Written Submission before the Hon’ble CIT(A), Faceless in respect of Sh. Xxxxxxx for the A.Y. 2011-12 [XXXXXXXXXX]
Appeal filed against the order of assessment u/s 144/147 of the Income Tax Act made by ITO, Ward No. X(X), XXXXXXX dated 26.11.2018
Most respectfully submitted before the Hon’ble CIT(A), Faceless. my written submissions as under:
My case on Merit
Introduction of the Assessee:
The assessee is an individual assessed to tax. During the F.Yr. 2010-11, he is doing business of sale purchase of old cars and accessories. During the F.Yr. 2009-10, he was doing the same business and also doing same business during the earlier years. He has done the entire business on cash basis. He is also an agriculturist.
Statement of facts of the case
The case of the assessee was decided ex-parte u/s 144 of the Income Tax Act, 1961 in which a demand of Rs. 2320480/- has been created which is quite huge, illegal, baseless and not justified. A very small trader cannot earn so much income that he has to pay tax liability of Rs. 2320480/-. Comparison can be made with the returns filed earlier.
The I.T.O Ward No. X(X), XXXXXXX treated the entire cash of Rs.3188000/- deposited with SB A/c of the assessee as income of the assessee which cannot be possible and it is a mere presumption of the AO which is evidenced here at CIT (A), Faceless level.
The assessee is not an educated person and not at all well versed with computer operation and he cannot access to the computer. The department may have sent the notices through net but in person all notices has not been received by the assessee. Moreover, he is not well and all medical reports are with the assessee which can be produced before you. (Page no. 3-13 of the paper book). Due to ill health, assessee could not approach his CA and could not visit the Income Tax Department.
The entire cash deposited with the bank cannot be income of the assessee. There was sufficient time with AO to finalize the assessment before 31.12.2018 but AO decided the case ex parte u/s 144 Dt. 26.11.2018 which is too earlier.
Huge demand of Rs. 2320480/- has been created. Even under presumptive taxation u/s 44AD profit is calculated @ 8% of the Turnover.
The addition of Rs. 3188000/- by AO is being challenged before you as Rs. 3188000/- is not income of the assessee. Even if guesswork was to be framed by AO, then the same must be in line with assessment already framed u/s 143(3) for the A.Yr. 2010-11 by the then ITO, Ward No. X(X), XXXXXXX. The nature of cash deposited is same in both the years. Copy of order of Assessment year 2010-11 is enclosed as part of the Paper Book. (Page no. 43-45 of the paper book)
The income of the assessee is below taxable limit. This was the reason for non-filing of return by the assessee. The assessee has filed his ROI online vide e-filing Ackd. No. XXXXXXXXX Dt. 22.12.2018 before filing appeal. The turnover part is reflected in this return. (Page no. 65-66 of the paper book)
The Ld. AO indulged in speculation, surmises and conjectures in treating the cash deposit of Rs. 3188000/- as complete income of the assessee for the A. yr. 2011-12. The case of the assessee for the A.Yr. 2010-11 was also decided u/s 143(3) of the act and the entire material including order of the A.Yr. 2010-11 was with AO but ITO has not looked into it at the time of finalization of the assessment for the A.Yr. 2011-12. Before making best judgment assessment the AO is duty bound to gather all material including history and past records of the assessee to come at a genuine conclusion. He cannot pass the assessment order with blind eyes which he has done in the case of the assessee.
Without prejudice, while completing the assessment, the AO ought to have taken cognizance of the age, history of the assessee and past assessment of his income for the estimation of the income under dispute. AO has not bothered to arrive at a reasonable figure looking at peak figure of the cash deposited with the bank and also ignored withdrawals from the same bank which is unjustified at the back of the assessee.
No summons u/s 131(1) of the act was ever issued to the assessee to nail the truth from the assessee recording statement on oath.
The entire assessment made u/s 144 of the act is quite baseless and beyond the legal frame work of the law.
The nature of business of the assessee is such that most of the transactions are done in cash. The source of cash deposit with SB Account is as below:
a) Cash withdrawals from the same bank and in turn out of cash book.
b) Cash received on sale of cars and accessories and deposited with the bank and in turn out of cash book.
c) Cash in hand as on 31.03.2010 and in turn out of cash book.
d) Cash received on sale of Agriculture land and in turn out of cash book.
e) Cash received out of Agriculture Income and in turn out of cash book.
f) Advances received from the customers for purchase of the cars.
Sale proceeds of old cars & accessories
Cash is received from the customers which is deposited with the bank. Withdrawals are made through ATM which has limit and also through self mode cheques. Withdrawls are made for booking cars as well as purchase of accessories and payment to the sellers of the cars. Sometimes the same cash which is lying with the assessee and as per cash book the cash is deposited with the bank.
In the result the cash deposited with the bank is out of the Gross receipts and not out of the Income of the assessee.
Grounds of Appeal
The initiation of assessment proceeding u/s 148 was without jurisdiction since the notice was never served on the assessee personally.
The initiation of re-assessment proceedings u/s 148 is also without jurisdiction since approval u/s 151 by the JCIT; XXXXXXX was never supplied to the assessee which is contrary to the legal position as declared by SC.
Copy of reasons recorded for issuing notice u/s 148 was never supplied to the assessee.
The addition of Rs. 3188000/- in the hands of the appellant is unwarranted in law since the entire cash deposited with the bank cannot be treated as income of the assessee. If all the requisite notices had been received by the assessee personally or if some more opportunity had been given to the assessee then he would have been able to produce plausible explanation regarding cash deposited with the bank as every evidence which can be produced before the Hon’ble CIT (A), Faceless on demand.
The Hon’ble CIT (A), Faceless is prayed to give a chance to produce all the evidences and books of accounts before him which could not be produced at AO level so that assessee gets full justice as taxing statutes demand tax on earned income and not on income which was never earned. Tax is paid on the net income and not on the gross receipts.
In view of the above ground it is prayed that the impugned order be quashed or suitable relief be allowed as your good self may deem fit.
The appellant also craves to add or amend the grounds of appeal if required at the time of hearing of appeal and also prays to produce additional evidence under Rule 46A of the Income Tax Rules, 1962 at the time of hearing or before it.
The case of the assessee was decided u/s 144 of the Act. The assessee could not appear before the AO during the course of assessment proceedings which were going on at ITO, Ward No. X(X), XXXXXXX during the F.Yr. 2018-19. The assessee was not well during the same year. The reason for non appearance was ill health of the assessee. The evidences which could not be produced before AO due to ill health of the assessee, are produced/submitted before you with a prayer to be accepted u/s 46A of the Income Tax Rules, 1962.
The additional evidences which are listed below are enclosed with this application:
1. Copy of medical reports showing that assessee was unwell during the F.Yr. 2018-19 when assessment proceedings were going on at Ward No. X(X), XXXXXXX. This is the reason he could not appear before AO.
2. The assessee has purchased old cars during the year and sold old cars to different customers. He purchased old cars and sold these cars in market. He also did trading of car accessories. The profit part is always less and further expenses are also borne by the assessee after purchase of the old cars for repairing and finishing. The cash received on the sale of cars is deposited with the bank of the assessee and made withdrawals from the same bank as and when cash is required for expenses as well as required for purchase & booking of the cars and also for personal use and expenses of the business.
3. Complete Bank Statement of SB A/c with XXXXX Bank for the F.Yr. 2010-11.
4. Detail of cash withdrawals and cash deposited with the Bank during the Financial Year 2010-11
5. Copy of order of the A.Yr. 2010-11 framed by the same jurisdictional ITO, Ward No. X(X).
6. Copy of Income Tax Returns filed for the A.Yr. 2011-12.
7. Proof for sale of Agriculture Land by the assessee and his wife.
8. He was member of the All India Car Dealers Association during the F.Yr. 2010-11. Every year it is renewed. Assessee is registered with the association since the year 2010.
