Case Law Details
Siva Madhavi Garapati Vs ITO (ITAT Hyderabad)
Hyderabad ITAT Upholds Reopening Beyond 3 Years Though Final Addition Fell Below ₹50 Lakhs – Jurisdiction Tested on Information Available at Reopening Stage
The Hyderabad ITAT held that validity of reopening u/s 148 must be tested based on the material available with the Assessing Officer at the stage of initiation of reassessment proceedings and not on the basis of the final additions ultimately made in the assessment order.
In this case, the assessee argued that since the final surviving addition was only ₹10.08 lakh cash deposits, reopening beyond three years was invalid as escaped income ultimately assessed was below ₹50 lakh. However, the Tribunal rejected this contention noting that, at the reopening stage, the AO possessed information regarding property investment of ₹1.10 crore along with cash deposits, thereby indicating escapement exceeding ₹50 lakh. Mere acceptance of the assessee’s explanation later regarding property investment would not invalidate the jurisdiction already assumed.
On merits, the Tribunal found that the assessee failed to substantiate claims that cash deposits arose from consultancy receipts or funds received from her husband. However, taking a pragmatic view, the ITAT granted partial relief by accepting ₹2.50 lakh as available cash in hand from accumulated savings and incidental receipts, while sustaining the balance addition of ₹7.58 lakh.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
The present appeal filed by the assessee is directed against the order passed by the CIT(A), NFAC, dated 13/01/2026, which in turn arises from the order passed by the AO under Section 147 r.w.s 144 r.w.s 144B of the Income Tax Act, 1961 (for short, “Act”), dated 19/02/2024 for A.Y. 2018-19. The assessee has assailed the impugned order of the CIT(A) on the following grounds of appeal before us:
“1. On the facts and in the circumstances of the case, the order of the ld. CIT(A) is erroneous both on facts and in law and is passed in gross violation of principles of natural justice.
2. Without prejudice to the above, the ld. CIT(A) failed to appreciate that the assessment order is barred by limitation as the alleged income escaping assessment is below Rs.50 lakhs and the AO could not have reopened the assessment for the assessment year under consideration and passed order thereto.
3. Without prejudice to the above, the ld. CIT(A) erred in sustaining the addition made by the AO of Rs.10,08,800/- as unexplained investment u/s 69 of the Act.
4. The authorities below failed to appreciate the explanation of the appellant with respect to sources of cash deposits in proper perspective.
5. Any other ground that may be urged at the time of hearing.”
2. Shri A V Raghuram, the Ld. Authorized Representative (for short “Ld. AR”) for the assessee, at the threshold of hearing, submitted that the case of the assessee was reopened beyond a period of 3 years on the ground that the income that had escaped assessment exceeded Rs. 50 lakhs. It is stated that at the stage of reopening, the AO had observed that the assessee had purchased a property for Rs. 1.10 crore during the relevant year. However, in reply to the notice u/s 148A(b) of the Act, the assessee had explained that investment in the subject property to the tune of Rs. 97.45 lakhs was sourced from a housing loan obtained by the assessee from Sundaram Home Finance Limited, and the balance Rs. 12.55 lakhs was received from the assessee’s daughter settled in the USA. It was further stated that the AO, after considering the explanation, did not make any addition on account of investment in property and restricted the assessment only to the cash deposits of Rs. 10,08,800/-. It was thus contended that, since the only effective issue surviving is the cash deposit of Rs. 10,08,800/-, which is below Rs. 50 lakhs, the AO had no jurisdiction to reopen the assessment beyond 3 years. On the merits of the addition, the Ld. AR submitted that the subject cash deposits were sourced from, viz., (i) consultancy services provided by the assessee; and (ii) funds received by the assessee from her husband.
3. Per contra, Shri T Sunil Gowtham, the Ld. Senior Departmental Representative (for short, “Ld. Sr-DR”) submitted that at the stage of reopening, the AO had information that the assessee, a non-filer, had made an investment in property of Rs. 1.10 crore and cash deposits of Rs. 10,08,800/-, therefore, as at the stage of initiation of proceedings, the AO had material indicating escapement of income exceeding Rs.50 lakhs, therefore, he had remaining well within his jurisdiction reopened the case beyond a period of 3 years. It was submitted that subsequent acceptance of an explanation regarding property investment does not invalidate the jurisdiction already assumed.
4. We have considered the Ld. Authorized Representatives of both parties and perused the material on record. At the outset, it is noted that at the stage of initiation of reassessment proceedings, the AO was in possession of information that the assessee, who was admittedly a non-filer for the year under consideration, had purchased an immovable property for Rs. 1.10 crore and had also made cash deposits of Rs. 10,08,800/- in his bank account.
5. We find that it is a settled principle that the validity of reopening has to be tested on the basis of material available before the AO at the stage of initiation of proceedings and not on the basis of the final additions ultimately made in the assessment order. We are of firm conviction that, merely because the AO, after verification, did not make any addition on account of property investment, it cannot be said that the jurisdiction assumed at the time of reopening becomes invalid. In the present case, the information available at the stage of reopening clearly indicated escapement of income represented by investment in immovable property and cash deposits aggregating to more than Rs. 50 lakhs. We, thus, do not find any merit in the Ld. AR’s contention that the reopening of the assessee’s case beyond 3 years from the end of the subject assessment year was without jurisdiction.
6. Coming to the merits of the addition, we find that the AO has treated the entire amount of cash deposits of Rs. 10,08,800/- as an unexplained investment under section 69 of the Act.
7. On merits, there is neither any material available on record which would substantiate that the assessee, a non-filer stated to be an engineer, was providing consultancy services, nor any material or evidence was filed before the AO to prove that the assessee’s husband had provided her any funds to source the cash deposits in her bank account. As the explanation of the assessee is devoid and bereft of any substance, we are unable to accept the same.
8. At the same time, it cannot be completely ruled out that the assessee may have had some availability of cash in hand out of her accumulated savings and small incidental receipts. We thus, taking a reasonable view of the matter, and following a pragmatic approach consistent with CBDT Circulars (though issued in the context of demonetization), consider it appropriate to accept the availability of cash in hand with the assessee to the extent of Rs. 2,50,000/-. Accordingly, we hold that the benefit of Rs. 2,50,000/- deserves to be granted to the assessee as an explained source of cash deposits, while for the balance amount over and above Rs. 2,50,000/-, i.e., Rs. 7,58,800/-, is upheld.
9. In the result, the appeal of the assessee is partly allowed in terms of our aforesaid observations.
Order pronounced in the open court on 15th May, 2026.
Author Bio
