Appeal filed against the order of assessment u/s 143(3)/147 made by ITO, Ward No. 1 (3), XXXXXXXXXXX dated 25.12.2019

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

My case on Merit

Introduction of the Assessee

The assessee is running the business of property consultancy and also sale purchase of properties on commission basis. From the last so many years, he was doing business of property consultancy. He is regular income tax assessee from the last many years. The assessee is not at all well versed with computer work and cannot access to the computer. 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. At the most the order u/s 143(3) sent by speed post was returned back which was received by Shri S.K. Jain Adv on 24.01.2020 from the ITO, Ward No.1(3) , XXXXXXXXXXX. The assessee has shifted to house no. 334, Sector 46, XXXXXXXXXXX during the F.Yr. 2018-19 as he has purchased the new house . This is the reason that  notice u/s 148 and subsequent notices u/s 142(1) were never received by the assessee.

About return of the assessee for the AY 2012-13

The Income Tax Return of A.Yr. 2012-13 has already been filed in which assessee has shown income from commission on sale and purchase of properties and income from property consultancy. The assessee has already given in writing to AO Dt. 13.11.2019 that the assessment may be made on the return aleady filed in the result may be treated as return filed in response to the notice issued u/s 148. The assessee deposited cash of Rs. 1458100.00 in his SB A/C No. 493041954 maintained with Indian Bank, XXXXXXXXXXX during the F.Yr. 2011-12 .The ROI was filed by the assessee for the relevant assessment year online vide acknowledgement no. xxxxxxxxxxxxx dated 14-07-2012.

Facts of the case:

The assessee deposited cash of Rs. 1458100.00 in his SB A/C No. 493041954 with The Indian Bank, XXXXXXXXXXX during the F.Yr. 2011-12. The cash deposited with the bank consists of cash withdrawals from the same bank, opening cash in hand, and Gross receipts from commission and from property consultancy and gifts from wife and daughter .

AO formed a false opinion regarding cash deposited by the assessee with his SB A/C not out of the opening cash in hand and made disallowance of Rs. 400000.00 out of the total opening cash of Rs. 658000.00 as on 1.4.2011 as income of the assessee from undisclosed sources of the current F.Yr. 2011-12. 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. Copy of reasons to believe could not be provided to the assessee.

The I.T.O. XXXXXXXXXXX, XXXXXXXXXXX treated the cash of Rs. 400000/- deposited with SB A/c of the assessee as income of the assessee which cannot be possible and it is a mere presumption of the AO which is explained here at CIT (A), Faceless.At the most the income of Rs. 400000.00 can be treated for the A.Yr. 2011-12 not for the A.Yr. 2012-13. Income of the A.Yr. 2011-12 can not be added to the income of the A.Yr. 2012-13 .

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. Cash is withdrawn from the bank for the purpose of investment in some property but ultimately the same was deposited with the bank as no property was finalized. Good properties are booked in cash immediately and cash recovered from the buyers are again deposited with the bank.

Source of cash deposit with the bank by the assessee

The sources of cash deposited with SB Account are as under. The nature of business of the assessee is such that mostly transactions are done in cash.

(a) Cash withdrawals from the same bank.

(b) Gross receipts from Property Consultancy in cash.

(c) Commission income from sale purchase of properties earned in cash.

(d) Cash in hand as on 31.3.2011.

(e) Gift from Smt. XXXXXXXXXXX XXXXXXXXXXX (Wife) (Income Tax Assessee)

(f) Gift from Miss. XXXXXXXXXXX XXXXXXXXXXX  (Daughter) (income Tax Assessee)

Assessee makes withdrawals from the bank for the purpose of security to meet out the expenses. Assessee has to keep the money in cash with him. When he has cash in surplus ,he deposits the cash withdrawn earlier and also cash accumulated from the business of property consultancy. Cash Flow Statement for the Financial Year 2011-12 is already submitted to the Ld. AO in his reply dated 13.11.2019. The AO has not interfered with the income of the assessee for the relevant Assessment Year . But he has treated as income of Rs. 400000.00 for the AYr. 2011-12 as income of the A.Yr. 2012-13 without any evidence on record , information on record , pinpointing any defect in the cash flow statement and any defect in the cash book , without rejecting the cash book . The action on the part of the AO is strange and baseless .

