MAHESH CHAND GARG,GHAZIABAD V. INCOME TAX OFFICER, GHAZIABAD

ITA 3376/DEL/2025

AI Insights

The case revolves around an appeal by Mahesh Chand Garg against the order of the Ld. Addl./JCIT(A)-7, Mumbai, which pertained to the assessment year 2012-13. The primary contention was regarding the addition made to the assessee's income based on the additional capital introduced, which the AO claimed was unexplained. The assessee argued that this capital was from the sale of flats and was duly recorded in the books of account, contrary to the AO's claims. The Tribunal examined the legal precedents and the facts presented, ultimately deciding in favor of the assessee by quashing the assessment order.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 775853 (ITAT-DELHI)
• Duration Of Justice: 3 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 22-05-2025
• Other Referred Cases: Shri Mahavir Prasad vs. ITO, Rewari, ITO vs. Lakhmani Mewal Das, Munni Devi vs. ITO, Rewari, Bir Bahadur Singh vs. ITO, Harmeet Singh vs. ITO, CIT vs. Indo Arab Air Services
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANOJ KUMAR
• Assessee Lawyers: NEELESH KUMAR JAIN
• Keywords: Set aside; Reassessment proceedings; Reason to believe; Tangible material
• Section: 148; 271(1)(c)

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH ‘SMC’ : NEW DELHI) BEFORE SHRI MAHAVIR SINGH, VICE PRESIDENT ITA No. 3376/Del/2025 Assessment Year: 2012-13 MAHESH CHAND GARG, Vs. ITO, WARD-1(4), B-209, LOHIA NAGAR, CGO COMPLEX, GHAZIABAD-201001 GHAZIABAD-201001 UTTAR PRADESH (PAN: AARPG8728N) (APPELLANT) (RESPONDENT) Assessee by : Sh. Neelesh Kumar Jain, CA Revenue by : Sh. Manoj Kumar, Sr. DR Date of hearing : 03-09-2025 Date of pronouncement : 12-09-2025 ORDER The Assessee has filed the Appeal against the Order dated 30.01.2025 of the Ld. Addl./JCIT(A)-7, Mumbai pertaining to assessment year 2012-13 by raising as many as 9 grounds, however, he has only argued the ground no.2, which reads as under:- “That the Ld. AO has erred in making addition to income on the basis of Additional Capital introduced by the Appellant even though it was not having any mention in the AIR information moreover the information of AIR on the basis of which 147 was invoked was found to be duly declared in the books of account. Accordingly, the assessment order and the appellate order passed are erroneous, unlawful and liable to be quashed.” 2. The brief facts of the case are that assessee had filed return of income on 30.01.2013 declaring total income of Rs. 7,63,770/-. The AO had AIR information that the assessee had deposited cash of Rs. 15,42,000/- in the bank account maintained with Oriental Bank of Commerce during the year under Printed from counselvise.com 2 consideration. Therefore, notice u/s. 148 was issued on 27.3.2019 after obtaining the necessary approval from the PCIT, Ghaziabad. The assessee submitted that the source of cash was sale of flats by him. AO thereafter asked for the source of addition of Rs. 9,01,205/- to the capital account of the appellant. Since the appellant failed to submit the source of addition to the capital account, the AO made an addition of Rs. 9,01,205/- to the income of the appellant. The AO also made an addition of Rs. 28,318/- on account of interest paid on unsecured loan. 3. Against the Order of the AO, assessee appealed before the Ld. Addl/JCIT(A)-7, Mumbai, who vide impugned order dated 30.1.2025 has dismissed the appeal of the Assessee. 4. Aggrieved with the aforesaid order of the Ld. CIT(A), Assessee is in Appeal before the Tribunal for challenging the legal issue, as aforesaid. 5. At the time of hearing, Ld. Counsel of the assessee has only argued the afore-stated legal ground and stated that AO has erred in making addition to income on the basis of Additional Capital introduced by the Appellant even though it was not having any mention in the AIR information moreover the information of AIR on the basis of which 147 was invoked was found to be duly declared in the books of account. Hence, he submitted that the assessment order be quashed, in view of the settled position of law on the issue in dispute. He relied upon the following various case laws :- - ITAT, SMC Bench decision in the case of Shri Mahavir Prasad vs. ITO, Rewari in ITA No. 924/Del/2015 (AY 2007-08). - Hon’ble Supreme Court of India decision in the case of ITO vs. Lakhmani Mewal Das (1976) 103 ITR 437. - Munni Devi vs. ITO, Rewari ITA No. 3534/Del/2014. - Bir Bahadur Singh reported at 68 SOT page 197 - Harmeet Singh in ITA No. 1939/Del/2016 - Hon’ble Delhi High Court decision in the case of CIT vs. Indo Arab Air Services (2015) 64 taxmann.com 257 Printed from counselvise.com 3 6. On the contrary, Ld. DR relied upon the order passed by the authorities below. 