of reasons for reopening assessment:
The High Court scrutinized the reasons recorded by the Assessing Officer for reopening the assessment. It was noted that the Assessing Officer had previously tried to tax the income of the bank for the assessment year 2007-2008, an order that was later set aside by the CIT(Appeals). The High Court highlighted that the Assessing Officer's attempt to reopen the assessment for the assessment year 2006-2007 on the same grounds after the order was set aside for the subsequent year was incongruent and not supported by further evidence.

4. Objections raised by the petitioner against the notice:
The petitioner raised objections to the notice of reopening, contending that there was no escapement of income. However, these objections were rejected by the Assessing Officer, leading to the petitioner filing a petition challenging the notice.

5. Dispute regarding the addition of unexplained cash credit in the hands of the bank:
The Assessing Officer added a sum as unexplained cash credit in the hands of the bank for the assessment year 2007-2008, which was later set aside by the CIT(Appeals). The High Court highlighted the discrepancies in the assessment process and the subsequent reopening of the assessment for the earlier year based on the same grounds.

6. Appeal and decisions made by CIT(Appeals) and Tribunal:
The CIT(Appeals) allowed the bank's appeal, emphasizing the proper explanation of the source of deposits and the creditworthiness of the depositors. The Tribunal upheld the CIT(Appeals) decision, rejecting the Revenue's appeal and affirming that the bank had satisfactorily explained the transactions and the source of the deposits.

7. Incongruence in the actions of the Assessing Officer:
The High Court pointed out the incongruence in the Assessing Officer's actions in trying to tax income for the assessment year 2007-2008 and subsequently reopening the assessment for the assessment year 2006-2007 on the same grounds. The High Court set aside the impugned notice dated 3.8.2006, concluding that the notice was not valid in the given circumstances.