2022 (5) TMI 1442 - AT - Income Tax

Court quashes reassessment based on flawed reasoning for invoking section 148/147

The court quashed the reassessment proceedings, finding flaws in the Assessing Officer's reasoning for invoking section 148/147 based on cash deposits in ... Reopening of assessment u/s 147 - eligibility of reason to believe - Unexplained cash deposits made at the assessee - HELD THAT:- We find no merit in the Revenue’s instant arguments. This is for the reason that the Assessing Officer has mainly gone by the fact that the cash deposits made at the assessee’s behest “cannot be explained” from the known sources of income of the assessees from the return of income filed and other evidence(s) available on record whereas these taxpayers turned out to be non filers only. Such non application of mind in recording reasons does not deserve to be concurred with as held in Meenakshi Overseas Pvt. Ltd. [2017 (5) TMI 1428 - DELHI HIGH COURT] and PCIT Vs. RMG Polyvinyl Ltd [2017 (7) TMI 371 - DELHI HIGH COURT] - This is coupled with the hon’ble jurisdictional landmark decision in Hindustan Lever Ltd. vs. R.B. Wadkar [2004 (2) TMI 41 - BOMBAY HIGH COURT] held long back that the reopening reasons have to be read on standalone basis without any scope of addition, deletion or substitution therein even if supportive material emerges at a later stage. We find no substance in the Revenue’s instant argument as well in light of Bir Bahadur Singh Sijwali[2015 (2) TMI 60 - ITAT DELHI] it is of the considered view that the reasons recorded by the Assessing Officer, as set out earlier, were not sufficient reasons for reopening the assessment proceedings. We, therefore, quash the reassessment proceedings - Decided in favour of assessee. Issues:Challenging correctness of Assessing Officer's action invoking section 148/147 mechanism based on cash deposits in bank accounts.Analysis:The judgment involves three appeals for different assessment years against CIT(A)'s orders under section 143 r.w.s. 147 of the Income Tax Act, 1961. The assessees challenged the correctness of the Assessing Officer's action invoking section 148/147 mechanism based on cash deposits in bank accounts. The reasons for reopening the assessment highlighted unexplained cash deposits, leading to the belief that income had escaped assessment. However, the court found flaws in the Assessing Officer's reasoning, citing precedents like Meenakshi Overseas Pvt. Ltd. vs. CIT and Hindustan Lever Ltd. vs. R.B. Wadkar. The court emphasized that reasons for reopening must be self-explanatory and directly linked to income escaping assessment.The court further analyzed the legal position regarding the recording of reasons for reopening assessments. It highlighted the importance of a direct nexus between the material and the belief of income escapement, as established in various judicial precedents. The court emphasized that the reasons recorded must indicate income escaping assessment and not merely the need for further inquiry. It also stressed the distinction between factors indicating income escapement and those raising a suspicion, emphasizing the cause-and-effect relationship between reasons and income escapement.Moreover, the court scrutinized the Assessing Officer's opinion that cash deposits in bank accounts constituted undisclosed income. It referenced the necessity of a reason to believe income escapement rather than mere suspicion. The court dismissed the argument that bank deposits alone could justify income escapement, citing relevant legal precedents. Ultimately, the court quashed the reassessment proceedings, deeming the reasons insufficient for reopening assessment. Consequently, all other issues on the merits of the additions in the assessment proceedings became irrelevant and were rendered academic. The appeals were allowed, and the impugned reopening was quashed.