2025 (3) TMI 96 - HC - Income Tax

AO lacks valid reasons to reopen assessment under Section 148A without unexplained deposits or escaped income evidence

Mahatma Gobarji Seva Sansthan Ilol Versus Income Tax Officer Ward - 1, Himmatnagar

Gujarat HC allowed the petition challenging reopening of assessment. The court found that the AO had no valid reasons to initiate proceedings under ... Reopening of assessment - unexplained cash deposit made by the petitioner in any of the bank accounts - HELD THAT:- As reasons recorded in both the notices issued u/s 148A (a) and Section 148A (b) of the Act that there is no cash deposit made by the petitioner in any of the bank accounts and there is no information of any escaped income with AO so as to initiate the reopening proceedings. Explanation given by the petitioner in reply to the notice u/s 148A (a) of the Act and the documents annexed therewith, prima facie, shows that there is no income earned by the petitioner but there is excess of expenditure over income for the year under consideration and as such the petitioner was not liable to file the return of income if there is no taxable income or exemption claimed by the petitioner. Petition succeeds and is accordingly allowed. The Gujarat High Court considered a petition challenging an order issued under Section 148A(d) and a notice issued under Section 148 of the Income Tax Act, 1961. The petitioner, a public charitable trust, did not file a return of income for the assessment year 2019-2020 as there was no taxable income. The respondent issued notices based on alleged cash deposits in the trust's bank accounts. The petitioner contested the notices, providing explanations and supporting documents to show no taxable income. The respondent-Assessing Officer, however, concluded there was an escapement of income and passed an order under Section 148A(d) to reopen the assessment. Key Issues:1. Whether the respondent had valid grounds to reopen the assessment based on the information availableRs. 2. Whether the petitioner's explanations and documents demonstrated no taxable income, warranting the quashing of the order and noticeRs.Analysis:The petitioner argued that the respondent changed the basis for issuing the notices and that the information regarding cash deposits was incorrect. The petitioner's submissions indicated an excess of expenditure over income, no taxable income, and proper utilization of funds for charitable purposes. The respondent contended that the petitioner should have filed a return of income, as reflected in the Form-10(B) filed later, and that there was an escapement of income due to unreported deposits.The Court analyzed the reasons recorded in the notices and found no evidence of cash deposits by the petitioner or any escaped income. The petitioner's explanations and documents supported the claim of no taxable income. The Court held that the respondent lacked jurisdiction to reopen the assessment, as there was no basis for doing so. Consequently, the impugned order and notice were quashed and set aside.Significant Holdings:The Court's decision was based on the absence of valid grounds for reopening the assessment, as evidenced by the lack of cash deposits and the petitioner's demonstration of no taxable income. The core principle established was that the Assessing Officer must have concrete information of escaped income to justify reopening an assessment. The final determination was in favor of the petitioner, leading to the quashing of the order and notice.In conclusion, the Gujarat High Court ruled in favor of the petitioner, emphasizing the importance of concrete grounds for reopening assessments and the need for accurate information before taking such actions under the Income Tax Act.