9. Cash flow statement (Consolidated as well as separately maintained for personal and business) prepared out of the Cash book maintained by the assessee is enclosed. Assessee is having cash book which can be produced on demand.
Assessment Framed u/s 144 is bad in law
Assessment framed u/s 144 is without looking at the surrounding circumstances, without making field enquiries, without looking at the entire bank A/c of the assessee, without gathering any material for making assessment u/s 144 of the Act, without looking the Assessment order u/s 143(3) passed by the same jurisdictional AO for the AY 2010-11.
1. The assessment framed u/s 144 is bad enough as mandatory provisions and procedures enshrined in the Act is not followed by AO.
2. Reasons recorded as vague, without tangible material, copy not given to the assessee.
3. AIR information not sufficient for re-opening of the case.
4. Copy of approval sought from PCIT not provided to the assessee.
5. In a hurried manner, AO decided the case of the assessee as still time was there for finalization of the case.
6. The entire assessment framed is prayed to be made null & void.
Explanation regarding cash deposited with the saving Bank A/C of Sh. Xxxxxxx with XXXXX Bank Ltd. A/C No -XXXXXXXX
The assesse is doing business of sale purchase of Old car during the F.yr. 2010-11 and also sale and purchase of car accessories. He has done the entire business in cash. The total turnover of the assessee from Retail trading is Rs. 3148142.00 which includes sales of old cars and accessories. Little profit on sales of cars has been earned. The assessee is in this line of business for the last many years. The assessment of the assessee for the A.Yr. 2010-11 was framed u/s 143(3) of the Act and assessee during that year did the same business. Copy of the return is enclosed. Assessee has made withdrawals from the Bank as he requires cash for purchase of cars, for Booking of the cars, for use in retail trading and for house hold expenses. When there is no seller in the vicinity, he deposits the cash with his Bank. Sometimes cash has been taken from business and when it is not required assessee has invested with the business.
Personal cash Book has been maintained separately and entire deposits with the bank has been made out of the personal cash book of the assessee. If personal cash book is not maintained then there will remain no control on the cash with the assessee. The entire business is done in cash. Assessee makes withdrawals from his SB A/c for purchase of cars but when purchase of cars is not matured, he deposits the same cash with him with the bank. When sufficient cash is there in the business which comes on sale of material and there is no car available for purchase; he deposits the same accumulated cash with his Bank A/c. The following documents are enclosed:
1. Cash flow statement which is personal, business and consolidated.
2. Copy of return of the assessee for the A.Yr. 2010-11 doing the same business
The assessee has purchased old cars during the year and sold old cars to different customers. He purchased these old cars and sold these cars after repair and refinishing so that cars are sold in the market conveniently.
The profit part is always very less and further expenses are also borne by the assessee. The entire cash received on sales was deposited with the Bank of the assessee and made withdrawals from the same Bank as and when cash is required for expenses as well as for booking of old cars.
The assessee has requested the ITO, Ward No. X(X), XXXXXXX Dt. 07.03.2021 and requested for copies of the notices which the assessee has not received but AO has not allowed the assessee to inspect the file and not provided the copy of the notices.
Chart of Notices is enclosed below:
| Sr No. | Notice issued u/s by the deptt. | Date of issue of notice | To appear as per notice | Mode of service of notice by the deptt. To the assessee | Assessee appeared or not and reason for non appearance |
| 1 | Query on transaction on F.Yr. 2010-11 | 8/8/2017 | 18/8/2017 | Hard copy not received by the assessee. | To explain the source of cash deposit of Rs. 3188000/- but assessee has not replied (Not Appeared). The reason was ill health of the assessee. |
| 2 | 148 | 30/3/2018 | Assessee had to file the return within 30 days from the date of receipt of the notice | Only on portal, hard copy not received by the assessee | Assessee did not appear and not filed any return due to the reason notice not received. He is not aware of the computer work, mail etc. He has not checked his mail. |
| 3 | 142(1) | 19/06/2018 | 29/06/2018 | On portal only | Not Appeared due to ill health of the assessee. |
| 4 | 142(1)
142(1) |
07/09/2018
07/09/2018 |
13/09/2018
13/09/2018 |
Hard copy not received by the assessee. This is questionnaire. Received on portal and mail:- xxxxx@gmail.com | Assessee has not appeared and also not filed any reply. The reason for non appearance was ill health of the assessee .(Not Appeared) |
| 5 | 142(1). Written in the assessment order page no. 2 but in fact notice not issued | 14/09/2018 | 24/09/2018 | This is final show cause notice (Not Received) May be only on mail. | No one attended. |
| 6 | 142(1) | 30/10/2018 | To file the return upto 12-11-2018 and reply | Hard copy not received by the assessee. This is detailed show cause notice. | Assessee has not filed the return in response to the notice and also did not appear before AO (Not Appeared) due to ill health. |
Analysis of the Assessment order Dt. 26.11.2018 passed u/s 144/147 of the Income tax Act, 1961
Page No. 1 Para No. 1
On the basis of AIR information AO has come to know that the assessee has deposited cash of Rs. 3188000.00 (Actual cash deposit is Rs. 3238000.00) to his saving bank account. AIR information is not sufficient to reopen the case of the assessee. Though assessee could not reply to the query notice issued (Dt. 08.08.2017) not issued u/s 133(6) of the Act but even reopening has been made without following the set procedure enshrined in the Income Tax Act, 1961. No notice u/s 133(6) was issued to the assessee. No notice u/s 148 of the Act was received by the assessee.
Page No. 1 Para No. 2
The income of the assessee was non-taxable. This was the reason for non-filing of the return. Moreover assessee was unwell and also had not received the notice till end of the assessment. A separate chart has been submitted above which clearly depicts that notices has not been received by the assessee personally and he was unwell and not well versed with the computer so that he could see the notices on his portal as well as mail. CA XXXXXXX was appointed by the assessee and he appeared before the AO and he sought the adjournment for collecting papers. The ill health of the assessee was the main reason for non compliances of the notices and this made assessee unable to submit the reply to the show cause notices issued on 30.10.2018 for appearing on 12.11.2018. Time and again, AO is writing that the assessee has not appeared on such and such date. There was inability of the assessee to appear as the whole year he remained not well. Assessee was not required to maintain the books of accounts but he has maintained the account books and has calculated his profit as per section 44AD of the Income tax Act, 1961 which is non-taxable.
Page No. 2 para (i),(ii), (iii)
It is true that the assessee could not reply to the notices but it is also true that assessee had not received the notices in person, by courier or speed post. It is true that the assessee has deposited Rs. 3188000.00 but it is also true that he has withdrawn a sum of Rs. 2846500.00 from the same bank account. The AO has written the deposit part. He has checked one side of the bank not the other and without thinking added the entire cash deposited as income of the assessee. The order passed is quite vague in the eyes of law.
The AO has made the assessment u/s 144 of the Act but without looking at the material record as he never wanted to provide any relief to the assessee. He wanted to enlist the case with the list of cases decided at the earliest.
The AO has not checked the following record available on the file:
a) The assessment order for the AY 2010-11 passed u/s 143(3) of the Act.
b) The complete bank statement which he might be having or not.
c) He has not issued notice u/s 133(6) of the act to the bank as well as to the assessee for calling for the complete bank statement.
d) He has never desired to look at the debit side of the bank for cash withdrawals.
e) He has not checked the peak figure.
f) He never sent his inspector to the location of the assessee.
g) He has not tried to gather any material before deciding the case u/s 144.
h) Officer seems to enjoy the Ex-party assessment of the assessee otherwise he would have thought so many times before imposing tax of Rs. 2320480.00. And further tried to impose penalty.
Page No. 3 point No. 3
Assessee has failed to discharge the onus but at the same time AO failed to decide assessment of the assessee correctly. There is clear cut violation of section 144 of the act as AO has not gathered any material before assessment. He has not followed the higher court judgments in this regard. How entire cash deposited can be income of the assessee. Actually, he did not want to provide any relief to the assessee. He made himself easy by writing the order and adding the entire cash to the income of the assessee and made assessee to suffer in dark for many years.
