prpri AIR information of cash deposit with Bank – Section 147 Notice reply AIR information of cash deposit with Bank – Section 147 Notice reply

Applicability of Section 147 read with explanation 2(b) on the basis of AIR information regarding cash deposit with the Bank.

Written Submission before the Hon’bleCIT(A), Faceless in respect of Sh. XXXXXXXXXXXXXX for the A.Y. 2012-13 [XXXXXXXXXXXXX]

Appeal filed against the order of assessment u/s 144 made by ITO, Ward No. 2 (5), XXXXXXXXXXX dated 30.11.2019

Most respectfully submitted before the Hon’ble CIT(A), Faceless. my written submissions

My case on Merit

Introduction of the Assessee

The assessee is not an educated person and not at all well versed with computer work and cannot access to the computer. Basically, assessee is a small trader and does the business of sales purchase of building material and earns some income from property consultancy. During the last many years he is doing the same business and he has filed his ITR for the earlier years as well. The department may have sent the notices through net but in person notices has not been received by the assessee. It is true by heart that the assessee has never received any notice from the department in hand and by post. The assessee is living in XXXXX since long. The assessee is filing his income tax returns since long at the XXXXX address. The PAN data base record shows address of the assessee at XXXXX. The return for the A.Yr. 2012-13 was filed at XXX. But still the jurisdiction of the case lies with XXXXX ITD.No notice u/s 148 & 142(1)was received by the assessee in person neither at XXX nor at XXXXX. Assessee is not well versed with the computer operation. He is unable to check his mails as well as his portal on the ITD Website. He never uses new technology for the purpose of communication. Even no notice u/s 133(6) was ever received by the assessee.In the same way if he would have received the notices he would have contacted department or some CA so that he could have discharged his onus to prove the source of cash deposited with the bank.At the most the order u/s 144 sent by speed post was returned back which was received by Sh. XXXXXXX Adv on 22.01.2020 from the ITD by hand. Application to AO for requesting copy of the Assessment Order passed u/s 144 by Assessee is enclosed as page no. 37 of the paper book.

Jurisdiction of the case of the Assessee

For the A.Yr 2012-13assessee filed his ROI at XXX manually though the Jurisdiction of the case of theassessee lies at XXXXX. From the chart below we find that assessee is living at XXXXX, his PAN is lying at XXXXX. It was a case to be reopened &finalized at XXXXX. The ITO XXX would have transferred the complete file to the ITOXXXXX which he failed to do so. Thus, the reopening is invalid as the ground of Jurisdiction of the assesseeis at XXXXX. You are requested to make the assessment Null & Void at this issue. Kindly refer page no. 38 of the paper book.

Sr. No. Notice issued under section Notice no. Date of Notice Address on the Notice Comments
1 148 XXXXXX 31.03.2019 XXXXX, XXXX,XXXXX,XXXX Notice issued at the address other than address as per PAN and as per profile. The notice would have been issued at the XXX address. But not issued on the address given on the return filed u/s 139(1). Notice is invalid. Notice not received by the assessee in person, by speed post, on mail and assessee could not access ITD website.
2 142(1) XXXXXX 30.09.2019 XXXXX, XXXX,XXXXX,XXXX Notice issued at the address other that address as per PAN and as per profile. The notice would have been issued at the XXX address. But not issued on the address given on the return filed u/s 139(1). Notice is invalid. Notice not received by the assessee in person, by speed post, on mail and assessee could not access ITD website.
3 142(1) XXXXXXXX 14.11.2019 XXXXX, XXXX,XXXXX,XXXX Notice issued at the address other that address as per PAN and as per profile. The notice would have been issued at the XXX address. But not issued on the address given on the return filed u/s 139(1). Notice is invalid. Notice not received by the assessee in person, by speed post, on mail and assessee could not access ITD website.
4 147(SCN) XXXXX 14.11.2019 XXXXX, XXXX,XXXXX,XXXX Notice issued at the address other that address as per PAN and as per profile. The notice would have been issued at the XXX address. But not issued on the address given on the return filed u/s 139(1). Notice is invalid. Notice not received by the assessee in person, by speed post, on mail and assessee could not access ITD website.

