2022 (4) TMI 1178 - AT - Income Tax

Reopening of assessment u/s 147 - Whether case being reopened as being without jurisdiction? - receipt of information from AIR that assessee had received cash deposits in saving bank account maintained with Corporation Bank - HELD THAT - The assessee had not filed return of income for the captioned year. Not only this, the subsequent conduct of the assessee during the assessment also points to total non-cooperation on his part and in absence of any explanation forthcoming from the assessee, Assessing Officer was forced to pass ex-parte assessment order treating the above sum as undisclosed income of the assessee. In our view, since the assessee had not filed return of income for the captioned year and there was a huge cash deposit in his saving bank account, and further, when the assessee was called upon to provide an explanation in respect of this deposit, he did not comply, this itself leads to an reasonable doubt regarding the source of such deposits especially when return of income has not been filed. As in the case of Smt. Uma Mandal 2021 (4) TMI 904 - ITAT JAIPUR ITAT held that where Assessing Officer issued a reopening notice against assessee on ground that an information was received that assessee had deposited certain amount in cash in her bank account but did not file return of income, since Assessing Officer reopened assessment after recording due reasons and after following due process and such information available before Assessing Officer was relevant and afforded a nexus to formation of prima facie belief that income chargeable to tax had escaped assessment in hands of assessee, impugned reopening notice was justified. Therefore, in our considered view, looking into the totality of facts in the case, the Ld. Assessing Officer is justified in re-opening the assessment in the instant set of facts. The process of re-opening was initiated after affording due opportunity to the assessee to give explanation regarding source of deposit. It is only when the assessee failed to comply / co-operate that case was re-opened u/s 148 of the Act, after following due process of law. - Decided against assessee. Addition as cash credit in the hands of the assessee - As the assessee has been able to establish the source of cash deposit. The Revenue has not brought anything on record that the lenders were not in existence (the Aadhar cards of lenders have been placed on record) or that they did not have agricultural land capable of earning agricultural income and neither the confirmations filed by lenders were challenged as being fallacious. The assessee has thus discharged the initial burden cast upon him u/s 68 of the Act. It is a well settled that under the law the assessee can be asked to prove source of credit but not the source of the source as held by various Courts including the jurisdictional High Court in the case of Rohini Builders 2001 (3) TMI 9 - GUJARAT HIGH COURT - In view of the above discussion and the facts of the present case, in our view, the Ld. CIT(Appeals) has erred in facts and in law in sustaining addition u/s 68 of the Act in respect of cash deposits in the hands of the assessee. - Decided in favour of assessee. Addition u/s 56 for income from other sources - Once having held that when source of deposits has been duly explained by the assessee (refer Ground No. 3 above), the additions cannot be taxed as Income from Other Sources in the hands of the assessee. Addition of Interest income - The assessee has been maintaining account with Corporation Bank. Once, the source of deposits in the bank has been duly explained and held as not taxable in the hands of the assessee, the interest amount of ₹ 2,052/-, since it falls below the taxable limit on standalone basis, is not liable for tax in the hands of the assessee. Assessee appeal allowed partly.

Issues Involved:
1. Confirmation of additions made by the Assessing Officer (AO) despite alleged violation of Principles of Natural Justice.
2. Legality of reopening the assessment under Section 147 of the Income Tax Act.
3. Addition of ?22,21,100 as unexplained cash credits under Section 68 of the Income Tax Act.
4. Alternative addition under Section 56 as Income from Other Sources without specific notice.
5. Enlarging the scope of assessment by making additions under Section 56.
6. Addition of interest income of ?2,052.
7. Alleged breach of law and Principles of Natural Justice by lower authorities.
8. Levy of interest under Sections 234A/B/C.
9. Initiation of penalty under Section 271(1)(c).
10. Initiation of penalty under Section 271F.

Issue-wise Detailed Analysis:

1. Confirmation of Additions Despite Violation of Principles of Natural Justice:
The assessee argued that the CIT(A) confirmed the additions made by the AO without providing a fair opportunity to present their case, thus violating the Principles of Natural Justice. The tribunal did not provide a separate judgment on this issue, indicating that it was addressed within other grounds.

2. Legality of Reopening the Assessment Under Section 147:
The tribunal found that the reopening of the assessment was justified. The AO had received information about significant cash deposits in the assessee's bank account and issued notices to the assessee, who failed to respond. The tribunal cited precedents where reopening was upheld under similar circumstances, emphasizing that the AO followed due process and had reasonable grounds to believe that income had escaped assessment.

3. Addition of ?22,21,100 as Unexplained Cash Credits Under Section 68:
The tribunal noted that the assessee provided documentary evidence, including confirmations from relatives who deposited the money as gifts for the assessee's higher education. The relatives' identities, agricultural income, and landholdings were verified. The tribunal concluded that the assessee had discharged the initial burden of proof under Section 68, and the CIT(A) failed to disprove the evidence. Thus, the addition of ?22,21,100 was deleted.

4. Alternative Addition Under Section 56 as Income from Other Sources:
Since the source of deposits was explained and accepted under Section 68, the tribunal held that these amounts could not be taxed as 'Income from Other Sources' under Section 56. Therefore, the alternative addition was not justified.

5. Enlarging the Scope of Assessment by Making Additions Under Section 56:
The tribunal found that the CIT(A) erred in enlarging the scope of the assessment by making additions under Section 56 when the AO had not done so. This action was deemed inappropriate once the source of the deposits was explained.

6. Addition of Interest Income of ?2,052:
The tribunal held that since the source of the deposits was explained, and the interest income of ?2,052 fell below the taxable limit, it was not liable for tax in the hands of the assessee.

7. Alleged Breach of Law and Principles of Natural Justice by Lower Authorities:
The tribunal did not provide a separate judgment on this issue, suggesting it was addressed within other grounds.

8. Levy of Interest Under Sections 234A/B/C:
The tribunal did not specifically address the levy of interest under Sections 234A/B/C, implying that the primary focus was on the main grounds of appeal.

9. Initiation of Penalty Under Section 271(1)(c):
The tribunal did not specifically address the initiation of penalty under Section 271(1)(c), indicating that this issue was not central to the decision.

10. Initiation of Penalty Under Section 271F:
The tribunal did not specifically address the initiation of penalty under Section 271F, suggesting that this issue was not pivotal to the outcome.

Conclusion:
The appeal was partly allowed. The tribunal upheld the reopening of the assessment but deleted the addition of ?22,21,100 as unexplained cash credits and the related interest income of ?2,052. The alternative addition under Section 56 was also dismissed. The tribunal emphasized the importance of providing adequate evidence to substantiate claims and the necessity for tax authorities to follow due process.

← Previous Next →