Important Judgement regarding reopening of assessment u/s 147 of the Income Tax Act, 1961 and redeposit of the same cash withdrawn from the bank earlier in sample written Submission before the Hon’ble CIT (A), Faceless

Written Submission before the CIT(A), Faceless in respect of Sh. XXXXXXXXXX for th A.Y. 2012-13 [XXXXXXXXX]

Appeal filed against the order of assessment u/s 143(3) made by ITO, Ward No. XXXXX, XXXXXX dated 30.11.2019

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

My case on Merit

Introduction of the Assessee

The assessee is not an educated person and not at all well versed with computer work and cannot access to the computer. Basically, assessee is a property dealer and does the business of sales purchase of immovable properties and earns commission income. The department may have sent the notices through net but in person notices has not been received by the assessee .It is true by heart that the assessee has never received any notice from the department in hand and by post. At the most the order u/s 143(3)/147 received on 13.01.2020 from the department by the counsel of the assessee because the order was returned back. In the same way if he would have received the notices he would have contacted department or some CA so that he could have discharged his onus to prove the source of cash deposited with the bank.

About return of the assessee for the AY 2012-13

The return for the A.Yr. 2012-13 has already been filed (page no. 6-7 of the Paper Book) but in the show cause notice Dt. 05.11.2019 it has been written that no return has been filed. (Page no. 29-30 of the Paper Book). The assessee has already given in writing to AO Dt. 15.11.2019 that the ROI already filed may be treated as the same filed in response to the notice issued u/s 148 Dt. 18.03.2019 .The assessee deposited cash of Rs. 1800000.00 in his SB A/C No. 11111111111111 with XXXXX Bank. XXXXXX during the F.Yr. 2011-12 .The ROI was filed by the assessee for the relevant assessment year manually with the ITD as the assessee has done very small work during the year under consideration and his income was non-taxable even then he has filed the ROI Dt. 15.05.2012 with ward No. 2(4) , XXXXXX.

Source of cash deposit with the bank by the assessee

The assessee frequently made withdrawals from the same bank and re-deposited the same cash within a very short time period with the same bank.

The sources of cash deposited with SB Account are as under.

(a) Cash withdrawals from the same bank.

(b) Cash received from commission on sale & purchase of properties.

(c) Cash received from customers on account of advances.

(d) Opening cash in hand as on 31.3.2011.

The complete cash flow statement, detail of cash withdrawls and cash deposits has already been submitted with the AO. (Page no. 4 of the Paper Book). Ignoring the entire material, ignoring the cash withdrawals from the same bank, AO decided the case without pin pointing any defect in the cash flow statement. The AO added to the income the entire cash deposited with the bank.

In the facts and circumstances of the case the Ld. AO is not justified in treating the entire cash deposited with the SB A/C as income of the assessee 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. 1800000.00/- in the hands of the appellant which is unwarranted in law since the entire cash deposited with the bank cannot be treated as income of the assessee.

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.

Demand raised by the AO

The case of the assessee was decided  u/s 143(3)/147 of the Income Tax Act, 1961 in which a demand of Rs.1300000.00 has been created which is quite illegal, baseless and not justified.

Bank not fully checked by the AO

The I.T.O Ward No. 2(2), XXXXXX treated the entire cash of Rs.1800000.00 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. He has forgotten to check the peak credit. He has forgotten to consider the debit entries.

Assessment with blind eyes

The Ld. AO indulged in speculation, surmises and conjecture in treating the cash deposit of Rs. 1800000.00 as complete 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. AO ignored the details submitted by 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 the income under dispute. AO has not bothered to arrive at a reasonable figure looking at peak figure of the cash deposited with the bank and also ignored withdrawals from the same bank which is unjustified at the back of the assessee.

The entire assessment made u/s 143(3) of the act is quite baseless and beyond the legal frame work of the law. This is only presumption of the AO that assessee has some other sources of Income. The onus to prove the cash deposited with the bank has been clearly discharged by the assessee but AO completely ignored the same and assessment was framed without knowing the truth and substance of the case actually and framed assessment with blind eyes. The assessee has deposited his own cash with the bank not of customers as alleged by the ITO in his assessment order para No. 5.

Reply filed by the assessee ignored by the AO

The AO ignored the reply filed by the assessee Dt. 15.11.2019 and made his own presumptions. (Page no. 1 & 2 of the Paper Book).

Sources of opening cash in hand with the assessee as on 1.4.2011 of Rs. 60000 and other cash receipts during the F.Yr. 2011-12.

