2018 (3) TMI 2050 - HC - Income Tax

Assessment reopening quashed where officer ignored detailed reply with supporting documents for cash transactions

Gujarat HC held that reopening of assessment was invalid where Assessing Officer ignored assessee's detailed reply explaining cash transactions. Assessee ... Reopening of assessment - big mismatch between the returned income and cash transactions in the assessee's bank accounts - HELD THAT:- As noted, in reply to the notice dated 21.02.2017 issued by the Assessing Officer, the assessee had given a detailed reply on 06.03.2017. He had pointed out that he had received Rs. 25 lakhs in cash for sale of his Mango crop. Such amount was deposited in the bank account. Part of it was withdrawn and redeposited. That is how the total cash deposit in his account reached Rs. 30.75 lakhs during the relevant period. Along with his reply, the assessee had also furnished a copy of the agreement between the assessee and the purchaser of the Mango crop. The bank statement was also produced. If the Assessing Officer was not still satisfied, it was always open for him to call for further details or even for valid reason to discard the assessee's reply and reopen the assessment recording the reasons. Under no circumstances, he could have simply ignored the reply and proceeded to form a belief that income chargeable to tax has escaped assessment on the premise that his queries had remained un-replied. In plain terms, his reasons proceeded on wrong facts. His satisfaction was thus, tainted by wrong facts. His attempt to cover the issue through the order disposing of objections must fail. His assertion that such large amount of agricultural income required verification, would amount to improving the reasons and also seeking to carry out fishing inquiry through the process of reopening of the assessment. Decided in favour of assessee. The Gujarat High Court considered a case where the petitioner challenged a notice issued by the Assessing Officer seeking to reopen the petitioner's assessment for the assessment year 2010-11. The petitioner, an HUF, had filed a return of income declaring total income of Rs. 30,833, with agricultural income of Rs. 21.56 lakhs exempt from tax. The Assessing Officer issued a notice under section 133(6) of the Income Tax Act, 1961, raising queries regarding a cash deposit of Rs. 30.75 lakhs during the relevant period. The petitioner responded, explaining that the cash deposit was from agricultural income, supported by an agreement and bank statements.The Assessing Officer issued the impugned notice based on the belief that the petitioner had concealed income, leading to the alleged escape of Rs. 30,75,500 from assessment. The petitioner objected to the notice, which was rejected, prompting the present petition.The Court noted that two separate Assessing Officers had issued notices for reopening the assessment for the same year, leading to confusion. Despite the department abandoning one notice, the Court did not quash the present notice. The Assessing Officer's reasons for reopening were based on the discrepancy between declared income and cash deposits, with the petitioner's response not being considered.The Court emphasized that even in cases where the return was accepted without scrutiny, the Assessing Officer must have valid reasons to believe income has escaped assessment. Referring to precedent, the Court highlighted the necessity of tangible material to support the belief. The Assessing Officer's belief in this case was deemed flawed as the petitioner had provided explanations and evidence, which were not considered.Ultimately, the Court quashed the impugned notice dated 28.03.2017, finding that the Assessing Officer's satisfaction was based on incorrect facts and failed to justify reopening the assessment. The petition was disposed of in favor of the petitioner.