2020 (2) TMI 82 - AT - Income Tax

Tribunal cancels assessments for 2006-2007 & 2007-2008, stresses AO's independent verification

Shri S.N. Arora/Sapra Versus The ITO, Ward – 23 (2), C.R. Building, New Delhi.

Shri S.N. Arora/Sapra Versus The ITO, Ward – 23 (2), C.R. Building, New Delhi. - TMI Issues Involved1. Validity of reopening the assessment under Section 148 of the Income Tax Act, 1961.2. Addition of unexplained cash deposits under Section 68 of the Income Tax Act, 1961.3. Addition of unexplained investments under Section 69 of the Income Tax Act, 1961.Detailed Analysis1. Validity of Reopening the Assessment under Section 148 of the Income Tax Act, 1961The assessee challenged the initiation of reassessment proceedings for both assessment years 2006-2007 and 2007-2008. The primary contention was that the Assessing Officer (A.O.) did not apply his mind independently and relied solely on the information provided by the Investigation Wing, which was not verified. The Tribunal noted that the reasons recorded for reopening were based on incorrect facts. Specifically, the A.O. recorded cash deposits of Rs. 2,82,70,090/- based on the Investigation Wing’s report, whereas the actual cash deposit was Rs. 2,05,54,090/- as per Annexure-C. The Tribunal emphasized that mere cash deposits in bank accounts do not per se indicate income escapement and require further verification.The Tribunal cited several judgments, including those of the Hon’ble Delhi High Court and ITAT, which held that reopening based on unverified information or incorrect facts is invalid. The Tribunal concluded that the A.O. failed to verify the information and did not apply his mind, making the reopening of the assessment illegal and bad in law.2. Addition of Unexplained Cash Deposits under Section 68 of the Income Tax Act, 1961For the assessment year 2006-2007, the A.O. added Rs. 2,82,70,090/- as unexplained cash deposits in the assessee’s bank accounts under Section 68. The assessee contended that the actual cash deposits were Rs. 1,23,45,200/- and provided bank statements to support this claim. The Tribunal found discrepancies in the A.O.’s calculations and noted that the A.O. did not verify the actual cash deposits. The Tribunal held that the A.O. recorded incorrect reasons for reopening the assessment and failed to verify the information received from the Investigation Wing, thereby quashing the addition.For the assessment year 2007-2008, the A.O. added Rs. 86,86,537/- as unexplained cash deposits. The assessee argued that the actual deposit was Rs. 20,16,000/-. The Tribunal found the reasons for reopening similarly flawed as in the previous year and quashed the addition.3. Addition of Unexplained Investments under Section 69 of the Income Tax Act, 1961For the assessment year 2006-2007, the A.O. added Rs. 94 lakhs as unexplained investments under Section 69. The investments included Rs. 48 lakhs for a property in Greater Kailash-II and Rs. 46 lakhs for a property in C.R. Park. The assessee argued that the Rs. 48 lakhs pertained to the sale of a property, which was not an unexplained investment, and provided supporting sale deeds. For the Rs. 46 lakhs, the assessee had a Collaboration Agreement with Shri Nilambar Rudrapal, explaining the source of the investment. The Tribunal found that the A.O. did not apply his mind and recorded incorrect reasons, leading to the quashing of the addition.ConclusionThe Tribunal allowed both appeals, quashing the reopening of assessments and deleting all additions for the assessment years 2006-2007 and 2007-2008. The Tribunal emphasized the need for the A.O. to independently verify information and apply his mind before recording reasons for reopening assessments.