Gulamahemad Hamidulla Khan Vs ITO (ITAT Pune Bench)
No Account Number, No Branch, No Deposit Date-Rs.61.63-Lakh Reassessment u/s 147 Collapses on Vague INSIGHT Alert
Summary:
A scrap merchant confronted with a mystery account
The assessee, Gulamahemad Hamidulla Khan, was a small scrap merchant who collected scrap by visiting localities & residential colonies. For AY 2016-17, he had filed his return declaring business income of Rs.3,90,190.
The AO reopened the assessment on the allegation that the assessee had deposited cash of Rs.61,63,170 with Shri Renuka Mata Multi State Urban Co-operative Credit Society Ltd. The information reportedly originated from a search u/s 132 conducted upon the society on 26.05.2017, during which it was allegedly discovered that the society operated as a conduit for laundering unaccounted money.
According to information appearing on the Department’s INSIGHT Portal, the assessee deposited Rs.61.63 lakh in cash with the society & subsequently withdrew it from another branch. An assessment was ultimately completed u/s 147 r.w.s. 144B, making an addition of the entire amount.
Assessee denies the account itself
The assessee consistently maintained that he had never maintained any account with the credit society & had not deposited the alleged cash. This denial was placed before the AO during the assessment proceedings & was reproduced in the assessment order.
It was argued that neither the notice u/s 148A(b), the order u/s 148A(d), nor the final assessment order identified any account number, branch, deposit date or bank statement connecting the assessee with the alleged transaction. The AO simply relied upon information transmitted by the Investigation Wing through the INSIGHT Portal.
The assessee contended that a bare data entry could not constitute specific information justifying exercise of the extraordinary power of reassessment. The AO had neither obtained the underlying bank records nor conducted an independent verification before concluding that income had escaped assessment.
The assessee also challenged the sanction u/s 151, arguing that since more than three years had elapsed from the end of AY 2016-17, approval of the prescribed higher authority was necessary. However, the Tribunal ultimately quashed the reassessment on the more fundamental ground of absence of specific information & independent application of mind.
What exactly did the AO possess?
During an earlier hearing, the ITAT directed the Revenue to place on record the information on the basis of which notice u/s 148 had been issued. The report furnished by the Department repeated that the assessee had deposited Rs.61,63,170 with the society, whose search had revealed laundering activities.
The report also stated that the assessee’s returned income did not support cash deposits of such magnitude & therefore the source remained unexplained. On this basis alone, the AO recorded his belief that income had escaped assessment.
The Tribunal examined the notice u/s 148A(b), order u/s 148A(d), recorded reasons & documents filed by the Revenue. It found that all of them merely reproduced a vague assertion from the INSIGHT Portal. Not one document disclosed the alleged account number, concerned branch, dates of deposits or any underlying banking record.
Thus, the AO possessed an allegation—but not the primary material required to connect that allegation with the assessee.
Borrowed information is not an independent belief
The ITAT relied upon PCIT v. Shodiman Investments (P.) Ltd., 422 ITR 337 (Bom.), wherein the Bombay High Court held that reassessment involves exercise of extraordinary power because it unsettles a completed assessment. The recorded reasons must therefore disclose the material forming the basis of reopening & demonstrate a rational nexus or live link between such material and the conclusion that taxable income escaped assessment.
A general investigation report concerning suspicious transactions cannot justify reopening unless the AO applies his own mind & links the information to the particular assessee. Merely acting upon an Investigation Wing communication amounts to borrowed satisfaction & resembles a fishing enquiry rather than formation of a legally sustainable belief.
Reliance was also placed on Well Trans Logistics India (P.) Ltd. v. Addl. CIT, 166 taxmann.com 72 (Delhi). The Delhi High Court held that Investigation Wing information cannot, by itself, form the sole basis of reassessment. The AO must undertake further enquiry, collect relevant material & then determine whether sufficient cause exists to believe that income escaped assessment.
No live link, only a loose lead
Applying these principles, the Tribunal held that the AO had no specific information before issuing notice u/s 148. There was no close nexus between tangible material & formation of belief regarding escapement of income. The recorded reasons were consequently based on surmises rather than verified facts.
The notice u/s 148 was therefore declared bad in law & quashed.
