2022 (12) TMI 1219 - AT - Income Tax

Initiation of re-assessment proceedings - Reasons to believe - cash deposits unexplained in the bank and also withdrawals made therefrom - HELD THAT - AO initiated re-assessment proceedings just to verify the transactions of deposits and withdrawals in/from the bank account. Section 147 of the Act, dealing with the reassessment, opens with the words If any income chargeable to tax, in the case of an assessee, has escaped assessment for any assessment year, the Assessing Officer may, subject to the provisions of sections 148 to 153, assess or reassess such income . It is ostensible that the action u/s 147 can be taken when the AO has formed reasons to believe that some income chargeable to tax has escaped assessment. Ex consequenti, belief of the AO about any income escaping assessment is sine qua non for initiating re-assessment. No jurisdiction can be assumed for framing assessment u/s 147 of the Act absent such reasons to believe about the escapement of income. On going through the reasons, as reproduced above, it is palpable that the AO initiated re-assessment proceedings just to verify the deposits and withdrawals from the bank account of the assessee. There is no whisper in the reasons as to reason to doubt, much less the reason to believe, about the escapement of income. In view of the fact that the re-assessment has been initiated simply to verify the transactions in the assessee s bank account, which does not fulfill the jurisdictional condition of belief about the escapement of any income, we are satisfied that action of the AO lacks validity. We, therefore, set aside the initiation of reassessment and the consequential order passed u/s 147. Assessee appeal is allowed.

Summary

Issues:
1. Challenge to initiation of re-assessment proceedings.

Analysis:
The appeal pertains to the initiation of re-assessment proceedings by the Assessing Officer (AO) against the assessee, a real estate agent, for the assessment year 2008-09. The AO received information indicating significant deposits and withdrawals in the assessee's bank account jointly held with his wife. The AO issued a notice under section 148 of the Income-tax Act, 1961, based on this information. The assessee contended that the original return should suffice as a response to the notice. Subsequently, the assessment was completed, determining the total income at Rs.5,31,500. The assessee's appeal before the CIT(A) and then the Tribunal remained unsuccessful. The central issue revolved around the validity of the initiation of re-assessment proceedings by the AO.

The AO's reasons for initiating re-assessment proceedings were based on information received regarding cash deposits and withdrawals in the assessee's bank account. The AO sought to verify these transactions, especially in light of the purchase of a house by the assessee for Rs.86 lakhs. However, the Tribunal found that the reasons provided by the AO did not establish a valid belief that income had escaped assessment, as required under section 147 of the Act. The Tribunal noted that the AO's actions were solely aimed at verifying the bank account transactions and did not demonstrate any suspicion or belief regarding income escapement. Consequently, the Tribunal held that the initiation of re-assessment lacked validity and set it aside, along with the consequential order passed under section 147.

The Tribunal's decision on the legality of the initiation of re-assessment proceedings rendered further discussion on the merits unnecessary. As a result, the appeal was allowed in favor of the assessee, and the initiation of re-assessment proceedings was set aside. The Tribunal's detailed analysis emphasized the essential requirement of a valid belief by the AO regarding income escapement to justify the initiation of re-assessment proceedings under the Income-tax Act, 1961.