KHAZANA STORES PVT. LTD.,AHMEDABAD V. THE ITO, WARD-2(1)(1), AHMEDABAD

ITA 1506/AHD/2025

AI Insights

The case involves Khazana Stores Pvt. Ltd., which appealed against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, which upheld the addition of Rs.59,04,904 as unexplained cash deposits under sections 69A and 115BBE of the Income Tax Act, 1961. The primary contention was the legality of the re-assessment proceedings under sections 147 and 148, which the assessee argued were without jurisdiction and not based on a proper application of mind. The Tribunal found that the AO had hastily reopened the assessment based solely on information about cash deposits without verifying it against the assessee's income and tax returns, leading to a decision in favor of the assessee.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 823061 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2017-2018
• Appeal Filed On: 30-07-2025
• Other Referred Cases: Dr. Jagmittar Sain Bhagat & Ors vs Dir. Health Services, Haryana, Sushil Kumar Mehta v. Gobind Ram Bohra, Premier Automobiles Ltd. v. K.S. Wadke & Ors., Kiran Singh v. Chaman Paswan, Chandrika Misir & Anr. v. Bhaiyalal, Income Tax Officer vs. Lakhmani Mewaldas, CIT vs. Paramjit Kaur
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KALPESH RUPAVATIA
• Assessee Lawyers: S.N. DIVATIA; SAMIR VORA; ARS
• Keywords: Income from undisclosed sources; Reopening of assessment; Principle of natural justice; Reason to believe
• Section: 147; 148

Judgement Text

"आयकर अपीलीय अिधकरण, अहमदाबाद \u0011ायपीठ “डी“, अहमदाबाद । IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, AHMEDABAD \u0016ी संजय गग\u001b, \u0011ाियक सद एवं \u0016ी नरे! \"साद िस#ा, लेखा सद क े सम&। ] ] Before Shri Sanjay Garg, Judicial Member And Shri Makarand Vasant Mahadeokar, Accountant Member आयकर अपील सं /ITA No. 1506/Ahd/2025 िनधा \u000fरण वष\u000f /Assessment Year : 2017-18 Khazana Stores Pvt. Ltd. GF 2 Commerce House 2 Judges Bunglow Road, Bodakdev, Ahmedabad 380 054 बनाम/ v/s. The ITO Ward 2(1)(1) Ahmedabad 380 015 \u0013थायी लेखा सं./PAN: AAACK 7880 R (अपीलाथ(/ Appellant) (\") यथ(/ Respondent) Assessee by : Shri S.N. Divatia & Shri Samir Vora, ARs Revenue by : Shri Kalpesh Rupavatia, Sr. DR सुनवाई की तारीख/Date of Hearing : 30/09/2025 घोषणा की तारीख /Date of Pronouncement: 23/12/2025 आदेश/O R D E R Per Sanjay Garg, Judicial Member: The present appeal has been preferred by the assessee against the order of the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘CIT(A)’] dated 07/07/2025 for Assessment Year (AY) 2017-18. 2. The assessee, in this appeal has taken the following grounds of appeal: Printed from counselvise.com ITA No.1506/Ahd/2025 Khazana Stores Pvt.Ltd. vs. ITO Asst.Year 2017-18 2 “1.1 The order passed by U/s.250 passed on 07.07.2025 for A.Y. 2017-18 by NFAC, CIT(A)], Delhi [for short “CIT(A) ‘] upholding the addition of Rs.59,04,904/- in respect of the cash deposits made by A.O. as unexplained cash u/s 69A rws 115BBE is wholly illegal, unlawful and against the principles of natural justice. 1.2 The Id. CIT(A), has grievously erred in law and or on facts in not considering fully and properly the submissions made and documents/evidences produced before both the authorities but thereby passing a non-speaking order in a cryptic manner, just referring to the assessment order only. Thus, there was total non-application of mind on part of CIT(A) in disposing of the appeal so that the same should be quashed. 2.1 The Id. CIT(A) has grievously erred in law and or on facts in not appreciating that the re-assessment proceedings u/s 147 as well as notice u/s 148 were illegal and without jurisdiction since the condition precedent for the same were not satisfied. 2.2 That the in the facts and circumstances of the Id. CIT(A), ought not to have held that the re-assessment proceedings u/s 147 as well as notice u/s 148 were illegal and without jurisdiction since the condition precedent for the same were not satisfied. 3.1 The Id. CIT(A) has grievously erred in law and or on facts in upholding that the cash deposits to the extent Rs.59,04,904/- as unexplained income u/s.69A rws 115BBE. 3.2 That the in the facts and circumstances of the Id. CIT(A), ought not to have upheld the cash deposits to the extent of Rs.59,04,904/- as unexplained income u/s.69A rws 115BBE.” 2. The brief facts relating to the issue are that the assessee-company is engaged in the business of trading in furniture/home decorators, It had filed its return of income for AY 2017-18 on 13/08/2017 declaring total income of Rs.48,99,470/-. The said return was processed u/s.143(1) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”). Later on, the Assessing Officer (AO) received information that there were huge cash deposits aggregating to Rs.4,00,87,994/- in the bank account of the assessee. He observed that the income of the assessee did not commensurate with such huge deposits in the bank