2018 (11) TMI 1953 - AT - Income Tax

Validity of reopening of assessment - it was the AIR information which formed the basis of the AO s belief of escapement of income of the assessee - unexplained cash deposits in the savings bank account of the assessee - HELD THAT - In Bir Bahadur Singh Sijwali case 2015 (2) TMI 60 - ITAT DELHI like in the present case the reasons recorded indicated that cash deposits had been made in the bank account of the assessee. The Tribunal held that the mere factum of deposits having been made in a bank account does not indicate that these deposits constitute an income which has escaped assessment. As observed that the reasons recorded did not make out a case that the assessee was engaged in some business and the income from such a business had not been returned by the assessee. In the case at hand also the reasons recorded do not contain any such recital. The Tribunal held that the factum per se of deposits in the bank account of the assessee could not be made the basis for holding the view that income had escaped assessment overlooking that the sources of the deposits need not necessarily be the income of the assessee; and that as such the reasons recorded were not sufficient to believe escapement of income; that rather they were reasons to suspect escapement of income which was not enough for issuance of a notice u/s 148 of the Act. The reasons recorded by the AO for issuance of notice u/s 148 of the Act are held to be invalid being reasons not sufficient to form belief of escapement of income based on vague information. All proceedings pursuant thereto are thus annulled and cancelled. Assessee appeal allowed.

Summary

Issues:
- Validity of addition of cash deposit in assessee's SB A/c as income
- Failure to consider real beneficiaries of forged transactions
- Jurisdiction of notice issued u/s 148 for escapement of income

Analysis:
1. Validity of Cash Deposit Addition: The appellant challenged the addition of cash deposit in the SB A/c as income, citing fraudulent operation of bank accounts. The appellant argued that the money was used for purchasing cement and insurance policies by the accused, not the appellant. The appellant contended that the real beneficiaries of the transactions should be taxed, not the appellant. The Tribunal observed that the mere fact of cash deposits does not automatically imply income escapement. Referring to previous cases, the Tribunal emphasized the need for a direct nexus between deposited amounts and unreported income. The Tribunal concluded that suspicion alone is insufficient to initiate assessment proceedings under section 147 without concrete evidence of income escapement.

2. Failure to Consider Real Beneficiaries: The appellant raised concerns regarding the failure to consider the real beneficiaries of the forged transactions for tax and penal actions under the Income Tax Act, 1961. However, the Tribunal did not find this issue central to the validity of the cash deposit addition. The Tribunal's focus remained on the adequacy of reasons for initiating assessment proceedings based on the deposited amounts.

3. Jurisdiction of Notice u/s 148: The crux of the case revolved around the validity of the notice issued u/s 148 for escapement of income. The appellant argued that the Assessing Officer (AO) lacked sufficient material to form a belief of income escapement. The AO primarily relied on AIR information about cash deposits, without considering the source or nature of these deposits. The Tribunal echoed previous judgments emphasizing the need for a rational connection between the information available and the belief of income escapement. Following established precedents, the Tribunal held that vague information alone cannot justify the initiation of assessment proceedings under section 147.

4. Conclusion: Ultimately, the Tribunal found merit in the appellant's grievance regarding the invalidity of the reasons recorded by the AO for issuing the notice u/s 148. The Tribunal deemed the reasons insufficient to establish a belief of income escapement, based on vague information. Consequently, all proceedings stemming from the notice, including the assessment order, were annulled and cancelled. The appeal was allowed in favor of the appellant, emphasizing the importance of concrete evidence in income tax assessments.