2021 (2) TMI 734 - AT - Income Tax

Validity of reopening of assessment - unexplained bank deposits - reasons recorded for reopening of the assessment are reproduced above in which A.O. has mentioned that as per information received from REIC through Income Tax Officer, Ward-43(4), New Delhi, assessee has involved in smuggling of various banned items - HELD THAT - As assessee has explained that assessee-firm is engaged in business of trading and exporting various products. A.O. did not dispute the explanation of assessee that assessee is an exporter. Therefore, whatever sale proceeds were received by assessee in assessment year under appeal from foreign buyer, have been deposited into the impugned bank accounts of the assessee. The details of the same are noted in the assessment order. A.O. ultimately did not make any addition against the assessee of the impugned amounts as have been mentioned in the reasons recorded for reopening of the assessment. A.O. has also not made any addition against the assessee on account of any income earned by assessee through smuggling activities. The A.O, thus, recorded wrong, incorrect and non-existing reasons in the reasons recorded for reopening of the assessment. It would also show that A.O. did not apply his mind to the information received from REIC through ITO, Ward-43(4), New Delhi. The A.O. without any basis has recorded wrong, incorrect and non-existing reasons for reopening of the assessment. The A.O. also did not mention in the reasons that as to how much amount, the income chargeable to tax has escaped assessment in the case for assessee for assessment year under appeal. All these facts clearly support the explanation of assessee that A.O. without any cause or justification recorded wrong, incorrect and non-existing reasons for reopening of the assessment. As relying on SHRI NATRAJAN MONIE VERSUS THE INCOME TAX OFFICER, WARD 2 (5) , GURGAON. 2020 (12) TMI 345 - ITAT DELHI it is clear that A.O. has recorded incorrect, wrong and non-existing reasons in the reasons recorded for reopening of the assessment reproduced above and have also did not apply his mind to the information received from REIC through ITO, Ward-43(4), New Delhi. Therefore, we are of the view that reopening of the assessment is illegal and bad in Law and liable to be quashed. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reopening of assessment under section 147 of the I.T. Act, 1961.
2. Addition on account of unexplained cash deposits in bank accounts.
3. Addition on account of unexplained credits in bank accounts.
4. Estimation of net profit by disallowing a percentage of total expenses.

Issue-wise Detailed Analysis:

1. Validity of Reopening of Assessment:
The Assessee challenged the jurisdiction of the AO under section 147, claiming it was based on vague material and borrowed satisfaction. The Tribunal examined the reasons recorded for reopening, which cited information from REIC indicating involvement in smuggling activities and significant cash inflows. However, the AO did not make any additions based on these reasons, nor did he verify the information. The Tribunal found that the AO recorded incorrect, wrong, and non-existing reasons without applying his mind. Citing several judicial precedents, the Tribunal held that reopening based on such reasons is invalid and quashed the reassessment proceedings.

2. Addition on Account of Unexplained Cash Deposits:
The AO made an addition of ?52,00,500/- for unexplained cash deposits in the Assessee's bank accounts. The Assessee explained the sources of these deposits, but the AO did not accept the explanation due to a lack of documentary evidence. The CIT(A) upheld this addition, and the Tribunal did not find any reason to interfere with this part of the CIT(A)’s order.

3. Addition on Account of Unexplained Credits:
The AO made another addition of ?44,63,259/- for unexplained credits in the Assessee's bank accounts. The Assessee provided explanations and additional evidence during the appellate proceedings. The CIT(A) considered the remand report and additional evidence, subsequently deleting this addition. The Tribunal noted that the CIT(A) had rightly deleted this addition based on the evidence provided.

4. Estimation of Net Profit:
The AO estimated the Assessee's net profit by applying a 15% rate on the total turnover due to the failure to produce books of account. The CIT(A) directed the AO to disallow only 10% of the total expenses, reducing the disallowance to ?6,37,883/-. The Tribunal upheld the CIT(A)’s decision, finding it reasonable under the circumstances.

Conclusion:
The Tribunal allowed the Assessee's appeal, quashing the reopening of the assessment due to invalid reasons recorded by the AO. Consequently, all additions were deleted, and there was no need to address other issues on merits. The appeal of the Assessee was allowed in full.