2024 (12) TMI 111 - AT - Income Tax

Assessment reopening under Section 148 valid based on AIR information about unexplained cash deposits in bank accounts

ITAT Surat upheld reopening of assessment under Section 148 based on AIR information regarding substantial cash deposits in assessee's bank accounts. The ... Validity of reopening and issuing notice u/s 148 - reopening on the basis of AIR information about huge cash deposits in assessee’s bank accounts - main contention of the assessee was that reasons recorded and details of the AIR information was not supplied - HELD THAT:- On plain reading of language of Section 147 and 148, the conditions that needs to be fulfilled before taking action under this Section are; the AO must have reason to believe that income has escaped assessment, such income has escaped assessment on account of failure on the part of assessee to disclose fully and truly, in case, reopening is within four years from assessment completed under Section 143(3) or 147. AO must comply the condition laid down in Section 148 to 153 which consists that he must record reasons for reopening, issue notice to assessee, calling him to file return of income. AO must adhere to time limit for notice under Section 149 and 150 and obtained prior sanction of his superior if required under Section 151 and complete the assessment within time limit prescribed in Section 153. All these conditions are not challenged by the assessee. Assessee made more emphasis that there should be live link or AO must investigate to bring the material on record that income of assessee has escaped assessment. Hon'ble Apex Court in Raymond Woolen Mills Ltd. [1997 (12) TMI 12 - SUPREME COURT] held that sufficiency or correctness of the material was not a thing to be considered at the stage of reopening. AO has sufficient tangible material in the form of information about cash credit in the bank account of assessee and that assessee has not filed return of income for relevant assessment year. Thus, at the time of reopening, prima facie, there was a sufficient tangible material for reopening of the case. Thus, I do not find any merit in the ground of appeal corresponding raised by assessee. Ground No.1 of assessee is dismissed. Addition on account of unexplained money u/s 69A and unexplained investment u/s 69 of the Act on account of bank accounts - It is settled position under law that entire transaction / credit entry in bank can never be the income of assessee particularly when the bank account demonstrate that amount deposited in the bank was immediately debited by way of clearance, only a reasonable estimation of income would be sufficient to avoid possibility of revenue leakage. We find that assessee has claimed that he is engaged in business of cheque discounting and such fact is not accepted by lower authorities. Considering the ratio of decision in case of CIT vs. Samir Synthetics Mill [2008 (1) TMI 591 - GUJARAT HIGH COURT] when assessee could not even reconcile production, sales and closing stock although specific opportunity was provided by AO addition was justified on account of suppression of sale consideration but only to the extent of profit. Thus, adopting the same principle, a reasonable percentage of income can be treated as income of the assessee and not all entire transactions. Thus, find that total transactions in assessee’s bank accounts a reasonable estimation of 10% would be sufficient to avoid possibility of revenue leakage. We have estimated the income of assessee at 10% of cash credit of Rs. 43,99,215/- as well as of other credit of Rs. 1.70 lac which would be reasonable and sufficient. Hence, ground No. 2 and 3 raised by assessee is partly allowed. Issues Involved:1. Validity of reopening the assessment under Section 147 and issuance of notice under Section 148 of the Income Tax Act.2. Addition of unexplained money under Section 69A due to cash deposits in bank accounts.3. Addition of unexplained investment under Section 69 due to other credits in bank accounts.4. Condonation of delay in filing the appeal before the Commissioner of Income Tax (Appeals) [CIT(A)].Detailed Analysis:1. Validity of Reopening the Assessment:The primary issue was whether the reopening of the assessment under Section 147 and the issuance of notice under Section 148 were valid. The reopening was based on AIR information about significant cash deposits in the assessee's bank accounts. The assessee argued that mere information could not justify reopening without further inquiry to establish that the deposits represented unaccounted income. The tribunal upheld the reopening, noting that the Assessing Officer had sufficient tangible material in the form of cash deposits and that the assessee had not filed a return of income. The tribunal emphasized that at the stage of reopening, a prima facie view of escapement of income was sufficient, and the correctness of the material was not the focus.2. Addition of Unexplained Money under Section 69A:The assessee contested the addition of Rs. 43,99,215/- under Section 69A for unexplained cash deposits. The tribunal noted that the assessee claimed to be in the business of cheque discounting, earning commission on transactions. However, the assessee failed to provide details of beneficiaries or fully discharge the onus of explaining the source of deposits. The tribunal acknowledged that entire bank credits could not be treated as income and opted for a reasonable estimation. It concluded that 10% of the total transactions would be a fair estimation to prevent revenue leakage.3. Addition of Unexplained Investment under Section 69:The tribunal also addressed the addition of Rs. 1,70,507/- for unexplained investments due to other credits in the bank accounts. Similar to the unexplained money issue, the tribunal applied the principle that the entire credit could not be treated as income. It again estimated 10% of the total transactions as income, aligning with the approach taken for unexplained money.4. Condonation of Delay in Filing the Appeal:The tribunal considered the delay of 50 days in filing the appeal before the CIT(A). It found that the delay was not inordinate and that the CIT(A) had not exercised jurisdiction under Section 249(3) to condone the delay. The tribunal set aside the CIT(A)'s order on this issue, allowing the additional ground of appeal regarding the delay.Conclusion:The tribunal partly allowed the appeal, validating the reopening of the assessment but reducing the additions by estimating 10% of the total transactions as income. The tribunal also condoned the delay in filing the appeal before the CIT(A), allowing the case to be heard on its merits. The decision reflects a balanced approach, recognizing both procedural compliance and the need for reasonable estimation of income.