From the very beginning, assessee is doing the business of sale purchase of properties on commission basis. ITR of AY 2010-11 is enclosed which reveals that the assessee is doing same business of sale purchase of properties on commission basis. (Page no. 11 & 12 of the paper book). At present the assessee is doing the same business. The following chart gives the sources of cash and destination of the cash:

Detail of cash withdrawals from the saving bank account of the assessee during the F.Yr. 2011-12 are presented which is at page no. 3 of the paper book of the assessee.

Detail of cash deposited by the assessee with his saving bank account during the F.Yr. 2011-12 is also presented which is at page no. 3 of the paper book of the assessee.

Bank Statement of the assessee

The assessing officer called on bank statement during the course of assessment proceedings. (Page no. 8 to 10 of the Paper Book). Not earlier to that. No material was with AO at the time of opening of the assessment and hence the opening is bad in law and spirits. In this regard assessee relies on the judgment of ITAT, Delhi in the case of Shri Mahavir Prasad Vs ITO Dt. 9.10.2017.

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

The assessee runs his business of 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.

ITAT judgements regarding withdrawls 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

Reason for cash withdrawals from the bank

Property Dealing requires cash every time. Assessee has to keep the money in cash with him. When he has cash in surplus through the business he deposits the cash withdrawn earlier and also cash accumulated from the business of property dealing. Property deals are not finalized every day. It is not proper to keep the cash with him at home for the purpose of safety of cash and desire for earning some interest, assessee deposits the cash with the bank.

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 the following judgment:

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.”

Huge Addition of Rs. 1800000.00

The addition of Rs. 1800000.00 by AO is being challenged before you as Rs. 1800000.00 is not income of the assessee. The entire cash deposited with the bank can never be the income of the assessee. The AO has looked at the one side of the bank statement but ignored the other side. If looking at the document is half then the assessment has not been done with the legal frame of mind and the assessment done is bad in law and spirits. He cannot pass the assessment order with blind eyes which he has done in the case of the assessee.

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 withdrawls from the same bank and redeposit of it has been treated as income of the assessee.

Cash withdrawls and deposited with the same bank

The assesse do not require to present the books of accounts as his income is below taxable limit but to link the cash deposited with the bank as no income of the assesse but opening cash and withdrawls from the same bank, commission receipts of the assessee and  cash deposited is out of cash in hand with the cash book . The cash flow statement prepared out of the cash book is submitted for verification .

In this way the cash deposited by the assessee in his saving bank account is nothing but cash deposited out of the cash book .

The AO has alleged assessee in his assessment order (Para 5 of the assessment order)

“He has done this business on commission basis then there is no reason of depositing such amount in his own saving Bank Account on behalf of customers/clients”.

Assessee has written in his reply Dt.15.11.2019

Sometimes, the advance money is received from the customers and afterwards it is returned to the customers when property deals are not matured.

Only Rs. 90000/- has been received in cash on account of advances and out of this Rs. 50000/- was returned bank. The withdrawals are made by the assessee in this line of business as and when it is required. The AO has alleged that the entire cash deposit is cash received from the customers. It is his own money which he makes withdrawals from the Bank and re-deposited it when it is not utilized as buyer makes the payment to the seller out of his own money instead of money (cash) of the assessee. But assessee has to keep day to day cash with him in this line of business when they sit for some transaction of the property.

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 exigible to tax. In all cases, the burden lies on the Revenue to prove that the receipt is income within a taxing provision.

Application under rule 46A of the Income Tax Rules, 1962 is separately enclosed for your kind consideration in the matter. (Page no. 42 of the paper book)

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. Without looking at the entire bank A/c of the assessee, without gathering any material, the assessment framed is bad enough. Reasons recorded are vague, without material, copy not given to assessee. AIR information is not sufficient for reopening of the case. The entire assessment is prayed to be made null & void.

Limitation period for deciding the case of the assessee for the A.Yr. 2012-13

That the Ld. AO decided the case of the assessee too earlier on 30.11.2019 though the time barring was on 31.12.2019.

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 as income of the assessee from undisclosed sources. There seems to be no reason to believe that the cash deposited by the assessee to his SB A/C is income of the assessee from some sources not disclosed to the department in the presence of ROI for the A.Yr. 2012-13. Copy of reasons to believe could not be provided to the assessee. In the facts and circumstances of the case the AO is not justified as AIR information is not sufficient for forming reason to believe by the AO regarding reopening of the assessment u/s 147 and issue of notice u/s 148 of the Act. There was no material with AO at the time of framing of reasons to believe. There existed no live link between the material and escaped income as there was no material with AO, even no bank statement. Copy of reasons recorded were never supplied to the assessee and approval obtained from worthy PCIT, XXXXXX 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. Assessee has written to the A.O. dated 15.11.2019 regarding copies of the same but AO never bothered to give copies. (Page no. 1 & 2 of the Paper Book)

Reasons recorded are far-fetched, not based on any cogent material. In the same way PCIT gave approval without material. The approval given is 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 never chargeable to tax. Clause (a) of Explanation 2 of section 147 is applicable when income of the assessee is chargeable to tax and even then he has filed no return of Income. 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.

