2024 (8) TMI 122 - HC - Income Tax

Validity of reassessment proceedings - deposit of a substantial amount of cash in the bank account during the relevant financial year - deposit was immediately debited from the account through cheque, erroneous fund transfer and RTGS to the petitioner-Bank - HELD THAT - It is not in dispute that the petitioner is a registered Cooperative Bank carrying out banking business i.e. dealing in cash of the customers. It is also apparent from the documents placed on record that the accounts of the petitioner are duly audited and the search audit report, audited balance-sheet, profit and loss account along with audit report under Section 44AB is already filed along with return of income. Petitioner was also subject to the statutory audit by the NABARD. Thus, the petitioner-Bank who has carried out the normal banking transaction by depositing cash of the customers in its current account maintained with Indusind Bank for carrying out banking transaction on behalf of the customers, by no stretch of imagination can result into escapement of income. The reasons recorded by the Assessing Officer so as to assume the jurisdiction are therefore, contrary to the basic account accounting principles of banking industry whereby the cash is received from the customer can never be said to partake a character of cash credit by depositing the same in the bank account of the petitioner-Bank kept with other bank. In such circumstances, when there is no escapement of income, the reopening of assessment cannot be permitted merely for the purpose of verification or for fishing inquiry and the impugned notice u/s 148 of the Act is not tenable in eye of law. Assessee appeal allowed.

Summary

Issues:
Challenge to notice for reopening assessment under section 148 of the Income Tax Act, 1961 for the Assessment Year 2015-16.

Analysis:
The petitioner, a Cooperative bank, challenged a notice for reopening the assessment for the Assessment Year 2015-16 under Article 226 of the Constitution of India. The notice was based on the deposit of a substantial amount of cash in the bank account during the relevant financial year. The Assessing Officer believed that income amounting to Rs. 5,05,00,000 had escaped assessment. The petitioner contended that the notice was issued without proper explanation and was merely based on assumptions and presumptions. The petitioner had filed all requisite details during the regular assessment, including details of bank accounts for banking transactions. The petitioner argued that the reasons recorded for reopening the assessment were contrary to basic accounting principles in the banking industry as the cash deposits from customers could not be considered as income escapement.

The petitioner relied on a previous judgment where it was held that reassessment cannot be done for mere verification or fishing inquiry unless there is a reason to believe that income has escaped assessment. On the other hand, the respondent argued that the notice was based on fresh information received from DDIT (Inv.), Valsad, and that the reopening was within the permissible period of four years under section 147 of the Act. The respondent contended that the petitioner had an alternative remedy to challenge the assessment order before CIT (A) if any additions were made based on the reopening.

The court found that the petitioner, a registered Cooperative bank, had duly audited accounts and had provided necessary details during the regular assessment. The court observed that the cash deposits in the bank account were part of normal banking transactions and did not indicate income escapement. Therefore, the reasons recorded by the Assessing Officer were deemed contrary to basic accounting principles in the banking industry. Consequently, the court quashed the notice for reopening the assessment and set aside the order rejecting the objection, ruling in favor of the petitioner.