2024 (8) TMI 537 - AT - Income Tax

Validity of reopening of assessment - Addition u/s 69A - cash deposited in bank account and on account of accrued interest - reasons recorded by the AO based on the AIR information - HELD THAT - AO while reopening proceedings u/s 148 and/or while completing the assessment u/s 147 has not even gone through the bank statements and had just relied upon the AIR information. It is a settled law that the reopening made merely on the basis of AIR information is bad in law. Since there was non-application of the mind by the Ld. AO as evident from the fact that the AO failed to verify the amount of cash deposited in bank from the copies of bank statements duly furnished by the appellant during the course of assessment proceedings. From the record, it is evident that the reasons recorded by the AO for reopening the completed assessment of the assessee are based on factual errors, rendering the notice issued u/s. 147 to be void ab initio, in view of the decision of Kelvinator of India Ltd. 2010 (1) TMI 11 - SUPREME COURT as considered in 'Dr. Aiit Gupta' 2016 (4) TMI 167 - DELHI HIGH COURT The reasons recorded are bad in law as the reopening has been made based on incorrect facts. It is a settled law that the reopening cannot be made based on wrong assumption of facts following AIR information and accordingly, the assessment made on the basis of wrong assumption of facts is liable to be quashed. Decided in favour of assessee.

Issues Involved:
1. Confirmation of addition of Rs. 2,900,000/- made under Section 69A for cash deposited in a bank account and Rs. 64,644/- on account of accrued interest.
2. Validity of the assessment framed under Section 144/147 due to improper service of notice under Section 148.
3. Legitimacy of the reasons recorded for reopening the assessment under Section 148.
4. Reliance on a remand report without providing a copy to the appellant.
5. Explanation of the source of cash deposits from the sale of rural agricultural land.
6. Consideration of the cost of acquisition in the addition made by the AO.
7. Classification of the land as agricultural land under Section 2(14) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Confirmation of Addition under Section 69A:
The appellant challenged the confirmation of the addition of Rs. 2,900,000/- made by the AO under Section 69A for unexplained cash deposits and Rs. 64,644/- for accrued interest. The AO had based the addition on AIR information indicating cash deposits in the appellant's bank account.

2. Validity of Assessment under Section 144/147:
The appellant contended that the assessment framed under Section 144/147 was invalid due to improper service of notice under Section 148. The notice was served by affixture without following the proper procedure as per the Code of Civil Procedure, 1908. The appellant argued that there was no material on record to prove that the notice was served to the assessee or its agent, making the resort to service by affixture premature.

3. Legitimacy of Reasons for Reopening under Section 148:
The appellant argued that the reasons recorded for reopening the assessment were based on incorrect facts. The AO had relied on AIR information that the appellant had deposited Rs. 1,700,000/- in a bank account, which was factually incorrect as the actual deposit was Rs. 1,400,000/-. The appellant submitted that reopening based on incorrect AIR information is bad in law, citing case laws that support this position.

4. Reliance on Remand Report:
The appellant claimed that the CIT(A) erred in relying on a remand report dated 22.07.2019 without providing a copy to the appellant, thereby not allowing an opportunity to be heard. The remand report stated that the authenticity of additional evidence could not be verified, but the appellant had furnished bank statements to substantiate the deposits.

5. Explanation of Source of Cash Deposits:
The appellant explained that the cash deposits were from the sale of rural agricultural land. The appellant had entered into an agreement to purchase land and subsequently sold it before registration, receiving part of the consideration in cash, which was then deposited in the bank accounts.

6. Consideration of Cost of Acquisition:
The appellant argued that the CIT(A) erred in confirming the addition without giving the benefit of the cost of acquisition of the agricultural land sold. The appellant contended that the entire sale proceeds were considered without accounting for the acquisition cost.

7. Classification of Land as Agricultural Land:
The appellant contended that the land sold was agricultural and did not qualify as a capital asset under Section 2(14) of the Income Tax Act, 1961. Therefore, the addition on account of cash deposits should not have been made.

Judgment:
The Tribunal found that the reasons recorded by the AO for reopening the assessment were based on incorrect facts, rendering the notice issued under Section 147 void ab initio. The AO had relied on erroneous AIR information without verifying the actual bank statements. The Tribunal held that reopening based on incorrect facts is bad in law, leading to the quashing of the assessment order. Consequently, the appeal filed by the assessee was allowed, and the assessment proceedings were declared null and void.

Conclusion:
The Tribunal allowed the appeal, quashing the assessment order and holding the reopening of assessment proceedings as bad in law due to reliance on incorrect facts and improper service of notice. The appellant's explanations regarding the source of cash deposits and classification of land were also considered but the primary ground for quashing was the incorrect basis for reopening.

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