Reassessment, unexplained cash deposits, and capital gains verification shaped the tribunal's ruling on additions and linked penalties.

The note discusses an ITAT Hyderabad decision on reassessment, unexplained cash deposits, capital gains computation, and related penalties. Reassessment was upheld because the earlier proceedings had been dropped and the assessee had participated in the reassessment without timely objection, so the service challenge failed under section 292BB. Cash deposits were not treated as unexplained money where prior withdrawals from the same account were not shown to have been diverted or spent, so the addition under section 69A was deleted. The cost-of-improvement claim for long-term capital gains was remanded for factual verification because the sale and purchase deeds suggested possible construction but the supporting material required scrutiny. Penalties linked to the deleted and remanded additions were vacated, while the remaining penalty was sustained.

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Issues: (i) Whether the reassessment proceedings were invalid on the ground that notice under section 148 was issued during pendency of the earlier proceedings and was not served on the assessee. (ii) Whether cash deposits of Rs. 10,00,000 were rightly treated as unexplained money under section 69A. (iii) Whether the disallowance of the claim towards cost of improvement while computing long-term capital gains required interference or remand. (iv) Whether the penalties under sections 270A and 271AAC(1) survived in view of the quantum findings.

Issue (i): Whether the reassessment proceedings were invalid on the ground that notice under section 148 was issued during pendency of the earlier proceedings and was not served on the assessee.

Analysis: The earlier proceedings initiated by notice under section 143(2) had been dropped pursuant to the CBDT communication regarding invalid returns, and therefore the reassessment notice could not be said to have been issued during subsistence of the original proceedings. As to service, the assessee had participated in the reassessment without raising a timely objection, attracting the deeming effect of section 292BB.

Conclusion: The reassessment jurisdiction was upheld and the challenge to service of notice failed.

Issue (ii): Whether cash deposits of Rs. 10,00,000 were rightly treated as unexplained money under section 69A.

Analysis: The record showed cash withdrawals of Rs. 2,00,000 and Rs. 9,55,000 from the same bank account within a short span before the impugned deposit. The Revenue did not establish that those withdrawals had been diverted elsewhere or spent for any identified purpose. The inference drawn merely from the non-round figure of the withdrawal was treated as conjectural.

Conclusion: The addition of Rs. 10,00,000 under section 69A was deleted.

Issue (iii): Whether the disallowance of the claim towards cost of improvement while computing long-term capital gains required interference or remand.

Analysis: The purchase deed indicated acquisition of a mud house, whereas the sale deed reflected sale of an RCC house with larger built-up area, which prima facie supported the claim that construction/improvement had occurred during the intervening period. However, the supporting material was not fully verified and the documents were in vernacular form, making a factual verification necessary.

Conclusion: The issue was set aside to the Assessing Officer for verification and fresh adjudication; the assessee's claim was kept open for reconsideration on evidence.

Issue (iv): Whether the penalties under sections 270A and 271AAC(1) survived in view of the quantum findings.

Analysis: The penalty under section 271AAC(1), insofar as it related to the deleted addition of Rs. 10,00,000, could not survive. The penalty under section 270A, being founded on the long-term capital gains issue, was liable to be vacated because that quantum issue was remanded. The penalty linked to the sustained addition of Rs. 3,40,500 remained unaffected.

Conclusion: The penalty on the deleted addition was vacated, the penalty on the remanded capital gains issue was vacated, and the remaining penalty was sustained.

Final Conclusion: The assessee obtained relief on the disputed cash-deposit addition and the connected penalty, while the capital-gains issue was sent back for verification and the balance penalty outcome was left intact.

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