The reasons recorded are totally silent on three issues

Reasons recorded not given to the assessee but it appears from the Final Show Cause notice Dt. 5.11.2019 and assessment order Para 1

1. Mere cash deposit is treated to be equivalent to income escaping assessment

2. No details of XXXXX Bank are mentioned.

3. Information is available but not contents of the information.

That the initiation of reassessment proceedings is illegal being void-ab-initio in as much as the reasons recorded are not in accordance with the provisions contemplated u/s 147 of the Act as well as judicial pronouncements. Rather reasons have been recorded in a mechanical manner and without application of mind.

Merely stating the reasons in a letter addressed by the AO, is not enough. Then, the reasons to believe escapement of income need to spell out all the reasons and grounds available with the AO for reopening the assessment. The reasons must also paraphrase any investigation report, which may form the basis of the reasons and any enquiry conducted by the AO thereon, as also the conclusions thereof.

In the case of CIT vs. Videsh Sanchar Nigam Ltd. (2012) 340 ITR 66 (Bom.) has held that though the reopening of assessment was within time, since the reasons recorded for reopening of the assessment were not furnished to the assesses till date the completion of assessment, the reassessment order cannot be upheld.

After 1.4.1989, the Assessing Officer has power to re-open, provided there is “tangible material” to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. 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 – CIT vs. Kelvinator of India (320 ITR 546 / 228 CTR 488 / 187 Taxman 312)

The assessee has relied on the judgment of High court of Delhi in the case of “Signature Hotels (P) Ltd. 338ITR 51 (Delhi)” where in it was held that:

“The reasons and the information referred to were extremely scanty and vague. There was no reference to any document or statement except AIR information. The AIR could not be regarded as a material or evidence that prima facie showed or established nexus or link which disclosed escapement of income. The AIR information was not a pointer and did not indicate escapement of income. Further it was apparent that the assessing officer did not apply his own mind to the information and examine the basis and material of the information. 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.

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

The above decision of Delhi High Court is further followed by 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 rather could not be supplied on being asked by the Assessee for the copy of the reasons.

Notices not received by the assessee

The assessment u/s 143(3) has been done by the officer without application of mind. Every cash deposited by the assessee cannot be treated as income of the assessee. No notice u/s 148 & 142(1) was received by the assessee in person. Assessee is not well versed with the computer operation. 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. If notice u/s 142(1) would have been received by the assessee certainly he would have appeared before AO through his counsel. It is true by heart that the assessee has never received any notice from the department. At the most the order u/s 143(3) sent by speed post was returned back which was received by Shri XXXXXX Adv on 13.01.2020 from the ITD when he applied for the same dated 04.01.2020 (Page no. 16 of the Paper Book). If all the requisite notices had been received by the assessee personally or if some more opportunity had been given to the assessee then he would have been able to produce the books of accounts and plausible explanation regarding cash deposited with the bank. Notice u/s 142(1) Dated 11/07/2019, 26/09/2019, 05/11/2019, 27/11/2019. All these notice were never issued by the AO in person, speed post & mail. Hence in the absence of proper opportunities the assessment frame is bad on law and spirits of the fair and best judgment assessment.  (Page no. 36-40 of the Paper Book)

AIR information made basis for reopening of the assessment

The information received from the department without independent enquiries is not sufficient for reopening the assessment u/s 147 of the Act.

In the facts and circumstances of the case the AO is not justified in relying only on the information of the department. Not making independent enquiries. He has not gathered any material before framing assessment u/s 143(3) of the Act. He has not checked the complete bank account before framing the best judgment assessment and even ignored the reply submitted by the assessee.

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 any 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.

Complete books in the possession of the Assessee

As every evidence and books of accounts are in the possession with the assessee which can be produced before the Hon’ble CIT (A), Faceless if asked for the same.

Legal requirement of the notice to be issued u/s 133(6) before issue of notice u/s 148 Dated 18-Mar-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 18/03/2019. In the absence of notice u/s 133(6), proceedings initiated u/s 147 of the Act is bad in law.