Page No. 3 Para No. 4
The assessee has never made any effort deliberately and intentionally not to produce the evidence before the AO as alleged by the AO. This is their stereo type language which they copy cut paste in every order. But on the other side assessee has not received the notices otherwise he would have sent his counsel to the AO as he did during the Assessment of the assessee for the A.Yr. 2010-11. Copy of order enclosed. Silence on the part of the assessee does not give power to the AO to do injustice.
Page No. 4 Para No. 5
AO has not given any relief to the assessee though he had seen sufficient withdrawals from the bank. Recycling of the cash withdrawals and deposit of the same is done always in business and in general sense.
He has not considered the entire cash of the assessee as turnover of the assessee and calculating the net profit u/s 44AD of the act as he did not want to provide any relief to the assessee.
He has not seen the earlier assessment year’s returns for knowing the nature of business of the assessee.
An allegation on the assessee that assessee has concealed the income of Rs. 3188000.00 is false, imaginary thinking. It has no character of truth. This order kills the assessee and nothing else. The law makers, the courts, never desired to make and interpret the law in such an illegal manner. The assessment order is prayed to be made null and void.
At the time of hearing before CIT (A) Dt. 06.11.2019, cash flow statement was submitted. At the time of remand report, hearing before AO cash flow statement personal in nature as well as cash flow statement related to business was submitted. Even assessee submitted personal cash book of the assessee before AO during the remand proceedings.
Analysis of the Remand Report of the AO, Ward No. X(X), XXXXXXX Dt. 28.02.2020
The assessee was prevented by sufficient cause due to ill health of the assessee
The restraints were with the assessee
He was not well during the F.Yr. 2018-19 when proceedings were going on.
He had not received the notices in a proper manner. He is not an educated person and does not know the computer operation.
He is not able to check his mails.
Even then assessee has tried to produce the evidence at the CIT (A) level and even before AO during the course of remand proceedings and even he has submitted the cash books maintained for his personal use.
Eventhere is judgement of the PCIT Vs Daljit Singh Sra Prop M/s Sra Construction Co. Bathinda (Punjab & Haryana High Court)
Case Law on Additional Evidences Filed Under Rule 46A: PCIT Vs Daljit Singh Sra (2017) (P&H)
Where additional evidences filed under rule 46A was relevant for calculation of real income of assessee, same was to be admitted.
Before the Commissioner (Appeals), the assessee filed an application under section 250, read with rule 46A of the Income-tax Rules, 1962. The said application was not admitted by the Commissioner (Appeals) holding that the assessee was given various opportunities to produce books of account and thus his case was not covered under rule 46A of the Rules. The Commissioner (Appeals), dismissed the appeal.
On appeal, the Tribunal directed the Commissioner (Appeals) to admit additional evidence and decide the case afresh after affording reasonable opportunity to the assessee of being heard by holding that to deliver natural justice despite the non-co-operative attitude of the assessee towards assessment proceedings, real income was to be assessed. On appeal to the High Court:
The matter was examined by the Tribunal in detail on the basis of the entire material available on record. It was noticed by the Tribunal that the assessment was completed under section 144 as the assessee did not co-operate in assessment proceedings. On account of sickness of the assessee, he wanted to file additional evidence under rule 46A of the rules before the Commissioner (Appeals). It has been recorded by the Tribunal that no doubt the assessee did not co-operate with the Assessing Officer in completion of the assessment proceedings and that the books of account etc were not produced in spite of opportunity but the said evidence might have been relevant for the calculation of the real income of the assessee. The Tribunal keeping in view the overall facts and circumstances of the case rightly directed the Commissioner (Appeals) to admit additional evidence and decide the case afresh after affording reasonable opportunity to the assessee of being heard.
In view of the above facts and circumstances, there is no doubt assessee did not co-operate with the Assessing Officer in completion of assessment proceedings but the fact remains that in the delivery of justice the real income of assessee has to be assessed and that too after hearing the assessee. The Commissioner (Appeals) has not commented upon the nature of evidence filed under rule 46A. Such evidence might have been relevant for the calculation of real income of the assessee, therefore, in view of the substantial justice, Commissioner (Appeals) was directed to admit additional evidence and decide the case afresh after affording a reasonable opportunity to the assessee of being heard.
On the basis of above judgement, the Hon’ble CIT (A), Faceless is prayed to accept the additional evidences which could not be produced before the AO at the time of original proceedings but submitted at the time of remand proceedings.
Para No. 2
Opening cash in hand is as per the earlier assessment done by the AO u/s 143(3) of the Act. As it is crystal clear that assessee is doing business of sale purchase of old cars and accessories too. The turnover of the assessee is Rs 3148412.00 during the year and he has withdrawn a sum of Rs. 1016500.00 from the business and even has given Rs. 1144000.00 to the business in cash as per cash flow statement. His case was decided u/s 143(3) for the A.Yr. 2010-11 and even A.Yr. 2012-13 with the same business. In these circumstances the source of Rs. 450000.00 is a genuine source. The deposit of Rs. 590000.00 is out of the cash book submitted with the AO at the time of remand proceedings. Tiny entries no doubt are business expenses or we can say day to day expenses of the assessee as cash can be withdrawn using ATM only upto 10000.00. There remains a limit through ATM. He has maintained one account only. No other account is there. He shall be depositing with the bank when even he finds surplus cash. The AO has to examine the consolidate effect.
Business has been done by the assessee.
The business has been done is cash
The turnover is Rs. 3148412.00 in cash
Agriculture land has been sold and cash received
Advances are also received in cash from the customers in this line of business.
Opening cash in hand is also there Rs. 210000.00 which evident from the assessment records of the A.Yr. 2010-11 and in business generally some closing cash is always there. This opening cash in hand cannot be denied.
Simultaneously, assessee has withdrawn sufficient cash from the bank Rs. 2846500.00.
Agriculture income has been earned by the assessee Rs. 100000.00
This is a justification that cash has been deposited by the assessee to his personal account as and when it is surplus or it is required to make payment. Cash shall come from the above enumerated sources and the main source is business and moreover he has also contributed to the business. Taking the consolidated effect the cash deposit of Rs. 590000.00 on 20.04.2010 is quite justified.
The certificate depicts only that assessee is doing this line of business. He has picked the big entries like 3 lacs and 9 lacs and small entries of Rs. 5000.00 and 20000.00 on the debit side. He has not discussed the cash flow statement in the remand report though he is asking cash flow statement during the course of remand proceedings. He has not picked cash withdrawn of Rs. 128000.00 on 1.10.2010. The findings of the AO are perverse and contrary to the human spirits.
AO is saying that it is well knitted story but why he has decided the case of the assessee with the same line of business for the AY 2010-11. There is no liability of the assessee to submit cash book which is personal in nature. AO has to decide the case on the basis of cash flow statement and its justification. Assessee has not submitted his cash book for the purpose of business but he has submitted which is personal in nature. The consolidate effect has to be taken from the cash flow statement. Here AO is unable to understand the concept of cash book and cash flow statement. During the remand proceedings, one notice was issued to the assessee and AO is asking only cash flow statement in this notice.
There are no persons in relation to the XXXX and XXXXXX. This para is vague. Not related with the case of the assessee.
The remand report is totally biased and unmindful exercise of the AO. Copy of remand report is enclosed.
There are thousands of small traders in the area where they are doing small trade of sale purchase of old cars and most of them use their saving bank account for the purpose of business too. It means assessee has earned Rs. 3188000 out of the turnover of Rs. 3148412 i.e. more than 100% profit which cannot be possible. He has decided the case without application of mind.
No material was with AO at the time of opening of the assessment and hence the opening is bad in law and spirits. In this regard assessee relies on the judgment of ITAT, Delhi in the case of Shri Mahavir Prasad Vs ITO Dt. 9.10.2017.
