2025 (6) TMI 1633 - AT - Income Tax

Reopening the assessment u/s 147 - addition on account of alleged 30% of total credits treated business income - HELD THAT - AR has repeated the submission made during the appellate proceedings before CIT(A). He has not made any additional arguments as to why the findings of the CIT(A) is not correct. We do not find any infirmity in the reasoning of the CIT(A) in dismissing the ground. Hence this ground No.1 is dismissed. Estimation income at 30% of the unexplained cash deposits/credits entries in the HDFC Bank account of assessee - AO has added the entire deposit which was restricted to 30% by the CIT(A). During the hearing it was submitted by both counsel that a reasonable estimate may be made by the Tribunal. After considering the totality of the facts we are of the considered view that 20% of the total cash deposits/credits in the impugned bank account would meet the ends of justice. Hence the AO is directed to add Rs. 1, 67, 716/-(i.e. 20% Rs. 8, 38, 580/-). The ground is partly allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal were:

(a) Whether the reopening of assessment under section 147 of the Income-tax Act, 1961, and issuance of notice under section 148, was valid and justified in the facts and circumstances of the case;

(b) Whether the addition of Rs. 2,51,574/- on account of 30% of total credits in an undisclosed bank account as business income was justified, or whether a lesser percentage should be applied for estimation;

(c) Whether the penalty imposed (though mentioned in grounds) should be deleted or maintained (though the Tribunal did not explicitly address penalty in the order).

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Validity of Reopening under Section 147/148

Relevant legal framework and precedents: Section 147 of the Income-tax Act empowers the Assessing Officer (AO) to reopen an assessment if there is reason to believe that income has escaped assessment. Section 148 mandates issuance of a notice before reopening. The reopening must be based on tangible material and reasons recorded in writing. The reopening is subject to limitation periods and procedural safeguards. The assessee is entitled to know the reasons for reopening and can challenge validity if reasons are not disclosed or are mala fide.

Court's interpretation and reasoning: The Tribunal noted that the Commissioner of Income-tax (Appeals) [CIT(A)] had dismissed the assessee's objection to reopening on the ground that the assessee had not sought reasons for reopening during assessment proceedings, but only after five years. The AO had recorded and served reasons for reopening, which were not contested. The Tribunal found no infirmity in the CIT(A)'s reasoning and upheld the validity of reopening.

Key evidence and findings: The AO found an undisclosed bank account with cash credits amounting to Rs. 8,38,580/-. This constituted tangible material to form reason to believe that income had escaped assessment. The assessee did not contest the existence or service of reasons for reopening.

Application of law to facts: The Tribunal applied the principle that reopening is valid if reasons are recorded and communicated. The delay in seeking reasons by the assessee did not invalidate the reopening.

Treatment of competing arguments: The assessee argued invalidity of reopening, but did not present fresh arguments beyond those considered by CIT(A). The Tribunal gave weight to the procedural compliance by AO and absence of challenge to reasons.

Conclusion: The reopening under section 147/148 was valid and justified.

Issue (b): Quantum of Addition on Account of Undisclosed Bank Account Credits

Relevant legal framework and precedents: Section 69 of the Income-tax Act authorizes addition of unexplained cash credits to income. The AO can estimate income where exact quantification is not possible. The estimation should be reasonable and based on facts. Precedents emphasize that estimation must be just and fair, not arbitrary or punitive.

Court's interpretation and reasoning: The AO initially added the entire amount of Rs. 8,38,580/-. The CIT(A) reduced this addition to 30% of the total credits, i.e., Rs. 2,51,574/-. During the Tribunal hearing, both parties agreed that a reasonable estimate should be made by the Tribunal. The Tribunal considered the totality of facts and concluded that 20% of the total cash deposits/credits would meet the ends of justice.

Key evidence and findings: The undisclosed bank account had both debit and credit entries. The assessee did not disclose this account in books of account. The total credits were Rs. 8,38,580/-. The assessee requested estimation at 5%, which was rejected by CIT(A). The Tribunal found 20% to be a reasonable middle ground.

Application of law to facts: The Tribunal applied the principle of reasonable estimation and fairness. The reduction from AO's full addition to 20% reflects moderation based on facts and submissions.

Treatment of competing arguments: The assessee's plea for 5% was considered but found insufficient to reflect true income. The revenue's stand for higher addition was moderated by the Tribunal.

Conclusion: Addition is confirmed at 20% of total credits, amounting to Rs. 1,67,716/-.

Issue (c): Penalty Deletion

The grounds mention deletion of penalty, but the Tribunal's order does not expressly address penalty. Hence, no detailed analysis or conclusion on penalty is recorded in the judgment.

3. SIGNIFICANT HOLDINGS

"The reopening under section 147/148 is valid where reasons are duly recorded and served upon the assessee, and the assessee's failure to seek reasons at the time of assessment proceedings does not invalidate the reopening."

"In estimating unexplained cash credits under section 69, the Tribunal may apply a reasonable percentage to total credits to meet the ends of justice, balancing between the AO's full addition and the assessee's minimal estimate."

"Considering the facts of the case, 20% of total cash deposits/credits in the undisclosed bank account is a fair and just estimate of income to be added."

Final determinations:

(a) The reopening of assessment under section 147/148 is upheld as valid;

(b) The addition on account of unexplained cash credits in the undisclosed bank account is sustained but reduced to 20% of total credits, i.e., Rs. 1,67,716/-;

(c) The appeal is partly allowed accordingly.