Addition on account of opening cash balance is not justified

AO formed a false opinion regarding cash deposited by the assessee with his SB A/C not out of the opening cash in hand and made disallowance of Rs. 400000.00 out of the total opening cash of Rs. 658000.00 as on 1.4.2011 as income of the assessee from undisclosed sources of the current F.Yr. 2011-12. 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. Copy of reasons to believe could not be provided to the assessee. The assessment u/s 143(3) has been done by the officer without application of mind.

In the facts and circumstances of the case the Ld. AO is not justified in disallowing Rs. 400000.00 out of the opening cash in hand 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. 400000.00 in the hands of the appellant which is unwarranted in law .

It was just a presumption of the AO that opening cash of Rs. 658000.00 with the assessee is on the higher side and it cannot be with the assessee as the same is high and disallowed Rs. 400000.00 out of the opening cash in hand only making guess work and without application of mind. This is only presumption of the AO that assessee was not having opening cash of Rs. 658000.00. The assessment was framed without knowing the truth and substance of the case actually and framed assessment with blind eyes.

The case of the assessee was decided u/s 143(3)/147 of the Income Tax Act, 1961 in which a demand of Rs. 109420.00 has been created which is quite illegal, baseless and not justified. The addition of Rs. 400000.00 by AO is being challenged before you as Rs. 400000.00 is not income of the assessee.

Source of opening cash

In Para 3.1 of the Assessment Order, Ld. AO mentioned that the assessee did not submit any evidence regarding business activity done by him, the assessee also did not submit complete reply/ evidence & justification regarding opening cash in hand is not justified. Assessee with his reply dated 13.11.2019 submitted cash flow statement of F.Yr. 2010-11 in which he has mentioned the business activity of the assessee during the F.Yr. 2010-11 and sources of opening cash in hand as on 31.03.2011. Assessee submitted cash flow statement for the F.Yr. 2010-11 , cash book for the F.Yr. 2010-11 just to justify the closing cash , otherwise there was no requirement to submit all these documents as the case under scrutiny was for the A.Yr. 2012-13 not for the A.Yr. 2011-12 .It was the ultimate duty of the AO to find defect in the books and cash flow statement of the assessee for the F.Yr. 2010-11 which he has not done and even rejected the cash of Rs. 658000.00 as on 31.3.2011. The action of the AO is not justified .

Assessee is regularly assessed to tax and filing the return of income and opening cash is duly reflected in the cash flow statement submitted with the Ld. AO., then the source of cash deposit in the bank cannot be rejected by the Ld. AO without rejecting or pinpointing any defect in the cash flow statement submitted by the assessee. It is pertinent to note that the assessee has been filing his return of income regularly and also produced the return of income for the A.Yr. 2011-12 and these facts and records are not in dispute. The assessee has shown availability of cash of Rs. 658500 in the cash flow statement being opening cash balance as on 01.04.2011.

The AO during the assessment proceedings was very well aware of the fact that Rs. 6,58,500/- was stated to have been there with the assessee as on 31.3.2011  and, therefore, if the said claim of the assessee was not acceptable then the proper course of action was to make the addition of this cash in the relevant assessment year in which the said cash was found in the books and not in the year under consideration when it is shown as opening cash balance. It was just a presumption of the Ld. AO that cash withdrawn was used elsewhere and assessee was not having closing cash of Rs. 6,58,500 as on 31.03.2011. For this, the AO would have reopened the case of A.Yr. 2011-12 instead of making addition to the A.Yr. 2012-13.

The AO instead of taking up the assessment of the preceding year has made the addition of the said amount by rejecting the source of the amount as shown as opening cash balance. Further, the AO has not pin pointed the defects in cash flow statements of the assessee and, therefore, once the assessee has established the availability of the cash, then the proper course of action for rejecting the said claim and making the addition is to reopen the assessment of the earlier year.

