Reopening assessment under section 147 invalid when assessee provided complete disclosure and plausible explanation for cash deposits

Gujarat HC held that reopening of assessment u/s 147 was invalid where assessee had provided plausible explanation for large cash deposits through summons u/s 131(1A), submitted reconciliation statements, and made complete disclosure in original assessment. The court found revenue's action constituted mere change of opinion without proper reason to believe, lacking jurisdictional basis. Citing Kelvinator of India precedent requiring link between reason and belief formation, the court ruled in favor of assessee against reopening.

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Issues involved:
The issues involved in this case are the validity of the notice dated 31.03.2021 issued under sec. 148 of the Income Tax Act, 1961, and the order dated 19.08.2023 rejecting the objections of the petitioner.

Validity of Notice under Section 148:
The petitioner, a partnership firm engaged in the petroleum business, challenged a notice issued under sec. 148 of the Income Tax Act, 1961. The revenue alleged that the petitioner made cash deposits amounting to Rs. 1,06,68,500, which were not disclosed in the return for the Assessment Year 2017-18. The petitioner contended that all details and explanations regarding the cash deposits were provided during assessment proceedings, and the assessment order was passed after due inquiry, indicating full disclosure of income.

Reasons for Reopening Assessment:
The revenue based the reopening of assessment on the belief that the petitioner had not fully disclosed income for the relevant assessment year. The petitioner had explained the sources of cash deposits, including a deposit of Rs. 1,06,68,500 in a cooperative bank, with evidence and detailed explanations. The audited accounts and reconciliation statements supported the petitioner's explanations. The revenue's reasons for reopening the assessment and rejecting objections were considered without jurisdiction as they amounted to a change of opinion, not supported by new material.

Legal Arguments:
The petitioner argued that the notice and order were invalid, citing the decision in the case of CIT vs. Kelvinator of India Ltd, which prohibits a change of opinion as a basis for reassessment. The revenue contended that there was sufficient information to justify the reopening of assessment, relying on the decision in ACIT Vs. Rajesh Jhaveri Stock Brokers (P) Ltd. The Court observed that the petitioner had adequately explained the cash deposits, and the reasons provided by the revenue lacked a connection with the formation of belief required for reassessment.

Judgment:
The High Court quashed and set aside the notice dated 31.03.2021 issued under sec. 148 of the Income Tax Act, 1961, and the order dated 19.08.2023 rejecting the objections of the petitioner. The petition was allowed, and the rule was made absolute accordingly.

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