7. I have heard both the parties and perused the relevant records available with us, especially the orders of the revenue authorities and the case laws cited by the assessee’s counsel on the issue in dispute. In my view, it is very much necessary to reproduce the first para of the assessment order, which reads as under:- “AIR information was received in this case with regards to cash deposit of Rs. 15,42,400/- in the bank account maintained with Oriental Bank of Commerce by the assessee during the year under consideration. As per the record, the assessee has filed his ITR on 30.01.2013 declaring income of Rs. 7,63,770/-. Notice u/s. 148 of the I.T. Act was issued and served through speed post on 27.03.2019 after obtaining necessary approval from Ld. Pr. CIT, Ghaziabad.” 7.1 It is also essential to reproduce the last two paras at page no. 2 of the assessment order:- “The case was adjourned to 26.11.2016. However, none attended the proceedings on the date so adjourned. Thus, in view of the above, the addition to capital RS. 9,01,205/- is hereby added to the income of the assessee, as the source thereof remained unexplained. Since the assessee has concealed particulars of income, hence penalty proceedings u/s. 271(1)(c) are being initiated for concealment of income. Further, as per details filed the assessee has taken unsecured loans and has forwarded huge loans to others, for which no reason and source was furnished. Since the loans have been given to related parties and no interest has been received on such loans, interest paid by the assesse is hereby disallowed. Since the assessee has concealed particulars of his true income, hence, penalty proceedings u/s. 271(1)© are being initiated for concealment of income.” 7.2 After perusing the aforesaid paragraphs of the assessment order, I find force in the contention of the Ld. AR that AO has erred in making addition to income on the basis of Additional Capital introduced by the Assessee even Printed from counselvise.com 4 though it was not having any mention in the AIR information moreover the information of AIR on the basis of which 147 was invoked was found to be duly declared in the books of account. 7.3 I note that in the case of Bir Bahadur Singh Sijawali reported in 68 SOT 197 (Del) it has been held as under:- \"Section 68, read with sections 147 and 148, of the Income-tax Act, 1961 - Cash credits (Bank deposit) - Assessment year 2008- 09 - Assessee deposited certain sum in his saving bank account but no return of income was filed by him - Assessing Officer issued notice under section 148 on ground that there was an escapement of income - Whether where Assessing Officer proceeded on fallacious assumption that bank deposits constituted undisclosed income and overlooked fact that source of deposit need not necessarily be income of assessee, reassessment proceedings \"was to be set aside - Held. yes [Paras 8 & 10. [In favour of assessee] 7.4 I further note that in the case of Amrik Singh vs ITO reported in 159 ITD 329 (Asr) it has been held as under and the decision of Bir Bahadur Singh Sijawali (Supra) has been followed in this case. \"44. It is this question which takes us back to the applicability/non- applicability of the decision in ‘Bir Bahadur Singh Sijwali (supra). The ratio thereof has not at all been disputed by the Department. In fact, the only dispute which has been raked up is the applicability or otherwise thereof to the facts of the present case, in view of the position that the initiation of the assessment proceedings U/S 147 in the present case stands preceded by the issuance of the alleged enquiry letter by the ITO. This dispute has been dealt with in detail in the foregoing paragraphs. Printed from counselvise.com 5 45. In 'Bir Bahadur Singh Sijwali' (supra), it has been held that where the AO issued a notice U/S 148 on the ground that there was ,fin escapement of income and the belief regarding such escapement of income was formed on the fallacious assumption of the AO that 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 reassessment proceedings cannot be sustained. In the present case, similarly, the basis of initiation of the assessment proceedings U/S 147 was the information with the Department, of the deposits made by the assessee in his bank account. 46. 'Bir Bahadur Singh Sijwali' (supra), makes reference to 'Hindusan Lever Ltd. vs. R.B. Wadkar'. 