Assessee relies on the judgment of ITAT in the case of Smt. Pinki Devi Agarwal Vs ITO (ITAT Jaipur), which states that:

The returns of income though were not subjected to scrutiny, however, once the cash was reflected in the books of account and part of the balance sheet of the assessee, then in the absence of said cash introduced in the books of account by the assessee during the year under consideration, the issue of making addition by disallowing the availability of cash in the hands of the assessee can be considered only in the preceding year in which the cash was introduced by the assessee in the books of account. The AO during the assessment proceedings was very well aware of the fact that Rs. 11,32,626/- was stated to have been introduced in the books during the earlier assessment year and, therefore, if the said claim of the assessee was not acceptable then the proper course of action was to make the addition of this cash introduced in the books of account under section 68 in the relevant assessment year in which the said cash was introduced in the books and not in the year under consideration when it is shown as opening cash balance.

The AO instead of taking up the assessment of the preceding year has made the addition of the said amount by rejecting the source of the amount as shown as opening cash balance. Further, the AO has not rejected the books of accounts of the assessee and, therefore, once the assessee has established the availability of the cash in the books of account, then the proper course of action for rejecting the said claim and making the addition is to reopen the assessment of the earlier year.

In the facts and circumstances of the case the Ld AO is not justified to make inference that opening cash in hand is just fabricated on papers specially when cash book, cash flow statement and even detail of cash withdrawals and cash deposited explained to the AO. The assessee has already explained the reasons for the withdrawals of the cash from the bank during the F.Yr. 2010-11.

Assessment with blind eyes

The Ld. AO indulged in speculation, surmises and conjecture in adding Rs. 400000.00 out of opening cash in hand to the 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.

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 closing cash as on 31.03.2011 which is opening cash as on 01.04.2011. The entire assessment made u/s 143(3) of the act is quite baseless and beyond the legal frame work of law.

This is only presumption of the AO that assessee was not having opening cash of Rs. 658000.00. The assessment was framed without knowing the truth and substance of the case actually and framed assessment with blind eyes.

Revenue must act fairly in the matter of Assessment

It is a continuous proceeding before Hon’ble CIT (A), Faceless and what AO left CIT (A), Faceless can do the same. As held in Sri Shankar Khandasari Sugar Vs. CIT 193 ITR 669.

The revenue must act fairly in the matter of assessment as much as it is interested in collecting the tax. In the absence of any prejudice to the revenue and the basis of the tax under the act being to levy tax, as far as possible, on the real income, the approach should be liberal in applying the procedural provisions of the Act. An appeal is but a continuation of the original proceeding and what the income tax officer could have done the appellate authority could also do.

Destination of cash withdrawls from SB A/C with Indian Bank Ltd. during the F.Yr. 2011-12

The assessee runs his business of property consultancy and sale purchase of properties on commission basis. He makes withdrawals from the bank for maturing a property deal, for payment to sellers of the properties sometimes if required 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. Cash is required in the business as the entire business is done in cash. Assessee has to keep the cash with him for purpose of the deal. Merely keeping the cash for maturing a deal and because there was a time gap between withdrawals of cash and its further deposit to the bank account, the amount cannot be treated as income from undisclosed sources of the assessee. [ITO Vs Mrs. Deepali Sehgal (ITAT Delhi)]

The cash flow statement of the assessee for the FY 2010-11 & FY 2011-12 has already been submitted. In this line of business, the cash on daily basis is required for giving advance to book the properties for the consumers and also for himself. Rs. 658500.00 is not huge cash in this field of business. The cash withdrawn by the assessee from his SB A/c with Indian Bank (A/c no. 493041954) during the FY 2010-11 was withdrawn just to buy a property but that deal could not be matured even after many attempts. Therefore, he kept cash with him. In this way Rs. 658500.00 as cash in hand on 01.04.2011 is quite justified. The cash generated during the FY 2011-12 and opening cash as on 01.04.2011 was consumed during the FY 2011-12. You can have a look at the cash flow statement of both the years.ITO has to make the Assessment for the AY 2012-13 not for the AY 2011-12 and also not for the AY2011-12 & AY 2012-13 together under one order . During the F.Yr. 2010-11 withdrawls from the bank were made but deposit with the bank was very less .

