2025 (9) TMI 979 - AT - Income Tax

Reopening under s.148 via email notice upheld; AO applied mind under s.133(6) with PCIT approval; cash deposits remanded for verification

Rajeev Kumar Versus Income Tax Officer, Ward 4 (4), Amritsar

ITAT held the reopening valid: service of notice under s.148 by email was proved, recorded reasons provided post-assessment and thus no grievance on ... Validity of reopening of assessment - non-service of notice u/s 148 - non-supply of copy of recorded reasons - non application of mind of the AO while recording satisfaction for reopening - HELD THAT:- DR produces documentary evidences of service of notice u/s 148 through electronic mail, duly served on 22.03.2019 on e-mail id of assessee and enclosed the copy of the screenshot as documentary evidence which assessee accepted as correct on examination of the same. As such, the allegation contained in these ground nos. 1, 2, 3 and 8 regarding the non service of notice u/s 148 are satisfactorily proved by the department and these grounds are decided against the assessee. Non issue of copies of recorded reasons - As clarified by the ld. DR that since no return has been filed in response to notice u/s 148, the Assessing Officer could not have possibly issued or supplied a copy of the recorded reasons, but the said recorded reasons has been issued to the assessee after completion of assessment proceedings in response to an application filed on 09.01.2020 post assessment, (because in this case the assessment has been completed on 12.12.2019). The copy of the recorded reasons are also enclosed by the assessee as part of the paper book and as such on this issue, the assessee should not be having any grievance. Non application of mind by the AO before issue of notice u/s 148 - As seen from the reasons recorded that the ld. AO has caused enquiry by issue of notice u/s 133(6) after obtaining approval from the ld. PCIT and in absence of any proper explanation from the assessee regarding the source of cash deposited in bank and in absence of any return on record, the AO could have formed reasons to believe that income chargeable to tax has escaped assessment. However, in course of hearing, assessee never put forth any argument on this ground, and as such, this issue in appeal is decided against the assessee. Unexplained cash deposits in bank account - assessee wanted to explain that the cash deposits in his bank account are not his money and he was simply holding the said cash as custodian of his employers and subsequently these cash have been transferred to the employer Company - We find that the issue and the explanations on merits has not been properly supported by necessary documents and nothing has been filed before the Assessing Officer and before ld. CIT(A) and in fitness of things, these new documentary evidences should he examined and verified by the Assessing Officer, and thereafter the same can be considered for the purpose of explanation of the source of deposits. As such we set aside the matter back to the files of the Assessing Officer on this particular issue. ISSUES PRESENTED AND CONSIDERED 1. Whether notice under section 148 was validly served on the assessee. 2. Whether copy of the recorded reasons for reopening was required to be supplied prior to completion of assessment where no return was filed in response to the section 148 notice. 3. Whether the Assessing Officer applied independent mind and formed valid reasons to believe before issuing notice under section 148. 4. Whether cash bank deposits are taxable where the assessee contends deposits were made out of earlier withdrawals and/or on behalf of employer (custodial receipts) and whether the materials before the AO/CIT(A) justified the addition. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of service of notice under section 148 Legal framework: Service of notice under section 148 must be effected in accordance with statutory methods (including electronic service when permitted) and evidenced by records of service. Precedent treatment: No specific precedents were applied by the Tribunal in the decision; the Tribunal considered documentary proof of service produced at hearing. Interpretation and reasoning: The Department produced electronic service evidence (email screenshot showing delivery to assessee's email id on the relevant date). The assessee inspected and accepted the screenshot as correct. The alleged defect in affixation (absence of independent witness signature on the purported affixation order) was raised but electronic service evidence sufficed to establish valid service. The Tribunal treated the electronic service record as satisfactory proof of service. Ratio vs. Obiter: Ratio - electronic evidence of service, accepted by the recipient, is adequate to establish valid service of a section 148 notice. Obiter - comments on the defective affixation procedure are incidental. Conclusion: Grounds challenging service of section 148 notice were rejected; service was held to be satisfactorily proved by electronic means. Issue 2 - Supply of recorded reasons for reopening where no