“Learn why mere cash deposits aren’t enough for reopening assessments. Analysis of tangible material requirement and legal implications for accurate income evaluation.”
Information regarding cash deposited with the bank is not a prima facie belief that the cash deposited is income of the assesse without having tangible material in possession of the assessing officer
There has to be tangible material in the possession of the Assessing Officer on which he forms his belief that income has escaped assessment . This is applicable before pre amended period earlier to 1.4.2021. Only on the basis of information without having tangible material the reopening is bad.
Mere cash deposited information is not sufficient, not a prima facie belief that income is from undisclosed sources
The Assessing Officers forms a false opinion regarding cash deposited by the assessee with Saving Bank Account 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 Saving Bank Account is income of the assessee from some sources not disclosed to the department. Copy of reasons to believe is not provided to the assessee. The Assessing Officer is not justified as AIR information is not sufficient for forming reasons to believe by the Assessing Officer regarding reopening of the assessment u/s 147 and issue of notice u/s 148 of the Act. There is no material with Ld. 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 Ld. AO, even no bank statement. Copy of reasons recorded are not supplied to the assessee and approval obtained u/s 151 from worthy PCIT/JCIT , XXXXXXX is never supplied to the assessee. In this absence of these copies not supplied to the assessee, the assessment framed is quite bad in law and spirits.
Reason to believe is nothing but reason to suspect. There are instances that the income of the assessee being a small businessman is never chargeable to tax. 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. In that scenario 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 Ld. AO. In this situation the assessment framed is bad in law and spirits.
Merely stating the reasons in a letter addressed by the Ld. AO is not enough. Then, the reasons to believe escapement of income need to spell out all the reasons and grounds available with the Ld. 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 Ld. AO thereon, as also the conclusions thereof.
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 and escapement of income .
In this situation the assesse can rely 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. If the assessing officer accepts the plea on the basis of vague information in a mechanical manner. The commissioner also acted on the same basis by mechanically giving approval; therefore, proceedings under section 148 were to be quashed.
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. 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 Ld. AO prima facie belief that income has escaped assessment. The Ld. 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.
The belief of the Ld. Assessing Officer should be based on some specific and tangible material for the purpose of reopening of the assessment.
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 ITA Nos. 970,971/Del/2017 .
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. As held in ACIT Vs. Rajesh Jhaveri Stock Brokers Pvt. appeal no. 2830 of 2007
Tangible material has to be relied on for reopening of the assessment.
The Ld. Assessing Officer has made no application of mind at the time of recording of the reasons and sent to the PCIT/JCIT , XXXXXXX for approval who in turn has also not applied his mind. The assessee has relied on the judgment in the case of Harmeet Singh, Delhi Vs. ITO, New Delhi ITA No. 1939/Del/2016 A.Yr. 2008-09 . where in stated that the reopening the assessment purely on the ground that the cash deposited with the bank is income of the assessee is purely a doubt that it is income of the assessee not a confirmed finding, not any tangible evidence with the ITO to form the opinion that the income of the assessee has escaped assessment. The reopening is bad enough. In the absence of any tangible material, in the case of the assessee in hand the reopening and issue of the notice u/s 148 is bad and hence prayed to make the entire assessment null and void.
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)
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 Bhajan lal 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
With these observations the conclusion is made that the reopening only on the basis of AIR information is bad , there has to be tangible material with the Assessing Officer and enquiries conducted thereby , otherwise the reopening is bad .
There are numerous appeals lying pending at Ist appellate stage and with higher forums . In this article a situation has been discussed where an assessing officer opened the case of the assesse without tangible material , without making enquiries and without application of mind . There established no live link between escapement of income and reasons to believe that income of the assesse escaped assessment . The young professional can find themselves at ease to fight their cases reading this short article which is also with some important judgements .
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Sir, thanks for this article also, very informative & useful in drafting reply