“Cash Deposits Only results in ‘Reason to Suspect’, Not ‘Reason to Believe’”: ITAT Quashes Reassessment Proceedings for 2 AYs [Read Order]

The Delhi bench of the Income Tax Appellate Tribunal quashed the reassessment proceedings for 2 assessment years (AY) as the bench noted that no returns had been filed on the cash deposits only results in ‘reason to suspect’, not ‘reason to believe’.

The assessee has appealed against the order passed by the Commissioner of Income Tax (Appeals) [CIT(A)] for the AYs 2012-13 and 2013-14, and identical issues are involved in both the appeals.

The assessee’s counsel submitted that for the AY 2012–13, the assessee didn’t file a return. Based on information suggesting cash deposits of Rs. 25.89 lakhs in a Nainital Bank account, the assessing officer reopened the case and issued a notice under Section 148 of the Income Tax Act, 1961.

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The counsel also contended that the AO hadn’t verified this claim with actual bank records. Later, after obtaining the bank statement directly from the bank, it was found that only Rs.13.39 lakhs had been deposited, and this clearly shows that the reopening was based on unverified and inaccurate information.

The bench was of the view that AO, before issuance of the section 148 notice, should have made a preliminary enquiry with the bank by obtaining the bank statement under Section 133(6) of the Income Tax Act, 1961 .

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The bench noted that the AO mentioned the wrong figure of cash deposits of Rs. 25.89 lakhs as against the correct figure of Rs. 13.39 lakhs because the latter had not carried out preliminary enquiry. The Tribunal noted that AO did not have any material with him, much less tangible material, to form a belief that the income of the assessee had escaped assessment in respect of cash deposits made in the Nainital Bank account. 

The tribunal observed that the fact that no return of income has been filed by the assessee for the cash deposits made in bank accounts only becomes a reason to suspect and does not allow the AO the reason to believe.

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The ITAT noted that “in our considered opinion, even though no return of income has been filed by the assessee, still the fact of cash deposits made in the bank account could merely reflect ‘reason to suspect” and cannot be by any stretch of imagination directly become ‘reason to believe’ for the AO.”

The ITAT comprising Yogesh Kumar U.S. (Judicial Member) and M. Balaganesh (Accountant Member) allowed the assessee’s appeal and quashed the reassessment for both the assessment years under question. 

To Read the full text of the Order CLICK HERE

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