2015 (12) TMI 982 - HC - Income Tax

Reopening of assessment - undisclosed cash deposit - Held that - When the bank account was not only disclosed by the petitioner at the outset along with return but was also noticed by the Assessing Officer during scrutiny, the main foundation of the allegation of the cash deposit having escaped to the notice of the Assessing Officer of the bank account not having been disclosed, stands falsified. The question of application of Explanation-1 to Section 147 of the of the Act would simply not arise. Even otherwise, it would appear that the petitioner gave full details of the bank account. During scrutiny assessment, if the Assessing Officer had any curiosity about the deposits made in such bank accounts, it was for him to question the assessee on such cash deposits. He simply cannot take shelter of Explanation-1 to Section 147 by contending that since such cash deposit was not pointedly brought to his notice by the petitioner, he can reopen the assessment beyond a period of four years alleging that the assessee did not disclose fully and truly all material facts. Coming to the second element of the reasons for reopening the assessment, the petitioner pointed out to the Assessing Officer in objections raised to the reopening of assessment that he never owned or operated any bank account in Kotak Mahindra Bank as alleged. He would presume that reference to cash deposit of ₹ 14,67,075/- was to the loan sanctioned and disbursed by the said bank for purchase of car. These objections, however, met with a total silence by the Assessing Officer in the order that he passed on 15.06.2015 disposing of such objections. If his stand was that the contention of the petitioner that he never had any such bank account in Kotak Mahindra Bank was false, it was his duty to state so, with atleast prima facie material to so establish.The disposal of the objections was thus done in a mechanical manner. Even today, the Department has not been able to bring on record anything to suggest that the petitioner s frontal assertion that he did not have any bank account in Kotak Mahindra Bank nor did he make any cash deposit in the said bank account as alleged, is false. In fact, the petitioner reconciled the said amount of ₹ 14,67,075/- by pointing out that this was exactly the same amount which the Kotak Mahindra Bank released by way of car loan, which was, in fact, paid over directly to the dealer. - Decided in favour of assessee

Summary

Issues:
1. Validity of notice for reopening assessment beyond four years from the end of the relevant Assessment Year.
2. Failure to disclose material facts necessary for assessment.
3. Application of Explanation-1 to Section 147 of the Income Tax Act, 1961.

Analysis:

Issue 1: Validity of notice for reopening assessment beyond four years
The petitioner challenged a notice reopening the assessment for Assessment Year 2008-09 issued by the Assessing Officer beyond the four-year limit. The Assessing Officer's reason for reopening was the cash deposits in the petitioner's bank accounts not disclosed during the original assessment. The petitioner contended that the notice was issued beyond the prescribed period and without non-disclosure of material facts. The court emphasized that the validity of the notice should be based on the reasons recorded by the Assessing Officer.

Issue 2: Failure to disclose material facts
The Assessing Officer alleged that cash deposits in the petitioner's bank accounts had escaped assessment due to non-disclosure. However, the petitioner had disclosed the Bank of India account during the original assessment and even provided details in response to queries. The court found that the Assessing Officer's claim of non-disclosure was baseless as the bank account had been disclosed from the outset, and the deposits were known during scrutiny assessment. Therefore, the application of Explanation-1 to Section 147 was deemed unnecessary.

Issue 3: Application of Explanation-1 to Section 147
The Assessing Officer argued that even if the Bank of India account was disclosed, Explanation-1 to Section 147 would apply. However, the court ruled that since the account was disclosed and details provided, the application of Explanation-1 was unwarranted. Regarding the Kotak Mahindra Bank account, the petitioner denied its existence and explained that the alleged cash deposit was a car loan disbursed directly to the dealer. The court found the objections raised by the petitioner were not addressed properly by the Assessing Officer, leading to a mechanical disposal of the objections.

In conclusion, the court quashed the impugned notice dated 20.03.2015, ruling in favor of the petitioner and allowing the petition.