account. He, therefore, formed the belief that the income of the assessee for the year under consideration has escaped income assessment and re-opened Printed from counselvise.com ITA No.1506/Ahd/2025 Khazana Stores Pvt.Ltd. vs. ITO Asst.Year 2017-18 3 the assessment u/s.147 r.w.s.148 of the Act. During the assessment proceedings, the assessee not only raised the issue relating to the validity of the re-opening of the assessment, but also explained the sources of the deposits in its bank account. It was explained that the actual cash deposit in the bank account of the assessee during the Financial Year (FY 2016-17) relevant to the assessment year under consideration, was Rs. 2,47,96,705/- and not Rs.4,00,87,994/- as alleged by the AO. It was also explained that the said cash deposits was less than the aggregate cash deposits of Rs.2,99,09,636/- made during the preceding FY 2015-16. The assessee also furnished the relevant documents, i.e. bank book, monthly cash deposits, sales bills, etc. and stated that the aforesaid cash deposits were made from regular business activity by way of sale of goods in cash. The AO, though, partially admitted the cash sales and cash deposits thereof into the bank account of the assessee, however, observed that the cash deposits during the demonetization period especially in the month of November-2016 was excessive. He observed that the total cash deposits in the bank account of the assessee for the period of 11 months from April to October and from December to March, was Rs.1,73,17,485/-, the average of which comes to Rs.15,74,317/- per month. He observed that, however, the cash deposited during the month of November-2016 were Rs.74,79,220/- which was highly excessive. He, therefore, taking the sales of the assessee on the basis of average sales per month of Rs.15,74,317/- treated the amount of Rs.59,04,904/- out of deposits in the month of November-2016 as income of the assessee from unexplained sources and made the impugned addition. 3. The Ld. CIT(A) confirmed the addition so made by the AO. Printed from counselvise.com ITA No.1506/Ahd/2025 Khazana Stores Pvt.Ltd. vs. ITO Asst.Year 2017-18 4 4. We have heard the rival contentions of the Ld. Representatives of the parties and gone through the record. A perusal of the grounds of appeal would reveal that the assessee has agitated against the confirmation of the addition on merits, as well on the ground of validity of the reopening of the assessment on legal ground. 5. The Ld.AR at the outset, has drawn our attention to the opening para of the assessment, wherein, the AO has mentioned reasons recorded for re- opening of the assessment as under: \"The assessee's case has selected/pushed through Insight Portal for reopening of assessment u/s. 147 of the Income-tax Act, 1961 for FY 2016-17 relevant to AY 2017- 18 which was flagged by the DGIT(System), New Delhi. The information is forward by the DGIT(System), New Delhi in the fag-end of the week in the form of Dissemination Note/Report/other documents etc. in the pdf/word/zip format, the AO is directed to go through the same and take necessary action to tax the unaccounted income, unearthed during the course of investigation carried investigation Wing(s) and Other Sources such as Central Circle(s). Other AO(s) and Other Agency(s). As such, the assessment of the assessee is being reopened on the basis of the information available in the insight portal and the reason recorded accordingly. It is worthwhile to point out here that the proposal of the reopening of the assessment is not prepared on the format given due to paucity of time and only reason to believe is prepared. The information received from the DGIT(System), New Delhi is being forwarded to the Assessing Officer(s) for considering the same during the course of assessment proceedings. Your, Honour is, therefore, requested to kindly consider the same for approval. BASIS OF FORMING REASON TO BELIEVE AND DETAILS OF ESCAPEMENT OF INCOME As per the information received from the credible sources and preliminary investigation clearly reveal that the assessee has received in his bank account cash deposits and credit entries of Rs.4,00,87,994/-, The income of the assessee does not commensurate such huge cash deposits and credit entry, therefore this cash deposits and credit entry in the bank account of the assessee is unexplained. Failure on the part of the assessee to disclose fully and truly all the material facts necessary for the assessment the income of the assessee has escaped assessment to the tune of Rs. 4,00,87,994 for the AY 2017- 18 within the meaning of Section 147 of the income-tax Act, 1961. Printed from counselvise.com ITA No.1506/Ahd/2025 Khazana Stores Pvt.Ltd. vs. ITO Asst.Year 2017-18 5 I have, therefore, reason to believe that this is a fit case for reopening the assessment u/s. 147 of the Act and for issue of notice u/s 148 of the Income-tax Act 1961.” 