2023 (3) TMI 462 - AT - Income Tax

Assessment Reopening: Cash Deposits Deemed Routine Business Transactions

The Income Tax Officer, Ward-3 (1) (1), Rajkot Versus Shri Girishkumar Mohanlal Puruswani

The ITAT upheld the CIT(A)'s decision, ruling that the reopening of the assessment under Section 147 was invalid. The cash deposits were deemed part of ... Reopening of assessment u/s 147 - Reason to believe - assessee has made high value transactions of cash deposits and issued DD/Cheque in lieu of cash through his bank accounts owned by him - assessee is an individual, engaged in Shroff business of discounting/issuing of negotiable instruments like drafts, cheques etc.- HELD THAT:- As seen from the detailed appellate order passed by the CIT(A), the mandate of Section 147 namely ‘reason to believe’ that income has escaped assessment is absent in the reasons recorded by the AO namely “high value cash deposited and issued cash/cheque in lieu of cash in his bank account”. Therefore the proceedings initiated by the AO by issuing 148 notice is unsustainable in law. We have no hesitation in confirming the detailed order passed by the ld. CIT(A) which is already reproduced at Para 3 of this order. Therefore we concur with CIT(A) that the notice issued u/s. 148 is invalid and bad in law. Unexplained cash deposited - Revenue could not able to establish it is an unexplained cash deposited by the assessee, inspite of enquiries made by Investigation Wing for more than 5 years. Similarly the AO failed to establish that the issuing of cheques to customers was fake or bogus and the assessee was receiving back the amount in cash. Thus the Assessing Officer failed to prove that the assessee is not in the business of “Sahukar/Shroff” as well as the cash deposited in the bank account neither remains with the assessee nor is it ploughed back in his business or in any kind of assets. Appeal filed by the Revenue is hereby dismissed. Issues Involved:1. Validity of reopening of assessment under Section 147 of the Income Tax Act, 1961.2. Treatment of cash deposits as unexplained income.3. Burden of proof regarding the nature of cash deposits and corresponding cheques/DDs issued.4. Applicability of legal precedents and judicial pronouncements on the case.Detailed Analysis:1. Validity of Reopening of Assessment under Section 147:The primary issue was whether the reopening of the assessment under Section 147 was valid. The Assessing Officer (AO) received information from the ADIT (Inv)-1, Rajkot about high-value cash deposits and the issuance of DD/Cheques in lieu of cash through the assessee's bank accounts. The AO issued a notice under Section 148, believing that the income had escaped assessment. The assessee objected, arguing that the reopening was beyond the four-year period and that the notice was issued by an unauthorized officer.The Commissioner of Income Tax (Appeals) [CIT(A)] held that the reopening was invalid, emphasizing that the AO did not conduct any independent verification before forming a belief that income had escaped assessment. The CIT(A) noted that the AO relied solely on the ADIT's information without any primary verification, thus failing to establish a 'reason to believe' that income had escaped assessment. The CIT(A) cited several judicial precedents, including the Gujarat High Court judgment in Bakulbhai Ramanlal Patel and the Bombay High Court judgment in Hindustan Lever Ltd., which underscored that reopening for mere verification is not permissible.2. Treatment of Cash Deposits as Unexplained Income:On the merits, the CIT(A) ruled that the cash deposits should be treated as stock-in-trade of the assessee's Shroff business, not as unexplained income. The AO had accepted the explanation for a portion of the deposits but added the remaining amount as unexplained cash deposits. The CIT(A) found that the AO failed to prove that the cash deposits were the assessee's undisclosed income. The CIT(A) noted that the assessee had a valid Money Lender's License and that the cash deposits were part of routine business transactions.3. Burden of Proof Regarding the Nature of Cash Deposits and Corresponding Cheques/DDs Issued:The CIT(A) emphasized that the burden of proof shifted to the AO once the assessee provided a list of customers to whom cheques were issued. The AO failed to establish that the transactions were fake or that the cash deposited was returned to the assessee. The CIT(A) referenced the Hon'ble ITAT 'C' Bench Ahmedabad decision in ITO vs. Dineshchand Shantilal Shah (HUF), which explained that routine business activities involving cash deposits and cheque issuance could not be treated as unexplained income without concrete evidence.4. Applicability of Legal Precedents and Judicial Pronouncements:The CIT(A) and the ITAT relied on several judicial pronouncements to support their conclusions. These included:- Gujarat High Court in Bakulbhai Ramanlal Patel: Reassessment cannot be resorted to for verification purposes.- Bombay High Court in Hindustan Lever Ltd.: The reasons for reopening must be clear and unambiguous, reflecting a belief that income has escaped assessment.- ITAT Ahmedabad in Sonal Arpit Doshi: Reopening for verification purposes is invalid.- Gujarat High Court in Shree Sidhnath Enterprise vs. ACIT: Cash deposits related to Shroff business do not represent undisclosed income unless it is shown that the cash returned to the assessee.Conclusion:The ITAT upheld the CIT(A)'s order, confirming that the reopening of the assessment was invalid and that the cash deposits were part of the assessee's routine business transactions. The AO's failure to conduct independent verification and the lack of evidence to prove that the cash deposits were the assessee's undisclosed income led to the dismissal of the Revenue's appeals. The ITAT's decision was consistent with the legal principles established in various judicial precedents, emphasizing the importance of a reasoned belief and proper verification in reopening assessments.