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 favour of the assessee in judgment of “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 was just a presumption of the AO that opening cash of Rs. 658000.00 with the assessee is on the higher side and it cannot be with the assessee as the same is high and disallowed Rs. 400000.00 out of the opening cash in hand only making guess work.Cash is high or low will never effect the income of the assessee . High income can have low cash and low income can have high cash . But the cash in hand is very well explained by the assessee by submitting cash flow statement , cash book and bank of the F.yr . 2010-11

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 3 and 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 with the same bank treated as income of the assessee.

Analysis of Order by the Assessee

Only there was information with the department that assessee has deposited a sum of Rs.14,58,100/- with his SB A/c during the F.Yr 2011-12. No bank statement, no name of the bank has been mentioned in the order. Only information and no other material, the opening is bad. At the time of opening of assessment, No bank statement has been examined by the LD. AO. Reasons recorded u/s 148(2) and approval obtained from PCIT, XXXXXXXXXXX was never supplied to the assessee.

The assessee replied to the notice u/s 142(1) Dt. 05-11-2019. Also filed copy of the return filed already 14.07.2012 in response to the notice u/s 148 of the Act.

The order passed by the AO u/s 143(3)/147 Dt. 25.12.2019. The point wise analysis  of every para is given by the assessee as under:

Para 2 of the assessment order dt. 25.12.2019

Assessee submitted every reply regarding cash deposits with the bank.

Para 3 of the assessment order dt. 25.12.2019

Complete details were submitted along with cash flow statement.Copy of ITR . Computation , Copy of Bank statement , Cash flow statement of both years i,e. F.Yr. 2010-11 and F.Yr. 2011-12. Here the AO has recognized the nature of work of the assessee . Here he has submitted the details of the cash deposits with the bank .

Again Para 3 of the Assessment order

The cash flow statement has been judged by the AO for the F.Yr 2010-11 where closing cash as on 31.03.2011 is Rs.6,58,000/-. Here he has recognized the withdrawls of Rs. 1311500.00 from the bank during the F.Yr. 2010-11 and has not mentioned any doubt on the closing cash of Rs. 658000.00 .

Para 3.1 of the assessment order dt. 25.12.2019

Para 3.1 of the assessment order Dt. 25.12.2019 varies from the truth and substance as under:

Forming in mind that opening cash is on higher side. Assessee submitted day to day cash book of the assessee for the F.Yr 2011-12 and also for the F.Yr 2010-11 as narrated by Ld. AO in his Assessment Order. Properly business requires huge cash always and every properly dealer has to maintain that much cash with him so that he can do the business frequently and can survive in the competitive market. The business activity of the business is same as property dealing business for the last many years .

Para 3.2 of the assessment order dt. 25.12.2019

Assessee submitted a chart of date wise cash deposit and withdrawals to AO considered it as day to day cash book. There was no need to give explanation regarding gift to wife. The assessee kept the cash with him for 9 months or  6 months but AO has not pointed any defect in the cash book for the F.Yr 2010-11. It was for purchase of properly but deal could not be matured  and assessee kept on keeping with him the cash. The assessee has not managed cash flow just in paper.

ITR for the A.Yr. 2011-12 where income from cash flow statement  matches, complete bank statement where there is in sufficient withdrawals which also match , date to day cash book. Withdrawals and deposit details.Every evidence is there on the file . The assessee has not shown the cash balance with the return shall not turn cash with the assessee as no cash . Not shown in the return shall not justify that the cash was zero with him . Assessee has not prepared the balance sheet and not feeded balance sheet with the return ; that is the reason for non feeding of cash . But closing cash and opening cash is as per the books . During scrutiny every material is examined including the complete books . ITO was at liberty to examine the complete books related to the F.Yr. 2010-11 but failed to examine and without reason disallowed cash of Rs. 400000.00

There is no para as 3.3

Para 3.4 of the assessment order dt. 25.12.2019

The cash withdrawals were made for buying some property in cash or we say it was withdrawn from for any purpose known to the assessee . Moreover the AO has not confronted any material other than the stated  reason by the assessee that cash was  withdrawn and invested this way or that way or for investment purpose.

