Reassessment based on Incorrect Facts not Valid: ITAT Quashes Notice u/s 148 [Read Order]

The Chandigarh Bench of the Income Tax Appellate Tribunal ( ITAT ) quashed the reassessment notice issued under Section 148 of the Income Tax Act, 1961, and deleting an addition of Rs. 16,15,47,810 by holding that the reassessment was based on incorrect facts, rendering the proceedings invalid.

Raj Autos (assessee) a firm engaged in the sale of Honda two-wheelers, faced reassessment proceedings for the Assessment Year (AY) 2016-17. The Assessing Officer (AO) initiated reassessment proceedings and alleged that income of Rs. 19,75,47,805 had escaped assessment due to unexplained cash deposits in the firm’s IndusInd Bank account.

The AO issued a notice under Section 148, claiming that the deposits were not commensurate with the declared income of Rs. 12,17,270, as per the return filed on 15.09.2016. The AO treated the entire credited amount in the bank account, amounting to Rs. 16,15,47,810, as unexplained cash credit under Section 68 of the Income Tax Act.

Aggrieved by the AO’s order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) deleted the addition of Rs. 16,15,47,810. The CIT(A) held that the deposits were adequately explained by the assessee’s audited accounts.

The CIT(A) observed that the income reflected a total turnover of Rs. 16,31,36,937, including sales of two-wheelers, accessories, spares, and other items. The CIT(A) upheld the validity of the reassessment proceedings.

Aggrieved by the CIT(A)’s order, the Revenue filed an appeal before the ITAT. The Revenue challenged the deletion of the addition. On the other hand, the assessee filed a cross objection which contested the validity of the reassessment proceedings.

The assessee argued that the AO’s reasons for reopening were based on incorrect facts, as the actual cash deposits in the IndusInd Bank account were Rs. 10,14,63,750, not Rs. 19,75,47,805 as alleged by the AO.

The two-member bench comprising Rajpal Yadav (Vice President) and Krinwant Sahay (Accountant Member), observed that the AO had relied on erroneous information from the Department’s Insight Portal without verifying it against the assessee’s assessment records.

The Tribunal observed that the assessee’s total turnover for the year was Rs. 16.31 crore, and the actual cash deposits were Rs. 10.14 crore as against the AO’s claim of Rs. 19.75 crore. It held that the AO failed to establish a live nexus between the alleged information and the assessee’s return.

The Bench further upheld the CIT(A)’s deletion of the addition, finding that the assessee had substantiated the source of the deposits through bank statements, audited accounts, cash books, and other documentary evidence.

The Tribunal concluded that the reassessment was based on a misconception of facts, and the notice under Section 148 was not justifiable. It held that the reassessment was invalid due to incorrect facts. The Assessee’s Cross objection was allowed and the Revenue’s appeal was dismissed.

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