No notice was received by the assessee in person, by speed post, on registered mail and assessee could not access to his portal. In the absence of notices, assessee could not appear before the ITO which resulted in assessment u/s 144 ex parte. Even assessment u/s 144 has not been made taking into care the relevant material like bank statement, earlier ITR filed by the assessee, without gathering any material, without making field enquires, without acknowledging surrounding circumstances, without knowing that the entire cash deposited cannot be income of the assessee. The assessment framed is invalid in the absence of valid notice and without acknowledging the relevant material as narrated above.
Revenue must act fairly in the matter of Assessment
It is a continuous proceeding before Hon’ble CIT (A), Faceless and what AO left CIT (A), Faceless can do the same. As held in Sri Shankar Khandasari Sugar Vs. CIT 193 ITR 669.
The revenue must act fairly in the matter of assessment as much as it is interested in collecting the tax. In the absence of any prejudice to the revenue and the basis of the tax under the act being to levy tax, as far as possible, on the real income, the approach should be liberal in applying the procedural provisions of the Act. An appeal is but a continuation of the original proceeding and what the income tax officer could have done the appellate authority could also do. The Hon’ble CIT(A), Faceless is requested to accept the total income of the assessee on the basis of section 44AD of the Income Tax Act , 1961.
Destination of cash withdrawals from SB A/c with XXXXX Bank Ltd, XXXXXXX during the F.Yr. 2010-11
The assessee runs his business of sale purchase of old cars and accessories. He makes withdrawals from the bank for payment to parties and also for his own expenses personal in nature. He has to keep the cash with him for running the family and also running the business. When he has cash in surplus through the business he deposits the cash withdrawn earlier and also cash accumulated from the business of sale and purchase of old cars. Assessee has to keep the cash with him for purpose of the making payment to parties. It is not proper to keep the cash with him at home for the purpose of safety of cash and desire for earning some interest; assessee deposits the cash with the bank. Normally a person thinks it proper to deposit the cash in bank instead of keeping it at home as deposit of cash with the bankis safe. There was no fear with him to deposit the cash in bank as he was knowing that this cash belong to the gross receipts of the business and out of the withdrawals from the same bank.
ITAT judgments regarding withdrawals and deposit with the same bank
The assessee relies on the following judgments of the Hon’ble ITAT, New Delhi regarding cash deposited with the bank out of the cash withdrawals from the same bank earlier to the deposit.
Gordhan, Delhi, Vs. Assessee Dt. 19.10.2015 ITAT, Delhi
DCIT Vs. Smt. Veena Awasthi (ITAT) (Lucknow) Dt. 30.11.2018
Same cash was deposited by the assessee with the bank which was withdrawn earlier
When an assessee is able to establish that withdrawals of cash and redeposit of the same after sometime gap in the cash flow statement, such explanation of the assessee cannot be rejected by AO without establishing the fact that cash withdrawals was utilized, was used by assessee for other purpose and was not hold by assessee which was re-deposited after some gap of time. The same view was upheld by Tribunal in favor of the assessee in the following judgment:
ITO Vs. Deepali Sehgal: Explanation of assessee that cash deposits in bank was from cash withdrawals made in the past cannot be rejected by AO simply without establishing the fact that cash withdrawn was utilized by assessee for other purpose and not hold by assessee.
Addition made only on the basis of Presumption
“No doubt it is true that when the returns and the books of account are rejected, the assessing officer must make an estimate, and to that extent he must make a guess: but the estimate must be related to some evidence or material and it must be something more than mere suspicion.” It is horrible and strange that ITO added to the income entire cash deposited without any cogent evidence, without applying the mind, without acknowledging the earlier returns and without looking at the complete bank statement.
Complete books in the possession of the Assessee
Such books of accounts are in the possession with the assessee which can be produced before the Hon`ble CIT (A), Faceless if asked for the same. The assessee feels at ease to surrender his income under section 44AD being eligible assessee for sale purchase of old cars and accessories. The cash flow statement has been prepared out of the cash book daily maintained by the assessee.
Huge Addition of Rs. 3188000/-
The addition of Rs. 3188000/- by AO is being challenged before you as Rs. 3188000/- is not income of the assessee. The entire cash deposited with the bank can never be the income of the assessee. The AO has looked at the one side of the bank statement but ignored the other side. If looking at the document is half then the assessment has not been done with the legal frame of mind and the assessment done is bad in law and spirits. He cannot pass the assessment order with blind eyes which he has done in the case of the assessee. If it is considered the entire cash deposited as turnover of the assessee from sale and purchase of old cars and accessories, and then on presumptive basis, we calculate profit @8 %, the profit comes to Rs. 251873/- instead of Rs. 3148412.00.
The entire cash deposited can not be income of the assessee
Apex Court judgment in the case of Parimisetti Sethramamma Vs CIT reported in 57 ITR 532 has held as under:-
By section 4 of the Income Tax Act, 1961 imposes a general liability to tax upon all income. But the Act does not provide that whatever is received by a person must be regarded as income liable to tax. Even withdrawals from the same bank and redeposit of it have been treated as income of the assessee. Under Section 4, charge of Income tax is on total income not on the gross receipts.
In this way the cash deposited by the assessee in his saving bank account is nothing but cash deposited out of the cash book.
AIR information in respect of the assessee:
In the instant case, pursuant to receipt of AIR information from an external agency that cash has been found deposited in assessee’s saving bank account, there has been no further examination by the AO. It is submitted that the reasons to believe has no nexus and live link with the escapement of Income of the assessee.
The addition of Rs. 3188000/- has been made to the total income of the assessee u/s 69A but section not mentioned by the AO.
Section 69A is applicable where in any financial year, the assessee is found to be the owner of any money and such money is not recorded in the books of account, if any maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the acquisition of the money. The money may be deemed to be the income of the assessee for such financial year.
This section relates to if search is made by the department and cash is found at the premises of the assessee. This section does not pertain to cash deposited with the bank. Assessee has every explanation of the cash deposited with the bank and also maintained the books of accounts for his own use and hence no question of unexplained money arises. The addition made by the AO is quite contrary to the law. The assessee surrenders his income u/s 44AD of the Income Tax Act, 1961.
Here is summary of the judgments relied upon by the assessee:
| Sr. No. | Judgments relied upon by the assessee | Decision of the court |
| 1 | Shri Mahavir Prasad Vs ITO Dt. 9.10.2017 | That mere information from annual information return is made as the basis in the reasons without describing the contents of the information, when was the same received, bank account details, and most importantly the copy of the bank account which is made as basis of reopening was never gone through by the assessing officer while recording the purported reasons to believe. Without going to the contents of the entries in the bank account concerned merely deposits cannot be treated as income escaping assessment within the meaning of section 147/148 of the income tax act, 1961.
