Income Tax addition based on mere doubt and suspicion not sustainable

Narender Kumar Vs ITO (ITAT Delhi)

Undisputedly, in course of assessment proceeding, the assessee had explained the source of cash deposits in the bank account by stating that it was out of gift received from his grand-father Shri Phool Singh. The Assessing Officer, however, has rejected assessee’s claim as the notice issued under Section 133(6) of the Act to Shri Phool Singh did not evoke any response. However, it is a fact on record, in support of his claim that the cash deposits were made out of gift received from the grand­father, the assessee had furnished corroborative evidences in form of copy of gift deed and bank statement of Shri Phool Singh. Further, to explain the reason for non-compliance with the notice issued under Section 133(6) of the Act, the assessee had explained before learned Commissioner (Appeals) that his grand-father Shri Phool Singh had died on 29.07.20 15. A copy of the death certificate of late Phool Singh was also furnished. This, in my view, perfectly explains the non-response to the notice issued under Section 133(6) of the Act. It is observed, learned Commissioner (Appeals) has sustained the addition by entertaining a doubt regarding availability of cash balance of Rs.30,00,000 with late Phool Singh prior to gifting of R.20,00,000 to the assessee. The primary reason for entertaining such doubt is lack of any substantial transaction in the bank account. However, considering the fact that assessee and his family members are agriculturists, holding of some amount of cash in hand is believable. When, the donor is no more available due to his death, the assessee could have proved the fact of gift through other corroborative evidences, which the assessee has tried to prove by furnishing gift deed and bank statement of the donor. It is observed, before rejecting the evidences furnished by the assessee, the Assessing Officer has not conducted any inquiry either with the legal heir of late Phool Sing or from any other source regarding the creditworthiness of late Phool Singh and availability of cash with him. The Assessing Officer has restricted his inquiry by issuing a single notice under Section 133(6) of the Act. Thus, facts on record, to a great extent suggest that the disputed addition has been made more on doubt and suspicion rather than based on evidence.

FULL TEXT OF THE ORDER OF ITAT DELHI

This is an appeal by the assessee against order dated 18.03,2019 of learned Commissioner of Income-Tax (Appeals)-13, New Delhi for the assessment year 2010-11.

2. Grounds raised by the assessee are in relation to validity of reopening of assessment under Section 147 of the Income-Tax Act, 1961 as well as on the merits of the addition made of Rs.20,00,000 under Section 69A read with section 115BBE of the Act.

3. Briefly, the facts are the assessee is a resident individual. For the assessment year under dispute, assessee did not file any return of income under Section 139(1) of the Act. Subsequently, from the information available on record, the Assessing Officer found that in the year under consideration, the assessee had deposited cash amounting to Rs.20,00,000 in his bank account. Noticing this, the Assessing Officer issued a letter to the assessee seeking information on the cash deposits. Since, no response was received from the assessee, the Assessing Officer formed a belief that income has escaped assessment, accordingly, reopened the assessment under Section 147 of the Act. In response to the notice issued under Section 148 of the Act, assessee filed his return of income on 05.10.2017 declaring income of Rs.3,866/-. In response to the query raised by the Assessing Officer regarding the source of cash deposits in the bank account, the assessee submitted that he had received the amount as a gift from his grand-father Shri Phool Singh. In support of such claim, assessee furnished a copy of the gift deed along with bank statement of Shri Phool Singh. The Assessing Officer, however, was not convinced with the submission of the assessee and ultimately concluded that the source of cash deposit of Rs.20,00,000 remained unexplained. Treating the said amount as undisclosed income, he added back under Section 69A read with section 115 BBE of the Act. Though, the assessee contested the aforesaid addition, by filing an appeal, however, learned Commissioner (Appeals) sustained the addition.

4. I have considered rival submissions and perused the material on record.

5. As regards assessee’ s challenge to the validity of the reopening of assessment under Section 147 of the Act, admittedly, for the assessment year under dispute, the assessee did not file any return of income under Section 139(1) of the Act. It is a fact on record that the Assessing Officer had information in his possession indicating that in the year under consideration, the assessee had deposited cash of 20,00,000 in his bank account. It is further evident, to verify the source of such cash deposits, the Assessing Officer issued a letter to the assessee seeking information, which remained non-complied. Thus, the aforesaid facts reveal, not only the Assessing Officer had tangible material in his possession to form belief regarding escapement of income but there was complete lack of information from assessee’s side to explain the source of such cash deposits. In such a scenario, the Assessing Officer was justified in reopening the assessment under Section 147 of the Act as he had enough reason to form a prima facie belief that income had escaped assessment. That being the case, in my considered view, the Assessing Officer was justified in reopening the assessment under Section 147 of the Act. Accordingly, I uphold the validity of reopening of assessment.

6. As regards the merits of the addition made, undisputedly, in course of assessment proceeding, the assessee had explained the source of cash deposits in the bank account by stating that it was out of gift received from his grand-father Shri Phool Singh. The Assessing Officer, however, has rejected assessee’s claim as the notice issued under Section 133(6) of the Act to Shri Phool Singh did not evoke any response. However, it is a fact on record, in support of his claim that the cash deposits were made out of gift received from the grand­father, the assessee had furnished corroborative evidences in form of copy of gift deed and bank statement of Shri Phool Singh. Further, to explain the reason for non-compliance with the notice issued under Section 133(6) of the Act, the assessee had explained before learned Commissioner (Appeals) that his grand-father Shri Phool Singh had died on 29.07.20 15. A copy of the death certificate of late Phool Singh was also furnished. This, in my view, perfectly explains the non-response to the notice issued under Section 133(6) of the Act. It is observed, learned Commissioner (Appeals) has sustained the addition by entertaining a doubt regarding availability of cash balance of Rs.30,00,000 with late Phool Singh prior to gifting of R.20,00,000 to the assessee. The primary reason for entertaining such doubt is lack of any substantial transaction in the bank account. However, considering the fact that assessee and his family members are agriculturists, holding of some amount of cash in hand is believable. When, the donor is no more available due to his death, the assessee could have proved the fact of gift through other corroborative evidences, which the assessee has tried to prove by furnishing gift deed and bank statement of the donor. It is observed, before rejecting the evidences furnished by the assessee, the Assessing Officer has not conducted any inquiry either with the legal heir of late Phool Sing or from any other source regarding the creditworthiness of late Phool Singh and availability of cash with him. The Assessing Officer has restricted his inquiry by issuing a single notice under Section 133(6) of the Act. Thus, facts on record, to a great extent suggest that the disputed addition has been made more on doubt and suspicion rather than based on evidence.

7. In view of the aforesaid, I delete the addition.

8. In the result, the appeal is partly allowed.

Order pronounced in the open court on 19^th October, 2022.