2016 (8) TMI 1472 - AT - Income Tax

Tribunal quashes reassessment under Section 147 of Income Tax Act citing insufficient reasons

Mariyam Ismail Rajwani Versus Income Tax Officer, Ward 3 (2), Surat.

The Tribunal quashed the reassessment proceedings initiated under Section 147 of the Income Tax Act, 1961, as the reasons provided by the Assessing ... Reopening of assessment - proof of escapement of income - cash deposited in bank account - HELD THAT:- There is nothing more than cash deposit of R.12,76,000/- in the bank account to justify the reopening of assessment by holding the belief that income has escaped assessment. A mere cash deposit in the bank account, however, cannot justify such a belief or inference. In this view of the matter, and respectfully following the division bench order in the case of Bir Bahadur Singh Sijwali [2015 (2) TMI 60 - ITAT DELHI] hold that the very initiation of reassessment proceedings, on the facts of this case, were unsustainable in law. Therefore, quash the reassessment proceedings and the impugned reassessment order. As the reassessment itself stands quashed, all other issue raised in the appeal are rendered infructuous and do not call for any adjudication. - Decided in favour of assessee. Issues Involved:1. Validity of reassessment proceedings initiated under Section 147 of the Income Tax Act, 1961.2. Justification of the belief that income has escaped assessment based on cash deposits in the bank account.Issue-wise Detailed Analysis:1. Validity of reassessment proceedings initiated under Section 147 of the Income Tax Act, 1961:The assessee appellant challenged the correctness of the order dated 6th November 2015, passed by the learned CIT(A) concerning the assessment under section 144 r.w.s. 147 of the Income Tax Act, 1961, for the assessment year 2006-07. The assessment was reopened by the Assessing Officer (AO) on 14th March 2013, citing that the assessee had not filed a return of income for the relevant assessment year and had deposited cash of Rs. 12,76,000 in a savings bank account. The reasons for reopening were not initially provided to the assessee and were only furnished during the Tribunal proceedings on 11th May 2016. The Tribunal pointed out that mere deposits in a bank account cannot lead to the conclusion or inference that income has escaped assessment.The Tribunal relied on the division bench's decision in the case of Bir Bahadur Singh Sijwali vs. ITO, which emphasized that reasons for reopening an assessment must be recorded before issuing a notice and should be self-explanatory. The reasons must indicate an income escaping assessment, not merely suggest the need for an inquiry. The Tribunal concluded that the reasons recorded by the AO were not sufficient to justify the reopening of the assessment, and thus, the reassessment proceedings were quashed.2. Justification of the belief that income has escaped assessment based on cash deposits in the bank account:The Tribunal examined whether the mere fact of cash deposits in the bank account could justify the belief that income had escaped assessment. It was noted that the reasons recorded for reopening the assessment did not suggest that the deposits constituted an income that had escaped assessment. The AO's belief that income had escaped assessment was based on the assumption that bank deposits constituted undisclosed income, which is not necessarily the case. The Tribunal highlighted the distinction between factors indicating an income escaping assessment and those indicating a legitimate suspicion about income escaping assessment. The former must have a direct nexus with the income escaping assessment, while the latter may lead to further inquiries.The Tribunal referred to several judicial precedents, including the Hon'ble Supreme Court's judgment in the case of ITO Vs. Lakhmani Mewal Das, which stated that the reasons for the formation of the belief must have a rational connection with the formation of the belief. The Tribunal concluded that the mere fact of cash deposits in the bank account could not justify the belief that income had escaped assessment, and thus, the reassessment proceedings were unsustainable in law.Conclusion:The Tribunal quashed the reassessment proceedings and the impugned reassessment order, as the reasons recorded by the AO were not sufficient to justify the reopening of the assessment. Consequently, all other issues raised in the appeal were rendered academic and infructuous. The appeal was allowed in the terms indicated above, and the judgment was pronounced in the open Court on the 9th day of August 2016.