2023 (11) TMI 38 - HC - Income Tax

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

Nathalal Ambalal And Sons Versus Income Tax Officer

Gujarat HC held that reopening of assessment u/s 147 was invalid where assessee had provided plausible explanation for large cash deposits through summons ... Reopening of assessment u/s 147 - reason to believe - assessee had deposited large cash amounts and entered into high value financial transactions - HELD THAT:- What is evident from the annexures produced together with the petition is that pursuant to summons issued to the petitioner u/s 131(1A) asking the petitioner to show how he has deposited large amount of cash in the account of the Ahmedabad Mercantile Co-operative bank, the petitioner had responded as submitting the explanation indicating that the amount was deposited in the bank account and it was pertaining to daily cash as well as of petrol, diesel deposited every day in the bank. A statement of reconciliation containing details of cash deposits and cash for the period from 09.11.2016 to 31.12.2016 was placed on record. The audited accounts are also produced along with the petition indicating that there was fresh and plausible explanation tendered by the petitioner in context of these cash deposit. Assessment order passed after due inquiry on 17.12.2019 also indicates that there was full and complete disclosure of income at the hands of the assessee. Apparently reasons supplied by the respondent in its communication and the order disposing the objections are without jurisdiction for the reason that it is the case of change of opinion on the part of the respondent with regard to the source of cash deposits made in the banks. It is well settled in the case of Kelvinator of India [2010 (1) TMI 11 - SUPREME COURT] that reason must have a link with the formation of the belief. Decided in favour of assessee. 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.