Notice u/s 148 Dated 18-Mar-2019

Notice was not received by the assessee in person, by speed post, on mail sent by the ITD on portal. Assessee has never checked the notice on ITD website as he does not know basics of the computer. This notice was never received by the assessee before 31/3/2019. Moreover in the absence of notice u/s 133(6), this notice if considered deemed to be issued but will not stand in the eyes of law. The entire proceedings should be made null & void in the absence of proper service of notice.

Notice issued u/s 148

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.

Regarding address of the assessee for service of notice u/s148, 142(1), 143(2).

House No. XXX, XXXX, XXXXr, XXXX, XXXXXX.

This is correct address of the assessee but no notice ever received on this address. Copy of Aadhar card is enclosed. No notice u/s 143(2) was ever received by the assessee in person, by speed post, or mail ID. In the absence of notice and not properly served on the assessee. The assessment framed is bad in law and spirits and requested to be made null and void. The assessee has relied on the judgment of Hon’ble SC in ACIT & Anr. Vs. Hotel Blue Moon: (2010) 321 ITR 362(SC). Copy of Adhaar Card of the Assessee is enclosed. (Page no. 41 of the Paper Book)

ITO Ignored Peak figure of the Bank

Even at the time of assessment proceeding the AO overlooked the debit entries in the bank statement, he ignored peak figure, decided the case of the assessee u/s 143(3) of the act which is unmindful job on the part of the AO.

AO has not bothered to arrive at a reasonable figure looking at peak figure of the cash deposited with the bank and also ignored withdrawals from the same bank which is unjustified. The cash deposited is nothing but out of the gross receipts of the assessee and also withdrawals from the same bank and opening cash in hand.

As held in the judgment S. Venkat Reddy, Hyderabad 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.

Section 68 and section 69A of the Income Tax Act

The case of the assessee pertains to section 68 of the Act as per order of the assessing officer. There stands no credit entry of third party in the books of the assessee. Even section 68 is not applicable in the case of the assessee as the entire cash belongs to the assessee and there is no entry in the books of accounts of the assessee by the third party. The reliance placed by AO on the judgment 140 ITR 151, 155(All) reported in the case of Nanak Chand Laxmandass will not be applicable in the case of the assessee. This case pertains to section 69A of the Act not section 68 of the Act.

The cited case Roshan Di Hatti of SC is also not applicable in the case of the assessee as the case involves capital of the assessee found in the books of accounts of the  assessee whether capital transferred from Lahore to India is worth of Rs. 333414/- or some less . The case of the assessee pertains to cash deposit by the assessee in his saving bank account. No link with the capital of the assessee found in the books of the assessee. The case cited by the ITO is squarely not applicable.

The surrounding circumstances were quite ignored by AO. The transactions could not be noted by the AO. AO ignored the debit entries of the bank. No field enquiries were made. No enquiries from bank were made regarding the nature of work of the assessee. No reality of the transactions were noted / found out before treating income from undisclosed sources. The reliance placed by AO on the judgments of the Hon’ble SC in the case of Sumati Dayal and Durga Prasad More is not applicable in the case of the assessee.

The Ld. AO has erred on facts and in law in making addition of Rs. 1800000.00 as the requirement of application of mind is missing in the present case as it is cardinal principal of taxation that all receipts are not income and all incomes are not taxable incomes. This applies squarely to the present facts as held in the case of Mahavir Prasad Vs. ITO ITAT Delhi 9.10.2017.(Page No.54 to 57 of the PB)

The cash flow statement is placed on record and every instance of cash deposited the assessee is having sufficient cash balances. (Page no. 4 of the Paper Book). 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.(Page No. 51 to 53 of ther PB)

Unexplained cash credit, Section 68 of the Act. No books were produced. At para No. 6 of order by AO has stated unexplained cash credits when assessee has not produced the books of accounts. Hence the entire order is illegal bad in law, to be made null and void. The assessee has relied on the judgment of the Hon’ble ITAT Lucknow Bench, ITO Vs. Kamal Kumar Mishra ITA No. 398/LKW/2012 where in held that bank statement/pass book of the bank is not books of accounts of the assessee himself. The cash deposit with the bank is not cash credit covered u/s 68 of the act. Addition u/s 68 cannot be made.

As the assessee has made no cash credit which is not explainable, then the addition made by AO should be made null and void.

The cash deposit with the bank is fully explained by the assessee to the Ld. AO as the same does not remained unexplained and the entire cash deposit will the bank is fully recorded in the cash book of the assessee.