The truth of the assessee is that he made withdrawals out of his earned money. It is the arm chair of a business man to withdraw money from bank at any time even without any reason to be stated anywhere. The truth and substance is that he has withdrawn cash out of his own bank and out of his own income.

Now it is the presumption of the AO that assessee has spent this cash somewhere else. This is only presumption of AO. Presumption shall not stand before truth.

The judgment in the case of Kavita Chandra is not applicable in the case of the assessee explained as under :-.

The judgement states :-

It is evident from the above that the Ld. CIT(A) has lucidly brought out that the cash deposits remained unexplained. As per the cash flow statement submitted by the assessee and reproduced at Page No. 7-8 of the CIT(A) order, there were in all 14 instances of cash deposited in two banks and in the books of CBM engineering on various dates, while withdrawals from banks was shown in 33 instances.

Out of the withdrawals, only two withdrawals of 2 Lacs each from BOR and  ICICI Bank were made in cash. The rest were all withdrawals by cheques ,  small amounts made mostly by Shri. Dushyant Singh an employee of the assessee. Kavita Chanda facts do not match with the assessee as assessee has not deposited cash with the Bank. It is the cash as on 31.03.2011. When day to day cash book has been submitted by the assessee without pin pointing defect of any entry assuming it closing cash is Rs. 2,58,000/- not Rs.6,58,000/- is no base. The addition has no confirmed  finding of the AO and hence prayed to be deleted.

The AO has relied on the Pb & Hr. High Court Judgment in the case of Kavita Chandra. This judgment if applied shall be applied for the A.Y. 2011-12 not for the A.Y. 2012-13. Even the facts enshrined with the judgment of the Hon’ble High Court do not match with the facts of Assessee. In the judgment we find that, assessee has made same withdrawals number of times and withdrawals was made by an employee of the assessee. This shows that entire cash was withdrawn for the purpose of business. Two or three times cash was deposited.

In the case of the assessee in hand, huge withdrawal was made during the FY 2010-11 only two or three times and not deposited during the FY 2010-11 .The assessee kept with him the cash after withdrawal from the bank which resulted in closing cash of Rs. 658000. The case of the assessee is quite distinguished with the case of Kavita Chandra. Even this case may be applicable to the Assessee for the AY 2011-12 not for the AY 2012-13. The inference drawn by the Ld. AO is unjustified.

Para 3.5 of the assessment order dt. 25.12.2019

Para 3.5 of the assessment order Dt. 25.12.2019 varies from the truth and substance as under:

Only estimation work of AO for disallowing Rs. 400,000/-. Expense can be disallowed, not cash in hand or if cash has been spent somewhere, but the way AO has disallowed cash is somewhat different not as per Law. The addition made is baseless not sustainable.

The LD. AO has not pin pointed any defect in the cash flow statement for the F.Yr 2010-11 and F.Yr. 2011-12. It is only presumption that assessee can not have opening cash of Rs. 6,58,000/-. Hence Rs. 4,00,000/- is disallowed. No mechanics has been narrated in the assessment order behind disallowances of Rs. 4,00,000/- nothing more, nothing less. It is just a presumption that an assessee is not having Rs. 6,58,000/- as opening cash but he is having 2,58,000/- as opening cash and Rs.4,00,000/- is income from undisclosed sources. This is assessment under scrutiny. This type of assessment has no place with the Income Tax Law at all. Now looking at the cash flow statement of the F.Yr 2010-11, the finding of the LD. AO is bad as forming an opinion regarding cash withdrawals from the bank and accumulation of it as on 31.03.2011 and not accepting this is bad. The withdrawals of Rs. 13,11,500/- has no doubt.

Every element of sources of cash has no doubt. This is not day to day cash book. Where we find that Rs. 13,11,500/- withdrawals on a particular date  and where it has been consumed. This cash flow statement reflects the sources of cash and consumption of cash. But detail of cash as on 31.03.2011 and confirming it as Rs. 2,58,000/- only is bad enough. The LD. AO has no tool with him to determine closing cash as on 31.03.2011 different from the cash shown by the assessee. For this he has to re-open the assessment for the A.Yr 2011-12 which he has not done.ITO has to show where assessee has consumed the cash withdrawn from the bank during the F.Yr. 2010-11

Assessee can keep the cash with him for any no. of months. ITO has to narrate some contrary if he finds and he has to reject the books of the assessee .

