Shri Dhaval Rajendrakumar Patel, Unjha V. The ITO, Ward-4, Patan

ITA 1068/AHD/2019

AI Insights

The case involves Shri Dhaval Rajendrakumar Patel, who appealed against the order of the Commissioner of Income-tax (Appeals), Gandhinagar, which upheld the addition of Rs. 22,09,900 to his income for the Assessment Year 2010-11. The addition was based on unexplained cash deposits in his bank account, as per information received under the Annual Information Report (AIR). The Assessing Officer had reopened the case under Section 148 of the Income Tax Act, 1961, after the assessee failed to respond to inquiries about the source of these deposits. The Tribunal examined whether the reopening of the assessment was valid and whether the cash deposits were rightly treated as unexplained income. The Tribunal upheld the reopening but found the explanation provided by the assessee regarding the source of the cash deposits credible, leading to the deletion of the addition.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 299909 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 9 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: SMC
• Next Hearing Date: 20-03-2023
• Assessment Year: 2010-2011
• Appeal Filed On: 24-06-2019
• Other Referred Cases: Smt. Mariyam Ismail Rajwani in ITA No. 676/Ahd/2016, Bir Bahadur Singh Sijwall Vs. ITO, Smt. A Sridevi [2018] 100 taxmann.com 434, Smt Arts Gupta, Meerut Vs ITO ITA No. 1209/Del/2018
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: BIREN SHAH
• Keywords: Reopening of assessment; Unexplained cash credit; Tangible material; Reason to believe; Reassessment proceedings
• Section: 147; 148; 143(3); 143(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, AHMEDABAD BEFORE MRS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA No. 1068/Ahd/2019 िनधा रणवष /Assessment Year: 2010-11 Shri Dhaval Rajendrakumar Patel, 1, Shivdhara Society, Nr. Akshardham Society, Visnagar Road, Unjha-384170 PAN : AQPPP 7070 C Vs. The Income Tax Officer, Ward-4, Patan / (Appellant) / (Respondent) Assessee by : Shri Biren Shah, & Shri Dhrunal Bhatt, ARs Revenue by : Shri B.P. Makwana, Sr. DR सुनव ई क त र ख/Date of Hearing : 21.03.2023 घोषण क त र ख /Date of Pronouncement: 29.03.2023 आदेश/O R D E R The present appeal has been filed by the assessee against order of the learned Commissioner of Income-tax (Appeals), Gandhinagar, Ahmedabad [hereinafter referred to as "CIT(A)" for short] dated 30.04.2019 passed under Section 250(6) of the Income Tax Act, 1961 [hereinafter referred to as "the Act" for short] for the Assessment Year (AY) 2010-11. 2. The brief facts of the case are that the Assessing Officer had received AIR information regarding cash deposits of Rs.22,09,900/- in the savings bank account of the assessee with HDFC Bank Ltd and since the assessee had not filed return of income for the impugned year, the Assessing Officer issued notice under Section 148 of the Act for reopening the case of the assessee. Thereafter, notices were issued to the assessee to explain the source of cash deposited; however, none attended the hearing before the Assessing Officer. Therefore, the entire cash deposits were treated as unexplained and added to the income of the assessee amounting to Rs.22,09,900/-. (SMC) ITA No. 1068/Ahd/2019 Shri Dhaval Rajendrakumar Patel Vs. ITO AY : 2010-11 2 3. Before the learned CIT(A), the assessee challenged the validity of the assessment framed under Section 147 of the Act as also on the merits of the case and the learned CIT(A) dismissed all the contentions of the assessee and upheld the order of the Assessing Officer. Aggrieved by which, the assessee has come up in appeal before us. 4. Ground of appeal No.1 raised by the assessee reads as under:- “1. In law and in the facts and circumstances of the appellant’s case, learned CIT(A) has grossly erred in dismissing Appellant’s ground of appeal challenging validity of reopening carried out u/s 143(3) r.w.s. 147. Ld. CIT(A) ought to have appreciated that reopening carried out merely on the basis of information regarding cash deposited in bank account cannot be basis for reopening the case of the Appellant and reliance is placed by Appellant on the decision of Hon’ble Ahmedabad Tribunal in case of Smt. Mariyam Ismail Rajwani in ITA No. 676/Ahd/2016 dated 09.08.2016 in support of such contention.” 