Addition fails independently on merits
The ITAT further held that the addition could not survive even on merits. The assessee’s categorical denial of maintaining an account with the society was never disproved. Despite having the entire assessment proceeding available to him, the AO did not obtain or refer to any specific account, statement, branch or deposit date.
The Department could not convert unverified portal information into taxable income merely because the alleged amount appeared disproportionate to the assessee’s returned income. Before demanding an explanation for a deposit, the Revenue must first establish that the deposit belonged to the assessee.
Accordingly, the Tribunal directed the AO to delete the addition of Rs.61,63,170 & allowed the assessee’s appeal. The ruling sends a crisp message: INSIGHT may provide the spark for enquiry, but it cannot substitute the fuel of evidence-especially when even the bank account remains invisible.
Cases Discussed
- PCIT-5 v. Shodiman Investments (P.) Ltd. [2020] 422 ITR 337 (Bombay)
- Well Trans Logistics India (P.) Ltd. v. Addl. Commissioner of Income-tax [2024] 166 taxmann.com 72 (Delhi)
- S. Narayanappa v. CIT [1967] 63 ITR 219 (SC)
- ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC)
- Assistant Commissioner of Income-tax v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 161 Taxman 316/291 ITR 500 (SC)
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, PUNE BENCH
This is an appeal filed by the assessee against the order of the Learned Commissioner of Income Tax (Appeals), NFAC, Delhi [Ld.CIT(A)], passed u/s. 250 of the Income Tax Act, 1961 (‘the Act’) for AY 2016-17 on 08.05.2025, emanating from the Assessment Order u/s 147 r.w.s. 144B of the Act, dated 24.05.2023.
Submission of Ld. AR :
2. The Ld. AR submitted that reopening is bad in law. Ld. AR invited our attention to notice u/s 148A(b) of the Act wherein it is merely mentioned that the assessee has deposited Rs.61,63,170/- in cash with M/s. Shri Renuka Mata Multi State Urban Co-operative Credit Society Ltd. The Ld. AR submitted that the Assessing Officer (AO) has no specific information before issuing notice u/s 148 of the Act. Therefore, notice u/s 148 is bad in law. The Ld. AR also submitted that notice u/s 148 is bad in law as it has been approved by the Pr. Commissioner of Income Tax after a lapse of 3 years from the end of the Assessment Year 2016-17 whereas as per section 151 approval of the Chief Commissioner of Income Tax is required.
2.1 The Ld. AR submitted that the assessee had no such account in M/s. Shri Renuka Mata Multi State Urban Co-operative Credit Society Ltd. The assessee had submitted that this fact before the AO which is recorded at pages 6-8 of the assessment order by the AO. The Ld. AR submitted that the AO has not brought on record any specific bank account or bank statement to prove that the assessee had deposited cash of Rs.61,63,170/-. The entire addition has been made on the basis of some information received from Investigation Wing. The AO was not having actual copy of bank statement to allege that the assessee had deposited cash. The Ld. AR submitted that the assessee is a small person and had never deposited such cash. The assessee had no such account. The Ld. AR submitted that the assessment order may be quashed.
Submission of Ld. DR :
3. The Ld. DR relied on the order of the Assessing Officer and the Ld. CIT(A). On earlier hearing i.e. 07.05.2026, we have directed the Ld. DR to file copy of information based on which notice u/s 148 was issued. The Ld. DR filed a report.
Findings and Analysis :
4. We have heard both the parties and perused the records. In this case, we have studied the notice u/s 148A(b) of the Act dated 25.05.2022 and order u/s 148A(d) of the Act dated 14.07.2022. In the said notice, it is specifically mentioned that on the basis of information received on INSIGHT Portal, notice u/s 148 is issued. The relevant paragraph of the said notice is reproduced as under :
“01. Brief Facts:- The assessee, Gulamahemad Hamidulla Khan (PAN:AMBPK7001L) is an Individual. In this case, a notice u/s 148 for AY 2016-17 was issued on 21/04/2021 on the basis of information in possession of the AO after following the provisions of Taxation and Other laws ( Relaxation and Amendment of Certain Provisions) Act, 2020 (hereinafter referred to as ‘TOLA’) and as per the CBDT Notification No.20 dated 31-03-2021 and subsequent Notification No.38 dated 27-04-2021 according to which the time limit for issue of notice u/s 148 was extended to 30- 04-2021 and 30-06-2021 respectively. The above notice was issued after obtaining the prior approval of the competent Authority as per the prevailing provisions of section 151 of the IT Act. 1961. The basis for issue of notice u/s 148 was as under:-
As per the information received from the office of the ACIT, Central Circle 4(4), Mumbai which has been received from Insight portal, search & Seizure action u/s 132 of the IT Act, 1961 was carried out in case of M/s. Shri Renuka Mata Multi State Urban Co-operative Credit Society Ltd. (in short Society/SRMSCS) (PAN: AADAS7782D) on 26.05.2017. During the search, it was found that the society was used as a conduit for laundering unaccounted money. The assessee is one of them who deposited huge in the said bank in cash. The total cash amount deposited by the assessee is of Rs. 61,63,170/-.”
