Reassessment Quashed as AO Relied on Incorrect AIR Information: ITAT Amritsar

Sh. Sukhvir Singh Vs ITO (ITAT Amritsar)

The appeal was filed against the order of the National Faceless Appeal Centre (NFAC)/CIT(A), which had confirmed additions of ₹29,00,000 under Section 69A on account of cash deposits in bank accounts and ₹64,644 on account of accrued interest for Assessment Year 2011-12. The appeal before the ITAT was filed with a delay of 17 days, which was condoned.

The assessee challenged the validity of the reassessment proceedings initiated under Sections 147 and 148 of the Income Tax Act. The case had been reopened on the basis of AIR information alleging that the assessee had deposited cash of ₹17,00,000 in a savings bank account maintained with Capital Local Area Bank. Based on this information, the Assessing Officer issued a notice under Section 148 on 23.03.2018 and subsequently completed the assessment under Section 144 read with Section 147, making additions of ₹29,00,000 towards cash deposits and ₹64,644 towards savings bank interest, resulting in assessed income of ₹29,64,640.

The assessee contended that the notice under Section 148 was not properly served. According to the assessee, service was attempted through affixture after local enquiries suggested that he was residing abroad in the USA. It was argued that the procedure prescribed under the Code of Civil Procedure for service by affixture had not been followed. The assessee also submitted that he could not respond to subsequent notices because they were never effectively served upon him.

The assessee further explained that the cash deposits were sourced from the sale proceeds of rural agricultural land. Additional evidence was filed before the appellate authority stating that the assessee had entered into an agreement to purchase agricultural land and later sold the same to another buyer before registration in his own name. According to the assessee, he received cash of ₹36,00,000 from the ultimate purchaser, part of which was deposited into his bank accounts.

A key contention raised by the assessee was that the reopening itself was based on incorrect facts. The reasons recorded for reopening referred to cash deposits of ₹17,00,000 in one bank account, whereas the actual cash deposited in that account was ₹14,00,000. The assessee argued that the Assessing Officer had relied solely on AIR information without verifying the bank statements and had proceeded on an incorrect factual premise. It was submitted that reopening based merely on AIR information, without independent verification, was invalid.

After hearing both parties, the Tribunal noted that the Assessing Officer had relied upon AIR information alleging cash deposits of ₹17,00,000 in one account, whereas the records showed actual deposits of ₹14,00,000 in that account. The Tribunal observed that the AIR information relied upon for reopening was factually incorrect and that the Assessing Officer had not verified the bank statements before initiating reassessment proceedings. It found that the reopening was based solely on AIR information and reflected non-application of mind.

The Tribunal held that reopening of assessment merely on the basis of AIR information, without proper verification and where the information itself was factually incorrect, was not sustainable in law. It observed that the reasons recorded for reopening contained factual errors and were therefore invalid. Referring to judicial precedents, the Tribunal concluded that reopening based on a wrong assumption of facts could not be sustained.

Accordingly, the Tribunal held that the notice issued under Section 148 was void ab initio. Since the reassessment proceedings originated from an invalid reopening, all subsequent proceedings, including the assessment order for Assessment Year 2011-12, were declared null and void. Following an earlier decision of the Amritsar Bench on similar facts, the Tribunal quashed the reassessment proceedings and allowed the appeal of the assessee.

SEO-Friendly Titles with Descriptions

Reassessment Quashed Because AO Relied on Incorrect AIR Information, Rules ITAT

SEO Description: ITAT Amritsar held that reassessment proceedings were invalid because the reopening was based on factually incorrect AIR information. The Tribunal ruled that failure to verify bank records before issuing notice showed non-application of mind.

ITAT Cancels Reopening Because Reasons Recorded Were Based on Wrong Facts

SEO Description: The Tribunal found that the Assessing Officer proceeded on incorrect assumptions regarding cash deposits in the assessee’s bank account. Since the recorded reasons were factually erroneous, the entire reassessment was quashed.

Section 148 Notice Held Void Because Cash Deposit Figures Were Incorrectly Assumed

SEO Description: ITAT ruled that reassessment cannot be sustained when the foundation of reopening is inaccurate information. The notice under Section 148 was declared void ab initio due to factual errors in the recorded reasons.

