The Ahmedabad bench of the Income Tax Appellate Tribunal ( ITAT ) has restored the Commissioner of Income Tax (Appeals) (CIT(A)’s decision for re-adjudication, emphasizing that a prima-facie formation of a belief was required under Section 147/148 of the Income Tax Act ,1961, based on tangible material having live link/nexus that income escaped assessment.
During the financial year 2010-11, the Income-tax Department observed that the assessee, Pareshkumar Punamchand Shah, made cash deposits in accounts held with Vijaya Bank ( Manek Chowk Branch ) and Indusind Bank. Additionally, the assessee engaged in share transactions and earned income from commodities through the Multi Commodity Exchange. Notably, the assessee failed to file a return of income for the said assessment year.
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The Assessing Officer (AO) deemed it necessary to verify the sources of these cash deposits, share transactions, and commodity transactions. Consequently, the AO invoked Section 147 of the Income Tax Act and reopened the assessment. A notice under Section 148 was issued on 20.03.2018, following the recording of reasons for reopening. Despite this, the assessee did not file a return of income in response to the notice. The AO also issued statutory notices under Section 142(1) during the reassessment proceedings, which went complied with by the assessee.
Due to the lack of response from the assessee to both the Show-cause notice and notices under Sections 148 and 142(1), the AO proceeded to complete the assessment ex-parte under Section 144, making additions of Rs. 29,93,000 towards undisclosed cash deposits.
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The assessee filed a second appeal before the Tribunal, challenging both the reopening of the assessment and the merits of the additions. The Counsel for the assessee Mr Preyashi Tated argued that the reasons recorded for reopening the assessment were not provided initially and were only obtained through an RTI application. Further the counsel contended that reopening for verification of cash deposits was impermissible, citing the Gujarat High Court’s judgment in PCIT v. Manzil Dineshkumar Shah and referenced a decision by the ITAT Ahmedabad Bench.
Mr. Hrishikesh Hemant Patki, representing the revenue, argued that the assessee failed to file the required return of income and did not appear before either the AO or the CIT(A). Reliance was placed on decisions by the ITAT Delhi and ITAT Chandigarh and the appellate order of the CIT(A).
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The Tribunal reviewed the contentions from both parties and noted that the assessee had not filed the return of income as required. The AO had sufficient grounds to believe that income had escaped assessment, given the unexplained cash deposits and financial transactions. The Tribunal agreed that the AO properly invoked Sections 147/148, supported by tangible material, as established by the Supreme Court in ACIT v. Rajesh Jhaveri Stock Brokers Private Limited.
Further the single member bench of the tribunal Ramit Kochar ( Accountant member ) observed that prima-facie formation of a belief was required under Section 147/148 of the Income Tax Act, based on tangible material having live link/nexus that income escaped assessment.
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The Tribunal upheld the reopening of the assessment. It was determined that the assessee had not denied the bank accounts or the cash deposits and had not provided adequate explanations for the same. Additional evidence submitted regarding peak cash credit was admitted for verification. The Tribunal ordered a remand of the case to the CIT (A) for re-adjudication on the merits of the additions, with a directive for proper hearing. The appeal was partly allowed for statistical purposes, with no comment on the merits of the issue.
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