2025 (11) TMI 1507 - AT - Income Tax

Reopening of assessment under sections 147/148 held invalid when based solely on savings account cash deposits

ITAT Rajkot held that the reopening of assessment under sections 147/148 based solely on cash deposits in a savings bank account was invalid. The Tribunal ... Validity of reopening of assessment - Cash deposits in saving bank account - HELD THAT:- So far, reopening of assessment under section 147/148 of the Act, is concerned, find that facts of the reopening in assessee`s case is similar and identical to the case, already decided in the case of Prabhaben Nandlal Ratpiya [2025 (3) TMI 1552 - ITAT RAJKOT] Therefore, respectfully following the judgement (supra), allow the appeal of the assessee. ISSUES PRESENTED AND CONSIDERED 1. Whether the reopening of assessment under section 147/notice under section 148 of the Income Tax Act was valid where reasons recorded relied on information of cash deposits without specific bank-account particulars or verification. 2. Whether reasons recorded for reopening constituted 'reason to believe' (as distinct from mere suspicion) required by section 147 - i.e., whether there was application of mind and nexus between information and formation of belief that income had escaped assessment. 3. Whether additions made by assessment order framed under section 144 for alleged unexplained cash deposits could stand if the reassessment (reopening) itself was invalid. 4. Whether delay in filing the appeal before the Tribunal deserved condonation where appellant alleged non-receipt of appellate notices due to an incorrect e-mail address being recorded. ISSUE-WISE DETAILED ANALYSIS - Reopening under sections 147/148 (Issue 1 & 2) Legal framework: Sections 147 and 148 require that before issuing notice for reassessment the Assessing Officer must have 'reason to believe' that income chargeable to tax has escaped assessment; such reasons must be recorded in writing. The belief must be based on material and reflect application of mind; it must be more than mere suspicion. Precedent Treatment: The Court followed established jurisprudence that 'reason to believe' is stronger than 'reason to suspect' (citing principles from decisions such as Lakhmani Mewal Das and A.L.A. Firm) and that reasons must show a live link between information and belief; reopening cannot be based on vague or unverified information or mere deposits without verification or explanation. Interpretation and reasoning: The reasons recorded in the instant matter merely noted aggregate cash deposits in a bank during the year and general non-correspondence with declared income, but omitted critical particulars (e.g., bank account number), failed to describe the nature of transactions, and did not show that the AO verified source of deposits or applied mind to exclude legitimate sources (past savings, sale of investments, etc.). The assessing officer acted on secondhand information without establishing direct nexus or independent verification; the reasons were therefore held to be based on mere suspicion/borrowed satisfaction. Ratio vs. Obiter: Ratio - Reasons which merely state existence of cash deposits without particulars or verification and without application of mind do not constitute 'reason to believe' under section 147; reopening is invalid. Obiter - Observations on the general principles of finality and safeguards in reassessment proceedings reiterating prior authorities. Conclusions: The initiation of reassessment proceedings was quashed for lack of valid reasons; the recorded reasons suffered from non-application of mind and failure to establish nexus between information and belief that income escaped assessment. ISSUE-WISE DETAILED ANALYSIS - Validity of additions under section 144 when reassessment is quashed (Issue 3) Legal framework: Additions made pursuant to a reassessment founded on section 147/148 are unsustainable if the reassessment itself is void for want of valid reasons to initiate proceedings; assessment framed under section 144 in absence of proper reopening is liable to be set aside. Precedent Treatment: The Court applied the logical corollary from authorities that if reasons for reopening are bad in law, consequential assessment and additions are rendered invalid and academic. Interpretation and reasoning: Because reassessment was quashed for procedural and substantive infirmities in the reasons to reopen, any substantive additions made in that invalid process cannot stand; therefore, examination of merits of additions became unnecessary and academic. Ratio vs. Obiter: Ratio - Quashing of reassessment renders all consequential additions based on that reassessment unsustainable; no separate adjudication of those additions is required once reopening is invalidated. Conclusions: The addition of the alleged cash deposits was not adjudicated on merits because the reassessment itself was quashed; consequential additions are rendered academic and are set aside by virtue of the invalid reopening. ISSUE-WISE DETAILED ANALYSIS - Condonation of delay in filing appeal (Issue 4) Legal framework: Power to condone delay requires demonstration of sufficient cause by the appellant; burden of proof is on the appellant and condonation is not a matter of right. Relevant factors include explanation for delay and whether the reasons constitute reasonable and sufficient cause. Precedent Treatment: The Court acknowledged the established principle that burden lies on the appellant to prove sufficient cause and that tribunals must weigh explanations against the record of service and the appellant's responsibility to provide correct contact details. Interpretation and reasoning: The appellant showed that an incorrect e-mail id was furnished at the time of filing (info@...), whereas notices were sent to a different e-mail (rrjadeja@...), causing non-receipt of appellate notices and consequent delay. The affidavit and documentary explanation persuaded the Court that the delay amounted to reasonable and sufficient cause, and in the interest of justice the delay was condoned. Ratio vs. Obiter: Ratio - Where an appellant establishes, by credible explanation and supporting affidavit, that non-receipt of appellate communications (due to incorrect contact details) caused delay, the Tribunal may exercise discretion to condone delay in the interest of justice. Obiter - Emphasis that condonation remains discretionary and fact-specific. Conclusions: Delay in filing the appeal was condoned on the grounds of credible explanation of non-receipt of notices caused by use of an incorrect e-mail address; therefore the appeal was admitted for adjudication on merits. TREATMENT OF PRECEDENT AND FOLLOWING OF CO-ORDINATE BENCH Legal framework: A Tribunal/Bench may follow earlier co-ordinate bench decisions; such reliance is appropriate where facts and legal issues are substantially identical. Precedent Treatment: The Court expressly followed a prior decision of the jurisdictional Tribunal-Bench where similar reasons for reopening were examined and held deficient for not containing particulars, lacking verification, and amounting to non-application of mind. Interpretation and reasoning: Given the factual parity with the earlier Bench decision and identical legal infirmities in reasons to reopen, the Court applied that precedent and allowed the appeal accordingly. Ratio vs. Obiter: Ratio - Consistent co-ordinate bench precedent holding that non-specific/unverified information of deposits without nexus does not justify reopening was followed and applied to quash the reassessment. Conclusions: Reliance on and following of the co-ordinate Bench decision formed the basis for allowing the appeal and quashing the reassessment proceedings. OVERALL CONCLUSION The Court held that the reasons recorded for reopening were legally infirm (non-application of mind, absence of particulars and verification, and reliance on mere deposits/info), thereby invalidating the reassessment under sections 147/148; consequential additions became academic and were set aside. The delay in filing the appeal was condoned on credible explanation of non-receipt of notices due to incorrect contact details. The Tribunal followed a prior co-ordinate-bench decision on identical facts in reaching its conclusion.