2023 (1) TMI 830 - AT - Income Tax

Reopening of assessment u/s 147 - bank deposits made into saving bank account - unexplained investment u/s 69 - HELD THAT - The reasons recorded in present case at best can be treated to be reason to suspect which is not sufficient for reopening the case u/s 148 - While recording the reasons to believe merely relying upon financial information cannot be treated as good enough to reopen the case. There can be multiple capital sources of cash deposits available to the assessee and unless and until it is brought out in the reasons to believe as to how the cash deposits represent income or investment from undisclosed sources same cannot give justification to reopen the case u/s 148 and for the reason we see that the requirement of application of mind is missing in the present case on the face of reasons recorded, thus the cardinal principle of taxation that all receipts are not income and all income are not taxable income applies squarely to present facts. It is a well settled law that, the reasons for the formation of the belief must have rational connection with or relevant bearing on the formation of the belief. Whereas in the absence of nexus between the prima facie inference arrived in the reasons recorded and information vis-a-vis material much less tangible, credible, cogent and relevant to form a reason to believe could not be made a basis to assume jurisdiction, hence cannot be relied upon; thus the proceedings initiated are purely based on surmises, conjectures and suspicion and therefore, the same are without jurisdiction; that the reasons recorded are highly vague, far-fetched and cannot by any stretch of imagination lead to conclusion of escapement of income which deserve to be quashed in the light of judgement of ITO Vs Lakhmani Mewal Das 1976 (3) TMI 1 - SUPREME COURT - Appeal of assessee allowed.

Summary

Issues:
Assumption of reassessment jurisdiction under section 148 of the Income-tax Act, 1961 based on cash deposits in the assessee's saving bank account.

Detailed Analysis:

1. Assumption of Reassessment Jurisdiction:
The appeal was against the order of the Commissioner of Income Tax (Appeals) and the assessment order passed by the Income Tax Officer for the assessment year 2011-12. The assessee, engaged in Multi-Level-Marketing, had filed the return of income under presumptive taxation. The reassessment jurisdiction was invoked based on cash deposits into the assessee's saving bank account observed through the Annual Information Return (AIR). The reassessment was done by bringing the entire cash deposits as unexplained investment under section 69 of the Act.

2. Legal Grounds Directed Against Assumption of 148 Jurisdiction:
The grounds raised in the appeal memo were in accordance with the Income Tax Appellate Tribunal Rules. The legal grounds challenged the assumption of reassessment jurisdiction under section 148 as contrary to the law. The Tribunal decided to first address the legal grounds before delving into the merits of the case.

3. Analysis of Reassessment Jurisdiction:
The Tribunal found that the reassessment jurisdiction was invoked without proper enquiry by the Income Tax Officer. The information regarding cash deposits was available during the regular assessment period, and thus, did not constitute fresh material for initiating reassessment. The reasons recorded for reopening the case were found to be based on incorrect facts, lack of enquiry, and insufficient evidence linking the cash deposits to undisclosed income of the assessee.

4. Judicial Precedents and Legal Principles:
The Tribunal emphasized that reasons for reassessment must have a rational connection with the belief of income escapement. Without a direct nexus between the material and the formation of belief, the reassessment jurisdiction cannot be upheld. Citing the judgment of the Hon'ble Apex Court in "ITO Vs Lakhmani Mewal Das," the Tribunal highlighted the importance of tangible, credible, and relevant material to justify the assumption of reassessment jurisdiction.

5. Final Decision:
The Tribunal ruled in favor of the appellant, stating that the legal grounds raised were valid. As a result, the meritorious grounds became academic, and the appeal of the appellant assessee was allowed. The proceedings initiated were deemed to be without jurisdiction due to vague and insufficient reasons recorded for reassessment.

In conclusion, the Tribunal's detailed analysis focused on the legality and validity of the reassessment jurisdiction under section 148, emphasizing the importance of proper enquiry, rational connection between material and belief, and adherence to legal principles in initiating reassessment proceedings.