Valnaickenpalayam Rangasamy Palanivelu Vs ITO (ITAT Chennai)
Chennai ITAT Quashes Reassessment Based Solely on AIR Information; Cash Deposits Must Be Examined with Reference to Business Turnover, Not Returned Income
The Chennai ITAT quashed the reassessment proceedings after holding that the Assessing Officer mechanically reopened the assessment merely on the basis of AIR information showing cash deposits of ₹20.11 lakh, without independently verifying the return of income or forming a valid “reason to believe” that income had escaped assessment. The Tribunal observed that the AO erroneously compared the cash deposits with the returned income of ₹7.59 lakh, while ignoring that the assessee had already disclosed gross business receipts of ₹1.30 crore, of which the cash deposits formed only a small part. It held that cash deposits cannot be examined in isolation and must be viewed in the context of the disclosed business turnover, and that a mere mismatch between deposits and returned income may justify enquiry but cannot, by itself, constitute a reason to believe that income has escaped assessment. The Tribunal further found that the AO failed to conduct even a minimal verification of the return and financial statements before reopening the assessment and that the sanction under section 151 was granted in a common and mechanical manner for multiple assessees. Relying on the decisions in CIT v. Indo Arab Air Services, PCIT v. Manzil Dineshkumar Shah, Mohanlal Champalal Jain v. ITO, and Bir Bahadur Singh Sijwali v. ITO, the Tribunal held that mere information or suspicion cannot substitute the statutory requirement of an independent and bona fide “reason to believe”, and accordingly quashed the reassessment, rendering the additions academic.
Cases Discussed
- Mohanlal Champalal Jain v. ITO (Bombay HC), (2019) 102 taxmann.com 293 (Bombay)
- PCIT v. Manzil Dineshkumar Shah (Gujarat HC), (2018) 95 taxmann.com 46 (Gujarat)
- CIT v. Indo Arab Air Services (Delhi HC), (2015) 64 com257 (Delhi)
- Bir Bahadur Singh Sijwali v. ITO (ITAT Delhi), [2015] 53 taxmann.com 366 (Delhi-Trib)
FULL TEXT OF THE ORDER OF ITAT CHENNAI
The Present appeal has been preferred by the Assessee against the order of the Learned Commissioner of Income Tax (Appeals), NFAC, Delhi [hereinafter referred to as Ld.CIT(A)] dated 15.09.2025, whereby the addition of cash deposits of Rs.20,11,000/- made in the reassessment order passed by the Assessment Unit, National Faceless Assessment Centre, Delhi, (in short “the AO”) dated 21.09.2021, passed u/s.147 r.w.s 144B of the Income Tax Act, 1961 [Hereinafter referred to as “ the Act”] for the Assessment year (A.Y.) 2012-13, was confirmed.
2. The brief facts of the case emanating from the records are that the Assessee is an individual, engaged in the business of selling hydraulic parts under the trade name “Sree Amman Hydraulics”, and is also a partner in various firms. The Assessee filed his Return of Income (ROI) for the relevant assessment year on 31.01.2013 declaring a total income of Rs.7,59,550/-, comprising income from salary, profit and gains from business, income from other sources and claimed exemption on his agricultural income. The CPC processed the return, and an intimation was passed u/s.143(1) of the Act.
3. Thereafter, the assessment was reopened for the relevant A.Y. through notice u/s.148 of the Act dated 28.03.2019. Notices u/s.142(1) dated 04.03.2021 & 12.08.2021 were issued by the AO inter alia requesting details towards the cash deposit of Rs.20,11,000/-. The Assessee on 19.08.2021 sought an adjournment requesting, as the details sought related to financial year 2011-12 and the same were not immediately available with him. Since the Assessee did not furnish any requisite details, the AO passed a reassessment order dated 21.09.2021 by treating the aforesaid cash deposits as unexplained money u/s.69A of the Act, assessing the total income at Rs.27,50,500/-. Aggrieved by the order of the AO, the Assessee preferred an appeal before the Ld.CIT(A), which came to be dismissed. The Assessee is in appeal before the Tribunal against the order of the Ld.CIT(A).
4. We find that this appeal has been filed with a delay of 51 days. The Assessee filed an affidavit for condonation of delay stating the reasons, accompanied by a medical certificate enclosed at Page 89 of the Paper book.
Upon hearing both the parties and on examination of the said affidavit, in the interest of justice, we condone the delay and admit the appeal for adjudication.
5. The Assessee in the Grounds of the appeal has raised the following grounds:
1. The order of CIT(A) is erroneous, bad in law and liable to be annulled as the same is opposed to the facts of the case and provisions of the law.
2. The CIT(A) failed to consider the fact assessment was reopened without any escapement of income, which is illegal and thus made incorrect additions.
