2015 (2) TMI 60 - AT - Income Tax

Reopening of assessment - assessee has made transaction of ₹ 10,24,100 (deposits in cash) in his saving bank account but no return of income was filed by the assessee - Held that - All that the reasons recorded for reopening indicate is that cash deposits aggregating to ₹ 10,24,100 have been made in the bank account of the assessee, but the mere fact that these deposits have been made in a bank account does not indicate that these deposits constitute an income which has escaped assessment. The reasons recorded for reopening the assessment donot make out a case that the assessee was engaged in some business and the income from such a business has not been returned by the assessee. As we donot have the liberty to examine these reasons on the basis of any other material or fact, other than the facts set out in the reasons so recorded, it is not open to us to deal with the question as to whether the assessee could be said to be engaged in any business; all that is to be examined is whether the fact of the deposits, per se, in the bank account of the assessee could be basis of holding the view that the income has escaped assessment. The Assessing Officer has opined that an income of ₹ 10,24,100 has escaped assessment of income because the assessee has ₹ 10,24,100 in his bank account but then such an opinion proceeds on the fallacious assumption that the bank deposits constitute undisclosed income, and overlooks the fact that the sources of deposit need not necessarily be income of the assessee. Of course, it may be desirable, from the point of view of revenue authorities, to examine the matter in detail, but then reassessment proceedings cannot be resorted to only to examine the facts of a case, no matter how desirable that be, unless there is a reason to believe, rather than suspect, that an income has escaped assessment.- Decided in favour of assessee.

Summary

Issues:
Validity of reassessment proceedings based on cash deposits in the bank account.

Analysis:
The appeal questions the correctness of the order dated 26th May 2011 passed by the CIT(A) regarding the assessment under section 143(3) r.w.s. 147 of the Income Tax Act, 1961, for the assessment year 2008-09. The primary issue raised in this appeal is the validity of the reassessment proceedings initiated based on cash deposits in the bank account of the assessee. The reasons for reopening the assessment highlighted that the income chargeable to tax for the assessment year 2008-09 had escaped assessment due to cash deposits made by the assessee during the financial year 2007-08. The reassessment proceedings were challenged on the grounds that the reasons for reopening were recorded after the notice was served, violating the requirement that reasons must be recorded before issuance of notice.

The tribunal examined the legal position, emphasizing that reasons for reopening must be self-explanatory and form a direct nexus with the belief that income has escaped assessment. The assessment cannot be reopened merely for further inquiries without indicating a specific income escaping assessment. The tribunal noted that the reasons recorded in this case did not establish a clear link between the cash deposits and income escaping assessment. While the Departmental Representative cited judicial precedents to support the view that bank deposits could indicate income escaping assessment, the tribunal found these references inadequate to justify the reassessment in this case.

The tribunal concluded that the reasons recorded by the Assessing Officer were insufficient to justify the reassessment proceedings. As a result, the reassessment was quashed, rendering other issues on the merits of the additions in the assessment proceedings moot. The appeal was allowed, and the judgment was pronounced on 20th January 2015.