2022 (12) TMI 442 - AT - Income Tax

Reopening of assessment u/s 147 - Unexplained cash deposits - HELD THAT - As in the present case if you go through reasons for re-opening of assessment, there is a reasonable belief of escapement of income on the basis of fresh materials which suggest escapement of income. At the stage for issuance of notice, what is to be seen is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. In this case, there is a new material with the AO to form a reasonable belief of escapement of income. There is no merit in arguments taken by assessee on legality of re-opening of assessment, and thus, we reject ground taken by the assessee on re-opening of assessment. Addition on cash deposits - When the assessee has claimed source of Rs. 8,50,000/- out of his retirement benefit, the AO ought to have verified the claim of the assessee in light of confirmation letter filed by his brother-in-law to ascertain the version of the assessee. Since, the AO has failed to carry out necessary enquiries to ascertain the transaction between the assessee and his brother-in-law, we are of the considered view that a benefit of doubt should be given to the assessee to the extent of sum of Rs. 8,50,000/- that the assessee had given loan to his brother-in-law and the same has been returned back by his brother-in-law in the year 2008 - We are of the considered view that the assessee could able to explain source for cash deposits to the extent of Rs. 8,50,000/-. In so far as, balance amount of Rs. 5,69,000/-, no proper explanation was furnished by the assessee which can be considered as acceptable. Although, assessee claims that he had given loan to his brother-in-law out of his past savings amounting to Rs. 3,50,000/-, no credible evidence was with the assessee to justify his case. Assessee could not be able to explain source for cash deposits of Rs. 5,69,000/- and thus, we are of the considered view that there is no error in the reasons given by the Assessing Officer to make addition towards cash deposit to the tune of Rs. 5,69,000/-. To sum up, out of cash deposits of Rs. 14,19,000/-, the assessee could able to explain source to the extent of Rs. 8,50,000/-, out of his retirement benefits. Therefore, we direct the AO to delete addition to the extent of Rs. 8,50,000/- towards cash deposit and for balance amount of Rs. 5,69,000/-, no proper explanation was furnished and thus, addition made by the AO is sustained to the extent of Rs. 5,69,000/- only. Appeal filed by the assessee is partly allowed.

Summary

Issues:
1. Legality of re-opening of assessment
2. Addition made towards cash deposits

Issue 1: Legality of re-opening of assessment

The appeal challenged the legality of re-opening the assessment under section 147 of the Income-tax Act, 1961 based on the reasons recorded. The appellant argued that the Assessing Officer (AO) did not have a reasonable belief of income escapement but only sought to verify the source of cash deposits. The appellant contended that the re-opening should be considered void-ab-initio. However, the Tribunal found that the AO had a reasonable belief of income escapement as the appellant failed to explain the source of cash deposits adequately. The Tribunal noted that the AO had fresh material to form a reasonable belief, making the re-opening valid. Citing relevant case laws, the Tribunal held that the AO's actions were justified, rejecting the appellant's argument on the legality of re-opening the assessment.

Issue 2: Addition made towards cash deposits

Regarding the addition of Rs. 14,19,000 as unexplained investment due to cash deposits, the appellant claimed the source was from a loan given to his brother-in-law, supported by a confirmation letter. The AO, however, doubted the loan transaction's veracity and added the entire amount as unexplained. The Tribunal observed that the AO did not dispute the appellant's retirement benefits of Rs. 8,50,000 but questioned the loan transaction with his brother-in-law. The Tribunal found that the appellant adequately explained the source of Rs. 8,50,000 from his retirement benefits supported by the confirmation letter. However, for the remaining Rs. 5,69,000, the appellant failed to provide sufficient evidence. Consequently, the Tribunal directed the AO to delete the addition of Rs. 8,50,000 but upheld the addition of Rs. 5,69,000 as unexplained cash deposits. Therefore, the appeal was partly allowed, with the appellant succeeding in part regarding the addition made towards cash deposits.

In conclusion, the Tribunal upheld the legality of re-opening the assessment and partially allowed the appeal by directing the deletion of the addition to the extent of Rs. 8,50,000 while sustaining the addition of Rs. 5,69,000 towards unexplained cash deposits. The judgment provided a detailed analysis of both issues, emphasizing the importance of providing sufficient evidence to explain sources of income and the legality of re-opening assessments based on reasonable beliefs of income escapement.