3.1. The CIT(A) failed to advert the fact that the reopening notice u/s.148 of the Act has not been served to the Appellant, making the entire reassessment proceeding void ab-initio and bad in law.
3.2. Alternatively, without prejudice to the above ground, when the Assessment order is being passed beyond the time limits prescribed u/s.153(2) of the Act, the CIT(A) failed to quash the same.
3.3. In any event, the entire re-assessment process is liable to be quashed as the mandatory provisions relating to reopening have not been complied with.
4. The CIT(A) erred in upholding the addition made by the AO, u/s. 69A of the Act of Rs.20,11,000 /- as unexplained money.
5. The CIT(A) failed to advert that cash is being deposited in the bank account from the sale proceeds and is part of the total gross receipts declared in the ROI. Thus, taxing the same twice amounts to double taxation.
6. In any event, taxing the addition at the rate prescribed u/s 115BBE of the Act is wholly illegal.
7. The CIT(A) erred in upholding the levy of interest u/ss. 234A, 234B and 234C of the Act.
8. Any other grounds that may be raised at the time of hearing.
6. During the hearing of the appeal, the Ld.AR of the assessee stated that the Ground nos. 3.1 & 3.2. are not pressed by the Assessee and hence the same are dismissed as not pressed. In Ground nos. 2 & 3.3 the Assessee has raised a legal ground challenging the validity of reopening.
7. The Ld.AR submitted that the Assessee filed an RTI application before the Central Public Information Officer (CPIO) on 17.01.2026 seeking a copy of the reasons recorded and sanction accorded by the designated authority u/s.151 of the Act along with the details regarding service of notice, which was disposed of by the CPIO vide order dated 20.01.2026. Since the documents sought by the Assessee were not specifically provided, an appeal was filed before the Public Information Officer, Erode Range, Erode, who, vide order dated 06.02.2026, directed the CPIO to disclose all the information sou8. ght by the Assessee. Accordingly, the CPIO, vide order dated 11.02.2026, provided the following documents
i. Reasons recorded for reopening u/s.147 of the Act
ii. Approval obtained from the specified authority u/s.151 of the Act
iii. Postal dispatch registry of notice u/s.148 of the Act dated 28.03.2019
iv. Details of service of notice u/s.148 of the Act issued electronically through the ITBA portal.
8. The Ld AR submitted that, from the plain reading of the reasons recorded by the AO, the assessment was merely reopened based on the AIR information flagged, that the cash deposits aggregating to 20,11,000/- did not commensurate with the income declared in the ROI of Rs.7,59,550/-. The AO had proceeded to reopen the assessment without even conducting any independent verification or examination of the information flagged. The AO, in the reasons recorded has merely reproduced the AIR information and erroneously compared the cash deposit with the total income that was admitted by the assessee, without even looking into the gross turnover from business declared in the ROI.
9. The Ld.AR further submitted that the AO has reopened the assessment based on nothing more than an information reported by the AIR and that this mere information does not constitute reason to believe for reopening the assessment. In support of the same, the Ld.AR relied on various decisions of the Hon’ble courts.
10. The Ld.AR further submitted that from a bare perusal of the ROI under the Part A – P&L of ROI, it would be evident the Assessee has declared a gross sale/receipts of Rs.1,30,41,017/- which is nearly 6 times more than the total cash deposited during the impugned assessment year. The Assessee after deducting various expenses has arrived at a net profit of Rs.5,78,521/-. Further, after considering the income received from salary, house property, other source and exempt agricultural income of Rs.3,20,000/-, the total income was arrived at Rs.7,59,550/-. This clearly shows the assessment was reopened in the absence of escapement of income.
11. The Ld.DR on the other hand vehemently opposed the submission of the Ld.AR and supported the order of the AO and Ld.CIT(A). He further submitted that the AO, based on the AIR information, after duly recording the reasons for reopening and obtaining the approval from the specified authority, reopened the assessment vide notice u/s.148 of the Act and thus the impugned notice issued by the AO is valid in law.
12. We have heard both the parties, perused the materials on record and gone through the orders of the lower authorities along with the paper book filed and case laws relied upon. The undisputed facts of the case are that the assessee had filed his ROI on 31.01.2013 declaring total income of Rs.7,59,550/-. He had declared gross receipts of Rs.1,30,41,017/- from his business and the same had been reported in the ROI. The accounts of the assessee have also been audited u/s.44AB of the Act. The AO has then proceeded to reopen the assessment for the reason that the total income declared in the ROI of Rs.7,59,550/- did not commensurate with the total cash deposited during the year of Rs.20,11,000/-, and ultimately proceeded to add these deposits as the unexplained money of the assessee.