Assessment Set Aside Because AO Failed to Verify Bank Statements Before Reopening

SEO Description: The Tribunal observed that the Assessing Officer relied solely on AIR data without examining the bank statements. This lack of verification rendered the reassessment proceedings unsustainable.

ITAT Quashes Reassessment Because Reopening Was Based Solely on AIR Data

SEO Description: The Tribunal held that reopening an assessment merely on the basis of AIR information, without independent verification, is legally untenable. All consequential proceedings were therefore declared invalid.

Reassessment Proceedings Declared Null and Void Because Reasons Contained Factual Errors

SEO Description: ITAT Amritsar found that the reasons recorded for reopening were based on incorrect cash deposit figures. As the very basis of reopening was flawed, the assessment order was quashed.

ITAT Allows Appeal Because Incorrect AIR Information Cannot Justify Reopening

SEO Description: The Tribunal ruled that inaccurate AIR information cannot form a valid basis for reassessment proceedings. The reopening and resulting additions were therefore set aside.

Section 147 Reopening Invalid Because AO Acted on Wrong Assumption of Facts

SEO Description: ITAT held that reassessment proceedings initiated on incorrect factual assumptions are bad in law. The assessment framed pursuant to such reopening was declared void.

Addition on Cash Deposits Fails Because Reassessment Itself Was Held Invalid

SEO Description: The Tribunal quashed the reassessment proceedings after finding defects in the reopening process. As a result, additions relating to cash deposits and interest income could not survive.

ITAT Sets Aside Assessment Because Non-Application of Mind Vitiated Reopening

SEO Description: The Tribunal observed that the Assessing Officer failed to verify the actual bank deposits before reopening the case. This non-application of mind rendered the notice and subsequent assessment unsustainable.

FULL TEXT OF THE ORDER OF ITAT AMRITSAR

The captioned appeal has been filed by the assessee against the order dated 29.02.2024 passed by the National Faceless Appeal Centre (NFAC)/CIT(A), Delhi which is arising out of the Assessment Order dated 03.12.2018 passed u/s 144 r.w.s. 147 of the Income Tax Act, 1961 in respect of Assessment Year: 2011-12.

2. The appellant-assessee has raised the following grounds of appeal:

“1. On the facts and circumstances of the case, the Ld. CIT(A) vide order u/s 250(6) dated 29.02.2024 has erred in confirming the addition to the tune of Rs. 2900000/- made u/s 69A by the learned AO on account of cash deposited in bank account and Rs. 64644/- on account of accrued interest.

2. That the CIT(A) has erred in confirming the addition of Rs. 2964644/-made by the AO ignoring the fact that the assessment framed u/s 144/147 is bad in law in view of the fact that the service of notice u/s 148 has been affected by affixture without following proper procedure as per rule in Order V of the Code of Civil Procedure, 1908 (5 of 1908).

3. That the CIT(A) has erred in confirming the addition of Rs. 2900000/-made by the AO ignoring the fact that the assessment framed u/s 144/147 is bad in law in view of the fact that there was no material on record to prove that the notice was served to the assessee or agent and as such, resorting to service by affixture was a premature decision.

4. That the order passed by the Ld. CIT(A) confirming the addition made by the AO is bad in law particularly in view of the fact that the reasons recorded are based upon incorrect facts.

5. That the Ld. CIT(A) has erred in relying upon the remand report dated 22.07.2019 without providing the copy of remand report and hence not allowing the opportunity of being heard. That the remand report dated 22.07.2019 stating that the authenticity of additional evidence could not be verified, cannot be relied upon particularly in view of the fact that the assessee had duly furnished the copy of bank statements to substantiate the total amount deposited in bank.

6. That the Ld. CIT(A) has erred in confirming the addition on account of cash deposited in bank without appreciating that the assessee had duly explained the source of deposits out of sale of rural agriculture land.

7. That the Ld. CIT(A) has erred in confirming the addition made by the AO in respect of entire sale proceeds from sale of agriculture land without giving the benefit of cost of acquisition.

