Third-Party Statement Basis for Reassessment of ₹2.86 Cr Cash Deposit: ITAT remands File to CIT(A) for Source Verification [Read Order]

The Mumbai bench of Income Tax Appellate Tribunal (ITAT) upheld the reassessment of ₹2.86 Cr cash deposit based on the third party's statement and remanded the file to CIT(A) for the verification of the source of the cash deposit.

The assessee, Mr. Jatin Harish Sotta, was subjected to reassessment proceedings under section 147 of the Income Tax Act after information was received from the Investigation Wing that substantial cash deposits amounting to ₹2.86 crore were made in the bank account of one Mr. Jitendra K. Palan, which, as per statements recorded by the Investigation Wing, were allegedly operated by the assessee.

Based on this information, the Assessing Officer (AO) issued notice under section 148 and reopened the assessment, treating the deposits as unexplained money under section 69A.

During the reassessment proceedings, the AO concluded that the cash deposits in the said account belonged to the assessee, noting that the third party, Mr. Palan, had admitted to providing accommodation entries and allowing his accounts to be used by others for cash routing. The AO added ₹2.86 crore to the assessee’s income as unexplained cash deposits.

Before the CIT(A), the assessee contended that the account did not belong to him, and the deposits were neither made nor controlled by him. The assessee also submitted that he was not afforded an adequate opportunity to cross-examine the third party whose statement was the sole basis of the addition. However, the CIT(A) upheld the AO’s action, relying primarily on the statement of Mr Palan and the Investigation Wing’s findings.

Aggrieved, the assessee approached the ITAT, challenging both the reopening and the addition. He argued that the reassessment was based merely on third-party information without independent verification and that the authorities had erred in concluding ownership of the bank account without corroborative evidence.

The assessee argued that the AO had initiated reassessment proceedings solely on borrowed satisfaction drawn from the Investigation Wing’s report and a third party’s unverified statement. He contended that there was no material linking the assessee with the impugned bank account and that no opportunity for cross-examination was granted. It was further argued that such reliance on an untested statement without corroboration violated the principles of natural justice.

The Revenue supported the orders of the lower authorities, submitting that the statement of Mr Jitendra Palan, corroborated with the investigation findings, constituted tangible material sufficient for reopening. The Revenue maintained that the AO had validly assumed jurisdiction under section 147 and that the onus was on the assessee to rebut the material gathered during the investigation, which he failed to do.

The ITAT held that the reassessment was validly initiated, as the information received from the Investigation Wing, coupled with the statement of Mr. Palan linking the assessee to the cash deposits, constituted tangible material for reopening under section 147 of the Income Tax Act.

However, observing that the assessee had not been given a fair opportunity to explain the source of the deposits or to cross-examine the third party, the two-member bench comprising Raj Kumar Chauhan (Judicial Member) and Om Prakash Kant (Accountant Member) remanded the matter back to the CIT(A).

The bench also directed the CIT(A) to grant one final opportunity to the assessee to substantiate his claim with evidence and to verify the same in light of the statement and bank records.

Accordingly, the appeal was allowed for statistical purposes, with the matter restored for fresh adjudication of the ₹2.86 crore cash deposits after due verification.

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