The assessee was carrying on the business at XXX during the relevant year. No notice was issued to the assessee at this XXX address as the jurisdiction of the assessing officer as per section 124 lies with XXX area not with XXXXX. Even the notices at XXXXX address were sent on the address other than address on the PAN and profile. 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. The assessee was doing total business at XXX not at XXXXX. But he was residing in XXXXX.

The notice were issued in violation of section 124(1)(a) and also 124(1)(b). The place of business was at XXX and he was not residing at XXX. The ITO, XXX would have transferred the file to ITO, XXXXX before reopening proceedings or he would have issued the notice at XXX address. ITO, XXX has no authority to issue the notice to the assessee who is residing at XXXXX.The assessee was filing his returns at the XXXXX address. Every document contains address of the XXXXX. The case would have been decided at XXXXX,Income Tax Department. Kindly refer page no. 34 of the paper book.

Sr.No. Document Type Address on the document Jurisdictional AO of the assessee
1 ITR-A.Yr. 2009-10 XXXXXXXXX Ward-4, XXXXX
2 ITR-A.Yr. 2010-11 XXXXXX Ward-4, XXXXX
3 ITR-A.Yr. 2011-12 XXXXXXX Ward-4, XXXXX
4 ITR-A.Yr. 2012-13 XXXXXXXX Ward No – 1 (4),XXX
5 Notice of Demand u/s 156 of the IT Act, 1961. Dt 30-11-2019 XXXXXXXX Ward No 2(5) XXX who created huge demand of Rs. 1165820.00
6 Order u/s 144 rws 147 of the I Tax Act, 1961 XXXXXXXX. Ward No 2(5) XXX who created huge demand of Rs. 1165820.00
7 Statement of the assessee with Nainital Bank Ltd XXXXXX Nainital Bank Ltd, XXX
8 Adhaar Card XXXXXXXXX Office cum residential address at XXX. Assessee is not living at this address.

About return of the assessee for the AY 2012-13

The return for the A.Yr. 2012-13 has already been filed.This return was being assessed to tax and ITO has recognized this return in his assessment order but he has not noted the contents of the return nor analyzed the bank statement before making assessment u/s 144 of the Act .The notice issued u/s 148 Dt. 31.03.2019 was never received by the assessee before finalization of the assessment u/s 144 Dt. 30.11.2019.The assessee deposited cash of Rs. 2423000.00 in his SB A/C No. XXXXXXXXXXX with Nainital Bank Ltd.,XXX during the F.Yr. 2011-12.The ROI was filed by the assessee for the relevant assessment year manually with the ITD,XXX .The assesseehas done very small work during the year under consideration.No current account is with the assessee. Only one account of the assessee which he has used for the purpose of business.

Facts of the case

The Assessment of the assessee was decided by ITO, Ward 2(5), XXX u/s 144 of the Act dated 30.11.2019. The assessee deposited cash of Rs. 2423000.00 in his SB A/c No. XXXXXXXXXXX with Nainital Bank Ltd. during the F.Yr. 2011-12. Best judgment assessment u/s 144 has been done by the officer without application of mind. Every cash deposited by the assessee cannot be treated as income of the assessee. No notice u/s 142(1) and 148 was received by the assessee in person. Out of fear of the department the Ld. AO decided the case of the assessee too earlier on 30.11.2019 though the time barring is on 31.12.2019.

The case of the assessee was decided ex-parte u/s 144 of the Income Tax Act, 1961 in which a demand of Rs. 1165820/- 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. 1165820/-. Comparison can be made with the returns filed earlier .

