2025 (6) TMI 298 - AT - Income Tax

Tax Reassessment Upheld: Section 148 Notice Validated, Unexplained Cash Deposits Challenged in Cattle Trading Case

The SC/Tribunal examined the validity of a tax reassessment notice under Section 148 and unexplained cash deposits under Section 69A. The court found the ... Unexplained cash deposit u/s 69A - source of the cash deposit unexplained - HELD THAT:- Assessee has been in the business of cattle trading for years. We have gone through the bank account statement of assessee wherein the deposits and withdrawals are reflected throughout the year. The fact that the assessee is in the business of milk trading and earning of Dalali income is not in dispute. The Revenue has gone only to the issue of deposits, but there have also been cash withdrawals which have been ignored by the AO. The deposits have been reflected from April to end of the year so as the withdrawals, which shows a regular pattern of cash business. In the line of cattle business, it cannot be expected that the assessee maintains purchase bills, sales bills, invoices/vouchers, GSTIN, cash book, cash flow statement etc. Hence, keeping in view the peculiar facts and circumstances of the instant case, the addition made by the AO u/s 69A of the Act cannot be sustained. Appeal of the assessee is allowed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this appeal are:(a) Whether the notice issued under Section 148 of the Income-tax Act, 1961, dated 24.03.2018, was valid and whether the Assessing Officer had acquired valid jurisdiction to reopen the assessment for AY 2011-12.(b) Whether the addition of Rs. 59,01,400/- as unexplained cash deposits under Section 69A of the Act was justified, considering the assessee's business nature and the evidence furnished.2. ISSUE-WISE DETAILED ANALYSISIssue (a): Validity of Notice under Section 148 of the ActRelevant legal framework and precedents: Section 148 of the Income-tax Act empowers the Assessing Officer to reopen an assessment if he has reason to believe that income chargeable to tax has escaped assessment. The validity of such notice hinges on the existence of 'reason to believe' and compliance with procedural safeguards. Jurisdictional validity is a threshold issue affecting the legality of subsequent proceedings under Sections 143(3) and 147.Court's interpretation and reasoning: The Tribunal examined whether the Assessing Officer had valid jurisdiction to issue the notice dated 24.03.2018. The assessee contended that the notice was issued without jurisdiction, rendering the reassessment order and demand notice void. However, the Tribunal did not find any specific procedural irregularity or lack of jurisdiction in the issuance of the notice under Section 148. The appeal did not raise any substantive challenge to the Assessing Officer's 'reason to believe' or procedural compliance.Key evidence and findings: The record reflects that the Assessing Officer issued the notice under Section 148 after observing substantial cash deposits unexplained in the original return. The reopening was based on material indicating potential escapement of income.Application of law to facts: Given the presence of unexplained cash deposits, the Assessing Officer's 'reason to believe' was prima facie justified. The Tribunal implicitly upheld the jurisdictional validity of the notice as no explicit infirmity was demonstrated.Treatment of competing arguments: The assessee's argument on invalid jurisdiction was noted but not accepted due to lack of substantive proof or procedural defect. The Tribunal focused on merits rather than procedurally invalidating the notice.Conclusion: The notice under Section 148 was validly issued, and the reassessment proceedings were sustainable in law.Issue (b): Justification for Addition under Section 69A of the ActRelevant legal framework and precedents: Section 69A deals with unexplained cash credits or deposits. If the assessee fails to explain the nature and source of such deposits satisfactorily, they are deemed income. Precedents establish that the assessee must provide credible evidence linking deposits to business transactions or other legitimate sources.Court's interpretation and reasoning: The Tribunal carefully analyzed the nature of the assessee's business, which involved sale of milk and cattle trading, including commission agency activities. It noted that the Assessing Officer focused solely on cash deposits without considering corresponding cash withdrawals, which indicated a pattern of cash-based business transactions.Key evidence and findings: The assessee furnished bank statements and account details showing regular deposits and withdrawals throughout the year. The Tribunal observed that the assessee's business, being in cattle trading and milk sales, inherently involved cash transactions and that expecting formal documentation such as purchase bills, sales invoices, GSTIN registration, or cash books was unrealistic in this context.Application of law to facts: The Tribunal applied the principle that unexplained cash deposits cannot be added as income if the assessee satisfactorily explains the source. Here, the regularity of cash flow and the nature of business provided a reasonable explanation for the deposits. The absence of formal invoices or GST registration was not fatal given the business context.Treatment of competing arguments: The Revenue contended that the assessee failed to provide corroborative evidence such as purchase and sales bills, invoices, GSTIN, cash books, or details of customers and transactions. It argued that affidavits alone were insufficient to prove genuineness. The Tribunal acknowledged these points but found the Revenue's approach too rigid considering the peculiarities of the cattle trading business. The Tribunal emphasized that the Assessing Officer ignored the pattern of cash withdrawals and deposits, which demonstrated a consistent cash-based business operation.Conclusion: The addition under Section 69A was not sustainable as the assessee's explanation and evidence sufficiently accounted for the cash deposits. The Tribunal held that the Assessing Officer erred in disregarding the nature of the business and the bank account transactions.3. SIGNIFICANT HOLDINGSThe Tribunal held:'The fact that the assessee is in the business of milk trading and earning of Dalali income is not in dispute. The Revenue has gone only to the issue of deposits, but there have also been cash withdrawals which have been ignored by the Assessing Officer. The deposits have been reflected from April to end of the year so as the withdrawals, which shows a regular pattern of cash business. In the line of cattle business, it cannot be expected that the assessee maintains purchase bills, sales bills, invoices/vouchers, GSTIN, cash book, cash flow statement etc. Hence, keeping in view the peculiar facts and circumstances of the instant case, the addition made by the Assessing Officer u/s 69A of the Act cannot be sustained.'Core principles established include:(i) The validity of reopening under Section 148 depends on the existence of 'reason to believe' and procedural compliance; mere allegation of invalid jurisdiction without proof is insufficient.(ii) In businesses involving cash transactions, especially in sectors like cattle trading, rigid documentary requirements such as GST registration or formal invoices may not be applicable, and the pattern of bank transactions can be a relevant indicator of business activity.(iii) Additions under Section 69A require the Assessing Officer to consider the totality of evidence, including withdrawals and deposits, and the nature of business, before treating cash deposits as unexplained income.Final determinations:- The notice under Section 148 was validly issued, and the reassessment proceedings were sustainable.- The addition of Rs. 59,01,400/- as unexplained cash deposits under Section 69A was not justified and was deleted.- The appeal was allowed in favor of the assessee.