Reassessment on mere verification of bank credits and full taxation of explained bank deposits were both rejected.

ITAT Nagpur held that a second reassessment based only on verification of bank credits, without fresh tangible material, amounted to a change of opinion and was not supported by a valid reason to believe; the reopening was therefore quashed. On merits, the assessee substantiated the source of the bank deposits with sale deeds, bank statements, fund-flow details and transfer evidence, which the Revenue did not effectively rebut in remand proceedings. The Tribunal held that the entire deposits could not be taxed under section 69A where part of the source was explained, and only any truly unexplained component could be brought to tax; the addition was deleted.

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Issues: (i) Whether the second reassessment was valid in law when it was initiated without fresh tangible material and only for verification of bank credits; (ii) Whether the addition made under section 69A on account of bank deposits could be sustained in full.

Issue (i): Whether the second reassessment was valid in law when it was initiated without fresh tangible material and only for verification of bank credits.

Analysis: The assessment had already been completed earlier under section 147. The subsequent reopening was founded on a requirement to verify bank credits, which did not amount to a legally sustainable reason to believe. A reopening based on mere verification amounts to a change of opinion and cannot be supported in the absence of fresh tangible material having a live nexus with escapement of income.

Conclusion: The second reassessment was invalid and was quashed in favour of the assessee.

Issue (ii): Whether the addition made under section 69A on account of bank deposits could be sustained in full.

Analysis: The assessee furnished sale deed, bank statements, fund-flow explanation, and evidence of fund transfers and repayments. The material was not rebutted in the remand proceedings, and the explanation offered by the assessee was not properly displaced. Entire bank deposits cannot be taxed as income where the source of at least part of the deposits is explained, and the unexplained portion alone can be brought to tax. The proper approach in such cases requires examination of the real unexplained component, including application of peak credit or telescoping principles where warranted.

Conclusion: The addition under section 69A was deleted and the assessee succeeded on merits.

Final Conclusion: The reassessment was held to be unsustainable and the addition based on bank deposits was deleted, resulting in complete relief to the assessee.

Ratio Decidendi: Reassessment cannot be sustained on mere verification or a change of opinion without fresh tangible material, and unexplained bank deposits cannot be assessed in full where the assessee has offered a prima facie explanation and only the unexplained portion, if any, is taxable.

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