8. That without prejudice to the aforesaid grounds of appeal, the Ld. CIT(A) has erred in confirming the addition on account of cash deposited in bank without appreciating that the land was agriculture land and does not qualify as a capital asset as per section 2(14) of the income tax act 1961.

9. That the Assessee craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed off.”

3. There is a delay of 17 days in filing this appeal. The ld. counsel for the assessee has requested for condonation of short delay of17 days in filing the appeal against the order passed u/s 250 by NFAC, Delhi dated 29.02.2024 for that Ld. DR has no objection. Accordingly, the short delay in filing the appeal is condoned and the appeal is admitted.

4. Apropos ground no. 3 and 4, the assessee has challenged validity of assessment that the reasons recorded being based on incorrect facts and that there was no material on record to prove that the notice was served to the assessee or its agent.

5. Briefly facts are that appellant case was re-opened vide notice u/s 148 issued on 23.03.2018 based on AIR information that the appellant had deposited cash amounting to Rs. 17,00,000/- in saving bank account no 008200000128 maintained with Capital Local Area Bank with the approval of PCIT under section 151 of the Act. The AO passed the assessment order under section dated 03.12.2018, under section 144 r.w.s 147 of the Income Tax Act, 1961 (‘the Act’) with making an addition of Rs. 29,00,000/-on account of cash deposited in bank and Rs. 64644/- on account of saving interest. Thus, the total income was assessed at Rs. 29,64,640/-.

6. Aggrieved with Assessment order, the assessee went before CIT(A) who has confirmed the addition to the tune of Rs. 2900000/- made by the AO by endorsing the observation and finding of the AO.

7. The Ld. Counsel submitted that the impugned order passed by the Ld. CIT(A) is bad in law since the same has been passed without appreciating the fact that the notice u/s 148 was not served on the appellant. He contended that the CIT(A) had not even made any efforts to analyze the bank statement submitted by the assessee as in the instant case, the appellant had duly submitted the copies of Bank statement. In support of arguments to challenge the addition of Rs. 2900000/- sustained by the CIT(A),the Ld AR has filed a brief synopsis which reads as under

2. That the case of the appellant was re-opened vide notice u/s 148 issued on 23.03.2018 [Refer page no 1 of the PB]. The case was re-opened on the basis of AIR information that the appellant had deposited cash amounting to Rs. 1700000/- in saving bank account no 008200000128 maintained with Capital Local Area Bank. The copy of reasons recorded is enclosed at page no 3-4 of the PB. The approval accordedfrom PCIT under section 151 is enclosed at oaoe no 5-6 of PB.

3. That the notice u/s 148 was issued on 23.03.2018 could not be served in the ordinary way. In these circumstances, the AO directed inspector and tax assistant to serve the notice by affixture vide affixture order dated Nil. The inspector, in the same affixture order, reported that the notice under section 148 couldn’t be served on theappellant as it was learned from the nearby sources that the appellant had beenliving abroad. Hence, the notice under section 148 was served bv affixture(Please refer to page no. 2 of PB). However, the affixture was done withoutfollowing the procedure as prescribed in section 282. read with Rule 12. Rule17. and Rule 19 of Order V of the Civil Procedure Code 1908.

4. Subsequently the appellant was issued various notices u/s 142(1) dated 11.07.2018,and 15.10.2018. However, the notices could not be complied with by the appellant due to the fact that no notice was served on the appellant. It is a matter of record that resides out of country in USA. (Please refer page no 7 of PB)

5. That the appellant was issued show cause notice u/s 144 of the income tax act on 08.11.2018 requiring to show cause as to why cash deposited amounting to Rs. 1700000 in Capital area Local Bank account No 008200000128 and Rs. 1200000/- in Capital area Local Bank account No 001200000462 may not be treated as unexplained cash deposits u/s 69A. (Please refer internal page no 3 of order of A.O.)

6. Subsequently the AO proceeded with the assessment under section 144 on 03.12.2018. The copy of the assessment order is enclosed at page no 11-16 of the PB. That the assessment Was completed under section 144 r.w.s 147 of the Income Tax Act, 1961 (‘the Act’) vide order dated 03.12.2018 making an addition of Rs. 2900000/- on account of cash deposited in bank and Rs. 64644/- on account of saving interest. As such, the total income was assessed at Rs. 2964640/-.