5. As is evident from the above, the grievance of the assessee in the above ground is against the order of the learned CIT(A) rejecting the assessee’s challenge to the validity of reopening under Section 147 of the Act. The assessee had challenged the same before the learned CIT(A) on the ground that the mere information of cash deposits in the bank account of the assessee was not sufficient for formation of belief of escapement of income and in this regard he had relied on the order of the ITAT, Ahmedabad Bench in the case of Smt. Mariyam Ismail Rajwani in ITA No. 676/Ahd/2016 dated 09.08.2016 and the order of ITAT, Delhi Bench in the case of Bir Bahadur Singh Sijwall Vs. ITO, [ 2015] 53 taxmann.com 366. The learned CIT(A) dismissed this contention of the assessee noting the fact that the Assessing Officer did not rely merely on the information of cash deposits in the bank account of the assessee but also conducted independent inquiries from the assessee seeking explanation of the source of cash deposits prior to the issue of notice under Section 148 of the Act; and when (SMC) ITA No. 1068/Ahd/2019 Shri Dhaval Rajendrakumar Patel Vs. ITO AY : 2010-11 3 the assessee did not respond to the same, only then he formed the satisfaction/belief of escapement of income and issued notice under Section 148 of the Act. The findings of the learned CIT(A) at paragraph No.5.1 of his order is as under:- “5.1 I have considered the facts of the case, assessment order and submission made by the appellant. The brief facts of the present case are that AO has received AIR information regarding cash deposit of Rs.22,09,900/- in HDFC bank a/c no. 01791000057704 and as the appellant has not filed return of income for current assessment year, the AO issued notice u/s 148 of the Act on 29/03/2017. The appellant has challenged the reassessment notice on the ground that it was issued only on cash deposits in the bank account and there is no reason to believe that how cash deposits represent income from undisclosed sources. It was argued that all receipts are not income and all Incomes are not taxable income. The appellant has relied on decisions of Hon'ble Ahmedabad ITAT in the case of Smt. Mariyam Ismail Rajwani, Amritsar ITAT in the case of Ashwani Kumar and Delhi ITAT in the case of Bir Bahadur Singh as mentioned above. However, the ratio of said decisions cannot be made applicable in view of recent decision1 of Hon'ble Madras high court in the case of Smt. A Sridevi [2018] 100 taxmann.com 434 wherein it is held as under:- "69, read with sections 147and149, of the Income-tax Act, 1961 – Unexplained investment (Loans/advances)- Assessment year 2009- 10? Assessee filed her return of income which was processed under section 143(1) - Subsequently, case was reopened by issuing a notice under section 148 and, further, reassessment order was passed making addition in respect of unexplained cash credit - Later on, Income Tax Officer, once again reopened assessment by issuing notice under section 148 - Reason furnished for reopening of assessment was that assessee had given certain advance to one, 'SN‘ for purchase of property and source of amount so paid was not explained - Assessee raised an objection that there was full and true disclosure of all material facts as when earlier reassessment proceedings took place; she had filed all necessary details Including cash flow, which reflected payments made to SN as advance, and, therefore, reopening of assessment was not permissible - It was noted that merely because a cash flow statement was appended by assessee it could not be taken to be established that assessee had made full and true disclosure of advance paid to SN - Further, assessee had not filed balance sheet or statement of affairs related to such advance - Even when reassessment proceedings were commenced by issuance of notice, assessee did not (SMC) ITA No. 1068/Ahd/2019 Shri Dhaval Rajendrakumar Patel Vs. ITO AY : 2010-11 4 file a fresh return of income, but informed Assessing Officer to treat return of income filed as return in response to notice under section 147 - Whether, on facts, it could not be said that them was full and true disclosure made by assessee pertaining to transactions with SN and; therefore, impugned reassessment proceeding was justified – Held, yes [Paras 17, 20 and 21] [In favour of revenue]" The Hon'ble High court in above case held that where the reassessment proceedings were Initiated against assessee on ground that assessee had advanced several crores of rupees to a party but source of such amount was not explained, since assessee had not filed balance sheet or statement of affairs related to such advance, impugned reassessment proceedings were justified. In the present case, it is an undisputed fact that the appellant has made cash deposits in bank account and he has not filed return of income prior to issue of notice u/s 148 of the Act hence the AO could not verify whether credits in bank account represent income or not. In the above case, the court has held that for explaining