13. We perused the reasons recorded by the AO for reopening the assessment and the approval granted by the ld.PCIT u/s.151 of the Act, which have been placed at Pages 18 & 19 of the paperbook. The same are extracted hereunder;
14. On perusal of the same, it can be seen that the AO has been furnished AIR information relating to several assessees, one among which is the assessee in the present appeal. The information relating to the assessee is that the cash deposited during the year did not commensurate with the income returned in the ROI. Upon receiving this information, the AO has proceeded to record that he has reason to believe that income has escaped assessment. It is evident from the reasons recorded that the AO has not carried out any further examination / verification of the information furnished to him. The position prior to 01.04.2021 was that the AO must have reasons to believe that income had escaped assessment prior to issuance of notice u/s.148 of the Act. The same is absent in the present case, as the AO has merely proceeded on information furnished to him.
15. Even the information available with the AO does not, by itself, establish or necessarily indicate that income chargeable to tax had escaped assessment. The cash deposits made during the relevant previous year cannot be examined in isolation or compared with the total income declared in the return of income. The proper benchmark for such verification is the gross receipts disclosed by the assessee in the return of income. In the present case, the assessee had disclosed gross business receipts of Rs.1,30,41,017/-, whereas the cash deposits aggregated to only Rs.20,11,000/-. Thus, the cash deposits constituted only a small fraction of the gross receipts and were fully commensurate with the business turnover disclosed by the assessee.
16. Upon receipt of the AIR information, it was incumbent upon the AO to verify the particulars already available on record, including the return of income and the accompanying financial statements, before arriving at any prima facie satisfaction regarding escapement of income. Such a minimal verification would have revealed that the cash deposits were adequately explained by the disclosed business receipts. However, the AO failed to undertake this elementary exercise and proceeded to reopen the assessment solely on the basis of the AIR information, without any independent application of mind or formation of a bona fide belief founded on tangible material.
17. Further, a perusal of the reasons recorded for reopening, read with the sanction accorded by the competent authority, reveals that a common approval was granted for reopening the assessments of multiple assessees. Such a mechanical approval, without examining the individual facts and circumstances of each case, reinforces the contention of the ld.AR that the AO acted in a routine and mechanical manner, without conducting the verification mandated by law before assuming jurisdiction under the reassessment provisions.
18. The above view finds support from the decision of the Hon’ble Delhi High Court in CIT v. Indo Arab Air Services [(2015) 64 com257 (Delhi)], wherein it was held that reassessment cannot be initiated merely on the basis of information received, without independent application of mind by the Assessing Officer. Similar principles have been reiterated by the Hon’ble Gujarat High Court in PCIT v. Manzil Dineshkumar Shah [(2018) 95 taxmann.com 46 (Gujarat)], against which the Special Leave Petition filed by the Revenue was dismissed by the Hon’ble Supreme Court [(2019) 101 taxmann.com 259 (SC)]. Likewise, the Hon’ble Bombay High Court in Mohanlal Champalal Jain v. ITO [(2019) 102 taxmann.com 293 (Bombay)] held that reopening based solely on information, without due verification and independent satisfaction, is unsustainable in law, which view also attained finality upon dismissal of the Revenue’s Special Leave Petition by the Hon’ble Supreme Court [(2019) 111 taxmann.com 67 (SC)].
19. In the facts of the present case, reopening the assessment only on the basis of AIR information cannot be said to have been done on the basis of reason to believe. The cash deposits not being commensurate with the income declared may warrant further examination for forming the reason to believe, However, the same cannot lead to reason being formed that income has escaped assessment. We refer now to the decision of the co-ordinate Delhi Bench in the case of Bir Bahadur Singh Sijwali v ITO reported in [2015] 53 taxmann.com 366 (Delhi-trib), wherein it was held;
“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 maybe 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.”
20. Similarly, in the facts and circumstances of the present case, even assuming that the income disclosed in the return of income did not correspond with the cash deposits reflected in the information available with the AO, such discrepancy could, at best, give rise to a suspicion warranting further enquiry. However, mere suspicion cannot substitute the statutory requirement of a bona fide “reason to believe” that income chargeable to tax has escaped assessment. It is well settled that the existence of tangible material leading to the formation of such belief is a sine qua non for invoking the jurisdiction under the reopening provisions, and the same cannot be founded merely on conjectures or surmises.
21. Having regard to the foregoing discussion and respectfully following the judicial precedents referred to hereinabove, we are of the considered view that the AO initiated the reassessment proceedings without recording a valid and legally sustainable reason to believe that income chargeable to tax had escaped assessment. Consequently, the assumption of jurisdiction under the Act is vitiated in law, rendering the reassessment proceedings unsustainable. We, therefore, quash the reassessment order. Since the appeal is allowed in favour of the assessee on the preliminary legal issue relating to the validity of the reassessment proceedings, the grounds raised on the merits of the additions have become academic and, therefore, do not call for adjudication.
22. In the result, the appeal of the assessee is allowed.
Order pronounced in the court on 22nd July, 2026 at Chennai.
