The Ahmedabad bench of the Income Tax Appellate Tribunal (ITAT) held that the assessment proceedings cannot be initiated on fallacious assumptions, therefore, the order passed by the Commissioner of Income Tax (Appeal) was quashed.
The Assessee, DineshkumarDalsangbhai Chaudhary case was reopened for assessment as it had come to the notice of the assessing officer that the assessee had cash of Rs.11.21 lakhs in the Bank of Baroda. None attended the hearing nor filed written submissions.
The assessing officer framed the assessment under Section 144 of the Income Tax Act on the basis of the material before making an addition of Rs.18,91,000/- to the income of the assessee on account of unexplained cash deposits.
The assessee challenged the assessment order before the Commissioner of Income Tax (Appeal) [CIT(A)], where he filed additional evidence which was considered by the Commissioner of Income Tax (Appeal) [CIT(A)], in accordance with the procedure prescribed in law, after seeking remand report from the assessing officer.
The representative for the assessee argued that the assessing officer’s decision to reopen the assessment was solely based on the information obtained from the Annual Information Return (AIR) statement, which indicated that the taxpayer had deposited a sum of Rs. 11,21,000 in cash.
Further, submitted that merely on the basis of this information alone, the assessing officer formed a belief of escapement of income for the assumption of jurisdiction to reopen the assessment of the assessee under section 147 of the Income Tax Act.
The assessing officer has reopened the case of the assessee merely on suspicion that the assessee has deposited the cash from unexplained sources, however, there is no formation of belief.
The Authorized Representative replied to the decision of the Income Tax Appellate Tribunal (ITAT), Delhi Benches in the case of Bir Bahadur Singh Sijwali v. I.T.O. [2015] 53 taxmann.com366. Thus, prayed that the assessment order passed by the assessing officer under section 147 of the Income Tax Act and upheld by the Commissioner of Income Tax (Appeal) is bad in law and liable to the quashed.
The Single-bench member comprising of Annapurna Gupta (Accountant member) held that the assessing officer had acted merely on the basis of suspicion based on the AIR statement indicating the assessee has deposited cash in the bank to the tune of Rs.11.21 lakhs, but not based on the belief that the income chargeable to tax had escaped income.
The Income Tax Appellate Tribunal (ITAT) has ruled in various cases that initiating assessment proceedings under Section 147 of the Income Tax Act based on the erroneous assumption or suspicion that bank deposits represent undisclosed income, without considering the possibility that the source of the deposits may not necessarily be the assessee’s income, is both unsupported and legally unsustainable.
The impugned assessment order passed by the Commissioner of Income Tax (Appeal) [CIT(A)] was set aside and the assessment order passed under section 147 of the Income Tax Act was quashed.
Thus, the appeal of the assessee is allowed.
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