2025 (8) TMI 1416 - AT - Income Tax

Reopening under s.147 and addition under s.68 unsustainable as bank account not linked to assessee - reassessment invalidated

Nyraa Hiren Gadher (Alias Archana Kishorkumar Chawla) Versus ITO, Ward-2 (1) (2) Ahmedabad. (Previously Ward-3 (3) (1) Ahmedabad.)

Nyraa Hiren Gadher (Alias Archana Kishorkumar Chawla) Versus ITO, Ward-2 (1) (2) Ahmedabad. (Previously Ward-3 (3) (1) Ahmedabad.) - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether an addition under Section 68 as unexplained cash credit is sustainable where the alleged bank account, which formed the basis of the addition, is demonstrated not to belong to the assessee. 2. Whether reopening of assessment under Section 147 and consequent addition based on the said bank account was justified in absence of proper verification from the bank and departmental confirmation. 3. Whether the Revenue's failure to verify the ownership of the bank account prior to making the addition renders the addition untenable. ISSUE-WISE DETAILED ANALYSIS Issue 1: Sustainability of addition under Section 68 when alleged bank account is not of the assessee Legal framework: Section 68 permits treating unexplained cash credits as income where source/identity of creditor is not satisfactorily explained; additions under Section 68 rely on establishing that the relevant credit or receipt is attributable to the assessee. Precedent Treatment: No prior judicial authorities were relied upon or discussed by the Tribunal in the present order. Interpretation and reasoning: The Tribunal relied on documentary confirmation from the banking institution (ICICI Bank) and departmental email confirming that the specific account number was not associated with the bank and thus not maintained by the assessee. That factual demonstration severs the causal link between the alleged cash deposits in that account and the assessee's income or transactions. Because the foundational fact - that the account belonged to the assessee - was negated by the bank's confirmation, the premise for treating the amounts as unexplained credits under Section 68 collapses. Ratio vs. Obiter: Ratio - where the bank account alleged to evidence cash credits is proven not to belong to the assessee by authoritative bank confirmation, an addition under Section 68 based on that account cannot be sustained. No broader dictum on other modes of proof was laid down (obiter not relied upon). Conclusion: The addition of Rs. 11,43,000 under Section 68 is unsustainable and was rightly deleted by the Tribunal once the account ownership was disproved. Issue 2: Justification for reopening assessment under Section 147 in absence of proper verification Legal framework: Section 147 permits reopening of assessment on satisfaction of reasons to believe that income has escaped assessment; such actions must rest on credible material and proper verification of facts forming the basis of reopening. Precedent Treatment: The order does not cite or apply any prior decisions concerning the standard for reopening; the Tribunal adjudicated on the record facts and departmental compliance. Interpretation and reasoning: The AO's reopening and resultant addition were predicated on linkage between the assessee and the bank account. The Tribunal observed that the Revenue proceeded without adequately verifying account ownership with the bank. Subsequent direct confirmation from the bank to the Department and to the Tribunal that the account number was not associated with the bank demonstrated that the material on which reopening and addition were based was erroneous. Where the core factual basis for reopening is disproved by authoritative verification, the reopening (and any resulting addition) cannot stand. Ratio vs. Obiter: Ratio - reopening under Section 147 predicated on an asserted fact must be supported by proper verification; a reopening based on a fact later shown to be incorrect by direct documentary confirmation is invalid insofar as it yields an addition dependent on that fact. The Tribunal's remarks about departmental cooperation and timelines are ancillary (obiter). Conclusion: Reopening under Section 147 and the consequent addition were unjustified in the absence of proper verification; the addition must be deleted once the foundational fact is disproved. Issue 3: Effect of Revenue's failure to verify bank ownership and adequacy of departmental procedure Legal framework: Administrative and evidentiary requirements on Revenue include making and recording verifications for facts on which adverse tax consequences are based; reliance on reliable documentary evidence (e.g., bank confirmation) is appropriate and may be determinative. Precedent Treatment: No precedents invoked; Tribunal relied on principles of fair and proper administrative action as applied to the facts. Interpretation and reasoning: The Tribunal noted the assessee's lack of representation and limited knowledge of tax procedure, but for present purposes the dispositive material was the bank's confirmation (and the Department's subsequent email) that the account was not associated with the bank. The Department did not dispute the bank's confirmation. The Revenue's failure to obtain or act upon such basic verification prior to making the addition rendered the action meritless. The Tribunal also directed the Department to ensure cooperation and timely reporting, reflecting an expectation of reasonable departmental diligence. Ratio vs. Obiter: Ratio - the absence of basic verification by Revenue undermines the validity of adverse additions; reliance upon unverified factual assumptions is unsustainable. Observations regarding the assessee's personal circumstances and lack of representation are explanatory and not essential to the legal holding (obiter). Conclusion: The Revenue's omission to verify account ownership before making the addition was a fatal defect; the addition was deleted and the appeal allowed. Cross-reference The conclusions on Issues 1-3 are interdependent: the bank's confirmation that the account did not belong to the assessee (Issue 1) removed the factual foundation for reopening under Section 147 (Issue 2), and demonstrated a failure of departmental verification (Issue 3), collectively leading to deletion of the Section 68 addition. The Tribunal treated the bank confirmation and the Department's unchallenged compliance as determinative.