That reasons recorded in present case at best can be treated to be reason to suspect which is not sufficient for reopening the case under section 148 of the income tax act, 1961. While recording the reasons to believe merely relying upon financial information cannot be treated as good enough to reopen the case. There can be number of sources of cash deposits by the assessee in the bank account. Unless and until it is brought out in the reasons to believe as to how the cash deposits represent income from undisclosed sources same cannot give justification to reopen the case under section 147/148 of income tax act. The requirement of application of mind is missing in the present case on the face of it in the reasons recorded. It is cardinal principle of taxation that all receipts are not income and all income are not taxable income applies squarely to present facts. The reasons to believe ought to spell out all the reasons and grounds available with the AO forre-opening the assessment. The reasons to believe ought to also paraphrase any investigation report which may form the basis of the reasons and any enquiry conducted by the AO on the same and if so, the conclusions thereof; where the reasons make a reference to another document, whether as a letter or report, such document and/ or relevant portions of such report should be enclosed along with the reasons; |
| 2 | Gordhan, Delhi , Vs. Assessee Dt. 19.10.2015 ITAT , Delhi | No addition can be made u/s. 68 of the I.T. Act on the sole reason that there is a time gap of 5Monthsbetween the date of withdrawal from bank account of the cash in question and the redepositof the same in the Bank Account, unless the AO demonstrates that the amount in question has been used by the assessee for any other purpose. Addition is made on inferences and presumptions, which is bad in law. Hence, the addition in question is deleted and the Appeal of the assessee is allowed. |
| 3 | DCIT Vs. Smt. Veena Awasthi (ITAT) (Lucknow) Dt. 30.11.2018 | That nowhere Revenue has doubted availability of cash with the assessee and Assessing Officer has also not brought out any material on record to show that cash which was withdrawn was spent on some other purpose and that cash deposited again was from undisclosed sources. The Assessing Officer has only doubted behavioral pattern of the assessee but has accepted availability of own funds in the hands of the assessee. When source of cash deposit is explained and it is evident that it is the own cash of the assessee, which has been deposited in bank account, then there is no question of making addition under the head as income from undisclosed sources. |
| 4 | ITO Vs. Deepali Sehgal | We reach to a conclusion that the AO made addition without any legal and justified reason which was rightly deleted by the CIT(A). Hence, both the grounds of the assessee are being devoid of merits and dismissed. |
| 5 | Parimisetti Seethramamma Vs CIT reported in 57 ITR 532 | The Court held that the Act does not make a blanket provision whereby any and every receipt is to be treated as income and thereby made exigible to tax. In all cases, the burden lies on the Revenue to prove that the receipt is income within a taxing provision. |
Application under rule 46A of the Income Tax Rules, 1962 is separately enclosed for your kind consideration in the matter.
Beside merits of the case, the assessee desire to plead his case on the basis of technical ground simultaneously.
Core issues
A.Yr. 2011-12, Reopening u/s 147, Issue of notice u/s 148 not received by assessee at his address, cash deposit by assessee in his SB A/c. Source of the cash deposited is withdrawals from the same bank and cash opening balance and current year income. Receipts from sale of Agriculture Land Without looking at the entire bank A/c of the assessee, without gathering any material, the assessment framed is bad enough. Reasons recorded are vague, without material, copy not given to assessee. AIR information is not sufficient for reopening of the case. The entire assessment is prayed to be made null & void. Query letter was issued but not replied by the assessee as he was ill that year.
Limitation period for deciding the case of the assessee for the A.Yr. 2011-12
That the Ld. AO decided the case of the assessee too earlier on 26.11.2018 though the time barring was on 31.12.2018.
Copy of reasons recorded not supplied to the assessee
AO formed a false opinion regarding cash deposited by the assessee with his SB A/C as income of the assessee from undisclosed sources. There seems to be no reason to believe that the cash deposited by the assessee to his SB A/C is income of the assessee from some sources not disclosed to the department. Copy of reasons to believe could not be provided to the assessee. In the facts and circumstances of the case the AO is not justified as AIR information is not sufficient for forming reason to believe by the AO regarding reopening of the assessment u/s 147 and issue of notice u/s 148 of the Act. There was no material with AO at the time of framing of reasons to believe. There existed no live link between the material and escaped income as there was no material with AO, even no bank statement. Copy of reasons recorded were never supplied to the assessee and approval obtained from worthy PCIT, XXXXXXX never supplied to the assessee.
How it will be known to the assessee if approval obtained as not. In this absence of these copies not supplied to the assessee, the assessment framed is quite bad in law and spirits.
Reasons recorded are far-fetched, not based on any cogent material. In the same way PCIT gave approval without material. The approval given is bad in law and spirits.
Reason to believe is nothing but reason to suspect. Clause (a) of Explanation 2 of section 147 is applicable when income of the assessee is chargeable to tax and even then he has filed no return of Income. The reopening is bad. The initiation of proceedings u/s 147 of the Act is based on no material, no formation of belief of escapement of Income is there. This is only unmindful act of the AO. The assessment framed is bad in law and spirits.
There is no nexus between the prima facie inference arrived in the reasons recorded and information; the information was restricted to cash deposits in the bank account but there was no material much less tangible, credible, cogent and relevant material to form a reason to believe that cash deposits represents income of the assessee.
That the proceeding initiated is based on surmises, conjectures and suspicion and therefore, the same are without jurisdiction. That the reasons records are highly vague, far–fetched and by any stretch of imagination lead to conclusion of escapement of income and there are merely presumption in nature; that it is a case of mechanical action on the part of the AO as there is non-application of mind much less independent application of mind so as to show that he formed an opinion based on any material that such deposits represented income. The assessee has relied on the judgements of Hon’ble ITAT, Delhi, ITA No. 2740, 1384 & 2647/Del/2018 Shri Inder Jeet, Delhi and Shri Ashok Kumar Ghaziabad.
When the assessment proceedings u/s 147 are initiated on the fallacious assumption that the bank deposits constituted undisclosed income, over-looking the fact that the source of the deposits need not necessarily be the income of the assessee. The proceeding is neither countenanced, nor sustainable in law as held in ITAT, Amritsar Bench in case of Amrik Singh vs. ITO 159/ITD 329 (Amritsar).
A perusal of section 148 to 153 would show that in order to harbor a belief that income has escaped assessment; the assessing officer ought to have formed an opinion on the basis of material possessed by him, exhibiting the facts that income has escaped assessment. A perusal of reason recorded indicate that the learned AO has basically not made reference to any material possessed by him except the AIR communicated to him. It is pertinent to observe that he has not analyzed the information in right perspective and he sought to reopen by conceiving a fact that the assessee failed to response query letter raised about these cash deposits. At the time of issue of query letter, there was no proceeding pending before the AO, when he sought the clarification of the assessee vide alleged query notice. The ITAT Amritsar bench has dealt with this issue elaborately and recorded a finding that under the Income Tax Act, there is no such proceeding to conduct an enquiry without pendency of assessment proceedings. If this reasoning is being excluded from the copy of reasons recorded by AO, then nothing will remain with the AO except the information transmitted by the AIR Wing. Apart from the above, it is to be seen that in the reasons that AO has nowhere alleged escapement of income. The thrust of the reasoning would show that he wants to make an enquiry about the cash deposits. No doubt, for reopening of an assessment, he has to just form a prima facie opinion and not to arrive at a firm conclusion, but the formation of a prima facie opinion should also depict escapement of income.
The belief of the AO should be based on some specific and tangible material for the purpose of reopening of the assessment.
In the case of the assessee, the assessing officer after obtaining the AIR information wanted to verify the same and issued a letter of enquiry to the assessee. The officer thus did not apply his independent mind to the information received from the AIR. Since no proceedings are pending before the assessing officer when he issued a letter of enquiry to the assessee, therefore such enquiry letter is not valid in the eyes of law, therefore, the assessee was not required to respond to invalid letter of enquiry issued by the assessing officer. The assessing officer in the absence of reply of the assessee presumes that cash deposits in the bank account are income from escaped assessment. The deposit in the bank account per se cannot be income of the assessee. It is mere suspicion of the assessing officer based on incorrect facts that income chargeable to tax has escaped assessment. The issue was covered in the favour of the assessee by order of ITAT, SMC Delhi in the case of Tajendra Kumar Ghai.
Only AIR information that assessee has deposited cash in his bank account and recording of reasons of assessment is bad in law. In many cases, the stand of the ITAT, Delhi is that there is no nexus between the cash deposit with the bank and escapement of income.
No Notice u/s 133(6) was issued; if issued not received by the assessee
Assessment framed is bad in law and spirits as no notice u/s 133(6) was issued to the assessee regarding explanation of the cash which is mandatory requirement. Only query letter dated 08.08.2017 was issued. No enquiry notice was ever received by the assessee u/s 133(6) of the Act, 1961. No summons was ever issued to the assessee before framing best judgment assessment. The entire assessment has been done at the back of the assessee which is contrary to the legal position. It is legal requirement of the notice to be issued u/s 133(6) before issue of notice u/s 148 dated 30.03.2018.