Nature of business of the assessee

The nature of business of the assessee is of such type that assessee has to make sufficient withdrawals from the bank and the same if not used deposited with the bank. The assessee frequently made withdrawals from the same bank and redeposited the same cash with the bank during the same year . After recovery of cash from the customers, the same is deposited with the bank. It is the nature of business of the assessee that assessee has to withdraw cash from the bank for purchase of building material from crushers and suppliers in and around city.Assessee has to make payment to the crushers and suppliers . And the other reason for withdrawal of cash is required for booking of the property. Assessee paid cash to the seller of the property, sometimes on behalf of the buyer for booking of the properties. To earn commission/consultancy charges income from property dealing, assessee has to invest first which he did in cash like token money is given to the seller for booking the property later on which is recovered from the buyers of the properties.

The cash flow statement has been prepared out of the cash book maintained by the assessee. As per ITR filed for the relevant AY, it has been clearly mentioned with the computation chart that the Net profit during the year from building material supply is Rs. 120000/-. In this line of business, the net profit comes less than 8% approximately. The turnover of the assessee is Rs. 1460000/- and assessee has shown profit of Rs. 120000/-. The assessee surrenders his income @8% u/s 44AD on the turnover of Rs. 1460000/- before the Hon’ble CIT(A), Faceless. The profit @8% comes to Rs. 116800/- but he has shown net profit of Rs. 120000/-

The assessee has earned income from property consultancy of Rs. 180000 out of gross receipts of Rs. 340000. The income shown by the assessee is quite justified as assessee has to incur day to day expenses for earning income from property consultancy.

There are crushers & suppliers in XXX and around. Stone Dust and Rodi were purchased on credit basis and when the material was sold by the assessee, he made payment to crusher’s owners & suppliers mostly in cash and sometimes through banking mode. Sales are also made on credit basis mostly. When recovery is made, cash is deposited with the bank.

Source of cash deposit with the bank by the assessee:

The nature of business of the assessee is such that mostly recovery of the material sold is done in cash. Sale of material is done on credit basis and sometimes cash and purchase of material is also done on credit basis and in cash. The sources of cash deposited with SB Account are as under:

(a) Cash in hand as on 31.03.2011

(b) Cash withdrawals from the same bank.

(c) Cash sales of building material

(d) Cash recovered from debtors on sale of Building material for the current financial year and for FY 2009-10

(e) Cash received for sale purchase of the properties on account of advances and also commission/consultancy charges .

Assessee makes withdrawals from the bank for the purpose to meet out the expenses, for payment to the crushers and suppliers and for purchase of the material and booking of the properties. Assessee has to keep the money in cash with him. When he has cash in surplus through the business after recovering from the buyers of the building material , he deposits the cash withdrawn earlier and also cash accumulated from the business of retail trading after recovery from the customers.

Ignoring the entire material, ignoring the cash withdrawals from the same bank, the AO added to the income the entire cash deposited with the bank. 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.

In the facts and circumstances of the case the Ld. AO is not justified in treating the entire cash deposited with the SB A/c as income of the assessee as it is a cardinal principal that the entire cash deposited with the bank, cash recovered from the assessee, cash found during search operation cannot be income of the assessee and every income cannot be taxable income of the assessee. In the facts and circumstances of the case the AO is not justified in treating income of Rs. 2423000/- in the hands of the appellant which is unwarranted in law since the entire cash deposited with the bank cannot be treated as income of the assessee.

Demand raised by the AO

The case of the assessee was decided u/s 147/144 of the Income Tax Act, 1961 in which a huge demand of Rs.1165820/- has been created which is quite illegal, baseless and not justified. Even under presumptive taxation u/s 44AD profit is calculated @8% of the turnover. The addition of Rs. 2423000.00 by AO is being challenged before you as Rs. 2423000/- is not income of the assessee.Even if profit @ 8% is calculated it comes to Rs.193840.00 on turnover of Rs. 2423000. But turnover of the assessee is too small not Rs. 2423000.00. There are thousands of small traders in the area where they are doing small trade of building material supply and most of them use their saving bank account for the purpose of business too.

