2023 (2) TMI 576 - AT - Income Tax

Reopening of assessment u/s 147 - cash deposit in bank - HELD THAT - Cash deposits in the bank account alone could not lead to formation of the belief of escapement of income by the AO. It is settled law that for valid assumption of jurisdiction to reopen the case u/s 147 there has to be belief of the AO of escapement of income based on information with him. The information of cash deposit in bank can at the most lead to suspicion of income having escaped assessment, the deposits not necessarily being in the nature of income. This suspicion can lead to a belief only when further inquiry is conducted by the AO to determine the nature of cash deposits and based on the results of the inquiry, only a belief of escapementof income can be formed. Noting the fact that the actual cash deposits in the bank accounts of the assessee this amount of cash deposits, in no case, could have resulted in escapement of income at all, being well below taxable limit even if all the cash deposits were found to be in the nature of income not returned to tax by the assessee and the assessee as per facts noted by the AO had no other income, except that held by the AO in the present reassessment proceedings. Jurisdiction assumed in the present case by the AO to reopen the case of the assessee u/s 147 of the Act was without any formation of belief of escapement of which, based on incorrect facts and thus not in accordance with law. The assessment order, therefore, so framed is held to be invalid, and accordingly set aside. Appeal of the assessee is allowed.

Summary

Issues: Validity of assessment under section 147 of the Income Tax Act, 1961

Analysis:
The appeal was filed against the order passed by the Commissioner of Income Tax (Appeals) under section 250(6) of the Income Tax Act, 1961, pertaining to the assessment year 2011-12. The primary contention raised was the challenge to the validity of the assessment framed under section 147 of the Act. The argument was that the assessment lacked valid jurisdiction as the reasons recorded for reopening the case did not lead to a belief of income escapement. The Assessing Officer (AO) had noted cash deposits of over Rs.10,00,000 in the bank account, leading to the reopening of the case. However, it was demonstrated that the actual cash deposits were only Rs.29,900, with the rest being cheque deposits or interest credited by the bank. The contention was that mere cash deposits could not automatically lead to a belief of income escapement, especially when the amount was well below the taxable limit.

The contention regarding the incorrect facts leading to the reopening of the case was supported by the fact that the cash deposits in the bank account were significantly lower than initially noted by the AO. It was emphasized that suspicion of income escapement cannot solely be based on cash deposits without further inquiry to determine the nature of the deposits. The Tribunal agreed with the assessee's counsel that the jurisdiction assumed for reopening the case was not in accordance with the law. The Tribunal held that the AO did not form a valid belief of income escapement based on incorrect facts, and therefore, the assessment order was deemed invalid and set aside.

The Tribunal concluded that the jurisdiction assumed by the AO to reopen the case under section 147 was without a valid formation of belief of income escapement, as the actual cash deposits were well below the taxable limit. The appeal was allowed on legal grounds, without delving into the merits of the case as they were considered academic. The assessment order was held to be invalid, and the appeal of the assessee was allowed accordingly.