The assessee never received notice u/s 133(6) of the act either in person, on ITD website portal, through mail, speed posts. Issuance of the notice u/s 133(6) is the primarily requirement before issue of notice u/s 148 dated 30.03.2018. In the absence of notice u/s 133(6), proceedings initiated u/s 147 of the Act is bad in law.
The reasons recorded are totally silent on three issues
1. Mere cash deposit is treated to be equivalent to income escaping assessment. Mere cash deposit in bank account cannot be treated as undisclosed income as the reason for income escaping assessment. There is no nexus between the prima facie inference arrived in the reasons records and information available with the assessing officer.
2. No details of XXXXX Bank ltd are mentioned.
3. Information is available but not contents of the information.
That the initiation of reassessment proceedings is illegal being void-ab-initio in as much as the reasons recorded are not in accordance with the provisions contemplated u/s 147 of the Act as well as judicial pronouncements. Rather reasons have been recorded in a mechanical manner and without application of mind. Reasons do not disclose escapement of income and that mere cash deposit in bank account is not sufficient to presume that it is a case of escapement of income. The assessee relies upon the following judgements:
i) Shri Bhajanlal vs ITO, Ward 2, Narnaul, Haryana dated 20.09.2018 ITAT Delhi
ii) Smt Swati Verma, New Delhi vs ITO, Noida dated 01.08.2018 ITAT Delhi
iii) Shri Jagat Singh, Noida vs ITO, Ghaziabad dated 04.09.2018 ITAT Delhi
Merely stating the reasons in a letter addressed by the AO, is not enough. Then, the reasons to believe for escapement of income need to spell out all the reasons and grounds available with the AO for reopening the assessment. The reasons must also paraphrase any investigation report, which may form the basis of the reasons and any enquiry conducted by the AO thereon, as also the conclusions thereof.
In the case of CIT vs. Videsh Sanchar Nigam Ltd. (2012) 340 ITR 66 (Bom.) has held that though the reopening of assessment was within time, since the reasons recorded for reopening of the assessment were not furnished to the assesses till date the completion of assessment, the reassessment order cannot be upheld.
After 1.4.1989, the Assessing Officer has power to re-open, provided there is “tangible material” to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. This is supported by Circular No. 549 dated 31.10.1989 which clarified that the words “reason to believe” did not mean a change of opinion – CIT vs. Kelvinator of India (320 ITR 546 / 228 CTR 488 / 187 Taxman 312)
The assessee has relied on the judgment of High court of Delhi in the case of “Signature Hotels (P) Ltd. 338ITR 51 (Delhi)” where in it was held that:
“The reasons and the information referred to were extremely scanty and vague. There was no reference to any document or statement except AIR information. The AIR could not be regarded as a material or evidence that prima facie showed or established nexus or link which disclosed escapement of income. The AIR information was not a pointer and did not indicate escapement of income. Further it was apparent that the assessing officer did not apply his own mind to the information and examine the basis and material of the information. The assessing officer accepted the plea on the basis of vague information in a mechanical manner. The commissioner also acted on the same basis by mechanically giving her approval; therefore proceedings under section 148 were to be quashed.
Notices not received by the assessee
If notice u/s 142(1) would have been received by the assessee certainly he would have appeared before AO through his counsel. It is true by heart that the assessee has never received any notice from the department. If all the requisite notices had been received by the assessee personally or if some more opportunity had been given to the assessee then he would have been able to produce the books of accounts and plausible explanation regarding cash deposited with the bank. Hence in the absence of proper opportunities the assessment framed is bad on law and spirits of the fair and best judgment assessment.
AIR information made basis for reopening of the assessment
The information received from the department without independent enquiries is not sufficient for reopening the assessment u/s 147 of the Act.
In the facts and circumstances of the case the AO is not justified in relying only on the information of the department. Not making independent enquiries. He has not gathered any material before framing assessment u/s 144 of the Act. He has not checked the complete bank account before framing the best judgment assessment.
Only AIR information with the ITO that assessee has deposited cash with his saving bank account and formation of belief regarding escapement of income and recording of reasons is bad in law. In many cases, the stand of the Hon’ble ITAT, Delhi is that there is no nexus between the cash deposit with the bank and escapement of Income. The assessee has relied on the judgment of Shri Inderjeet, Sohna Gurgaon, ITAT Delhi Dt. 3.12.2018 passed by a common order. It has been held that mere cash deposit in bank account is not sufficient to presume that it is a case of escapement of Income and formation of reasons to believe for escapement of Income and recording of the reasons is bad in law. First para of the assessment order clearly states that on the basis of AIR information notice u/s 148 was issued to the assessee dated 30.03.2018 which is bad enough without any corroborative evidence.
ITO did not gathered any material before framing the assessment
In the facts and circumstance of the case the Ld. AO is not justified in framing the assessment u/s 144 without gathering any material as it is the prime duty of the AO to gather the sufficient material before making assessment. Which he failed to do so and decided the case in hurry.
Notice u/s 148 and approval obtained u/s 151 never received:
Notice was not received by the assessee in person, by speed post, on mail sent by the ITD on portal. Assessee has never checked the notice on ITD website as he does not know basics of the computer. This notice was never received by the assessee before 31/03/2018. Moreover in the absence of notice u/s 133(6), this notice if considered deemed to be issued but will not stand in the eyes of law. The entire proceedings should be made null & void in the absence of proper service of notice.
The notice u/s 148 is issued when definite information is there not for an enquiry. The notice has been issued on the presumption that the cash deposited with the bank is income of the assessee. This is only a presumption. The presumption however strong cannot take place of evidence.
Further, the approval obtained from Pr. CIT, XXXXXXX was never supplied to the assessee neither on mail, nor on Income Tax portal and not in person which is mandatory requirement and hence the entire assessment is null and void.
ITO Ignored Peak figure of the Bank
Even at the time of assessment proceeding the AO overlooked the debit entries in the bank statement, he ignored peak figure, decided the case of the assessee u/s 144 of the act which is unmindful job on the part of the AO.
AO has not bothered to arrive at a reasonable figure looking at peak figure of the cash deposited with the bank and also ignored withdrawals from the same bank which is unjustified. The cash deposited is nothing but out of the gross receipts of the assessee and also withdrawals from the same bank and opening cash in hand.
As held in the judgment S. Venkat Reddy, Hyderabadvs. ITO[TS-6716-ITAT-2016(HYDERABAD)-O]: Peak credit & unexplained Credit – Only peak credit to be taxed u/s. 68, huge cash deposits in the savings bank account of assessee cannot be taxed – ITAT rules in favour of assessee; Holds that assessee having furnished the bank statement, AO could have verified and noticed that there were credits and corresponding debits which would give an indication that some amount has been recycled and that in such cases ordinarily, peak credit is to be taken into consideration for making an addition; AO should keep in mind the normal turnover of the assessee, the expected profit in each year, based on the earlier year’s income declared and accepted and the material available to make the addition.
The surrounding circumstances were quite ignored by AO. The transactions could not be noted by the AO. AO ignored the debit entries of the bank. No field enquiries were made. No enquiries from bank were made regarding the nature of work of the assessee. No reality of the transactions were noted/ found out before treating income from undisclosed sources.
The cash flow statement is placed on record and every instance of cash deposited the assessee is having sufficient cash balances. The deposits with the bank have been made out of the cash available in the cash book. Deposits have not been made from undisclosed sources. As held in Dy CIT, Range 2, Lucknow Vs. Pawan Aggarwal ITA No. 374/LKW/2013 A.Yr. 2009-10.
Reopening u/s 147 of the assessment is bad
The assessee has relied on the judgment of ITAT Delhi in the case of Ashok Kumar, Ghaziabad Vs. ITO Ward No. 1(1), Ghaziabad on 3.12.2018. ITA No. 2740/Del/2018.A.Yr. 2011-12 and other appeals decided with a common order wherein held the initiation of proceedings u/s 147 and issue of notice u/s 148 of the Act has been held invalid.