7. The appellant filed additional evidence as per Rule 46A, stating that he was not provided with a reasonable opportunity to explain the source of the cash deposit due to the lack of service of notice, as the appellant was staying outside India. It was explained that the cash deposit in the bank account resulted from the sale proceeds from the sale of rural agricultural land as per a sale agreement executed on 09.11.2010. It is pertinent to mention that the land was originally owned by Smt. Pritam Kaur D/O Dhera and Kewal Singh. The appellant entered into an agreement to purchase the said land from Smt. Pritam Kaur and Kewal Singh on 26.02.2010 by making an initial payment of Rs. 36,25,000/-. However, even before registering the land in his name, the appellant sold the land to Mr. Kuldip Singh S/O Sh. Chain Singh through an agreement dated 09.11.2010 for Rs 66,00,000. Consequently, the original owners, Smt. Pritam Kaur and Kewal Singh, registered the land in the name of the ultimate buyer, Sh. Kuldip Singh. The details of the consideration paid by the ultimate buyer, Sh. Kuldip Singh, are as follows: (Copy of the letter submitted to A.O. vide reply dated 11.07.2019 is enclosed at page 23-24 of PB).

8. From the aforesaid table, it is evident that the appellant had received cash to the tune pf Rs. 3600000/- from Sh. Kuldip Singh, out of which the appellant deposited cash in two bank accounts. However, the AO has erred in alleging that the appellant has deposited amount of Rs. 2900000/-in bank accounts. That the non-application of the mind by the Ld. AO is further evident from the fact that the AO failed to verify the amount of cash deposited in bank from the copies of bank statements duly furnished by the appellant during the course of assessment proceedings. The details of amount deposited in bank are as under: – VC

9. Subsequently, the appellant filed an appeal before the Hon’ble CIT(A) on 05.01.2019 against the said order of AO. The Hon’ble CIT(A) passed an order on 29.02.2024 confirming the addition to the tune of Rs. 2900000/-made by the AO. That the said order is bad in law since the same has been passed without appreciating that the notice u/s 148 was not served on the appellant. Your Honor, it is an established fact that the CIT(A) had not even made any efforts to analyze the bank statement submitted by the assessee. However, in the instant case, the appellant had duly submitted the copies of Bank statement As such, the appellant filed an appeal before your Honor against the addition of Rs. 2900000/- sustained by the CIT(A).

10. Submissions in respect of ground No 4

Ground No. 4:That the order passed by the Ld. CIT(A) confirming the addition made by the AO is bad in law particularly in view of the fact that the reasons recorded are based upon incorrect facts.

10.1 That the AO had fallaciously made addition by relying upon incorrect information appearing in AIR that the appellant had deposited cash amounting to Rs. 2900000/- in the Capital Local Area bank Account No 008200000128 and 001200000462. It is a settled law that the reopening made merely on the basis of AIR information is bad in law and the assessment framed thereafter is required to be quashed.

10.2 That the reopening was made on the basis of AIR that the assessee has deposited cash of Rs 1700000 in saving bank account maintained with Capital Local Area, account no 008200000128. (Reasons recoded are enclosed at page no 3-4 of PB)

10.3 That at the outset, the AIR information being relied upon for the purpose of reopening the case of the appellant was incorrect in view of the fact that the appellant had deposited cash amounting to Rs. 1400000/- instead of Rs. 1700000/- in Capital Local Area, account no 008200000128 as alleged by the A.O. The AIR information which was factually incorrect cannot be taken as basis for reopening of assessment u/s 148. That the AO while reopening u/s 148 or while completing the assessment u/s 147 has not even bothered to go through the bank statements and had blindly relied upon the information appearing in the AIR.

