2023 (10) TMI 1275 - AT - Income Tax

Validity of reassessment proceedings - non-filing of the return of income and cash deposits made in the bank account - HELD THAT - If the assessee had exempted income, the same had to be claimed in the return of income either in the earlier years or in the current AY. Whether the sources of cash deposits are subjected to tax or exempted from tax, the same must be reflected in the return of income in the year of receipt. If the assessee had past savings, the same will be known from the earlier returns of income. In fact, the assessee himself had admitted before the AO that in the earlier years, he had meager incomes. So, he can't take a hypothetical stance and say that he may be having the savings or exempted incomes to make cash deposits in the bank account. Further, there must be a source of information in front of the AO before recording the reasons to believe that there is an escapement of income. Though the assessee had not fulfilled the conditions to obtain the reasons recorded such as not filing the return in response to the notice issued u/s 148. To be fair and showing unbiased nature of action, the AO had supplied the reasons for the reopening suo moto. As seen from the reasons narrated, it appears that there is no presumption or assumption against the assessee in reopening the case. When the twin situations are fulfilled viz. not filing the return of income and huge cash deposits which are disproportionate to the amounts of income admitted in the returns of earlier years; I find this is the sufficient reason to reopen the case u/s 147. The admission of meager incomes in the earlier AY returns certainly forms a basis for belief that there is an escapement of income in the assessee's case. Therefore, the ground of appeal raised on the reopening of the case without having proper reasons is considered as not having merits, thus dismissed. Cash deposits - as argued entire credit entries in the bank statement should not be treated as income of the assessee and it would be appropriate to note the background of the assessee s case - We note that the peak credit in the bank account during the year is considered for making such additions. It is a measure to ensure that any unexplained credits during the year are taken into account. Therefore, respectfully following the decisions of ITAT Surat Bench 2018 (7) TMI 2326 - ITAT SURAT , 2018 (10) TMI 2012 - ITAT SURAT and Ahmedabad Bench 2014 (5) TMI 1101 - ITAT AHMEDABAD , 2013 (6) TMI 522 - ITAT AHMEDABAD 2013 (3) TMI 713 - ITAT AHMEDABAD we direct the Assessing Officer to make addition in the hands of assessee to the partly - Assessee ground partly allowed.

Summary

Issues Involved:
1. Validity of reopening assessment under Section 147.
2. Ex-parte order under Section 144.
3. Addition of Rs. 2,52,05,768/- as unexplained cash credit under Section 68.

Summary:

Issue 1: Validity of Reopening Assessment under Section 147
The assessee challenged the reopening of the assessment, arguing that the Assessing Officer (AO) did not have any tangible material to form a "reason to believe" that there was an escapement of income. The Tribunal upheld the reopening, agreeing with the National Faceless Appeal Centre (NFAC)/CIT(A) that the AO had credible information about cash deposits in the assessee's bank account, which justified the reopening. The Tribunal noted that the AO had followed due process, including obtaining prior approval and recording reasons for reopening. The Tribunal dismissed the assessee's argument that the reopening was based on mere suspicion or gossip, emphasizing that the AO's belief was formed in good faith based on relevant material.

Issue 2: Ex-parte Order under Section 144
The assessee did not press this ground, and it was dismissed as not pressed.

Issue 3: Addition of Rs. 2,52,05,768/- as Unexplained Cash Credit under Section 68
The assessee argued that he was engaged in cheque discounting business, and therefore, the entire credit entries in the bank account should not be treated as income. The Tribunal agreed that the entire deposits should not be considered as income and noted that the assessee had provided sufficient evidence to support his claim of being in the cheque discounting business. The Tribunal referred to various judicial precedents where only a percentage of the total credits was taxed. Consequently, the Tribunal directed the AO to make an addition based on the peak credit balance in the bank accounts, amounting to Rs. 3,73,597/-, thereby granting partial relief to the assessee.

Conclusion:
The appeal was partly allowed, with the Tribunal upholding the reopening of the assessment but reducing the addition for unexplained cash credits to Rs. 3,73,597/-. The order was pronounced on 26/10/2023.