Bank not fully checked by the AO

The I.T.O Ward No. 2(5), XXX treated the entire cash of Rs. 2423000.00 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.He has forgotten to check the peak credit. He has forgotten to consider the debit entries in cash of Rs. 1561000.00. He is not given the benefit of cash withdrawals. He has not calculated the profit on presumptive basis. He has not considered entire cash deposited as turnover but considered turnover as net profit of the assessee. It means assessee has earned Rs. 2423000.00 out of the turnover of Rs. 2423000.00 i.e. 100% profit which cannot be possible. He has decided the case without application of mind.

Assessment with blind eyes

The Ld. AO indulged in speculation, surmises and conjecture in treating the cash deposit of Rs. 2423000.00 as complete income of the assessee. Before making 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. Complete returns were with the AO at the time of assessment. He himself would have analyzed the nature of business of the assessee and would have justified his assessment work. There is gross violation of section 144 of the act because section itself indicates that AO has to make assessment acknowledging the material available and after gathering the material. ITO failed in every aspect and decided the case without mind. There is gross violation of the Act at every phase by the AO.

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.

The entire assessment made u/s 144 of the act is quite baseless and beyond the legal frame work of the law. This is only presumption of the AO that assessee has some other sources of Income. Assessment was framed without knowing the truth and substance of the case actually and framed assessment with blind eyes.

Sources of opening cash in hand with the assessee as on 01.04.2011ofRs.206480 and other cash receipts during the F.Yr.2011-12

From the very beginning, assesseeis doing the business of sale purchase of building material and property sale purchase on commission basis and consultation fee . ITR of past 3 Assessment Years is enclosed which reveals that the assessee is doing same business of sale purchase of building material and property sale purchase on commission basis/consultation fee . (Page no. 8 to 10 of the paper book). At present the assessee is doing the same business. The following chart gives the sources of cash and destination of the cash:

Detail of cash withdrawals from the saving bank account of the assessee during the F.Yr. 2011-12 are presented which is at page no.1 of the paper book of the assessee.

Detail of cash deposited by the assessee with his saving bank account during the F.Yr. 2011-12 is also presented which is at page no. 1 of the paper book of the assessee.

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 acontinuation of the original proceeding and what the income tax officer could have done the appellate authority could also do.TheHon’bleCIT(A) is requested to accept the total income of the assessee on the basis of section 44AD of the Income Tax Act , 1961

Bank Statement of the assessee

The assessing officer had not called on bank statement during the course of assessment proceedings. If he has the Bank statement with him he would not have written Oriental Bank of Commerce instead of Nainital Bank Ltd. as is evident from para No. 5 of Page No. 4 of the Paper book. (Page no. 3 to 4 of the Paper Book). 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. 4.10.2017.

Destination of cash withdrawals from SB A/c with Nainital Bank Ltd., XXX during the F.Yr. 2011-12

The assessee runs his business of sale purchase of building material. 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 building material. 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 to the reasonable extent 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 building material supply and property dealing business. The cash flow statement has been prepared out of the cash book /daily maintained by the assessee.

Huge Addition of Rs. 2423000/-

The addition of Rs. 2423000/- by AO is being challenged before you as Rs. 2423000/- 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 building material, and then on presumptive basis, we calculated profit @8 %, the profit comes to Rs. 193840 instead of Rs. 2423000.00.

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.

Cash withdrawals and deposited with the same bank

The cash deposited with the bank is not income of the assessee but opening cash and withdrawals from the same bank, gross receipts from sale purchase of building material, commission/consultancy  receipts of the assessee, some advances from customers; and cash deposited is out of cash in hand with the cash book. The cash flow statement prepared out of the cash book is submitted for verification. (Page no. 2 of the paper book).

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.

Analysis of the order by the Assessee

The order passed by the AO u/s 144 Dt. 30.11.2019. The point wise explanation of every para is given by the assessee as under:

Point No. 1 of Page no. 1:

The assessee has filed his ITR for the AY 2012-13 manually with ward no. 1(4), XXX, in which he has shown income from sale purchase of building material and income from property consultancy. In this regard, computation chart and ITR Acknowledgement is enclosed as part of the paper book.(Page no. 5 to 7 of the paper book) The assessee has used his saving bank account for the purpose of business and as well as personal.