5.1. Referring to the above reproduced reasons recorded, the Ld. AR has submitted that the only reason on the basis of which the AO formed the belief of escapement of income of the assessee was that there were huge cash deposits in the bank account of the assessee as per the information received by him from the Investigation Wing/Insight Portal. There was nothing more than that in the knowledge or possession of the AO to form the belief that the income of the assessee has escaped assessment. The Ld.AR of the assessee relying upon various case-laws has submitted that it has been held time and again, that every receipt is not an income and mere deposit of an amount in the bank account of the assessee does not ipso facto leads to the presumption that the same is the income of the assessee. He has further submitted that even the AO, without going into the accounts of the assessee and income-tax return of the assessee, simply observed that the aforesaid deposits were not commensurate with the income of the assessee. He, has further submitted that even the aforesaid information was factually wrong. The total deposits during the year under consideration were of Rs.2,47,96,705/- and not Rs.4,00,87,994/- as alleged by the AO in the reasons recorded, and further the assessee had declared an income of Rs.48,99,470/- in the return of income which cannot be said to be non-commensurate with the total cash deposits in the bank account of the assessee. He has submitted that the AO, in this case, merely on the information that there were cash deposits of about Rs.4 crores approximately in the bank account of the assessee and without co-relating that the information with the accounts/income-tax return of the assessee, formed the belief of escapement of income without any basis, and re-opened the assessment. He, therefore, Printed from counselvise.com ITA No.1506/Ahd/2025 Khazana Stores Pvt.Ltd. vs. ITO Asst.Year 2017-18 6 submitted that the aforesaid reasons recorded by the AO did not constitute valid reasons for forming belief of escapement of the income of the assessee of the year under consideration. He, therefore, has submitted that the re-opening of the assessment was bad in law. 6. The Ld. DR, on the other hand, has submitted that there was information from the Investigation Wing that there were huge cash deposits in the bank account of the assessee and, therefore, the AO had rightly formed the belief of escapement of income of the assessee and, therefore, rightly re-opened the assessment u/s.147 of the Act. 7. We have considered the rival submissions and gone through the record. A perusal of the reasons recorded above would reveal that the assessment, in this case, has been re-opened in haste and hurriedly manner, without application of mind at all. Even the proposal for re-opening of the assessment was not prepared in the prescribed format due to the paucity of time. The only information forwarded by the Investigation Wing to the AO was that there were cash deposits in the bank accounts of the assessee to the tune of Rs.4,00,87,984/-. Based on this information, the AO, without co-relating the said information with the accounts/income-tax return of the assessee, observed that the said cash deposits did not commensurate with the income returned by the assessee even without pointing out what was the income declared by the assessee in its return of income. The aforesaid information which was passed on to the AO by Investigation Wing, in itself, was not sufficient to form the belief that the income of the assessee for the year under consideration has escaped assessment. Even it is not a case of borrowed Printed from counselvise.com ITA No.1506/Ahd/2025 Khazana Stores Pvt.Ltd. vs. ITO Asst.Year 2017-18 7 satisfaction from the Investigation Wing as there isn’t any satisfaction recorded by the Investigation Wing also. In fact, it is a case of no satisfaction at all, either by the Investigation Wing or by the AO, of escapement of income of the assessee for the year under consideration. Even the said information of the Investigation Wing was factually incorrect as the Investigation Wing had pointed out that a cash deposit of Rs.4,00,87,994/-, whereas, the actual cash deposit of the bank account of the assessee was Rs.2,47,96,705/- as recorded by the AO himself at page No.18 of the impugned assessment order. Had the AO cross-verified of the said information with the accounts/income-tax return of the assessee, he would have noted that the cash deposit during the year under consideration was much less than that was alleged and the assessee had offered substantial income of Rs.48,99,470/- for taxation for the year under consideration. Even it has been held, time and again, that every receipt does not constitute an income and every deposit in the bank account of the assessee would not ipso facto can be presumed to be unexplained income of the assessee. This case is apparently a case of non-application of mind and there was no