In the case of ITAT, Delhi Bench decision in the case of Parveen Kumar Jain Vs ITO No. 133/D/2015 for the A.Yr. 2006-07 Dt. 22.01.2015 wherein it has been held as under:
Thus it is clear that the basic requirement for reopening of assessment that the AO must apply his mind to the materials in order to have reasons to believe that the income of the assessee escaped assessment was found to be missing when the AO proceeded to reopen the assessment.
At the time of formation of belief by the ITO that the income has escaped assessment, the material must indicate income escaping assessment rather than desirability of further probe in the matter which may or may not lead to income escaping the assessment.
The observations of the Hon’ble Supreme Court in the case of ‘ITO vs. Lakhmani Mewal Das’103 ITR 437(SC), were reproduced as under:
It may be desirable, from the point of view of revenue authorities, to examine the matter in detail, but then reassessment proceedings cannot be resorted to only to examine the facts of a case, no matter how desirable that be, unless there is a reason to believe, rather than suspect, that an income has escapement assessment.”
Mere cash deposited information is not sufficient, not a prima facie belief that income is from undisclosed sources
Similarly in the case of CIT v. Indo Arab Air Services (2016) 130 DTR 78/ 283 CTR 92 (Delhi)(HC) it was held that mere information that huge cash deposits were made in the bank accounts could not give the AO prima facie belief that income has escaped assessment. The AO is required to form prima facie opinion based on tangible material which provides the nexus or the link having reason to believe that income has escaped assessment.
Reopening on borrowed satisfaction is bad
Re-opening based on borrowed satisfaction of the Assessing Officer is not valid – (CIT v. Greenworld Corporation 314 ITR 81)
Approval u/s 151 of the Income tax Act .
As per order of the assessment the approval from the Principal Commissioner of Income tax, XXXXXXX has been obtained in a mechanical manner without any concrete finding, without looking at the bank account of the assessee, without preparing separate notes. Mere writing “I am satisfied“is an abuse and misuse of powers enshrined in the Act. Regarding this issue assessee has relied on the Judgment of ITAT, Delhi Bench, ITA No. 988/Del/2018 in the case of Sunil AggarwalVs. ITO, Ward No. X(X) (3), Haridwar.
The Hon’ble Supreme Court of India in the case of CIT Vs. S. Gayanka Lime and Chemical Ltd. Reported in (2015) 64 taxmann.com 313(SC) in the Head notes has held that (Section 151, read with section 148 of the Income tax Act , 1961 – Income escaping assessment –Sanction for issue of notice (Recording of Satisfaction) – High court by impugned order held that where joint commissioner recorded satisfaction in mechanical manner and without application of mind to accord sanction for issuing notice u/s 148, reopening of assessment was invalid – Whether special leave petition filed against impugned order was to be dismissed – Held, yes ( in favour of the assessee)
The approval obtained from Pr. CIT, XXXXXXX was never supplied to the assessee neither on mail, nor on income tax portal and not in person and not by speed post which is mandatory requirement hence the entire assessment is prayed to be quashed.
Explanation 2(b) of section 147 The reopening u/s 147 of the Act is challenged
Explanation 2(b) of section 147 authorizes the AO to reopen an assessment wherever there is an “understatement of income”, the AO is not entitled to assume that there is “understatement of income” merely because the assessee’s income is “shockingly low” and others in the same line of business are returning a higher income. The invocation of the jurisdiction u/s 147 on the basis of suspicions and presumptions cannot be sustained. (WP. No. 36483/2016, dt. 13.02.2017) (AY. 2012-13).
The reopening is bad only on the basis of cash deposited with bank not seen bank account not seen debit entries. It is purely guess work of the AO that income has escaped. The AO proceeded on the fallacious assumption that bank deposits in cash constituted undisclosed income and overlooked facts that the cash deposits need not necessarily be the income of the assessee. It can be the gross receipts but entire cash deposits cannot be the income of the assessee. The assessee has relied on the judgment IN the ITAT Delhi bench “A” BirBahadurSijwali VS ITO , Ward 1,Haldwani Appeal No. 3814(Delhi) of 2011.
After 01.04.1989, the power to re-open an assessment is much wider but the reason should be fair and not necessarily due to the failure of the assessee to disclose fully or partly some material facts.
The reason to believe of the ITO is not based on any tangible material but is based on AIR information. The reason is not fair as required by law.
Nature of income declared by the assessee in his return of income and cash deposit in his saving bank account of the assessee is not reason to believe to form an opinion for escapement of income of the assessee as assessee has used his saving bank account for the purpose of business as well. The reopening is bad enough.
The expression information must be something more than a mere rumor or a gossip or a hunch, there must be some material which can be regarded as information which must exist on the file on the basis of which reason to believe is formed. The “reason to believe” must be tenable in law. Only if the information or the reason has no nexus with the belief or there is no material or tangible information for formation of requisite belief. The opening is bad in law.
Judgments relied on by the assessee
Pawan Aggarwal judgement, in favour of the assessee:
The cash flow statement or cash book is placed on record and every instance of cash deposited the assessee is having sufficient cash balances. The deposits with the bank have been made out of the cash available in the cash book. Deposits have not been made from undisclosed sources. As held in Dy CIT, Range 2, Lucknow Vs. Pawan Aggarwal ITA No. 374/LKW/2013 A.Yr. 2009-10.
Ashok kumar Ghaziabad in favour of the assessee:
The assessee has relied on the judgment of ITAT Delhi in the case of Ashok Kumar, Ghaziabad Vs. ITO Ward No. 1(1), Ghaziabad on 3.12.2018. ITANo.740/Del/2018 A.Yr. 2011-12 and other appeals decided with a common order wherein held the initiation of proceedings u/s 147 and issue of notice u/s 148 of the Act has been held invalid.
Prayer to the Hon’ble CIT (A), Faceless for production of all the documents
The Hon’ble CIT (Appeals), Faceless is prayed to give a chance to produce all the evidences and books of accounts before him which could not be produced at AO level so that assessee gets full justice as taxing statutes demand tax on earned income and not on income which was never earned. Tax is paid on the net income and not on the gross receipts.
The appellant also prays to produce additional evidence under Rule 46A of the Income Tax Rules, 1962 at the time of hearing or before it.
Thanking You,
Yours Faithfully
Xxxxxxx
Assessee
Counsel of the Assessee
The following is the list of judgments relied on by the assessee:
| Sr. No. | Name of the Judgment | Decision taken by the Court |
| CIT vs. Videsh Sanchar Nigam Ltd. (2012) 340 ITR 66 (Bom.) | Though the reopening of assessment was within three years from the end of relevant A.Y., since the reasons recorded for reopening of the assessment were not furnished to the assessee till date the completion of assessment, the reassessment order cannot be up held, moreover, special leave petition filed by revenue against the decision of this court in the case of CIT v. Fomento Resorts and Hotels Ltd., has been dismissed by Apex Court, vide order dated July 16, 2007. The Court dismissed the appeal of the revenue. | |
| CIT vs. Kelvinator of India (320 ITR 546 / 228 CTR 488 / 187 Taxman 312) | Though the power to reopen under the amended s. 147 is much wider, one needs to give a schematic interpretation to the words “reason to believe” failing which s. 147 would give arbitrary powers to the AO to re-open assessments on the basis of “mere change of opinion”, which cannot be per se reason to re-open. One must also keep in mind the conceptual difference between power to review and power to re-assess. The AO has no power to review; he has the power to re-assess. But re-assessment has to be based on fulfillment of certain pre-condition and if the concept of “change of opinion” is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place. One must treat the concept of “change of opinion” as an in-built test to check abuse of power by the AO. Hence, after 1.4.1989, the AO has power to re-open, provided there is “tangible material” to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. This is supported by Circular No.549 dated 31.10.1989 which clarified that the words “reason to believe” did not mean a change of opinion. | |
| Signature Hotels (P) Ltd. 338ITR 51 (Delhi) | “The reasons and the information referred to were extremely scanty and vague. There was no reference to any document or statement except AIR information. The AIR could not be regarded as a material or evidence that prima facie showed or established nexus or link which disclosed escapement of income. The AIR information was not a pointer and did not indicate escapement of income. Further it was apparent that the assessing officer did not apply his own mind to the information and examine the basis and material of the information. The assessing officer accepted the plea on the basis of vague information in a mechanical manner. The commissioner also acted on the same basis by mechanically giving her approval; therefore proceedings under section 148 were to be quashed. | |
| Hon’ble SC in ACIT & Anr. Vs. Hotel Blue Moon: (2010) 321 ITR 362(SC).