AIR Information with the Assessing Officer at the time of reopening of the assessment

Only AIR information with the ITO that assessee has deposited cash with his saving bank account and formation of belief regarding escapement of income and recording of reasons is bad in law. In many cases the stand of the Hon’ble ITAT, Delhi is that there is no nexus between the cash deposit with the bank and escapement of Income. The assessee has relied on the judgment of Shri Inderjeet, Sohna Gurgaon, ITAT Delhi Dt. 3.12.2018 passed by a common order. It has been held that mere cash deposit in bank account is not sufficient to presume that it is a case of escapement of Income and formation of reasons to believe for escapement of Income and recording of the reasons is bad in law. First para of the assessment order clearly states that on the basis of AIR information notice u/s 148 was issued to the assessee dated 18.03.2019 which is bad enough without any corroborative evidence.

Request for Fresh Start of the proceedings

The Hon’ble CIT(A), Faceless is requested further to start the proceedings at the stage when proceedings were concluded at the AO level in view of the judgment of Hon’ble Karnatka High court 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 proceedings and what the Income tax officer could have done, the appellate authority could also do.

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. Copy of the complete judgment is enclosed with the Paper Book submitted today before CIT(A), XXXXXX.

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.

Reopening on borrowed satisfaction is bad

Re-opening based on borrowed satisfaction of the Assessing Officer is not valid – (CIT v. Greenworld Corporation 314 ITR 81)

Approval u/s 151 of the Income tax Act .

The approval from the Principal commissioner of Income tax, XXXXXX 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, Ward No. 1(3) (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, XXXXXX 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 s. 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 only on the basis of cash deposited with bank not seen bank account not seen debit entries. It is purely guess work of the AO that income has escaped. The AO proceeded on the fallacious assumption that bank deposits in cash constituted undisclosed income and overlooked facts that the cash deposits need not necessarily be the income of the assessee. It can be the gross receipts but entire cash deposits cannot be the income of the assessee. The assessee has relied on the judgment IN the ITAT Delhi bench “A” Bir Bahadur Sijwali VS ITO , Ward 1, Haldwani Appeal No. 3814(Delhi) of 2011.

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 Hon’ble CIT (Appeals), Faceless is prayed to give a chance to produce all the evidences and books of accounts before him which could not be produced at AO level so that assessee gets full justice as taxing statutes demand tax on earned income and not on income which was never earned. Tax is paid on the net income and not on the gross receipts.

The appellant also prays to produce additional evidence under Rule 46A of the Income Tax Rules, 1962 at the time of hearing or before it.

Thanking You,
Yours Faithfully

XXXXXXXXXX
Assessee

XXXXXX 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
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.
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.
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.
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.
HHon’ble SC in ACIT & Anr. Vs. HHotel 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).
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.
Mahavir Prasad Vs. ITO ITAT Delhi 9.10.2017 The reasons to believe ought to spell out all the reasons and grounds available with the AO for re-opening the assessment – especially in those cases where the first proviso to Section 147 is attracted. 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;
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.
Hon,ble ITAT Lucknow Bench, ITO Vs. Kamal Kumar Mishra ITA No. 398/LKW/2012 The ld. CIT(A) has adjudicated the issue in the light of the aforesaid judgment and has held that provisions of section 68 of the Act cannot be invoked. Besides, he has also examined the additions made by the Assessing Officer through grounds No.1 to 6 on merit also and has noted that in each and every case the assessee has furnished plausible and reasonable explanations with respect to the deposits found recorded in the bank passbook of the assessee and on merit also the ld. CIT(A) did not find any justification in the additions made by the Assessing Officer. Though we are of the view that provisions of section 68 of the Act cannot be invoked on the deposits made in the bank account of the assessee, yet we have examined the veracity of the additions made by the Assessing Officer on certain deposits by invoking the provisions of section 68 of the Act and we find that before the ld. CIT(A) the assessee has furnished reasonable and plausible explanations along with confirmation with regard to the different deposits. Since the ld. CIT(A) has adjudicated the issue on merit also in the light of the explanations and confirmations placed before him, in a proper perspective and we find no infirmity therein, we confirm the same. Accordingly, finding no merit in the Revenue’s appeal, we dismiss the same.
Shri Inderjeet, Sohna Gurgaon, ITAT Delhi Dt. 3.12.2018 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.”
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.
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.”
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.

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.”
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.
CIT v. Greenworld Corporation 314 ITR 81

 

Re-opening based on borrowed satisfaction of the Assessing Officer is not valid. Moreover, AIR information is not sufficient. Even, there is no satisfaction note what to speak of borrowed satisfaction. Hence, the reopening is bad.
ITAT , Delhi Bench , ITA No. 988/Del/2018 in the case of Sunil Aggarwal Vs. ITO , Ward No. 1(3) (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 )
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 View Full Profile

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