Addition Based on Unverified NMS Data Unsustainable Without Independent Verification: ITAT sets aside ₹3.92 Cr Addition [Read Order]

The Income Tax AppellateTribunal (ITAT) Hyderabad Bench has quashed a reassessment order and a consequential addition of ₹3.92 crores ruling that additions made under Section69A of the Income Tax Act, 1961 based solely on unverified Non-Manning System (NMS) data from the INSIGHT portal are legally unsustainable.

The assessee Prakasam District Police Welfare Association for the Assessment Year (AY) 2018-19. The Assessing Officer (AO) has taken steps for re-assessment in accordance with Section 147 due to specific information available through the CBDT's Risk Management Strategy in the portal implying a significant amount of financial transaction. Therefore, addition of ₹3,92,22,536 has been made as unexplained cash deposits and the total income arrived at is ₹4,33,93,686.

The assessee submitted that there is reliance upon the incorrect information in relation to the huge deposits in the INSIGHT portal. However, it was shown in the bank statements that the correct amount of cash deposits was ₹1,12,97,847.

Also, the notice of reassessment under section 148 dated 09.04.2022 was not filed within the period of 3 years from the end of the relevant AY without obtaining prior permission from the specified authority (Principal Chief Commissioner) as provided under the amended Section 151(ii). Here, the AO obtained permission from the PCIT.

The Bench, comprising Ravish Sood (Judicial Member) and Madhusudan Sawdia (Accountant Member), observed that the AO failed to independently verify the portal's data against the assessee's actual bank statements.

The Tribunal held that the burden lies on the Revenue to establish the existence of unexplained money before invoking Section 69A.The Bench further, noted that for notices issued beyond three years after April 1, 2021, the law mandates sanction from higher authorities under Section 151(ii). Since the AO acted on an invalid sanction, the entire assessment was quashed for want of valid jurisdiction.

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