5. Similarly, we have perused the documents filed by the Ld. DR regarding re-opening. The relevant paragraphs of the said Annexure are reproduced as under :
“Brief details of the assess , assessee is an individual. The assessee has filed his return of income for assessment year A.Y. 2016-17.
2. Brief details of information collected/received by AO: As per the information received. search & Seizure action u/s 132 of the IT Act, 1961 was carried out in case of M/s. Shri Renuka Mata Multi State Urban Co-operative Credit Society Ltd. (in short Society/SRMSCS) (PAN. AADAS7782D) on 26.05.2017. During the search, it was found that the society was used as a conduit for laundering their unaccounted money by some unscrupulous tax payers. The assessee is one of them who deposited huge in the said bank in cash. The total cash amount deposited by the assessee is of Rs. 61,63.170/- and subsequently withdrew the same from other branch of the bank.
3. Analysis of information collected/received: It is seen from the information received that during the A.Y. 2016-17, the assessee has deposited total amount of Rs. 61.63,170/- in the said bank in cash.
4. Enquiries made by the AO: On verification from the system, it is found that the assessee has filed his return of income for the year under consideration on 12/08/2017 declaring income at Rs. 3,90,190/- under the head income from business. However, the sources of cash deposits remains unexplained as the income of the assessee declared in return does not substantiate with the cash deposits made.
5. Finding of the AO: Since the sources of cash deposits remains unexplained, the case needs to be reopened.
6. Basis of forming reason to believe and details of escapement of income: In view of the above facts I have, therefore, reason to believe that the assessee has not fully & truly disclosed all the material of facts and the income of Rs.61,63,170/- has escaped the assessment by reason of the failure on the part of the assessee within the meaning of section 147 of the Income tax Act, 1961 (herein after refer to as the Act). I therefore consider it to be a fit case for initiating proceedings u/s 147 of the Act for the A.Y 2016-17 in order to bring the said income to taxation and assess its income and to assess any other income which comes to notice subsequently.”
6. Thus, it is observed that the AO has relied on a vague statement which was provided to the AO on INSIGHT Portal of the Income Tax Department that the assessee had deposited Rs.61,63,170/-. Nowhere in the reasons recorded or in the order u/s 148A(d) of the Act or in the notice u/s 148A(b) of the Act any Account Number or Branch Name of M/s. Shri Renuka Mata Multi State Urban Co-operative Credit Society Ltd. is mentioned. Thus, the AO has issued notice without any specific information on record.
7. The Hon’ble Bombay High Court in the case of Principal CIT-5 vs. Shodiman Investments (P.) Ltd. [2020] 422 ITR 337 (Bombay) has held as under :
Quote, “12. The re-opening of an Assessment is an exercise of extra-ordinary power on the part of the Assessing Officer, as it leads to unsettling the settled issue/assessments. Therefore, the reasons to believe have to be necessarily recorded in terms of Section 148 of the Act, before re-opening notice, is issued. These reasons, must indicate the material (whatever reasons) which form the basis of re-opening Assessment and its reasons which would evidence the linkage/nexus to the conclusion that income chargeable to tax has escaped Assessment. This is a settled position as observed by the Supreme Court in S. Narayanappa v. CIT [1967] 63ITR 219, that it is open to examine whether the reason to believe has rational connection with the formation of the belief. To the same effect, the Apex Court in ITO v. LakhmaniMerwal Das [1976] 103 ITR 437 had laid down that the reasons to believe must have rational connection with or relevant bearing on the formation of belief i.e. there must be a live link between material coming the notice of the Assessing Officer and the formation of belief regarding escapement of income. If the aforesaid requirement are not met, the Assessee isentitled to challenge the very act of re-opening of Assessment and assuming jurisdiction on the part of the Assessing Officer.
