Section 148 reopening assessment upheld despite limitation challenge; peak credit principle applied for cash deposit additions

ITAT Chennai upheld the validity of reopening assessment under section 148, rejecting the assessee's limitation plea since the notice was issued on 31.03.2017, the last permissible date. The tribunal found no fault with PCIT's approval for 172 similar cases involving non-filers who made cash deposits. Regarding cash deposit additions, ITAT applied peak credit principle, accepting that only the highest balance during the year constituted undisclosed income. The tribunal directed deletion of excess additions, granting relief of Rs. 24,09,513 while sustaining Rs. 2,64,727 as undisclosed income. The assessee's appeal was partly allowed.

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Issues:
1. Validity of notice u/s. 148 of the Income Tax Act.
2. Approval for re-opening of assessment.
3. Addition of cash deposits to the tune of Rs. 24,26,960/-.

Analysis:

Issue 1: Validity of notice u/s. 148 of the Income Tax Act
The appeal challenged the addition of Rs. 24,26,960/- by the Ld.CIT(A) due to a notice served under section 148 of the Act. The notice was issued on 31.03.2017, the last day for valid issuance. The argument was that the notice was received by the assessee on 03.04.2017, beyond the deadline. However, the Tribunal held that the notice's issuance before the deadline was sufficient, rejecting the plea as devoid of merit.

Issue 2: Approval for re-opening of assessment
The next ground of appeal was against the re-opening of assessment by the Ld.PCIT. The AO re-opened the assessment due to cash deposits in the assessee's bank account. The AO had given reasons for re-opening on 27.03.2017, approved by Ld.PCIT on 30.03.2017, and notice u/s. 148 was issued on 31.03.2017. The Tribunal upheld the re-opening, citing Explanation 2(a) of section 147, which deems cases where no return of income is filed as cases of income escaping assessment.

Issue 3: Addition of cash deposits
Regarding the addition of Rs. 24,26,960/- due to cash deposits, the AO added the entire amount as the assessee did not provide an explanation. The Tribunal noted that the assessee frequently deposited and withdrew money for money-lending purposes. The peak-credit in the bank account was found to be Rs. 5,12,007/- after considering the opening balance and transactions. The Tribunal accepted the plea that only the peak-credit should be treated as income, aligning with previous assessment years' treatment, resulting in a relief of Rs. 24,09,513/- for the assessee.

In conclusion, the appeal was partly allowed, and the order was pronounced on October 23, 2024, in Chennai.

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