2022 (3) TMI 122 - AT - Income Tax

Validity of reopening the assessment u/s 147 r.w.s 148 - scope of borrowed satisfaction - non independent application of mind -Addition u/s 69 on account of cash deposits in bank account - assessee an NRI is residing in Surrey, Canada - Information available with the department cash was deposited in the bank account of the assessee and the assessee had not filed the return of income - HELD THAT - A.O. without applying his mind proceeded on assumption that the total bank deposit of the assessee constitutes unexplained income of the assessee and overlooked this fact that source of deposit need not necessarily be the income of the assessee. See SH. AMRIK SINGH, S/O SH. SURINDER SINGH 2016 (5) TMI 768 - ITAT AMRITSAR A.O. in the reasons recorded clearly stated that on the basis of information that the assessee deposited cash in the bank account formed the opinion that the said deposit was the income of the assessee which escaped the assessment, while doing so he did not apply his own mind and initiated the reassessment proceedings. Thus the A.O. acted only on the basis of suspicion, so it cannot be said that it was based on belief that the income chargeable to tax had escaped assessment - Thus reassessment proceedings, initiated by the A.O. on the basis of suspicion were not valid - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reopening the assessment under section 147 read with section 148 of the Income Tax Act, 1961.
2. Addition of ?14,00,000/- under section 69 of the Income Tax Act on account of unexplained cash deposits.

Detailed Analysis:

1. Validity of Reopening the Assessment under Section 147 r.w.s 148 of the Income Tax Act, 1961:

The primary issue revolves around whether the Assessing Officer (A.O.) had valid reasons to believe that income chargeable to tax had escaped assessment, justifying the reopening of the assessment under section 147 read with section 148 of the Income Tax Act, 1961. The A.O. issued a notice dated 28/03/2018 under section 148, citing that cash amounting to ?35,01,000/- was deposited in the assessee's bank account, and no return of income was filed for the relevant assessment year.

The assessee argued that the A.O. did not have any tangible material to establish that the cash deposit was the assessee's income, and the reopening was based merely on suspicion. The assessee contended that there was no nexus between the material in possession and the belief of escapement of income, emphasizing that "reason to believe" should be based on some tangible material, not just an idle formality or suspicion.

The Ld. CIT(A) upheld the A.O.'s action, stating that the A.O. had prima facie reasons to believe that income had escaped assessment due to the unexplained cash deposits in the bank account. The Ld. CIT(A) referenced several judicial precedents, including the Supreme Court's decision in ACIT Vs. Rajesh Jhaveri Stock Brokers (P) Ltd., which clarified that at the initiation stage, what is required is "reason to believe" and not the established fact of escapement of income.

However, the Tribunal found that the A.O. had not applied his mind and proceeded on the assumption that the total bank deposit constituted unexplained income of the assessee. The Tribunal referenced similar cases, including the ITAT Chandigarh Bench's decision in Smt. Charanjit Kaur Vs. ITO and the ITAT Amritsar Bench's decision in Amrik Singh Vs. ITO, where it was held that reopening based on the assumption that bank deposits constitute undisclosed income, without proper application of mind, is not sustainable in law.

The Tribunal concluded that the A.O. acted on suspicion rather than a reasoned belief that income had escaped assessment. Therefore, the reassessment proceedings initiated by the A.O. were quashed as invalid.

2. Addition of ?14,00,000/- under Section 69 of the Income Tax Act on Account of Unexplained Cash Deposits:

The second issue pertained to the addition of ?14,00,000/- under section 69 of the Income Tax Act, which deals with unexplained investments. The A.O. had made this addition based on the cash deposits in the assessee's bank account, assuming them to be unexplained income.

Since the Tribunal quashed the reassessment proceedings on the grounds that the reopening of the assessment was invalid, it did not delve into the merits of the addition under section 69. The Tribunal explicitly stated that no findings were given on the other issues raised by the assessee on merit, as the reassessment proceedings themselves were found to be invalid.

Conclusion:

The appeal of the assessee was allowed, and the reassessment proceedings initiated by the A.O. were quashed. The Tribunal emphasized that the A.O. must have a valid reason to believe that income has escaped assessment, based on tangible material, rather than mere suspicion. Consequently, the addition under section 69 was not addressed on merits due to the invalidity of the reassessment proceedings.