Reopening of assessment invalidated where reasons and sanction lacked application of mind; peak credit addition deleted.

Reopening of assessment was invalid because the reasons recorded for issuance of notice and the sanction were factually incorrect and mechanically granted without application of mind; the Tribunal applied the principle that reopenings founded on wrong or unexamined reasons and mechanical approvals are void, and directed invalidation of the reassessment. On merits the Tribunal found the alleged unexplained bank deposits could be reasonably accounted for by the assessee's uncontested agricultural activity and legitimate receipts, applying the peak credit scrutiny and concluding the addition based on peak credit was unsustainable and therefore deleted.

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Issues: Whether the reassessment proceedings initiated by issuance of notice under section 148 read with section 147 of the Income-tax Act, 1961 (and sanctioned under section 151(1) of the Income-tax Act, 1961) were valid where the reasons recorded and the sanctioning approval were factually incorrect and mechanical; and whether addition of Rs. 5,61,923 on account of alleged unexplained bank deposits (peak credit) is sustainable.

Analysis: The Tribunal examined the recorded reasons for initiation of reassessment and the sanction granted under section 151(1) of the Income-tax Act, 1961 and found that the factual figures stated in the reasons (aggregate Rs. 47,77,923) were incorrect and not supported by the assessee's bank statements. The AO had not made an individual inquiry into the relevant bank account and the reasons were therefore based on borrowed or incorrect information. The sanctioning authority also issued approval in a mechanical manner without evident application of mind to the materials on record. The Tribunal applied the established legal principle that reopening founded on wrong or unexamined reasons and mechanical approval is invalid, and considered authorities holding that absence of application of mind in recording reasons or granting sanction renders reassessment void. On merits, the Tribunal considered the assessee's uncontested ownership and cultivation of thirty acres of agricultural land and accepted that agricultural income and legitimate sources could reasonably account for the modest bank deposit flagged as unexplained. The Tribunal therefore concluded that the addition under the peak credit approach was factually explained and unsustainable.

Conclusion: The reassessment proceedings initiated by notice under section 148 read with section 147 of the Income-tax Act, 1961 are invalid due to incorrect reasons and mechanical sanction under section 151(1) of the Income-tax Act, 1961; and the addition of Rs. 5,61,923 on account of alleged unexplained bank deposits is deleted. The appeal is allowed in favour of the assessee.

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