10.4 In view of the aforesaid, it is evident that the reasons recorded for the purpose of reopening case u/s 148 are bad in law since the same are based upon incorrect facts. As such, the subsequent notice issued u/s 148 is bad in law and invalid. Therefore, the entire reassessment proceedings initiated by the AO become invalid. In this regard reliance is being placed upon the following case laws: –

CASE LAWS THAT REASONS RECORDED ARE ON WRONG ASSUMPTION OF FACTS

a) [2002]124 Taxman 641 (Gujarat) HIGH COURT OF GUJARAT SaaarEnterprises v. Assistant Commissioner of Income-tax

Section 147 of the Income-tax Act, 1961 – Income Escaping Assessment – Position After 1-4-1989 – Assessment year 1991-92 – Assessing Officer issued a notice under section 148 in which he recorded reasons that assessee failed to file its return for assessment year 1991-92 – It was also recorded that certain transactions relevant to assessment year 1991-92, which were disclosed in a search under section 132, had not been disclosed by assessee – However, in affidavit-in-reply, he stated that protective addition was made in assessment year 1992-93 – Whether it was apparent that Assessing Officer himself was notsure as to year of taxability and whether said item required to be taxedin assessment year 1991-92 or assessment year 1992-93, in such asituation, it would not be possible to agree with stand of revenue that anyincome could be stated to have escaped assessment for assessment year1991-92 as a consequence of any failure or omission on part of assessee – Held, yes

b) [2017] 79 com 455 (Amritsar – Trib.) IN THE ITAT AMRITSARBENCH KMV Collegiate Sr. Sec. School v. ITO (Exemption). Jalandhar

26. From the above discussion, it is evident that both the reasons recordedbv the AO for reopening the completed assessments of the assessee arebased on factual errors, rendering the notice issued u/s. 147. finding itsbasis in the aforesaid reasons, to be an invalid notice, in keeping with thedecision of the Hon’ble Supreme Court in “Kelvinator of India Ltd.”(supra), as considered in ‘Dr. AiitGuota’ (supra). Consequently, all proceedings pursuant thereto, culminating in the impugned order for the AY 2007-08, are also held to be null and void.”

In support, he relies on the Hon’ble coordinate ITAT Amritsar Bench in the case of Lateef Ahmad Gujree, Rainawari, Jammu & Kashmir v. Income Tax Officer, Ward-1, Srinagar in ITA No. 24/Asr/2024 order dated 04.06.2024.

8. Per contra, the Ld. DR relies on the impugned order.

9. We have heard both the sides, perused the record, impugned order and case law cited before us. Admittedly, the reasons recorded by the AO based on the AIR information and the AO had fallaciously made addition by relying upon incorrect information appearing in AIR that the appellant had deposited cash amounting to Rs. 2900000/- in the Capital Local Area bank Account No 008200000128 and 001200000462.It is seen that the AIR information being relied upon for the purpose of reopening of the case of the appellant was incorrect in view of the fact that the appellant had deposited cash amounting to Rs. 1400000/- instead of Rs. 1700000/- in Capital Local Area, account no 008200000128 as alleged by the A.O. The AIR information which was factually incorrect cannot be taken as basis for reopening of assessment u/s 148. Thus, the AO while reopening proceedings u/s 148 and/or while completing the assessment u/s 147 has not even gone through the bank statements and had just relied upon the AIR information. It is a settled law that the reopening made merely on the basis of AIR information is bad in law. Since there was non-application of the mind by the Ld. AO as evident from the fact that the AO failed to verify the amount of cash deposited in bank from the copies of bank statements duly furnished by the appellant during the course of assessment proceedings.

10. From the record, it is evident that the reasons recorded by the AO for reopening the completed assessment of the assessee are based on factual errors, rendering the notice issued u/s. 147 to be void ab initio, in view of the decision of the Hon’ble Supreme Court in “Kelvinator of India Ltd.” (supra), as considered in ‘Dr. AiitGuota’ (supra).

11. In our view, the reasons recorded are bad in law as the reopening has been made based on incorrect facts. It is a settled law that the reopening cannot be made based on wrong assumption of facts following AIR information and accordingly, the assessment made on the basis of wrong assumption of facts is liable to be quashed. Consequently, in the present case, all proceedings pursuant to notice u/s 148 of the Act thereto, culminating in the impugned Assessment Order for the AY 2011-12 are held to be null and void.

12. Following the Coordinate Amritsar Bench on identical fact, in the case of Lateef Ahmad Gujree (Supra), the reopening of assessment proceedings is held to be bad in law and as such, the assessment order is quashed as void ab initio.

In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 26.07.2024