Here is summary of the judgments relied upon by the assessee:

Sr. No. Judgments relied upon by the assessee Decision of the court
1 Shri Mahavir Prasad Vs ITO Dt. 9.10.2017 That mere information from annual information return is made as the basis in the reasons without describing the contents of the information, when was the same received, bank account details, and most importantly the copy of the bank account which is made as basis of reopening was never gone through by the assessing officer while recording the purported reasons to believe. Without going to the contents of the entries in the bank account concerned merely deposits cannot be treated as income escaping assessment within the meaning of section 147/148 of the income tax act, 1961.

That reasons recorded in present case at best can be treated to be reason to suspect which is not sufficient for reopening the case under section 148 of the income tax act, 1961. While recording the reasons to believe merely relying upon financial information cannot be treated as good enough to reopen the case. There can be number of sources of cash deposits by the assessee in the bank account. Unless and until it is brought out in the reasons to believe as to how the cash deposits represent income from undisclosed sources same cannot give justification to reopen the case under section 147/148 of income tax act. The requirement of application of mind is missing in the present case on the face of it in the reasons recorded. It is cardinal principle of taxation that all receipts are not income and all income are not taxable income applies squarely to present facts.

The reasons to believe ought to spell out all the reasons and grounds available with the AO for re-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 5 Months between 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. Deepali Sehgal We reach to a conclusion that the AO made addition without any legal and justified reason which was rightly deleted by the CIT(A). Hence, both the grounds of the assessee are being devoid of merits and dismissed.
5 Parimisetti Seethramamma Vs CIT reported in 57 ITR 532 The Court held that the Act does not make a blanket provision whereby any and every receipt is to be treated as income and thereby made eligible to tax. In all cases, the burden lies on the Revenue to prove that the receipt is income within a taxing provision.

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 and some gifts too . Reasons recorded are vague, without material, copy not given to assessee. The entire assessment is prayed to be made null & void.Entire cash deposited can not be income of the assessee and entire income can not be taxable income .

No Notice u/s 133(6) was issued

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 were ever issued to the assessee before framing assessment u/s 143(3)/147. It is legal requirement of the notice to be issued u/s 133(6) before issue of notice u/s 148 dated 25.03.2019

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 25.03.2019. In the absence of notice u/s 133(6), proceedings initiated u/s 147 of the Act is bad in law.

An Income-tax authority below the rank of the Director or Commissioner can exercise this power in respect of an inquiry in a case where no proceeding is pending, only with the prior approval of the Director or the Commissioner.”

8.2 In the instant case, notice u/s 133(6) of the Act was not issued by the ITO , XXXXXXXXXXX , XXXXXXXXXXX  after obtaining necessary approval from the Principal Commissioner of Income Tax , XXXXXXXXXXX . The Hon’ble Supreme Court in the case of Kathiroor Service Co-op Bank Ltd vs CIT (CIB) & others, reported in 360 ITR 243 have considered an identical case and decided that the ITO(CIB) has power to issue notice u/s 133(6) of the I T Act. The relevant findings of the Hon’ble Supreme Court, read as follows:

“19. In view of the aforesaid, we are of the view that the powers under section 133(6) are in the nature of survey and a general enquiry to identify persons who are likely to have taxable income and whether they are in compliance with the provisions of the Act. It would not fall under the restricted domains of being “area specific” or “case specific”. Section 133(6) does not refer to any enquiry about any particular person or assessee, but pertains to information in relation to “such points or matters” which the assessing authority issuing notices requires. This clearly illustrates that the information of general nature can be called for and names and addresses of depositors who hold deposits above a particular sum is certainly permissible.

The ITO , XXXXXXXXXXX , XXXXXXXXXXX has not issued notice u/s 133(6) of the Act ,1961 to the Manager , The Indian Bank , XXXXXXXXXXX for making inquiry of the person/assessee concerned and neither issued notice to the assessee calling for information . The action on the part of the AO for reopening the assessment u/s 147 is not following the settled procedure . A vagure and general procedure has been following which shall not stand in the eyes of law .

