2018 (9) TMI 804 - HC - Income Tax

Reopening of assessment - source of the cash deposits post demonetization - eligibility of reason to believe - Held that - We are testing the reasons on the basis of material which was available with him. In pre-notice queries the Assessing Officer had asked the assessee to explain the source of the cash deposits post demonetization. The assessee disclosed such source being her own bank accounts and their withdrawals matching quite closely to the deposits which withdrawals were made within the close proximity of the deposits. If the Assessing Officer had any reason to discard such disclosures and still form a belief that the deposits were from the sources not indicated by the assessee nothing of the sort has come in the form of reasons recorded. The reasons recorded completely ignored the Assessing Officer s query and the response made by the assessee to such queries. Assessing Officer in the reasons recorded has simply kept aside the assessee s explanation for the availability of cash on hand for deposit post demonetization. The reasons thus clearly lacked validity and proceeded on erroneous premise. Impugned notice is therefore quashed. Petition is allowed in favour of assessee

Summary

Issues:
Challenge to notice for re-opening assessment for the assessment year 2015-16 based on cash deposits post-demonetization.

Analysis:
1. The petitioner challenged a notice to re-open assessment for the year 2015-16 based on cash deposits post-demonetization. The Assessing Officer believed that the petitioner had undisclosed taxable income due to cash deposits of ?17,86,000. The petitioner objected to the notice, arguing that the reasons lacked validity as the deposits were from disclosed bank accounts and matched withdrawals. The Assessing Officer rejected the objections, stating that no scrutiny assessment was conducted, and the reasons for re-opening were valid.

2. The court noted that since the assessment was accepted without scrutiny, the concept of change of opinion did not apply. However, the Assessing Officer must have a reason to believe income escaped assessment. The petitioner provided detailed reports showing withdrawals matching deposits post-demonetization. The court examined the material available to the Assessing Officer and found that the reasons for re-opening ignored the petitioner's explanations and lacked validity.

3. The petitioner consistently maintained that all deposited amounts post-demonetization were withdrawn from disclosed bank accounts. The court emphasized that the Assessing Officer's reasons did not consider the petitioner's responses to pre-notice queries regarding the source of cash deposits. As the reasons for re-opening assessment were found to be invalid and based on an erroneous premise, the court quashed the notice, allowing the petition.