valid reason for the AO to form the belief that the income of the assessee for the year under consideration has escaped income. The Hon’ble Supreme Court in the case of “Dr. Jagmittar Sain Bhagat & Ors vs Dir. Health Services, Haryana” in Civil Appeal No.5476 of 2013 decided on July 11, 2013, while relying upon another decision of the Hon’ble Supreme Court in the case of “Sushil Kumar Mehta v. Gobind Ram Bohra” (1990) 1 SCC 193 and further placing reliance on the other decisions of the Hon’ble Supreme Court in the cases of “Premier Automobiles Ltd. v. K.S. Wadke & Ors.”, (1976) 1 SCC 496; “Kiran Singh v. Chaman Paswan”, AIR 1954 SC 340; and “Chandrika Misir & Anr. v. Bhaiyalal”, AIR 1973 SC 2391 has observed that where a statute places obligation and enforces the performance in specified manner, performance cannot be forced in any other manner. Under Printed from counselvise.com ITA No.1506/Ahd/2025 Khazana Stores Pvt.Ltd. vs. ITO Asst.Year 2017-18 8 the relevant provisions of section 147 & section 148 of the Income Tax Act, for assuming jurisdiction to reopen an assessment by the Assessing Officer, there is a condition precedent that the Assessing Officer must have reasons to believe that the income of the assessee for that year has escaped assessment. It has been held time and again that such reasons to believe must have a material bearing on the question of escapement of income. It does not mean a purely subjective satisfaction of the assessing authority, such reason should be held in good faith and cannot merely be a pretence. The reasons to believe must have a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Assessing Officer and the formation of belief regarding escapement of income. The powers of Assessing Officer to reopen an assessment, though wide, are not plenary. The words of the statute are \"reason to believe\" and not \"reason to suspect\". There can be no manner of doubt that the words \"reason to believe\" suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the Income-tax Officer may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The Income-tax Officer would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or is not material or relevant to the belief required by the section. Such an action of the Assessing Officer regarding formation of belief of escapement of assessment and thereby in starting proceedings u/s 147 is open to challenge in a court of law. The entire law as to what would constitute \"reason to believe\" has been summed up by the Hon’ble Supreme Court in the case of “Income Tax Officer vs. Lakhmani Mewaldas” (1976) 103 ITR 437. Reliance in this respect can also be placed on the decision of the Hon'ble Punjab & Haryana High Court in the case of 'CIT vs. Paramjit Kaur' (2008) 311 ITR 38 (P&H), wherein, making Printed from counselvise.com ITA No.1506/Ahd/2025 Khazana Stores Pvt.Ltd. vs. ITO Asst.Year 2017-18 9 identical observations, the Hon'ble High Court has held that in the absence of sufficient material to form satisfaction of the Assessing Officer that income of the assessee had escaped assessment, the issuance of notices u/s. 148 of the Act was not valid. In view of this, the reopening of the assessment in this case was bad in law. 8. In view of the above discussion, the re-opening of the assessment in this case is bad in law and the same is quashed and consequential addition stand deleted. 9. Since we have decided the legal issue in favour of the assessee assessee, therefore, at this stage, the issue on merits is rendered academic in nature and is not adjudicated at this stage. 10. In the result, the appeal of the assessee stands allowed. Order pronounced in the Open Court on 23 /12/2025. Sd/- Sd/- ( Makarand Vasant Mahadeokar ) Accountant Member ( Sanjay Garg ) Judicial Member िदनांक/Dated 23/12/2025 टी.सी.नायर, व.िन.स./T.C. NAIR, Sr. PS Printed from counselvise.com ITA No.1506/Ahd/2025 Khazana Stores Pvt.Ltd. vs. ITO Asst.Year 2017-18 10 आदेश की \"ितिलिप अ,ेिषत/Copy of the Order forwarded to : 1. अपीला थ( / The Appellant 2. \".थ( / The Respondent. 3. संबंिधत आयकर आयु0 / Concerned CIT 4. आयकर आयु0)अपील (/ The CIT(A)- 5. िवभा गीय \"ितिनिध ,आयकर अपीलीय अिधकरण,अहमदा बा द/DR,ITAT, Ahmedabad. 6. गा ड\u001b फा ईल / Guard file. आदेशा नुसा र/ BY ORDER, स ािपत ित //True Copy// सहायक पंजीकार (Asstt. Registrar) आयकर अपीलीय अिधकरण, ITAT, Ahmedabad 1. Date of dictation (dictation pad is attached with file) : 16.12.2025 2. Date on which the typed draft is placed before the Dictating Member. : 16.12.2025/17.12.25 3. Date on which the approved draft comes to the Sr.P.S./P.S : 4. Date on which the fair order is placed before the Dictating Member for pronouncement. : 5. Date on which fair order placed before Other Member : 6. Date on which the fair order comes back to the Sr.P.S./P.S. : 24.12.25 7. Date on which the file goes to the Bench Clerk. : 24.12.25 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 : Printed from counselvise.com "