source, material evidence Is filing of annual accounts whereas in the present case, cash is deposited and unless, the appellant has filed return of income, the AO cannot come to know about the taxable income of the appellant or as to whether cash deposits are commensurate to income disclosed or not. Even in the present case, reasons recorded by the AO itself state that the appellant did not make any compliance In response to letters issued for clarification of financial transactions vide letter dated 06/03/2017 and these facts further prove that the appellant has not bothered to explain correct sources of cash deposits and thus the AO has rightly recorded reasons for reassessment and issued notice u/s 148 of the Act. Reliance is also placed on decision of Hon'ble Delhi ITAT in the case of Smt Arts Gupta, Meerut Vs ITO ITA No. 1209/Del/2018 wherein It is held as under:- "It is worthwhile to point out that in the instant case, the Assessing Officer has not recorded its reason on sole receipt of AIR information without application of mind, but before initiating the proceedings u/s. 147/148, he issued query letters to the assessee to verify the cash deposits in the bank account. The assessee at no point of time has stated that the query letter were not in the notice of the assessee nor has he assigned any reason for not responding to the said verification letters. After these exercise undertaken by the Assessing Officer, it cannot be said that the reasons recorded were reason to suspect and not reason to believe escapement of income. As regards non- compliance of section 151(2) of the Act, we find that the Assessing Officer has taken requisite sanction from the competent authority to issue notice u/s. 148, which is placed at page 27 of the paper book. As regards the satisfaction of the Assessing Officer, after taking steps to (SMC) ITA No. 1068/Ahd/2019 Shri Dhaval Rajendrakumar Patel Vs. ITO AY : 2010-11 5 verify the cash deposit, in which the assessee did not cooperate, and after recording the reason to believe, the Assessing Officer has categorically mentioned in the reasons recorded that “I, therefore, consider that it is a fit case for issue of notice u/s. 148”.” Considering above facts, above plea raised by the appellant is rejected. The AO has issued notice u/s 148 of the Act as per provisions of the Act and consequential reassessment order cannot be held to be invalid as claimed by appellant.” 6. Before us, learned Counsel for the assessee relied on submissions made before the learned CIT(A) and the decision of the ITAT, Ahmedabad Bench in the case of Smt. Mariyam Ismail Rajwani (supra). The learned Departmental Representative, on the other hand, relied upon the order of the learned CIT(A). 7. I have heard both the parties and I see no reason to interfere with the order of the learned CIT(A) on this issue. The learned CIT(A) has noted that it was not only the information of the cash deposits in the bank account of the assessee which led the Assessing Officer to form belief of escapement of income but also that post obtaining this information the Assessing Officer also conducted inquiries from the assessee requiring him to explain the source of cash deposits, to which the assessee failed to furnish any reply; and only thereafter the Assessing Officer formed belief of escapement of income. The learned CIT(A) has noted that these facts were recorded by the Assessing Officer himself in his reasons for escapement of income itself. I have gone through the assessment order where the reasons are reproduced and have also noted that the findings of the learned CIT(A) in this regard are correct. The reasons recorded by the Assessing Officer are reproduced hereunder:- “On the basis of AIR/CIB information available in this office record that the assessee has entered into monetary transaction i.e. deposited cash in a (SMC) ITA No. 1068/Ahd/2019 Shri Dhaval Rajendrakumar Patel Vs. ITO AY : 2010-11 6 savings bank account of Rs. 22,09,900/- during the financial year 2009-10. It appears that the assessee has taxable income but has not disclosed income for A. Y. 2010-11. The assessee vide office letter in file No. ITO.Wd.4/PTN/133(6)/16-17/10 dated 06/03/2017 requested to explain the cash deposited in savings bank account. In response to the said letters, the assessee failed to furnish reply/explanation for cash deposit in the bank account along with documentary evidence. In view of the above, I have reason to believe that to the extent of transaction of Rs.22,09,900/- income has escaped assessment. As such assessment for AY 2010-11 is required to reopen in terms of Section 147 of the I.T. Act, 1961 by invoking the provisions of Section 