2021 (3) TMI 840 - HC - Income Tax

Reopening of assessment u/s 147 - unexplained cash transactions of withdrawal and deposit from the bank accounts were duly recorded in bank accounts and also reflected in the audited annual account - whether the revenue is justified in reopening the assessment beyond the period of 4 years under Section 147? - HELD THAT - We are of the view that after receiving the information from the NMS the Assessing Officer has verified the documents and explanation offered by the assessee and was not agree with the explanation and based on the outcome of the verification, drew the inference that the transactions of cash deposit was not shown in the return of income for the year under consideration and noted that the true facts of transactions having not been disclosed by the assessee and income has escaped assessment. As examined the copy of bank statements of this writ application. The assessee has not produced the copy of cash books for the years 2010-11 and 2011-12. We found some discrepancies in the bank statements with regard to opening balance and withdrawals of the cash amount. The explanation of the assessee before the Assessing Officer indicates that the assessee had not explain the transactions of cash withdrawal and deposits in a precise manner. In other words, he should have disclose and point out the entry wise explanation before the revenue authority, enable them to draw necessary inference with regard to genuineness of the transactions. We are of the view that the information received by the system was specific and clear and after verification of the material evidence produced by the assessee the Assessing Officer disclosed his mind that the assessee failed to explain the source of cash deposit and has reason to believe that the income has escaped assessment. Therefore, it cannot be said that the Assessing officer has not applied his mind and there was no satisfaction by his own with regard to escapement of income. As specifically stated that although it is the case of the assessee that the cash deposit was from the opening cash balance, yet upon verification of the submission filed by the assessee, the Assessing Officer noticed that there was no supporting evidence as regards the source of income. In the reasons, it has been specifically stated that the correct income should have been disclosed while filing of the return of the income. Thus, in our opinion, this is not a case, in which, the Assessing Officer could be said to have not been considered the explanation offered by the assessee in response to the notice issued under Section-133( 6) of the Act while recording the reasons for reopening. The order of this Court in Swati Malove Divetia 2018 (9) TMI 804 - GUJARAT HIGH COURT is in the facts of that particular case. In view of the discussions made hereinabove, we hold that the Assessing Officer is justified in reopening of the assessment of the assessee and it cannot be said that the impugned notice is without jurisdiction and bad in law.

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Justification for reopening of assessment under Section 147 of the Income Tax Act, 1961.
3. Consideration of the assessee's explanation and evidence by the Assessing Officer.
4. Application of the principle of 'reason to believe' in the context of reopening assessments.

Issue-wise Detailed Analysis:

1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961:
The petitioner challenged the notice dated 25.03.2019 issued by the respondent under Section 148 of the Income Tax Act, 1961, seeking to reopen the petitioner’s income assessment for the A.Y. 2012-13. The petitioner argued that the conditions precedent for a valid reopening under Section 147 of the Act were not satisfied, rendering the notice and subsequent order disposing of the objections as bad in law and without jurisdiction.

2. Justification for reopening of assessment under Section 147 of the Income Tax Act, 1961:
The revenue's case was based on information received from the Non-Filer Monitoring System (NMS) regarding a cash deposit of ?18,00,000 in the Development Credit Bank during A.Y. 2012-13. The revenue argued that the assessee failed to provide supporting evidence and the source of income for this cash deposit, justifying the reopening of the assessment. The court noted that the only requirement to initiate proceedings under Section 147 of the Act is a 'reason to believe' that income has escaped assessment, which does not necessitate proving that the assessee failed to disclose all material facts fully and truly.

3. Consideration of the assessee's explanation and evidence by the Assessing Officer:
The petitioner contended that the Assessing Officer did not independently apply his mind while recording the reasons for reopening and relied solely on the information from the NMS system. The petitioner had provided explanations and supporting evidence, including copies of the cash book and bank statements, which were allegedly not properly considered by the Assessing Officer. However, the court found that the Assessing Officer had verified the documents and explanation offered by the assessee and was not satisfied with the explanation, leading to the belief that income had escaped assessment.

4. Application of the principle of 'reason to believe' in the context of reopening assessments:
The court emphasized that the phrase 'reason to believe' means cause or justification for the Assessing Officer to know or suppose that income had escaped assessment. The court referred to the case of Asst. Commissioner of Income Tax Vs. Rajesh Jhaveri Stock Broker Ltd, where it was held that at the initiation stage, what is required is a reason to believe, not the established fact of escapement of income. The court found that the Assessing Officer had a reasonable basis to believe that income had escaped assessment based on the information received and the verification of the material evidence produced by the assessee.

Conclusion:
The court held that the Assessing Officer was justified in reopening the assessment and that the impugned notice was not without jurisdiction or bad in law. The writ application was dismissed, and the notice was discharged. The court concluded that the information received by the system was specific and clear, and the Assessing Officer had applied his mind independently, forming a valid opinion that the income had escaped assessment.

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