Re-Assessment can’t be made for not replying Enquiry letter issued on AIR basis to verify Source of Investment: ITAT [Read Order]

The Income Tax Appellate Tribunal, Delhi ‘SMC’ bench, New Delhi held that reopening of a case for not replying query notice issued by ITO on AIR basis to verify the source of investment made by the assesse is not sustainable under the provisions of the Income Tax Act, 1961.

The Appellate Tribunal, held so while hearing an appeal filed by the assesse, Mr. Mahavir Parsad, an individual.

As per the AIR for the FY 2006-07, the ITO has received the information that the assesse had made cash deposits of Rs.10, 80,000/- in his bank account with Punjab national bank circular road Rewari.An enquiry notice was issued in the name of assesse on 24^th January 2012.

Due to non-answering to the query letter, the Assessing officer believed that assesse has deposited cash in his bank account out of his income from unexplained sources. According to the section 147 of the income tax act, income to the extent of aforesaid amount and any other income which subsequently didn’t  comes to the notice are  escaped assessment. After reopening the case the Assessing Officer, in the impugned order had made three additions viz; addition on account of aforesaid amount, addition on account of disallowance of deduction under section 54B of Rs. 17,96,500/ and addition on account of interest Rs. 54,851/-.

Aggrieved by the above action, assesse filed an appeal before the ld. CIT (A), Rohtak. The appeal was dismissed by the ld. CIT (A) where ground Nos.Then the assesse has come in appeal before the Tribunal. Finally the appeal is dismissed in favour of assesse by explaining the legal grounds of section 148 of the Income Tax Act, 1961.

According to this mere information from AIR is made as the basis without describing the contents of the information like when it was received, copy of the bank details was never enclosed by the assessing officer while recording the purported reasons to believe. So, it cannot be treated as the income escaping assessment. The Accountant member clearly mentioned that while recording the reasons to believe merely relying upon financial information cannot be treated as good enough to reopen the case.

After going through the reasons recorded by ITO Ward-2, Rewari, and The Judge proclaimed that even the communication dated 24.1.2012 could not be made a basis to assume jurisdiction in view of the fact that such an enquiry letter is an illegal enquiry letter and thus cannot be relied upon.

Finally the case was dismissed in favour of assesse by exhibiting some of the facts of related cases. The appeal of the assesse was allowed and re-opening of that case to verify the source of investment was held bad.

Read the full text of the Order below.