Cash Deposited in Bank account of Assessee, is not sufficient for Formation of “Belief of Escapement of Income” by AO: ITAT sets aside Assessment Order

The Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench, has recently, in an appeal filed before it, while setting aside an assessment order, held that the cash deposited in bank account of the assessee, is not sufficient for the formation of “belief of escapement of Income” by the AO.

The aforesaid observation was made by the Ahmedabad ITAT, when an appeal was filed before it by the assessee, as against the order passed by the Commissioner of Income Tax (Appeals), Ahmedabad, (CIT(A)), under section 250(6) of the Income Tax Act, 1961, dated 27.11.2018, pertaining to Asst.Year2010-11.

The ground of the assessee’s appeal being that on facts, and in law, the CIT (A) has grievously erred in confirming the addition of Rs.15,00,000/, made under section 68 of the Income Tax Act, in respect of deposits in appellant’s bank account, it was the contention of the  Shri Mehul K. Patel, the AR for the assessee , that reopening was resorted to, on the information with the AO that there was cash deposits in the bank account of the assessee, amounting to Rs.15.00 lakhs.

The counsel for the assessee contended that, this information alone could not lead to formation of belief of escapement of income for assumption of valid jurisdiction to reopen the case of the assessee under section 147 of the Income Tax Act. And, in this regard, he relied upon the decisions of the ITAT, Ahmedabad Bench in the cases of Mariyam Ismail Rajwani vs ITO, and BirBahadur Singh Sijwali v. I.T.O

However, on the other hand, Shri B.P. Makwana, the Sr.DR, strongly relied on the order of the CIT(A).

Hearing the opposing contentions of both sides and thereby perusing the materials available on record, the ITAT observed:

“We have heard both the parties and gone through the orders of the authorities below. We have noted from the assessment order that reopening was resorted to by the AO on the information received from ADIT (Investigation), Mehsana that there were three transactions of cash deposits of Rs.5.00 lakhs each amounting in all to Rs.15 lakhs in the HDFC Bank account of the assessee.”

“The ld.CIT(A), I have noted, did not entertain contention raised by the assessee that this information solely could not have led to formation of belief of escapement of income, stating that case laws relied upon by the assessee were not applicable to the facts of the case; no reasoning was given by the ld.CIT(A) for the same.  I am not in agreement with the ld.CIT(A) in this regard. Only information in the possession of the AO for assuming jurisdiction to reopen the case of the assessee was that of cash deposited in the bank account of the assessee, and this information has been held in various decisions of the ITAT cited by the ld.counsel for the assessee before us, is not sufficient for formation of belief of escapement of income. There is no information on record that on receipt of this information by the AO any inquiry or investigation was conducted by him so as to gather information regarding source of cash deposits either from the assessee or from any other source. In the absence of the same, mere information of cash deposits could not have led to the formation of belief of escapement of income. The issue is squarely covered by the decision of the ITAT in the cases Mariyam Ismail Rajwani and BirBahadur Singh Sijwali”, the coram of Annapurna Gupta, the Accountant Member noted.

Thus, the ITAT finally held:

“In view of the same, we hold that jurisdiction assumed by the AO to reopen the case of the assessee was not in accordance with law in the absence of formation of belief of escapement of income by the AO. The assessment order so framed is therefore not sustainable in law, and is set aside as invalid. Since we have set aside the assessment order passed under section 147 itself, adjudication of addition on merits is merely an academic exercise. Accordingly, the same are disposed off.  In the result, the appeal of the assessee is allowed in above terms”.

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