Point no. 2 of page no. 1:

Yes, it is true that assessee has deposited cash of Rs. 2423000/- in his saving bank account maintained with the Nainital Bank Ltd (A/c no. XXXXXXXXXXX) during the FY 2011-12 relevant to the assessment year 2012-13. No other bank account has been maintained by the assessee. This only one bank account has been used by the assessee for the purpose of business of sale purchase of building material and as well as property consultancy and also made personal use.

Point no. 3 of page no. 1:

The nature of business declared by the assessee is sale purchase of building material and property consultancy and the same has been done in cash totally. Source of cash deposit is out of the sale proceeds of the building material, property consultancy as well as cash withdrawals from the same bank. In this regard, cash flow statement is enclosed. (Page no. 2 of the paper book)

Point no. 4 of page no. 2:

No notice u/s 133(6) was ever received by the assessee in person and as well as on portal. It was not possible for the assessee to file the response in the absence of notice u/s 133(6). The issue of notice u/s 148 without issue of notice u/s 133(6) is invalid in the eyes of law as held in Tata Chemicals Limited vs. Commissioner of Customs (Preventive) Jamnagar, Civil Appeals 7628-7629 of 2009 dated 14th May, 2015,`while interpreting the expressions deems it necessary’ and `reason to believe’ – It does not mean subjective satisfaction of the concerned customs officer, the Court observed that such power should be exercised in accordance with the restraints imposed by law. Exercise of power by customs officer should not be subjective/ arbitrary; it should be based on reasonable grounds. Further the judgment said, if the law requires that something be done in a particular manner, it must be done in that manner, and if not done in that manner has no existence in the eye of law at all.No letter was received by the assessee u/s 133(6) of the Act. No approval from the Pr. Commissioner of Income tax, XXX obtained separately, independently in the case of the assessee. Generally approval is obtained for a no. of cases but the law demands separate with mindful act approval has to be obtained from the PCIT not a single approval for no. of cases. Particularly when no proceedings were pending against the assessee at the time ofissue of letter u/s 133(6) of the Act.

Point no. 5 of page no. 2:

Prima- facie it is not clear that the assessee has deposited the cash in his bank account from his unexplained sources of income as the assessee has already filed his income tax return. In the presence of return filed it cannot be presumed that the entire cash deposited with the bank is the income of the assessee. Entire cash deposited with the bank can never be the income of the assessee as held in Mahavir Prashad Vs ITO, ITAT Delhi. AO has not looked to the entire bank and has not acknowledged the cash withdrawals from the bank. Live Link has not been established because material available on record has been ignored fully. Live link cannot be established without looking at the material available on record.

Point no. 6 of page no. 2:

The assessee has not understated the income in his return of income filed for the relevant AY as proportionately the net profit is calculated @ 8% of the gross receipts u/s 44AD. The total cash deposited is not total sales but if for the purpose of peace if total cash deposited is considered as total sales / total receipts then profit comes to Rs. 193840 @ 8 % and assessee has shown income from business of Rs. 300000.(Rs. 120000.00 + 180000.00 ). Hence, provision of clause (b) of explanation 2 of section 147 is not applicable in the case of the assessee. Everyincome, every cash deposited with the bank is from disclosed sources.

Point no. 7 of page no. 2:

The presumption of the AO that the entire cash deposited of Rs. 2423000/- remained unexplained and addition to the extent of Rs. 2423000/- is made to the assessee. The reasons recorded are vague in nature, without any basis. Hence the reopening is bad in law and spirits and against the principal of natural justice because the entire cash deposited with the bank cannot be income of the assessee as held in Mahavir Prasad Vs. ITO , ITAT , Delhi.

Point no. 8 of page no. 2:

No copies of reasons recorded were ever supplied to the assessee. Copy of sanction u/s 151 obtained from principal commissioner of Income Tax has not been supplied to the assessee.

