2023 (4) TMI 1101 - AT - Income Tax

Reopening of assessment u/s 147 - cash deposit in saving bank unexplained - assessee and her son are joint owner of a saving bank account - HELD THAT - The assessee and the son of the assessee does not have taxable income during the year and therefore, they have not filed any return of income. The family of the assessee are having some agricultural income and small income from share transactions. The assessee is residing in very small village where no private bank are available also no core banking is available during the year under consideration. Therefore, the assessee and their family members used to deposit their cash in this account and apply for initial public issue. It is pertinent to note that the reasons recorded in assessee and her son s case are identical and the Assessing Officer has recorded the reasons stating therein that the assessee has entered into monetary transaction i.e. cash deposited in the saving bank account and no return of income was filed by the assessee. But the basic fact that assessee is not eligible for filing return of income was not taken into account and therefore, there was no application of mind while recording the reasons for reopening. Decided in favour of assessee.

Summary

Issues involved: Reopening of assessment under Section 147 based on cash deposits in bank account, validity of notice under Section 148, assessment made by the Assessing Officer, addition of unexplained income, grounds of appeal raised by the assessee, legal validity of the assessment, application of natural justice principles.

Reopening of Assessment: The case was reopened for A.Y. 2011-12 based on cash deposits in the assessee's saving bank account with Kotak Mahindra Bank and IDBI Bank. The Assessing Officer issued notice under Section 148 of the Income Tax Act 1961, as the assessee had not filed a return of income despite cash deposits. The assessee did not respond to the notices, leading to the addition of Rs. 12,31,600 as unexplained income after considering cash withdrawals and re-deposits. The CIT(A) partly allowed the appeal filed by the assessee against the assessment order.

Validity of Reopening and Notice under Section 148: The assessee contended that the reopening of assessment was not valid and was based on suspicion. The Assessing Officer did not conduct an independent inquiry to ascertain the source of the unexplained income. The reasons recorded for reopening the case were vague and lacked a clear link to the assessee. The notice under Section 148 was issued solely based on cash deposits without proper verification, as highlighted in relevant legal precedents cited by the assessee's representative.

Assessment and Addition of Unexplained Income: The Assessing Officer's decision to treat the cash deposits as unexplained income was challenged by the assessee. The representative argued that the cash deposits were from various family members for share application money, and the peak balance considered was incorrect. The CIT(A) and the Assessing Officer did not adequately consider the explanation provided by the assessee regarding the source of the funds deposited in the bank account.

Grounds of Appeal and Legal Validity: The grounds of appeal raised by the assessee included challenges to the validity of the notice under Section 148, the legality of the assessment, and the principles of natural justice. The Ld. A.R. argued that the reopening of the case lacked a valid reason and that the Assessing Officer did not apply his mind properly before initiating the assessment proceedings. The legal issues raised by the assessee were upheld, leading to the allowance of both appeals without delving into the merits of the cash deposits.

Application of Natural Justice: The decision highlighted the importance of applying natural justice principles in tax assessments. The lack of proper consideration of the assessee's submissions and the vague reasons for reopening the case indicated a failure to adhere to the principles of natural justice. As a result, the legal issues raised by the assessee were deemed valid, leading to the allowance of both appeals without further examination of the cash deposits on merit.