2021 (3) TMI 353 - AT - Income Tax

Reopening of assessment u/s 147 - unexplained cash credit u/s 68 - reopening of the assessment was solely on the basis of AIR information - HELD THAT - There is no independent application of mind by the AO to form the reason to believe that there is escapement of income. The AO has not made any independent inquiry to find out the veracity of the AIR information that in fact so much cash was deposited in the bank account. Therefore, find merit in the arguments of the Ld. Counsel for the assessee that the reopening of the assessment on wrong and incorrect facts makes the reopening null and void. In the case of PCIT vs. Meenakshi Overseas (P) Ltd. 2017 (5) TMI 1428 - DELHI HIGH COURT has held that where reassessment was resorted to on basis of information from DIT (Investigation) that assessee had received accommodation entry but there was no independent application of mind by Assessing Officer to tangible material and reasons failed to demonstrate link between tangible material and formation of reason to believe that income had escaped assessment, reassessment was not justified. As reopening of the assessment has been made on the basis of AIR information which is not based on correct facts and the AO has not made independent application of his mind before recording reasons for reopening of the assessment and has simply proceeded on the basis of AIR information, therefore, the reassessment proceedings initiated by the AO being not in accordance with law has to be quashed - Decided in favour of assessee.

Summary

Issues:
Reopening of assessment under section 147 of the Income Tax Act, 1961 based on cash deposits in the bank account. Validity of reassessment proceedings. Addition of unexplained cash deposits in the bank account under section 69 of the Act.

Reopening of Assessment:
The case involved the reassessment proceedings initiated by the Assessing Officer (AO) based on cash deposits in the bank account of the assessee. The AO reopened the case due to cash deposits of ?36,98,000 during the financial year 2008-09. The AO believed that the assessee deposited cash from unexplained sources, leading to income escaping assessment. The AO issued notices and obtained bank statements, ultimately making an addition of ?8,90,000. The assessee challenged the validity of the reassessment proceedings, citing case laws and arguing that the reopening was not valid. However, the AO's reasons for reopening the assessment were found to indicate a prima facie belief of income escaping assessment, as the AO mentioned the cash deposits without suspicion or need for further investigation. The Tribunal upheld the AO's prima facie belief, rejecting the assessee's plea on the validity of reassessment proceedings.

Validity of Reassessment Proceedings:
The Tribunal analyzed the reasons recorded by the AO for reopening the assessment, emphasizing the requirement of a prima facie belief of income escaping assessment. It was noted that the AO solely relied on AIR information for reopening, without independent verification of the cash deposits. Citing relevant case law, the Tribunal highlighted the necessity of tangible material linking to the formation of a reason to believe that income had escaped assessment. The Tribunal referred to previous decisions annulling reassessment proceedings based on incorrect facts and lack of independent application of mind by the AO. Consequently, in this case, the reassessment proceedings were deemed not in accordance with the law and were quashed, as the reopening was found to be based on incorrect information without proper verification.

Addition of Unexplained Cash Deposits:
The AO had added ?8,90,000 as unexplained cash deposits in the bank account, despite the assessee providing explanations. The assessee challenged this addition on merit before the CIT(A), who upheld the addition. However, due to the successful challenge on the validity of reassessment proceedings, the Tribunal did not adjudicate on the merits of the addition. As the reassessment proceedings were quashed, the grounds raised by the assessee on merit were considered academic. Consequently, the appeal by the assessee was allowed, and the order of the CIT(A) was set aside on the issue of the validity of reassessment proceedings, leading to the allowance of the appeal.

This detailed analysis of the judgment covers the issues of reopening of assessment, validity of reassessment proceedings, and the addition of unexplained cash deposits, providing a comprehensive understanding of the legal aspects and decisions made by the Tribunal.