Reassessment under section 147 upheld for non-filing returns and unexplained cash deposits exceeding declared income

ITAT Surat upheld reassessment proceedings under section 147 where assessee failed to file return despite notice under section 148 and made substantial cash deposits disproportionate to previously declared meager income. The tribunal found sufficient reason to believe income escaped assessment based on non-filing of returns and unexplained cash deposits exceeding past declared income levels. However, regarding cash deposit additions, ITAT directed AO to consider peak credit method rather than treating entire credit entries as income, following established precedents. The appeal was partly allowed with directions for partial addition based on unexplained credits.

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Issues Involved:
1. Validity of reopening assessment under Section 147.
2. Ex-parte order under Section 144.
3. Addition of Rs. 2,52,05,768/- as unexplained cash credit under Section 68.

Summary:

Issue 1: Validity of Reopening Assessment under Section 147
The assessee challenged the reopening of the assessment, arguing that the Assessing Officer (AO) did not have any tangible material to form a "reason to believe" that there was an escapement of income. The Tribunal upheld the reopening, agreeing with the National Faceless Appeal Centre (NFAC)/CIT(A) that the AO had credible information about cash deposits in the assessee's bank account, which justified the reopening. The Tribunal noted that the AO had followed due process, including obtaining prior approval and recording reasons for reopening. The Tribunal dismissed the assessee's argument that the reopening was based on mere suspicion or gossip, emphasizing that the AO's belief was formed in good faith based on relevant material.

Issue 2: Ex-parte Order under Section 144
The assessee did not press this ground, and it was dismissed as not pressed.

Issue 3: Addition of Rs. 2,52,05,768/- as Unexplained Cash Credit under Section 68
The assessee argued that he was engaged in cheque discounting business, and therefore, the entire credit entries in the bank account should not be treated as income. The Tribunal agreed that the entire deposits should not be considered as income and noted that the assessee had provided sufficient evidence to support his claim of being in the cheque discounting business. The Tribunal referred to various judicial precedents where only a percentage of the total credits was taxed. Consequently, the Tribunal directed the AO to make an addition based on the peak credit balance in the bank accounts, amounting to Rs. 3,73,597/-, thereby granting partial relief to the assessee.

Conclusion:
The appeal was partly allowed, with the Tribunal upholding the reopening of the assessment but reducing the addition for unexplained cash credits to Rs. 3,73,597/-. The order was pronounced on 26/10/2023.

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