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2025 (5) TMI 620 - AT - Income TaxValidity of reopening of assessment u/s 147 - reasons to believe - unexplained cash deposit in the bank account - HELD THAT - The only requirement is that he must have a prima facie belief about concealment of income which was available in this case as the AO was having information about cash deposit in the bank account and coupled with the fact that appellant did not file her ITR for the year under consideration and both these facts were sufficient to raise a doubt about concealment of income and hence the AO was justified in issuing a notice u/s 148 on the facts of the case. In this regard we refer to the case of ACIT v/s Rajesh Jhaveri Stock Brokers P Ltd. 2007 (5) TMI 197 - SUPREME COURT wherein held that at the stage of initiating action u/s 147 the final outcome of the proceeding is not relevant and at the initiation stage what is required is reason to believe but not the established fact of escapement of income. Hence we dismiss first ground of appeal. Addition on account of cash deposits in bank accounts which was restricted by CIT (A) at 50% - There is no infirmity pointed out by the D/R also on such cash flow statement. We find that in this cash flow statement the appellant has adopted an opening cash balance of Rs. 3, 77, 000/- and thereafter by incorporating all transactions of cash deposit and withdrawals in various bank accounts at no stage any negative balance has been worked out. Neither the CIT(A) nor the ld. D/R raised any doubt about the opening balance of Rs. 3, 77, 000/- in the cash flow statement and the entries appearing therein. Therefore there is no doubt about contents of the cash flow statement wherein no negative balance was noticed at any stage we are inclined to allow the appeal of the assessee and hence we delete the addition as sustained by ld. CIT (A) on account of cash deposit in the bank account of the assessee. This ground of appeal is allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Tribunal in this appeal are:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of initiation of reassessment proceedings under section 147 Relevant legal framework and precedents: Section 147 of the Income Tax Act empowers the AO to reopen assessment if there is reason to believe that income chargeable to tax has escaped assessment. The Supreme Court in the case of ACIT v. Rajesh Jhaveri Stock Brokers P Ltd. held that at the stage of initiating proceedings under section 147, the AO is not required to have conclusive proof of escapement but only a "reason to believe" that income has escaped assessment. Court's interpretation and reasoning: The Tribunal noted that the AO possessed information regarding cash deposits in the assessee's bank accounts and the fact that the assessee did not file her return of income for the relevant year. These facts constituted sufficient material to form a prima facie belief of escapement of income. The Tribunal emphasized that the AO is not statutorily required to analyze the information to reach a conclusive proof at the initiation stage. Application of law to facts: Since the AO had information about unexplained cash deposits and non-filing of return, the initiation of reassessment proceedings was held to be justified. Treatment of competing arguments: The assessee argued that the AO failed to consider withdrawals made by her which could explain the source of cash deposits. The Tribunal rejected this contention at the initiation stage, clarifying that detailed analysis is not required at that point. Conclusion: The Tribunal dismissed the ground challenging the initiation of reassessment proceedings. Issue 2: Non-provision of reason recorded to the assessee This ground was not pressed by the assessee before the Tribunal and was accordingly dismissed as not pressed. Issue 3: Addition on account of unexplained cash deposits in bank accounts Relevant legal framework: Additions can be made on unexplained cash deposits under the provisions of the Income Tax Act when the assessee fails to satisfactorily explain the source of such deposits. Court's interpretation and reasoning: The AO made an addition of Rs. 15,53,500/- on account of unexplained cash deposits after the assessee failed to provide satisfactory documentary evidence or details such as sales bills, stock details, sundry debtors and creditors for income declared under section 44AD. The CIT(A) reduced the addition to 50% (Rs. 7,76,750/-) considering the assessee's submissions about opening cash balance, withdrawals, and staggered deposits, but observed that the assessee failed to establish a nexus between deposits and withdrawals or provide evidence of the claimed coal business. Key evidence and findings: The assessee submitted a cash flow statement showing opening cash balance of Rs. 3,77,000/-, cash deposits, and withdrawals during the year. The Tribunal noted that neither the CIT(A) nor the Department disputed the authenticity of the cash flow statement or the opening balance. The cash flow statement showed no negative balance at any point, indicating that deposits could be explained by withdrawals and opening balance. Application of law to facts: Given the undisputed cash flow statement and absence of any negative cash balance, the Tribunal held that the addition on account of unexplained cash deposits was not sustainable. Treatment of competing arguments: The Revenue relied on the AO and CIT(A) findings that the assessee failed to prove the source of deposits fully. The Tribunal found that the CIT(A) relied on mere estimation without adequately considering the cash flow statement which was undisputed. Conclusion: The Tribunal allowed the appeal on this ground and deleted the addition of Rs. 7,76,750/- made on account of cash deposits. Issue 4: Addition made without specifying relevant section This ground was not adjudicated upon since the Tribunal allowed the effective ground relating to cash deposits and did not find it necessary to consider other grounds. 3. SIGNIFICANT HOLDINGS The Tribunal held that for initiating reassessment proceedings under section 147, the AO requires only a "reason to believe" and not conclusive proof of escapement of income. The presence of information about cash deposits and non-filing of return sufficed to justify the initiation of proceedings. Regarding unexplained cash deposits, the Tribunal emphasized the importance of considering undisputed cash flow statements and the opening cash balance. It observed: "...in view of the fact that there is no doubt about contents of the cash flow statement wherein no negative balance was noticed at any stage, we are inclined to allow the appeal of the assessee and hence we delete the addition of Rs. 7,76,750/- as sustained by ld. CIT (A) on account of cash deposit in the bank account of the assessee." The Tribunal underscored that mere estimation without considering reliable documentary evidence like cash flow statements is not sustainable. Final determinations:
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