13. In this case, the reasons as made available to the Respondent-Assessee as produced before the Tribunal merely indicates information received from the DIT (Investigation) about a particular entity, entering into suspicious transactions. However, that material is not further linked by any reason to come to the conclusion that the Respondent-Assessee has indulged in any activity which could give rise to reason to believe on the part of the Assessing Officer that income chargeable to tax has escaped Assessment. It is for this reason that the recorded reasons even does not indicate the amount which according to the Assessing Officer, has escaped Assessment. This is an evidence of a fishing enquiry and not a reasonable belief that income chargeable to tax has escaped assessment.
14. Further, the reasons clearly shows that the Assessing Officer has not applied his mind to the information received by him from the DDIT (Inv.). The Assessing Officer has merely issued a re-opening notice on the basis of intimation regarding re-opening notice from the DDIT (Inv.) This is clearly in breach of the settled position in law that re- opening notice has to be issued by the Assessing Office on his own satisfaction and not on borrowed satisfaction.
15. Therefore, in the above facts, the view taken by the impugned order of the Tribunal cannot be found fault with. This view of the Tribunal is in accordance with the settled position in law.
16. Therefore, the question as framed does not give rise to any substantial question of law. Thus, not entertained.
17. Accordingly, Appeal dismissed. ” Unquote.
18. The Hon’ble Delhi High Court in the case of Well Trans Logistics India (P.) Ltd. Vs. Addl. Commissioner of Income-tax, [2024] 166 taxmann.com 72 (Delhi) has held as under :
Quote, “24. We may note that the Assessing Officer after reproducing the information received from DDIT,(Investigation) Unit, drew the conclusion of escapement of income. In the case of Assistant Commissioner of Income-tax v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 161 Taxman 316/291 ITR 500 (SC), the Supreme Court had explained that expression “reason to believe” would mean justification to know or suppose that income had escaped assessment. While, it is correct that it is not necessary for the Assessing Officer to finally ascertain whether income had escaped assessment, nonetheless, the Assessing Officer must have sufficient cause to believe that it has.
25. In the present case, as may be seen, there is no “close nexus” or “live link” between tangible material and the reason to believe that income has escaped assessment. The information received from the Investigating Unit of the Revenue cannot be the sole basis for forming a belief that income of the assessee has escaped assessment. Having received information from the Investigating Wing, it was incumbent upon the Assessing Officer to take further steps, make further enquiries and garner further material and if such material indicate that the income of the assessee has escaped assessment and then form a belief that the income of the assessee has escaped assessment.
26. Clearly, in this case, the Assessing Officer has not acquired any material to form such belief. There is not even a line of reason which may justify the formation of the belief. Consequently, we are satisfied that reopening of assessment for the assessment year in question by the Assessing Officer does not satisfy the requirement of law in terms of Section 147 & 148 of the Act.” Unquote.
27. Respectfully following the decisions of the Hon’ble High Court of Delhi and Bombay, we hereby hold that the AO was not having any specific information, before issuing notice u/s 148 of the Act. Therefore, reasons recorded are based on surmises. Accordingly, notice u/s 148 of the Act is bad in law and accordingly quashed.
28. During the assessment proceedings the Assessee submitted that he is a small scrap merchant who collects scrap by visiting localities, colonies. The submission of the Assessee has been reproduced by the AO in the Assessment Order. The Assessee denied having any such account. No where in the Assessment order the AO has referred to any specific Account Number allegedly pertaining to the assessee. The entire addition made by the AO is based on the INSIGHT portal information. The AO has no where mentioned the so called dates on which the amounts were allegedly deposited. Thus, the entire addition is based on surmises and conjectures. Therefore, even on merits the Addition is unsustainable. Accordingly, we direct the AO to delete the addition.
29. Accordingly, the appeal of the assessee is allowed.
Order pronounced in the open Court on 31st August, 2026