148 of the I.T. Act since there is an escapement of income within the meaning of Section 147 of the Income tax Act.” 8. In view of the above, I agree with the learned CIT(A) that the Assessing Officer’s formation of belief of escapement of income was correct and it was not a mere suspicion. The decision of ITAT, Ahmedabad Bench in the case of Smt. Mariyam Ismail Rajwani (supra) is not applicable to the facts of the present case since in the said case the only information with the Assessing Officer was of cash deposit in the bank account of the assessee and on this information, it was held by the ITAT, that only ‘suspicion’ of escapement of income could result and not ‘belief’ of escapement of income. In the present case, it is not only the information of cash deposited in the bank account of the assessee but it is coupled with the inquiry by the Assessing Officer from the assessee to explain the source of the same which derived no results. It is only then that the Assessing Officer formed belief of escapement of income which I upheld is correct. In view of the above, I see no reason to interfere with the order of the learned CIT(A) dismissing the assessee’s contention against the validity of the assessment framed in the present case under Section 147 of the Act for the above reasons. 9. Ground No.1 of assessee’s appeal is dismissed. (SMC) ITA No. 1068/Ahd/2019 Shri Dhaval Rajendrakumar Patel Vs. ITO AY : 2010-11 7 10. With regard to grounds of appeal Nos. 2 to 6 raised by the assessee, it was contended by the learned Counsel for the assessee that all these grounds are relating to the merits of the case; therefore, the said grounds are taken up together for disposal and the same read as under:- “2. In the law and in the facts and circumstances of the appellant’s case, learned CIT(A) has grossly erred in confirming addition made towards cash deposited in bank account at Rs. 14,37,300/- applying the theory of peak cash deposited in the bank account. 3. In law and in the facts and circumstances of the appellant’s case, learned CIT(A) has grossly erred in not appreciating the fact that the Appellant has not maintained regular books of accounts and accordingly the amount credited in the bank statement cannot be considered as unexplained cash credit as the bank statement are not part of books of accounts. The case of the Appellant is squarely covered by the decision of Hon’ble Ahmedabad Tribunal in case of Smt. Ramilaben B. Patel, Vs. Income Tax Officer vide ITA No. 3393/Ahd/2014 dated 11/12/2018. 4. In law and in the facts and circumstances of the appellant’s case, learned CIT(A) has failed to appreciate the fact that cash deposited in the bank account of the Appellant was duly explained by summary sheet submitted before him which also explains source of cash balance and supported by necessary evidences and considering such facts no addition towards unexplained cash credit is called for. 5. In law and in the facts and circumstances of the appellant’s case, learned CIT(A) has grossly erred in not appreciating the contention of Appellant that cash received from various persons for making application for IPO were deposited in bank and cheques were issued against such cash deposits for application of IPO in name of such persons and such facts were supported by copy of affidavit and demate statement of the parties who has given cash to the Appellant. 6. In law and in the facts and circumstances of the appellant’s case, in any case Ld CIT(A) ought to have computed peak cash deposit considering opening cash balance of Rs.5,10,940/-.” 11. The solitary arguments of the learned Counsel for the assessee before us was that the source of cash deposits was explained to the learned CIT(A) as being amounts received from various persons for subscribing on their (SMC) ITA No. 1068/Ahd/2019 Shri Dhaval Rajendrakumar Patel Vs. ITO AY : 2010-11 8 behalf to IPOs of various company’s shares and the learned Counsel for the assessee has pointed out that this explanation was substantiated with copies of bank account statements of the assessee also, reflecting the cash deposits of odd amounts on various occasions followed immediately thereafter by issue of cheques for subscription in IPOs. He also pointed out that even affidavit of persons who had so sought these services of the assessee for subscription in IPOs were also filed; but the learned CIT(A) had ignored all the same and went on to treat it as just an afterthought. He drew our attention to the findings of the learned CIT(A) in this regard at paragraph No.6.4 of his order as under:- “6.4 Further, appellant along with other co-owners has also contended that they were used to receive cash from various