return filed in response to section 148 notice Legal framework: Procedural entitlement to copy of recorded reasons for reopening is governed by the statutory provisions and applicable practice; supply of recorded reasons may be triggered by requests or statutory timelines and relevance depends on stage of proceedings and whether assessment has been completed. Precedent treatment: No precedent was invoked; the Tribunal examined sequence of events and documentary record. Interpretation and reasoning: The Tribunal accepted the Revenue's explanation that a copy of the recorded reasons could not have been issued prior to completion of assessment proceedings because no return was filed after the section 148 notice; the recorded reasons were, however, provided after assessment on the assessee's application dated post-assessment. The recorded reasons were present on the record and included in the paper book, negating any grievance about non-supply. Ratio vs. Obiter: Ratio - where a recorded-reasons document exists and is furnished to the assessee post-assessment upon application, the assessee cannot claim prejudice from non-supply prior to assessment in circumstances where no return was filed in response to the reopening notice. Obiter - procedural best practice on timing of supply is noted but not judicially expanded. Conclusion: Ground alleging non-supply of recorded reasons lacked merit; recorded reasons were furnished and no infirmity was found. Issue 3 - Application of mind by the Assessing Officer before issuing section 148 notice Legal framework: Reopening under section 147/148 requires the AO to have formed a reason to believe, based on material, that income chargeable to tax has escaped assessment; prior approval by specified authority may be required for time-barred assessments. Precedent treatment: The Tribunal relied on material in reasons recorded and prior procedural steps rather than on authority distinctions; no precedent was expressly followed or distinguished. Interpretation and reasoning: The record showed that the AO issued notice under section 133(6) to seek explanations, obtained prior approval from the PCIT, and recorded reasons after the assessee failed to provide a satisfactory explanation for the cash deposits. The assessee did not advance substantive argument on this point at hearing. Given the sequence (inquiry under section 133(6), failure of explanation, and prior approval), the Tribunal held that the AO had applied mind and had material to form belief that income had escaped assessment. Ratio vs. Obiter: Ratio - where the AO conducts inquiries (section 133(6)), obtains requisite prior approval, and records reasons in the absence of satisfactory explanations, the requirement of application of mind for reopening is satisfied. Obiter - absence of contest on the point by the assessee weakened its challenge. Conclusion: Ground alleging non-application of mind was rejected; reasons recorded and prior procedural steps supported the reopening. Issue 4 - Merits: Characterisation and source of cash bank deposits (earlier withdrawals / custodial receipts) and adequacy of proof before AO and CIT(A) Legal framework: Burden lies on the taxpayer to satisfactorily explain unexplained cash deposits; the AO may make additions where source remains unestablished. Documentary evidence supporting source and conduits (employer certification, bank statements, vouchers) is relevant and may warrant acceptance if credible and verifiable. Precedent treatment: The Tribunal did not cite binding precedents but applied established principles on burden of proof and the need for documentary substantiation for claimed sources of cash deposits. Interpretation and reasoning: The assessee's explanations before AO/CIT(A) (earlier withdrawals; deposits on behalf of employer and subsequent remittance) lacked verifiable documentary support in the record. Employer certificate(s) and corresponding bank account details were produced for the first time before the Tribunal. The Tribunal held that fresh evidence produced initially at the appellate stage should be examined and verified by the AO, rather than being accepted or rejected on paper by the Tribunal, because authenticity and transactional linkage required factual inquiry. Ratio vs. Obiter: Ratio - where material relevant to source of deposits is first produced before the Tribunal, the proper course is to remit the matter to the AO for verification and fresh adjudication with an opportunity to examine and authenticate documentary proof. Obiter - emphasis that unexplained deposits can be taxed absent credible documentary explanation. Conclusions: The Tribunal set aside and remitted the merits issue to the Assessing Officer for fresh examination of the documentary evidence (employer certificate, bank accounts, and related proof), directed the assessee to file all relevant documents, and mandated that the assessee be afforded an opportunity of being heard. The addition at present was not sustained by the Tribunal but matter was remitted for adjudication; appeal partly allowed for statistical purposes.