Para no.2 of the page no. 2:

The issue of notice u/s 148 is bad because this notice has been issued without looking at the entire material. Notice was not received by the assessee. Copies of the reasons recorded were never received by the assessee. Copy of approval from PCIT, XXX not received by the assessee. Notice u/s 148 was not received by the assessee in person as well as by speed post. It was not possible for the assessee to file any reply in the absence of notice. Notice u/s 142(1) dated 30.09.2019 was not received by the assessee. Non compliance of the notices is due to non receipt of the notices. There is settled law that assessment u/s 144 has to be framed with due care and diligence, keeping in view the principal of natural justice. Looking at the entire bank account and the material available and after gathering all the relevant material, the AO shall make the assessment of the total income to the best of his judgement.

No SCN was given to the assessee before making any best judgement assessment. Issued but not received by the assessee.

Para no. 3 of page no.3:

Notice u/s 148 issued dated 31.03.2019 was not received by the assessee which was sent by speed post at XXXXX address of the assessee. Even the notice not received on email. This Para gives the repeated text which has already been replied. The reason formed by the AO is not based on any confirmed finding. There is no reason to believe but there is every reason to suspect that the cash deposited with the bank is income of the assessee. It is settled law that opening cannot be made when there is reasons to suspect.

Para no. 4 of page no. 4:

This Para is copied text in all the assessment orders made by the assessing officer u/s 144. There were constraints of the assessee that he never received any notices but an objective and fair approach and determination has not been done by the assessing officer.

Para no. 4.1 of page no. 4:

Ex-parte assessment made u/s 144 without application of mind by the AO. Notices were not sent with due care and diligence by the assessing officer.

Para no. 5 of page no. 4:

The treatment of cash deposited of Rs. 2423000/- with the Nainital bank, XXX not Oriental bank of commerce Limited is an attempt without application of mind. The assessee has deposited with the Nainital bank and not with Oriental bank of Commerce as narrated by the AO in his order. This again reflects an unmindful act on part of the AO. The addition of Rs. 2423000/- has been made to the total income of the assessee u/s 69A.

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 and hence no question of unexplained money arises. The addition made by the AO is quite contrary to the law.

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 PrasadVs ITO Dt. 04.10.2017 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 redeposit of 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. DeepaliSehgal 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. (Page no. 32 of the paper book).

Further, application for raising Additional Ground of Appeal under Section 250(5) of the Act is separately enclosed on page no. 35-36 of the paper book.

Beside merits of the case, the assessee desire to plead his case on the basis of technical ground simultaneously.

Core issues

A.Yr. 2012-13, 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. 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. Letter u/s 133(6) issued by AO never received by the assessee.

Limitation period for deciding the case of the assessee for the A.Yr. 2012-13

That the Ld. AO decided the case of the assessee too earlier on 30.11.2019 though the time barring was on 31.12.2019.

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 in the presence of ROI for the A.Yr. 2012-13. 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, XXX 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. Clause (b) of Explanation 2 of section 147 of the Act is also not applicable in the case of the assessee because the assessee has not understated his income in the return filed u/s 139 of the Act. 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 u/s 133(6) raised about these cash deposits. At the time of issue of notice u/s 133(6), 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 which was never received by the assessee.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. 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 assesseewhich 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 31.03.2019

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 31.3.2019. In the absence of notice u/s 133(6), proceedings initiated u/s 147 of the Act is bad in law.

No Notice u/s 143(2) of the Act was issued to the Assessee

Para 3 of the page no. 3 of the assessment order,

“It is found from AST that you have filed declaring income of Rs. 234000 on 18.05.2012 for the year under consideration”

This clearly indicates that return was filed by the assessee for the relevant year and was in the knowledge of the ITO at the time of assessment u/s 144 of the Act. The assessee has not received the notice u/s 148 of the Act otherwise he would have filed the same return in response to the notice u/s 148.