26R TTR 332 (Born.), to hold that the reasons recorded for reopening the assessment are to be examined on a standalone basis and nothing can be added to the reasons. It was also observed that the reasons must point out to an income escaping assessment and not merely need of an enquiry which may result in detection of an income escaping assessment. It was observed that it is necessary that there must be something which indicates, even if it does not establish, the escapement of income from assessment; that it is only on that basis that the AO can form a prima-facie belief that an income has escaped assessment; that merely because some further investigations have not been carried out, which, if made, could have led to detection of an income escaping assessment, this cannot be reason enough to hold the view that the income has escaped assessment; and that there has to be some kind of cause and effect of relationship between the reasons recorded and the income escaping assessment. The observations of the Hon'ble Supreme Court in the case of 'ITO vs. Lakhmani Mewal Das', 103 ITR 437 (SC), were reproduced. as Printed from counselvise.com 6 under: \"the reasons for the formation of the belief must have 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 ITO and the formation of this belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. It is no doubt true that the Court cannot go into sufficiency or adequacy of the material and substitute its own opinion for that of the ITO on the point as to whether action should be initiated for reopening assessment. At the same time we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and farfetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment.\" 47. It was further 'Observed as follows: \"8. Let us, in the light of this legal position, revert to the facts of the case before us. All that the reasons recorded for reopening indicate is that cash deposits aggregating to Rs.l0,24,100/- have been made in the bank account of the assessee, but the mere fact that these deposits have been made in a bank account does not indicate that these deposits constitute an income which has escaped assessment. The reasons recorded for reopening the assessment do not make out a case that the assessee was engaged in some business and the income from such a business has not been returned by the assessee. As we do not have the liberty to examine these reasons on the basis of any other material or fact, other than the facts set out in the reasons so recorded, it is not open to us to deal with the question as to whether the assessee could be said to be engaged in any business; all that is to be examined is whether the fact of the deposits, per se, Printed from counselvise.com 7 in the bank account of the assessee could be basis of holding the view that the income has escaped assessment. The answer, in our humble understanding, is in negative. The Assessing Officer has opined that an income of Rs.l0,24,100/- has escaped assessment of income because the assessee has Rs.l0,24,100/- in his bank account but then such an opinion proceeds on the fallacious assumption that the bank deposits constitute undisclosed income, and overlooks the fact that the sources of deposit need not necessarily be income of the assessee. Of course, it may be desirable, from the point of view of revenue authorities, to examine the matter in detail, but then reassessment proceedings cannot be resorted to only to examine the facts of a case, no matter how desirable that be, unless there is a reason to believe, rather than suspect, that an income has escapement assessment.\" 48. The Tribunal concluded thus: \"but then in the case before us the only reason for reassessment proceedings was the fact of deposit of bank account which by itself does not lead to income being taxed in the hands of the assessee. Learned Departmental Representative has referred to several other judicial precedents in support of the proposition that at the stage of initiation of reassessment proceedings, all that is to be seen is existence, rather than adequacy, of the material to come to the conclusion that income has escaped assessment. There cannot be any, and there is no, doubt on the correctness of this proposition but then, as we have elaborately explained earlier in this order, the material must indicate income escaping assessment rather than desirability of further probe in the matter which may or may not lead to income escaping the assessment, in our humble understanding, cannot be drawn.