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Praveen Kumar Jain Versus ITO, Ward-39 (3) , New Delhi

Validity of reopening of assessment - undisclosed deposit in the bank account of the assessee - Held 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 proceed to reopen the assessment which is in nature of a post mortem exercise after the event of reopening of the assessment. Therefore the reopening of the assessment wa .....

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bank account of the assessee constitutes the income of the assessee and the same has escaped assessment. The decision relied upon by the ld DR is not applicable in the facts of the present case because in the said case not only the accommodation entry were found by the investigation wing but the modus operandi was also detected and therefore it was found that the AO was having the sufficient material and information to form the believe that the income assessable to tax has escaped assessment. In .....

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raised the following grounds:- Jurisdictional Grounds on validity of reopening proceedings y/s 148 1. That on the facts and in the circumstances of the case and in law, Ld CIT-A erred in not quashing the patently invalid reopening action u/s 148 which is full of errors and omissions as evident from: Addition of cash deposit being withdrawn on same date (05.11.2005) from bank a/c 2. That on the facts and in the circumstances of the case and in law, Ld CIT-A erred in not accepting assessee's .....

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the scope of reopening and without any cogent material on records. That the appellant craves leave to add, to, amend, modify, rescind, supplement or alter any of the grounds stated herein above, either before or at the time of hearing of this appeal. a. That on mere cash deposit without anything more reasons are farmed which is invalid without looking to available ROI/ITR filed on 31/3/2007 with ITO Ward 25(2) New Delhi etc (page 2 of impugned order); b. As evident from pages 5/6 of impugned or .....

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d 23.01.2014) without prior ROI u/s 148 (refer reasons and order) assessment is framed by Ld AO u/s 143(3) which is patently bad; 3. The assessee also filed a petition for admission of additional grounds and raised the additional grounds as under:- 4. Additional ground Validity of Reopening u/s 148 • That on the facts and in the circumstances of the case and in law, learned C1T-A erred in not quashing the reopening action ofLd AO where as apparent from page2, of impugned assessment order it .....

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notice u/s 148 as evident from page 6/7 of impugned order is patently bad. • That on the facts and in the circumstances of the case and in law, learned CYT-A erred in not Quashing the reopening action of Ld AO where assessment having been framed u/s 143(3)/147 of the Act on basis of invalid issuance of notice u/s 143(2) dated 23.012014 without prior RO1 on records. 4. Argument on admission of the additional grounds are heard. Since all the additional grounds raised by the assessee are pure .....

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see has not filed return of income for the year under consideration, whereas the assessee had duly filed its return of income with ITO Ward-25(2), New Delhi vide acknowledgement dated 31st March 2007. The ld AR has pointed out that in the binging of the assessment order the AO itself has admitted this fact that the manual return declared an income of ₹ 1,12,030/- was filed on 31st March 2007 with ITO Ward-25(2), New Delhi. Thus the ld AR has submitted that the AO has proceeded under wrong .....

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escape assessment. The AO has not received any new material or information which was not already with the AO to believe that this amount of ₹ 6 lac is an income of the assessee which has escaped assessment. In order to form the believe there must be direct nexus or link between the material coming to the notice of the AO and formation of the believe that there has been escapement of income of the assessee from the assessment. The ld AR has forcefully contended that a sum deposited in the a .....

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of PR. CIT-4 Vs.G & G PHARMA INDIA LTD 5. ITA No. 811/Del/2015-Gordon Vs. ITO 6. On the other hand the ld DR has submitted that the AO has recorded the reasons for reopening and clearly mentioned that in this case information received from the investigation wing about the cash deposit of ₹ 6 lac in the bank account of the assessee maintained with Ramgaria Cooperative Bank Ltd. and the source of which are not commensurate with business activity of the assessee. Thus there was a fresh in .....

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the judgment of the Hon ble High Court in the case of CIT Vs. Nova Promoters Finlease Pvt. Ltd. 342 ITR 169. 7. The ld DR further contended that when the assessee has declared income at ₹ 12030 then the deposit of such a huge amount of ₹ 6 lacs in the bank account itself is sufficient to believe that the income assessable to tax has escaped. 8. I have considered the rival submission as well as the material on record. The AO has reopened the assessment by recording the reason which ar .....

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Desh Bandu Gupta Road, Pahar Ganj, New Delhi, the sources of which are not in commensurate with his business activities. Further, sources of cash 'deposited and its utilization is not known and remained unexplained. After perusal of the details received from the ITO (Inv), Unit-V(1), New Delhi, the details of Income tax Return filed by M/s Shalimar Trading Corp. for A.Y. 2006-07 were tried to be taken out from lTD System. However, the same were not found available there. Thus, as per our rec .....

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arred by limitation on 31/3/2013. If approved, notice u/s 148 of the act may be issued. 9. As it is manifest from the reasons recorded by the AO that the AO proposed to reopen the assessment by issuing notice u/s 148 on the basis of information received that the assessee deposit cash amount of ₹ 6 lac in the bank account. The AO has recorded in the reasons that the assessee has not filed return of income for the Assessment Year 2006-07. This fact recorded by the AO that the assessee has no .....