Page no. 5 para no. 6

“Returned income of the Assessee was Rs. 234000/- and addition of Rs. 2423000/- has been made to the returned income of Rs. 234000/-. Here the ITO has recognized the return principally as per para no. 5 of page no. 4 and made assessment u/s 144 recognizing returned income of Rs. 234000/-. Before making assessment u/s 144, it was prime duty of the assessing officer to issue notice u/s 143(2) of the Act which he failed to do so. In the absence of notice u/s 143(2), the entire assessment made by the AO is requested to be made null and void.

The AO has forgotten to issue notice u/s 143(2) of the Act in connection with the return already filed u/s 139 of the Act and recognizing the same in principal before issue of notice u/s 142(1) dated 30.09.2019.

The present case also involves the legal issue of non-service of mandatory notice u/s 143(2) of the Act which is squarely covered by the decision of the Hon’ble Supreme Court of India in the case of ACIT & Anr. Vs. Hotel Blue Moon (2010) 321 ITR 362 (SC) wherein the Hon’ble Supreme Court has held that the issue of Notice u/s 143(2) of the IT Act is mandatory and not procedural.

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 Nainital 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, XXXXX dated 01.08.2018 ITAT Delhi

iii) Shri Jagat Singh, XXXXXvs 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 frame 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 ShriInderjeet, 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 31.03.2019 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.

Legal requirement of the notice to be issued u/s 133(6) before issue of notice u/s 148 Dated 31-Mar-2019

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 18/03/2019. In the absence of notice u/s 133(6), proceedings initiated u/s147 of the Act is bad in law.

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 31/3/2019. 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, XXX 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.

Regarding address of the assessee for service of notice

XXX, XXXX, XXXXXXXXXX.

Above address is given in the profile and PAN data base of the assessee. ITO XXX would have transferred the file to ITO XXXXX before 31.03.2019 so that ITO XXXXX could have issued the notice u/s 148. This is correct procedure to be adopted by the ITO XXX instead of making Assessment. Hence issue of notice by ITO XXX is wrong as per law. Hence, in the absence of properly served noticeto the assessee, the assessment framed is bad in law and spirits and requested to be made null and void. The assessee has relied on the judgment of Hon’ble SC in ACIT & Anr. Vs. Hotel Blue Moon: (2010) 321 ITR 362(SC).

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. (Page no. 2 of the Paper Book). 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

AIR Information with the Assessing Officer at the time of reopening of the assessment

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 31.03.2019 which is bad enough without any corroborative evidence.

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. Copy of the complete judgment is enclosed with the Paper Book. Judgement enclosed with written submission at the last.

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.LakhmaniMewal 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 assesseement the approval from the Principal Commissioner of Income tax,XXX 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. 1(3) (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, XXX 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 s. 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” Bir Bahadur Sijwali VS ITO , Ward 1,Haldwani Appeal No. 3814(Delhi) of 2011.

The case of the assessee has been re-opened applying section 147 with explanation 2 (b). The AO stated in his order that the nature of income declared by the assessee does not commensurate with the cash deposit in saving bank a/c of the assessee for the year under consideration.Cash deposit is nothing but business receipts not personal savings of the assessee.

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

PawanAggarwaljudgement, 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, LucknowVs. PawanAggarwal 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. 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.

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

XXXXX

Assessee

XXXXXXX

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.) Thoughthereopening ofassessment was within three years from the end of relevant A.Y., since the reasons recordedforreopening 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 filedby revenue againstthe decision of this court in the case of CIT v. Fomento Resorts and Hotels Ltd., has been dismissedby 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;
DyCIT, Range 2 , Lucknow Vs. PawanAggarwal 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

 

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.

 

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

 

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.

 

ITO vs. LakhmaniMewal Das’103 ITR 437(SC),

 

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)

 

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

 

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. 1(3) (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 )
ITAT Delhi bench “A” BirBahadurSijwali VS ITO

 

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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I am S.K.Jain , Tax Consultant cum Advocate practising in Income Tax , GST , Company Matters . The name of the concern is S.K.Jain & Co. and I am prop. of this concern . I am in practice for the last 30 years . Those who have joined the profession recently and want to discuss on the particular i View Full Profile

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