\" Printed from counselvise.com 8 49. Now, in keeping with 'Bir Bahadur Singh Sijwali' (supra), this \"information cannot form a valid basis for initiating assessment proceedings under section 147 of the LT. Act. As observed in 'Bir Bahadur Singh Sijwali' (supra), the mere fact that the deposits had been made in the bank account does not indicate that these deposits constitute income which has escaped assessment. 50. Thus, it was a mere suspicion of the AO, that prompted him to initiate assessment proceedings under section 147, which is neither countenanced, nor sustainable in law. Too, the AO proceeded on the fallacious assumption 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. That being so, in keeping with 'Bir Bahadur Singh Sijwali' (supra), the reasons recorded to initiate assessment proceedings under section 147 of the Act and all proceedings pursuant thereto, culminating in the impugned order, are cancelled. Ground No.2 is, accordingly, accepted.\" 7.5 I further note that Hon’ble Delhi High Court in the case of CIT vs. Indo Arab Air Services (2015) 64 taxmann.com 257 has held vide para no. 20 & 22, as under:- “20. Keeping the above legal position in view when the cases on hand are examined, it is seen that as far as Indo Arab is concerned while the AO set out the information received from the ED, he failed to examine if that information provided the vital link to form the 'reason to believe' that income of the Assessee had escaped assessment for the AY in question. While the AO has referred to the fact that the ED gave information regarding cash deposits being found in the books of the Assessee, the AO did not state that he examined the returns filed by the Assessee for the said AY and detected that the said cash deposits were not reflected in the returns. In fact, the AO contradicted himself in the reasons recorded by him by noticing the information of the ED to the above effect and then stating that on perusal of the records for the AY in question it Printed from counselvise.com 9 was noticed that the Assessee \"had not disclosed these transactions in its books of account.\" Further the AO refers to the ED's information that Mr. Chetan Gupta, partner of the Assessee, failed to explain the sources of the cash deposits as shown in the books of account. However, that by itself could not have led the AO to even prima facie conclude that income of the Assessee had escaped assessment. The explanation or the lack of it of the entries in the books of account may have certain relevance as far as ED is concerned but that by itself does not provide the vital link for concluding that for the purposes of the Act any part of cash deposits constituted income that had escaped assessment. There is a long distance to travel between a suspicion that income had escaped assessment and forming reasons to believe that income had escaped assessment. While the law does not require the AO to form a definite opinion by conducting any detailed investigation regarding the escapement of income from assessment, it certainly does require him to form a prima facie opinion based on tangible material which provides the nexus or the link to having reason to believe that income has escaped assessment…….. …….22. The next question that had to be examined by the AO was whether what was disclosed in the books of account was also disclosed in the returns filed by the Assessees. If it was not disclosed, then possibly the AO could have reasons to believe that the cash deposits reflected in the books of account may have escaped assessment. However, no effort appears to have been made by the AO to examine the returns filed by the Assessee in either of these cases…..” 7.6 In the background of the aforesaid discussions and respectfully following the precedents, I am of the considered view that AO was not justified in making the addition to income on the basis of Additional Capital introduced by the Appellant even though it was not having any mention in the AIR information. Moreover, the information of AIR on the basis of which 147 was invoked was found to be duly declared in the books of account. Accordingly, the assessment order is hereby quashed. Printed from counselvise.com 10 7.7 Since the assessment has been quashed and no other ground has been argued by the Ld.AR, the same have become academic in nature, hence, need not be adjudicated. 8. In the result, the Assessee’s Appeal stands allowed. Order pronounced on 12-09-2025. Sd/- (MAHAVIR SINGH) VICE PRESIDENT Date: 12-09-2025 Copy forwarded to: - 1. Appellant 2. Respondent 3. DIT 4. CIT (A) 5. DR, ITAT TRUE COPY By Order, Assistant Registrar, ITAT, Delhi Bench Printed from counselvise.com "