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not filed any return income for the year under consideration. This wrong assumption of fact also lead to the consequential reopening by the AO without verifying the record available with the AO as filed by the assessee being return of income and the other details and record along with return of income. Thus, it is clear that the AO reopen the assessment under wrong presumption of fact and without verifying the material information already available with the AO in the shape of return of income fi .....

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e that income assessable to tax has escaped assessment. The belief must be based on a material which has direct nexus to the income assessable has escaped assessment and should not be guess work and to ascertain the same through the process of investigation. The provision of section 148/147 can not be used such investigation to ascertain where income assessable to tax has escaped assessment. It is apparent that the reason for reopening was only on information of deposit of cash of ₹ 6 lac .....

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income by the assessee. There may be end number of reasons and sources of deposit of cash in the bank which may not constitute the same as income of the assessee and therefore merely deposit of cash in bank itself would not lead to the conclusion or believe that the said amount is assessable income of the assessee and escapement of assessment. In the case in hand there are number of withdrawals and deposits in the bank account of the assessee in question. It is clear from the details of the bank .....

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a position to disclose the source. Accordingly the reopening is nothing but to investigate the matter to ascertain whether this deposit would constitute the income of the assessee which has escaped the assessment or not. In the case of the C.M. Mahadeva Vs. CIT, Hon ble Karnataka High Court while dealing with identical facts of reopening has observed in Para 16 to 19 has under:- 16. The facts of the aforesaid case are quite similar to the one on hand. In the present case also the reason for reo .....

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l coming to the notice of the Income Tax Officer and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. 18. In the present case, what we find is that there is no nexus or live link between the material which had come to the notice of the Assessing officer, and the formation of his belief that there was escapement of income by the assessee which may b .....

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tween the purchase price of the property and income of the assessee in that year was the reason for which reassessment notice was given, is not worthy of acceptance. Definite and specific reason have to be recorded by the Assessing Officer before the issuance of notice under section 148 of the Act, as reply has to be given by the assessee to such reason which are recorded in the notice. Nothing can be left for the party to conjecture and then presume that such could be a reason for the Assessing .....

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wali Vs ITO (supra) while dealing and observed in Para 8 to 10 as under:- 8. Let us, in the light of this legal position, revert to the facts of the case before us. All that the reasons recorded for reopening indicate is that cash deposits aggregating to ₹ 10,24,100 have been made in the bank account of the assessee, but the mere fact that these deposits have been made in a bank account does not indicate that these deposits constitute an income which has escaped assessment. The reasons rec .....

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t of the deposits, per se, in the bank account of the assessee could be basis of holding the view that the income has escaped assessment. The answer, in our humble understanding, is in negative. The Assessing Officer has opined that an income of ₹ 10,24,100 has escaped assessment of income because the assessee has ₹ 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 .....

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support of her stand that even deposits in the bank account, as having come to the notice of the Assessing Officer through AIR, can be reason enough for holding the belief that income has escaped assessment. She has relied upon the decisions in the cases of CIT Vs Nova Promoters & Finlease Pvt Ltd [(2012)342 ITR 169] but then none of the questions before Hon ble High Court had anything to do with reopening of assessment and this decision cannot, therefore, be taken as an authority on the le .....

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ceedings, the assessee had not disclosed the material facts truly and fully and, therefore, income chargeable to tax had escaped assessment and we are unable to see anything on the facts of the present case which are materially similar to the facts of the said case. As regards her reliance on the decision of a coordinate bench in the case of Mithila Credit Services Limited Vs ITO order dated 23.5.2014), it is important to bear in mind the fact that it was a case in which the Assessing Officer ha .....

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nt proceedings was the fact of deposit of bank account which by itself does not lead to income being taxed in the hands of the assessee. Learned Departmental Representative has referred to several other judicial precedents in support of the proposition that at the stage of initiation of reassessment proceedings, all that is to be seen as existence, rather than adequacy, of the material to come to the conclusion that income has escaped assessment. To us, there cannot be any, and there is no, doub .....

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n ble jurisdictional High Court in the case of Pr. Commissioner of Income Tax Vs. G&G Pharma India Ltd. (supra) in para 12 and 13 has held as under:- 12. In the present case, after setting out four entries, stated to have been received by the Assessee on a single date i.e. 10th February 2003, from four entities which were termed as accommodation entries, which information was given to him by the Directorate of Investigation, the AO stated: I have also perused various materials and report fro .....

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ad in fact undertaken the exercise, to make a reference to the manner in which those very entries were provided in the accounts of the Assessee, which must have been tendered along with the return, which was filed on 14th November 2004 and was processed under Section 143(3) of the Act. Without forming a prima facie opinion, on the basis of such material, it was not possible for the AO to have simply concluded: it is evident that the assessee company has introduced its own unaccounted money in it .....

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ced during the hearing of the appeal. The Court would like to observe that this is in the nature of a post mortem exercise after the event of reopening of the assessment has taken place. While the CIT may have proceeded on the basis that the reopening of the assessment was valid, this does not satisfy the requirement of law that prior to the reopening of the assessment, the AO has to, applying his mind to the materials, conclude that he has reason to believe that income of the Assessee has escap .....

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