Sec 147 assessment framed merely on basis of information of cash deposit was not tenable in law: ITAT

The Income Tax Appellate Tribunal (ITAT) in the matter of Dinesh kumar Dalsangbhai Chaudhary Kankavati Society vs ITO has retreated the case of Bir Bahadur Singh Sijwali v. I.T.O. (supra) where the Tribunal has quashed the reassessment order holding that in the absence of material to indicate that income has escaped the assessment, the assessment framed merely on the basis information of cash deposit, was not tenable in law.

Relevant Text:

8. In the light of the above, I hold the assumption of jurisdiction by the AO to reopen the case of the assessee merely on the basis in formation of cash deposit in bank was not inaccordance with law, and therefore, the impugned assessment order passed by the ld.CIT(A) is set aside and the assessment order passed under section 147 of the Act quashed.

The ld.counsel for the assessee contended that the AO has resorted to reopening of the assessment merely on the basis of the information received by the AO from AIR statement that the assessee has deposited cash to the tune of Rs.11,21,000/-. He submitted that merely on the basis of this information alone, the AO formed belief of escapement of income for assumption of jurisdiction to reopen the assessment of the assessee under section 147 of the Act. The AO has reopened the case of the assessee merely on suspicion that the assessee has deposited the cash from the unexplained sources, however, there is no formation of belief. To this proposition, the ld.AR replied on the decision of the ITAT, Delhi Benches in the case of Bir Bahadur Singh Sijwali v. I.T.O. [2015] 53 taxmann.com366 (ITAT-Delhi). He thus prayed that the assessment order passed by the AO under section 147 and upheld by the ld.CIT(A) is bad in law and liable to the quashed.

The Tribunal found merit in the contention of the ld. counsel for the assessee that the AO had acted merely on the basis of suspicion based on AIR statement indicating the assessee has deposited cash in the bank to the tune of Rs.11.21 lakhs, but not based on belief that the income chargeable to tax had escaped income. It has been held by the various decisions of the ITAT that when the assessment proceedings u/s 147 are initiated on the fallacious assumption or suspicion that the bank deposits constituted undisclosed income, over-looking the fact that the source of the deposits need not necessarily be the income of the assessee, the proceedings is neither countenanced, nor sustainable in law.

In the instant case, there is nothing on record to show that on receipt of the information, the AO had carried out any inquiry or investigation so as to demonstrate the source of the impugned cash deposits in the bank, which according to the AO was income escaped from the assessment so as to attract initiation of proceedings under section 147 of the Act.

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