2022 (8) TMI 940 - AT - Income Tax

Reopening of assessment u/s 147 - unexplained cash deposits - HELD THAT - As incumbent upon the taxpayer to explain the amount credited into his Saving Bank Account by way of cash deposits. The assessee was required to explain the source of such cash deposits. In the absence of any material placed before the AO explaining the source of cash deposits in his Saving Bank Account, AO was justified in treating the cash deposited in Saving Bank Account having escaped the assessment. The case laws as relied by assessee are distinguishable on the facts of the present case despite having given notices, the assessee did not give any explanation regarding deposits of cash prior to issuance of notices u/s 148 - AO had reason to form belief that the cash deposited and presented the income escaped assessment.Ground Nos. 1 2 raised by the assessee in this appeal are devoid of any merit, the same are therefore, dismissed. Sustaining 50% of addition on estimate basis - HELD THAT - Contention of the assessee that he was engaged in the business of mobile recharging business is devoid of merit as he failed to furnish supporting evidences - assessee stated that looking to the fact that in the present case, there were repeated deposits and withdrawals from the bank account. Therefore, the AO should have worked out to peak credit of such transactions - assessee has also placed reliance on various case laws in the written submissions. Revenue could not controvert the fact that there has been frequent deposits and withdrawals by the assessee out of his saving bank account. No evidence is available on record suggesting that the money as withdrawn by the assessee was used for any other purpose. In the absence of such evidence prayer for adopting peak cannot be brushed aside. In the light of the binding precedents, we hereby direct the AO to work out peak credits and restrict the addition to the extent of peak credits and he would also allow telescoping under the facts and circumstances of the present case, as prayed by the assessee. This Ground of the assessee is allowed in terms indicated above.

Issues Involved:
1. Legality of the reopening of the assessment under Section 148.
2. Mechanical nature of the sanction by the Principal Commissioner of Income Tax (PCIT).
3. Justification of the addition of 50% of the cash deposit on an estimated basis.

Issue-wise Detailed Analysis:

1. Legality of the Reopening of the Assessment:

The assessee challenged the reopening of the assessment under Section 148 of the Income Tax Act, 1961, arguing that it was based merely on cash deposits and lacked proper reasons to believe that income had escaped assessment. The assessee contended that the Assessing Officer (AO) did not record satisfaction properly and was unclear about the figures of cash deposits, which ranged between Rs. 15,48,500 and Rs. 16,18,605. The AO also failed to mention the bank account number and the source of information for the cash deposits.

The Tribunal, however, found that the AO had given the assessee adequate opportunities to explain the source of cash deposits, which the assessee failed to do. The Tribunal held that the AO was justified in presuming that the cash deposited had escaped assessment due to the lack of explanation from the assessee. The Tribunal dismissed Ground Nos. 1 and 2, stating that the reasons recorded by the AO were sufficient to form a belief that income had escaped assessment.

2. Mechanical Nature of the Sanction by PCIT:

The assessee argued that the sanction by the PCIT for reopening the case was mechanical, as the PCIT did not scrutinize the reasons recorded by the AO and did not mention the relevance of the different figures of cash deposits. The sanction was also undated, which the assessee claimed rendered it invalid.

The Tribunal did not find merit in this argument, as it was evident from the assessment record that the PCIT had reviewed the reasons recorded by the AO and found them satisfactory. The Tribunal upheld the reopening of the assessment, dismissing the assessee's contention that the sanction was mechanical.

3. Justification of the Addition of 50% of the Cash Deposit:

The assessee challenged the addition of 50% of the cash deposit (Rs. 8,09,303 out of Rs. 16,18,605) on an estimated basis, arguing that the Ld. CIT(A) had not provided any reason for this estimation. The assessee also contended that some of the entries included in the cash deposit figure were reversal entries, transfers, and interest income, which should not have been considered for addition.

The Tribunal noted that the Ld. CIT(A) had sustained the addition on an ad hoc basis, without sufficient evidence to support the assessee's claim of repeated deposits and withdrawals for visa purposes. The Tribunal found that the assessee failed to provide evidence of his business activities, specifically the mobile recharge business. However, the Tribunal acknowledged that there were frequent deposits and withdrawals from the bank account and directed the AO to work out peak credits and restrict the addition to the extent of peak credits, allowing telescoping as prayed by the assessee.

Conclusion:

The appeal was partly allowed. The Tribunal upheld the reopening of the assessment and the sanction by the PCIT but directed the AO to work out peak credits for the cash deposits and restrict the addition accordingly, allowing for telescoping. The Tribunal's decision emphasized the need for the assessee to provide sufficient evidence to substantiate claims regarding the source of cash deposits.

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