2025 (2) TMI 398 - AT - Income Tax

Validity of assumption of jurisdiction u/s 147 - reasons to believe or reason to suspect - cash deposits unexplained - HELD THAT - AO did not have any material with him much less tangible material to form a belief that income of the assessee had escaped assessment in respect of cash deposits made in Nainital Bank Account. Hence reopening of assessment deserved to be quashed on this count itself. Even though no return of income has been filed by the assessee still the fact of cash deposits made in the bank account could merely reflect reason to suspect and cannot be by any stretch of imagination directly become reason to believe for the AO. The assessee having not filed his return of income regularly and having made cash deposit in the bank account which is beyond the maximum amount not chargeable to tax may be subjected to fall within ambit of reason to suspect . But such suspicion of the AO should have to be converted into reason to believe pursuant to AO making preliminary enquiries by way of issuance of notice u/s 142(1) to the assessee calling for return of income or calling for explanation for cash deposit prior to issuance of notice u/s 148 of the Act. This procedure was admittedly not followed by the AO in the instant case. Hence the fact of cash deposits made by the assessee in our considered opinion would only result in reason to suspect and not reason to believe . It is trite law that no assessment could be reopened merely on the basis of reason to suspect . Assessee appeal allowed.

Summary

The judgment issued by the Appellate Tribunal in ITAT Delhi pertains to appeals in ITA Nos. 3154 & 3155/Del/2023 for the assessment years 2012-13 and 2013-14. The core legal issue presented in this case is the challenge to the validity of the assumption of jurisdiction under section 147 of the Income-tax Act, 1961. The Tribunal considered the sufficiency of reasons for reopening the assessment and whether there was a valid basis for the belief that income had escaped assessment.The Tribunal noted that for the assessment year 2012-13, the assessee had not filed a return of income, and the Assessing Officer (AO) relied on information regarding cash deposits in the Nainital Bank Ltd to reopen the assessment. However, it was found that the actual cash deposit was lower than initially mentioned by the AO. The Tribunal emphasized the importance of preliminary material for forming a belief that income had escaped assessment. The Tribunal held that the AO did not have sufficient tangible material to support the belief that income had escaped assessment, as the preliminary enquiry with the bank was not conducted before recording the reasons for reopening the assessment.The Tribunal referred to a decision of the Hon'ble Bombay High Court in a similar case where it was held that reopening notice based solely on suspicion without detailed examination was not valid. The Tribunal distinguished between "reason to suspect" and "reason to believe," emphasizing that mere cash deposits without further investigation do not constitute a valid reason to believe income has escaped assessment. The Tribunal concluded that the reassessment for the assessment year 2012-13 should be quashed on this technical ground.The Tribunal applied the same reasoning to the assessment year 2013-14, finding the facts to be identical to the previous year. Therefore, both appeals of the assessee were allowed based on the quashing of the reassessment for the assessment year 2012-13.In summary, the Tribunal held that the reassessment was invalid due to the lack of sufficient preliminary material to support the belief that income had escaped assessment, emphasizing the distinction between suspicion and belief. The Tribunal's decision to quash the reassessment for the assessment year 2012-13 was extended to the assessment year 2013-14, resulting in the allowance of both appeals by the assessee.