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 not out of the opening cash in hand and made disallowance of Rs. 400000.00 out of the total opening cash of Rs. 658000.00 as on 1.4.2011 as income of the assessee from undisclosed sources of the current F.Yr. 2011-12. Copy of reasons to believe could not be provided to the assessee.  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. There was no material with AO at the time of framing of reasons to believe. Copies of reasons recorded were never supplied to the assessee and approval obtained u/s 151 from worthy PCIT, XXXXXXXXXXX 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.

Reason to believe is nothing but reason to suspect. The income of the assessee being a small property dealer  is  chargeable to tax and he has filed his ROI for the relevant assessment year . Clause (a) of Explanation 2 of section 147 is applicable when income of the assessee is chargeable to tax and even then he has filed no return of Income. The reopening is bad. The initiation of proceedings u/s 147 of the Act is based on no material, No formation of belief of escapement of Income is there.  This is only unmindful act of the AO. The assessment framed is bad in law and spirits.

Reasons to believe has to be supplied within a period of six years

ITAT Delhi bench in the case of Shri Balwant Rai Wadhwa v. ITO, in I.T.A. No. 4806/Del/10. The ITAT bench held that if reasons are not supplied to the Assessee within the period of 6 years then it would be constructed that assessment has not been validly reopened.

In the case of the assessee in hand, the reasons to believe were not supplied by the AO to the assessee with in a period of six years and also beyond six years even during the course of assessment proceedings . .

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 143(3) without gathering sufficient material as it is the prime duty of the AO to gather the sufficient material before making assessment. Which he failed to do so and decided the case in hurry.

Notice u/s 148 and approval obtained u/s 151 never received:

The approval obtained from Pr. CIT, XXXXXXXXXXX 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.

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.

Reopening u/s 147 of the assessment is bad:

The assessee has relied on the judgment of ITAT Delhi in the case of Ashok Kumar, Ghaziabad Vs. ITO Ward No. 1(1), Ghaziabad on 3.12.2018. ITA No. 2740/Del/2018. A.Yr. 2011-12 and other appeals decided with a common order wherein held the initiation of proceedings u/s 147 and issue of notice u/s 148 of the Act has been held invalid.

In the case of ITAT, Delhi Bench decision in the case of Parveen Kumar Jain Vs ITO No. 133/D/2015 for the A.Yr. 2006-07 Dt. 22.01.2015 wherein it has been held as under:

Thus it is clear that the basic requirement for reopening of assessment that the AO must apply his mind to the materials in order to have reasons to believe that the income of the assessee escaped assessment was found to be missing when the AO proceeded to reopen the assessment.

At the time of formation of belief by the ITO that the income has escaped assessment, the material must indicate income escaping assessment rather than desirability of further probe in the matter which may or may not lead to income escaping the assessment.

The observations of the Hon’ble Supreme Court in the case of ‘ITO vs. Lakhmani Mewal Das’ 103 ITR 437(SC), were reproduced as under:

It may be desirable, from the point of view of revenue authorities, to examine the matter in detail, but then reassessment proceedings cannot be resorted to only to examine the facts of a case, no matter how desirable that be, unless there is a reason to believe, rather than suspect, that an income has escapement assessment.”

Mere cash deposited information is not sufficient, not a prima facie belief that income is from undisclosed sources

Similarly in the case of CIT v. Indo Arab Air Services (2016) 130 DTR 78/ 283 CTR 92 (Delhi)(HC) it was held that mere information that huge cash deposits were made in the bank accounts could not give the AO prima facie belief that income has escaped assessment. The AO is required to form prima facie opinion based on tangible material which provides the nexus or the link having reason to believe that income has escaped assessment.