persons for making application of IPO and against receipt of cash, they were giving cheque to such persons for IPO application. The appellant has submitted copy of affidavits of such persons and claimed that shares are directly allotted in their name and profit/loss arising from share transaction belongs to person to whom cheque is given. The appellant has also submitted chart showing sources of cash deposits and its subsequent deposits in bank account in support of such claim. These details were not submitted by appellant along with the first submission and the same are submitted in response to remand report obtained from the AO, hence theory explained by the appellant is nothing but an afterthought for explaining cash deposits. The appellant has not given any explanation regarding tact as to why he and his co-owners have made such transactions when other parties have their independent bank accounts and even no income pertaining to such transactions is offered to tax, hence this explanation provided by the appellant without having any tangible material is rejected.” 12. He also drew our attention to the copy of bank account with HDFC Bank Limited placed at paper-book page Nos. 24-26 reflecting the fact of cash deposits and its subsequent withdrawal by cheques for subscription in IPOs. He, therefore, contended that the learned CIT(A) had erred in ignoring the evidences filed by the assessee and treating them as a mere (SMC) ITA No. 1068/Ahd/2019 Shri Dhaval Rajendrakumar Patel Vs. ITO AY : 2010-11 9 afterthought. The learned DR, however, relied on the order of the learned CIT(A). 13. I have heard the contentions of both the parties and I find merit in the contention of the learned Counsel for the assessee. The explanation of the assessee that these cash deposits were received from various persons for subscribing IPOs on their behalf has been duly substantiated by the assessee with copy of the bank statements reflecting the said facts coupled with affidavits of these persons. Therefore, in the light of the same, it could not be treated as an afterthought explanation of the assessee and I do not agree with the learned CIT(A) in this regard. The bank statements clearly show cash deposits of odd amounts on various dates with subsequent withdrawals by cheques for subscribing IPOs mentioning in the narration, coupled with the affidavits of the investors confirming this fact on oath. This matches with the explanation of the assessee and I see no reason, therefore, for not believing the explanation of the cash deposits by the assessee. Accordingly I hold that the source of cash deposits stands duly explained and the addition made in this regard amounting to Rs.22,09,900/- treating the same as unexplained is directed to be deleted. 14. Grounds of appeal Nos. 2-6 raised by the assessee are allowed in above terms. 15. In effect, the appeal of the assessee is partly allowed. Order pronounced in the open Court on 29 th March, 2023 at Ahmedabad. Sd/- (ANNAPURNA GUPTA) ACCOUNTANT MEMBER Ahmedabad; Dated 29/03/2023 **bt (SMC) ITA No. 1068/Ahd/2019 Shri Dhaval Rajendrakumar Patel Vs. ITO AY : 2010-11 10 आदेश आदेशआदेश आदेश क琉 क琉क琉 क琉 灹ितिलिप 灹ितिलिप灹ितिलिप 灹ितिलिप अ灡े अ灡ेअ灡े अ灡ेिषत िषतिषत िषत/Copy of the Order forwarded to : 1. अपीलाथ牸 अपीलाथ牸अपीलाथ牸 अपीलाथ牸 / The Appellant 2. 灹瀄यथ牸 灹瀄यथ牸灹瀄यथ牸 灹瀄यथ牸 / The Respondent. 3. संबंिधत संबंिधतसंबंिधत संबंिधत आयकर आयकरआयकर आयकर आयु猴 आयु猴आयु猴 आयु猴 / Concerned CIT 4. आयकर आयकरआयकर आयकर आयु猴 आयु猴आयु猴 आयु猴)अपील अपीलअपील अपील (/ The CIT(A)- 5. िवभागीय िवभागीयिवभागीय िवभागीय 灹ितिनिध 灹ितिनिध灹ितिनिध 灹ितिनिध ,आयकर आयकरआयकर आयकर अपीलीय अपीलीयअपीलीय अपीलीय अिधकरण अिधकरणअिधकरण अिधकरण/DR,ITAT, Ahmedabad, 6. गाड榁 गाड榁गाड榁 गाड榁 फाईल फाईलफाईल फाईल /Guard file. आदेशानुसार आदेशानुसारआदेशानुसार आदेशानुसार/ BY ORDER, TRUE COPY सहायक सहायकसहायक सहायक पंजीकार पंजीकारपंजीकार पंजीकार (Asstt. Registrar) आयकर आयकरआयकर आयकर अपीलीय अपीलीयअपीलीय अपीलीय अिधकरण अिधकरणअिधकरण अिधकरण ITAT, Ahmedabad 1. Date of dictation ...23.03.2023... 2. Date on which the typed draft is placed before the Dictating Member :..... 23.03.2023.......... 3. Other Member...-..................... 4. Date on which the approved draft comes to the Sr.P.S./P.S...27.03.2023....................... 5. Date on which the fair order is placed before the Dictating Member for pronouncement......29.03.2023. 6. Date on which the fair order comes back to the Sr.P.S./P.S...29.03.2023................ 7. Date on which the file goes to the Bench Clerk......30.03.2023.......... 8. Date on which the file goes to the Head Clerk... 9. The date on which the file goes to the Assistant Registrar for signature on the order............ 10. Date of Despatch of the Order..................