2019 (4) TMI 1303 - AT - Income Tax

Reopening of assessment u/s 147 - Cash deposition in his saving bank account - it is a case where return of income has not been filed by the assessee and pursuant to notice u/s 148, he has filed his return of income - HELD THAT - Prior to such notice u/s 148, there is no past history of the assessee where he has filed any return of income wherein he has disclosed the savings bank account. For the first time, the matter was opened for the reason that there are cash deposits in his saving bank account which have escaped taxation. There is sufficient material in possession of the Assessing officer in form of cash deposits in his savings bank account and the factum of such cash deposits and the bank account belonging to the assessee has not been disputed before us. It is also a fact that the assessee has not filed his return of income for the year under consideration and such bank account thus has not been disclosed to the Revenue authorities. Therefore, there is a sufficient nexus between the material and formation of belief that income has escaped taxation. The argument of the ld AR that the whole of deposits cannot be regarded as income and therefore the assumption of jurisdiction is vitiated under law is not correct. To our mind, so long as there is an element of income which has escaped taxation and which exceeds the maximum amount which is not chargeable to tax, the same is sufficient enough to uphold the jurisdiction so invoked by the AO u/s 147 of the Act. Addition treating cash deposits in his saving bank account as unexplained and taxable u/s 69 - HELD THAT - We find that out of deposits of ₹ 23,45,000, deposits to the extent of ₹ 11 lacs has been found explained as made out of withdrawals in the month of March 2008. Regarding the remaining amount found deposited, we find that the Revenue has accepted the turnover of the assessee from his business of supply of building material to the tune of ₹ 26,04,540, therefore, the source of deposits to the extent of ₹ 12,45,000 found deposited in the bank account can reasonably be held from such business and thus stand duly explained. Regarding the cheque withdrawals/payments made by the assessee to the tune of ₹ 14,46,384, we find that there is an equivalent amount of cheque deposits to the tune of ₹ 14,60,241 in the bank account which again reasonably explain such cheque payments as made out of cheque deposits. In the result, we hereby delete the addition to the extent of ₹ 12,45,000 so sustained by the ld CIT(A). In the result, the ground of appeal is allowed.

Summary

Issues:
1. Challenge to the initiation of proceedings u/s 147 of the Income Tax Act.
2. Addition of cash deposits in the saving bank account as unexplained income u/s 69 of the Act.
3. Challenge to the total income determination by the Assessing Officer.
4. Initiation of penalty proceedings under section 271(1)(c) of the Income Tax Act, 1961.

Issue 1: Challenge to the initiation of proceedings u/s 147 of the Income Tax Act:
The appeal challenged the initiation of proceedings under section 147 of the Income Tax Act. The Assessing Officer (AO) reopened the case due to cash deposits in the saving bank account, which were not verifiable as the return of income was not filed. The appellant argued that the reopening was based on non-filing of the return and the cash deposits alone do not establish income escapement. The appellant contended that the AO acted mechanically and did not verify the information. The tribunal held that the AO had tangible material to form a belief that income had escaped taxation, as cash deposits triggered automatic sharing of information with the AO. The tribunal found a sufficient nexus between the cash deposits and income escapement, upholding the jurisdiction under section 147.

Issue 2: Addition of cash deposits in the saving bank account as unexplained income u/s 69 of the Act:
The appellant challenged the addition of ?12.45 lakhs as unexplained income, out of total cash deposits. The appellant argued that the withdrawals accounted for the deposits and the AO presumed usage for business without basis. The tribunal noted that a significant portion of deposits was explained by business turnover and cheque transactions. The tribunal found a reasonable explanation for the deposits and cheque payments, leading to the deletion of the addition of ?12.45 lakhs. The ground of appeal was allowed in favor of the appellant.

Issue 3: Challenge to the total income determination by the Assessing Officer:
The appellant contested the total income determination by the AO. The tribunal observed that a substantial part of the cash deposits was reasonably explained by business transactions, leading to a revised understanding of the income. The tribunal's analysis of the source of deposits and transactions resulted in the deletion of a portion of the addition made by the AO. The ground of appeal related to total income determination was addressed in favor of the appellant.

Issue 4: Initiation of penalty proceedings under section 271(1)(c) of the Income Tax Act, 1961:
The appeal also raised the issue of the initiation of penalty proceedings under section 271(1)(c) of the Income Tax Act. However, the tribunal noted that this issue did not arise from the present proceedings and dismissed it accordingly. The ground related to penalty proceedings was not further adjudicated upon due to its lack of relevance to the current case.

In conclusion, the tribunal's judgment addressed the challenges raised by the appellant regarding the initiation of proceedings, addition of cash deposits as unexplained income, and total income determination. The tribunal ruled in favor of the appellant on the grounds related to the addition of cash deposits and total income determination, while dismissing the penalty proceedings issue. The detailed analysis provided clarity on each issue, resulting in the allowance of the appellant's appeal.