Approval u/s 151 of the Income tax Act

The approval from the Principal Commissioner of Income tax, XXXXXXXXXXX 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 Aggarwal Vs. ITO, XXXXXXXXXXX (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, XXXXXXXXXXX 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 of sec. 147 The reopening u/s 147 of the Act  is challenged

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 as AO formed a false opinion regarding cash deposited by the assessee with his SB A/C not out of the opening cash in hand and made disallowance of Rs. 400000.00 out of the total opening cash of Rs. 658000.00 as on 1.4.2011 as income of the assessee from undisclosed sources of the current F.Yr. 2011-12. It is purely guess work of the AO that income has escaped. The AO proceeded on the fallacious assumption that opening cash of Rs. 658000.00 with the assessee is on the higher side and it cannot be with the assessee as the same is high and disallowed Rs. 400000.00 out of the opening cash in hand only making guess work.

Judgments relied on by the assessee

Pawan Aggarwal judgement, in favour of the assessee:

The cash flow statement or cash book is placed on record and every instance of cash deposited the assessee is having sufficient cash balances. The deposits with the bank have been made out of the cash available in the cash book. Deposits have not been made from undisclosed sources. As held in Dy CIT, Range 2, Lucknow Vs. Pawan Aggarwal ITA No. 374/LKW/2013 A.Yr. 2009-10.

Ashok kumar Ghaziabad in favour of the assessee:

The assessee has relied on the judgment of ITAT Delhi in the case of Ashok Kumar, Ghaziabad Vs. ITO Ward No. 1(1), Ghaziabad on 3.12.2018. 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

Prayer to the Hon’ble CIT (A) Faceless for production of all the documents

The demand raised by the AO is prayed to be deleted and assessment framed by AO to be made Void-ab-initio.

The Hon’ble CIT (Appeals), Faceless is prayed to delete the entire demand  so that assessee gets full justice as taxing statutes demand tax on earned income and not on income which was never earned.

Thanking You,

Yours Faithfully

XXXXXXXXXXX

Assessee

XXXXXXXXX Advocate

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
1 CIT vs. Videsh Sanchar Nigam Ltd. (2012) 340 ITR 66 (Bom.) Though the reopening of assessment was within three years from the end of relevant A.Y., since the reasons recorded for reopening of the assessment were not furnished to the assessee till date the completion of assessment, the reassessment order cannot be up held, moreover, special leave petition filed by revenue against the decision of this court in the case of CIT v. Fomento Resorts and Hotels Ltd., has been dismissed by Apex Court, vide order dated July 16, 2007. The Court  dismissed the appeal of the revenue.
2 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.
3 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.
4 Shri Balwant Rai Wadhwa v. ITO, in I.T.A. No. 4806/Del/10 The notice could be served at any point of time before the expiry of 6 years, if AO has reasons to believe that income has escaped assessment but, such reasons are also to be communicated to the assessee before the expiry of the limitation otherwise validity of such notice could not be sustainable. Being a subordinate authority to the Hon’ble High Court, we are bound to follow the authoritative exposition of law at the end of Hon’ble High Court. In view of the above discussion, we allow ground No. 2 of the assessee wherein he has pleaded that notice u/s 148 has not been served within the period of limitation upon the assessee. The assessment is not sustainable. It is quashed.
5 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).
6 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.
7 Dy CIT, Range 2 , Lucknow Vs. Pawan Aggarwal ITA No. 374/LKW/2013 Assessee has demonstrated through cash flow statement that at every point of time when even cash was deposited in the bank, the assessee was having sufficient cash balance. Copy of the cash flow statement is also placed on record. Once the assessee has discharged his onus by placing cash flow statements, the onus shifts upon the Revenue to demonstrate that the cash withdrawn by the assessee was consumed or utilized for his own purposes and deposits were made out of undisclosed sources. In the absence of any evidence in this regard, the contention of the assessee should be accepted. Though cash flow statement was furnished before him, but he has not looked into while making the addition; whereas the ld. CIT(A) has examined all the entries in the cash flow statement, which is available on record. In the cash flow statement, the movement of cash was disclosed and it is evident that on all dates whenever cash was deposited in the bank, the assessee was having sufficient cash balance.
9 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.
10 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.”
11 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.

12 ITO vs. Lakhmani Mewal 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.”
13 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.
15 ITAT , Delhi Bench , ITA No. 988/Del/2018 in the case of Sunil Aggarwal Vs. ITO, XXXXXXXXXXX (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 )
16 ITAT Delhi bench “A” Bir Bahadur Sijwali 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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