|
It is mandatory for the AO to issue notice u/s 143(2). It is mandatory not only procedural. Reassessment order Invalid due to want of notice u/s 143(2). | |
| S. Venkat Reddy , Hydrabad vs. ITO [TS-6716-ITAT-2016(HYDERABAD)-O] | Peak credit & unexplained Credit – Only peak credit to be taxed u/s. 68, huge cash deposits in the savings bank account of assessee cannot be taxed – ITAT rules in favour of assessee; Holds that assessee having furnished the bank statement, AO could have verified and noticed that there were credits and corresponding debits which would give an indication that some amount has been recycled and that in such cases ordinarily, peak credit is to be taken into consideration for making an addition; AO should keep in mind the normal turnover of the assessee, the expected profit in each year, based on the earlier year’s income declared and accepted and the material available to make the addition. | |
| Mahavir Prasad Vs. ITO ITAT Delhi 9.10.2017 | The reasons to believe ought to spell out all the reasons and grounds available with the AO for re-opening the assessment – especially in those cases where the first proviso to Section 147 is attracted. The reasons to believe ought to also paraphrase any investigation report which may form the basis of the reasons and any enquiry conducted by the AO on the same and if so, the conclusions thereof; where the reasons make a reference to another document, whether as a letter or report, such document and/ or relevant portions of such report should be enclosed along with the reasons; | |
| Dy CIT, Range 2,Lucknow Vs. Pawan Aggarwal ITA No. 374/LKW/2013 | Assessee has demonstrated through cash flow statement that at every point of time when even cash was deposited in the bank, the assessee was having sufficient cash balance. Copy of the cash flow statement is also placed on record. Once the assessee has discharged his onus by placing cash flow statements, the onus shifts upon the Revenue to demonstrate that the cash withdrawn by the assessee was consumed or utilized for his own purposes and deposits were made out of undisclosed sources. In the absence of any evidence in this regard, the contention of the assessee should be accepted. Though cash flow statement was furnished before him, but he has not looked into while making the addition; whereas the ld. CIT(A) has examined all the entries in the cash flow statement, which is available on record. In the cash flow statement, the movement of cash was disclosed and it is evident that on all dates whenever cash was deposited in the bank, the assessee was having sufficient cash balance. | |
| Hon’ble ITAT Lucknow Bench, ITO Vs. Kamal Kumar Mishra ITA No. 398/LKW/2012 | The ld. CIT(A) has adjudicated the issue in the light of the aforesaid judgment and has held that provisions of section 68 of the Act cannot be invoked. Besides, he has also examined the additions made by the Assessing Officer through grounds No.1 to 6 on merit also and has noted that in each and every case the assessee has furnished plausible and reasonable explanations with respect to the deposits found recorded in the bank passbook of the assessee and on merit also the ld. CIT(A) did not find any justification in the additions made by the Assessing Officer. Though we are of the view that provisions of section 68 of the Act cannot be invoked on the deposits made in the bank account of the assessee, yet we have examined the veracity of the additions made by the Assessing Officer on certain deposits by invoking the provisions of section 68 of the Act and we find that before the ld. CIT(A) the assessee has furnished reasonable and plausible explanations along with confirmation with regard to the different deposits. Since the ld. CIT(A) has adjudicated the issue on merit also in the light of the explanations and confirmations placed before him, in a proper perspective and we find no infirmity therein, we confirm the same. Accordingly, finding no merit in the Revenue’s appeal, we dismiss the same. | |
| ShriInderjeet, Sohna Gurgaon, ITAT Delhi Dt. 3.12.2018 | When the assessment proceedings u/s 147 are initiated on the fallacious assumption that the bank deposits constituted undisclosed income, over-looking the fact that the source of the deposits need not necessarily be the income of the assessee, the proceedings is neither countenanced, nor sustainable in law.” | |
| Sri Shankar Khandasari Sugar Vs. CIT 193 ITR 669
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An appeal is but a continuation of the original proceedings and what the Income tax officer could have done, the appellate authority could also do. | |
| Ashok Kumar, Ghaziabad Vs. ITO Ward No. 1(1), Ghaziabad on 3.12.2018. ITA No. 2740/Del/2018.
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When the assessment proceedings u/s 147 are initiated on the fallacious assumption that the bank deposits constituted undisclosed income, over-looking the fact that the source of the deposits need not necessarily be the income of the assessee, the proceedings is neither countenanced, nor sustainable in law.” | |
| Parveen Kumar Jain Vs ITO No. 133/D/2015
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Thus it is clear that the basic requirement for reopening of assessment that the AO must apply his mind to the materials in order to have reasons to believe that the income of the assessee escaped assessment was found to be missing when the AO proceeded to reopen the assessment.
At the time of formation of belief by the ITO that the income has escaped assessment , the material must indicate income escaping assessment rather than desirability of further probe in the matter which may or may not lead to income escaping the assessment. |
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| ITO vs. Lakhmani Mewal Das’103 ITR 437(SC),
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It may be desirable, from the point of view of revenue authorities, to examine the matter in detail, but then reassessment proceedings cannot be resorted to only to examine the facts of a case, no matter how desirable that be, unless there is a reason to believe, rather than suspect, that an income has escapement assessment.” | |
| CIT v. Indo Arab Air Services (2016) 130 DTR 78/ 283 CTR 92 (Delhi)(HC)
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it was held that mere information that huge cash deposits were made in the bank accounts could not give the AO prima facie belief that income has escaped assessment. The AO is required to form prima facie opinion based on tangible material which provides the nexus or the link having reason to believe that income has escaped assessment. | |
| CIT v. Greenworld Corporation 314 ITR 81
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Re-opening based on borrowed satisfaction of the Assessing Officer is not valid. Moreover, AIR information is not sufficient. Even, there is no satisfaction note what to speak of borrowed satisfaction. Hence, the reopening is bad. | |
| ITAT , Delhi Bench , ITA No. 988/Del/2018 in the case of Sunil Aggarwal Vs. ITO , Ward No. X(X) (3) , Haridwar
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The Hon’ble Supreme Court of India in the case of CIT Vs. S.Gayanka Lime and Chemical Ltd. Reported in (2015) 64 taxmann.com 313(SC) in the Head notes has held that (Section 151, read with section 148 of the Income tax Act , 1961 – Income escaping assessment –Sanction for issue of notice ( Recording of Satisfaction) – High court by impugned order held that where joint commissioner recorded satisfaction in mechanical manner and without application of mind to accord sanction for issuing notice u/s 148 , reopening of assessment was invalid – Whether special leave petition filed against impugned order was to be dismissed – Held ,yes ( in favour of the assessee ) | |
| ITAT Delhi bench “A” Bir Bahadur Sijwali VS ITO
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The Assessing Officer has opined that an income of Rs 10,24,100 has escaped assessment of income because the assessee has Rs 10,24,100 in his bank account but then such an opinion proceeds on the fallacious assumption that the bank deposits constitute undisclosed income, and overlooks the fact that the sources of deposit need not necessarily be income of the assessee. Of course, it may be desirable, from the point of view of revenue authorities, to examine the matter in detail, but then reassessment proceedings cannot be resorted to only to examine the facts of a case, no matter how desirable that be, unless there is a reason to believe, rather than suspect, that an income has escaped assessment. |
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