Cooperative bank wins reassessment case as cash deposits from customers ruled standard banking operations under Section 148

Gujarat HC held that reassessment proceedings against a cooperative bank were invalid. The bank had deposited substantial cash amounts in its account with another bank, which were immediately debited through cheques and transfers. The court ruled that normal banking transactions involving customer cash deposits cannot constitute income escapement. Since the bank's accounts were properly audited and filed with statutory returns, and cash deposits from customers are standard banking operations, the reassessment notice under Section 148 was legally untenable. The court emphasized that reopening assessments cannot be permitted merely for verification or fishing inquiries without genuine income escapement. The assessee's appeal was allowed.

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Issues:
Challenge to notice for reopening assessment under section 148 of the Income Tax Act, 1961 for the Assessment Year 2015-16.

Analysis:
The petitioner, a Cooperative bank, challenged a notice for reopening the assessment for the Assessment Year 2015-16 under Article 226 of the Constitution of India. The notice was based on the deposit of a substantial amount of cash in the bank account during the relevant financial year. The Assessing Officer believed that income amounting to Rs. 5,05,00,000 had escaped assessment. The petitioner contended that the notice was issued without proper explanation and was merely based on assumptions and presumptions. The petitioner had filed all requisite details during the regular assessment, including details of bank accounts for banking transactions. The petitioner argued that the reasons recorded for reopening the assessment were contrary to basic accounting principles in the banking industry as the cash deposits from customers could not be considered as income escapement.

The petitioner relied on a previous judgment where it was held that reassessment cannot be done for mere verification or fishing inquiry unless there is a reason to believe that income has escaped assessment. On the other hand, the respondent argued that the notice was based on fresh information received from DDIT (Inv.), Valsad, and that the reopening was within the permissible period of four years under section 147 of the Act. The respondent contended that the petitioner had an alternative remedy to challenge the assessment order before CIT (A) if any additions were made based on the reopening.

The court found that the petitioner, a registered Cooperative bank, had duly audited accounts and had provided necessary details during the regular assessment. The court observed that the cash deposits in the bank account were part of normal banking transactions and did not indicate income escapement. Therefore, the reasons recorded by the Assessing Officer were deemed contrary to basic accounting principles in the banking industry. Consequently, the court quashed the notice for reopening the assessment and set aside the order rejecting the objection, ruling in favor of the petitioner.

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