SUBHASH SHAH,FARIDABAD V. ITO, WARD-2(4), FARIDABAD

ITA 1021/DEL/2019

AI Insights

The case involves Subhash Shah, the proprietor of M/s Fancy Cloth House, who appealed against the reassessment order for the assessment year 2010-11. The AO had reopened the assessment based on information that Shah made substantial cash deposits in his bank account, which were not disclosed in his tax returns. The AO believed these deposits were from undisclosed sources. However, Shah contended that these were legitimate business receipts, and he had filed the necessary tax returns. The CIT(A) upheld the AO's decision, leading to Shah's appeal to the Income Tax Appellate Tribunal. The Tribunal found procedural flaws in the reopening of the assessment, particularly the incorrect assumption that Shah had not filed a return, and the lack of a reasonable belief that the deposits were from undisclosed sources.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 793082 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2010-2011
• Appeal Filed On: 08-02-2019
• Other Referred Cases: RAYMOND WOLLEN MILLS LTD. Vs. ITO, ACIT VS. RAJESH JHAVERI STOCK BROKERS (P) LTD., PHOOL CHAND BAJRANG LAL AND ANOTHER VS. ITO & ANOTHER, STERLITE INDUSTRIES (INDIA) LTD. V ASSISTANT COMMISSIONER OF INCOME-TAX AND ANOTHER, Calcutta Discount Co. Ltd. Vs. ITO, Ganga Saran & Sons Pvt. Ltd. Vs. ITO, S. Narayanappa vs. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HARPREET KAUR HANSRA
• Assessee Lawyers: AKUL AGARWAL
• Keywords: Business income; Assessment record; Reason to believe; Tangible material
• Section: 147; 142(1)

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “F”, NEW DELHI BEFORE SHRI MAHAVIR SINGH, VICE PRESIDENT AND SHRI BRAJESH KUMAR SINGH, ACCOUNTANT MEMBER ITA No. 1021/Del/2019 (Asstt. Year : 2010-11) Subhash Shah, vs. ITO, WARD 2(4), Prop. M/s Fancy Cloth House, Faridabad, Haryana MFC 5842, Sanjay Colony, Sector-23, Faridabad Haryana (PAN: AYNPS4924N) (Appellant) (Respondent) Appellant by : Sh. Akul Agarwal, FCA Respondent by : Ms. Harpreet Kaur Hansra, Sr. DR Date of Hearing 22.09.2025 Date of Pronouncement 24.09.2025 ORDER PER MAHAVIR SINGH, VICE PRESIDENT : This appeal has been filed by the Assessee against the order dated 31.12.2018 passed by the Ld. CIT(A), Faridabad relating to assessment years 2010-11. 2. The first issue in this appeal of the assessee is as regards to the action of the Assessing Officer in assuming jurisdiction u/s. 147 r.w.s. 148 of the Act as the same is without forming reasonable belief while Printed from counselvise.com 2 | P a g e recording reasons and therefore, notice u/s. 148 is bad in law. For this assessee, has raised the following Ground No.1:- 1. That having regard to the fact and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of the AO in framing the impugned reassessment order as the assessment order was passed without complying with the mandatory conditions of section 147 to 151 of the Income Tax Act, 1961 and without recording valid reasons as per law and without obtaining valid approval as per law and in any case reopening of the assessment and framing of the reassessment order was contrary to law. 3. Brief facts of the case are that the assessee is engaged in the business of wholesale and trading of readymade garments under the name and style of proprietary concern of assessee namely M/s Fancy Cloth House. The AO received information that the assessee has made cash deposits during the financial year 2009-10 relating to the present assessment year 2010-11 in a saving bank account maintained with Dena Bank Ltd. amounting to Rs. 1,12,55,000/- and assessee has not filed his return of income and also did not respond to query letter issued to him. Hence, AO recorded the reasons on 22.03.2017 which reads as under:- “There is information with the department that the above mentioned assessee has made cash deposits amounting to Rs. 1,12,55,000/- in his saving bank account maintained with Dena Bank Ltd. during the FY 2009-10 relevant to AY 2010-11. The assessee has not filed any ITR for the AY 2010-11 and the assessee did not respond to the query letter issued by this office. Printed from counselvise.com 3 | P a g e Hence, there is a reason to believe that the assesse has made cash deposits in his bank account from undisclosed sources. Therefore, the said unexplained cash deposit of Rs. 1,12,55,000/- and any other income that subsequently comes to notice has escaped assessment for the AY 2010-11 by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for computing correct income and filing his return of income for the AY 2010- 11. Therefore, I have reason to believe that the income of the assessee has escaped assessment to the extent of Rs. 1,12,55,000/-. In order to bring undisclosed income to tax, proceedings u/s. 147 of the Income Tax Act, 1961, are being initiated in the case of the assessee.” 4. Consequent to reasons recorded, notice u/s. 148 of the Act dated 28.03.2017 was issued and thereafter notice u/s. 143(2) of the Act was issued to scrutinize the assessee’s case for cash deposits. The AO required the assessee to show cause as to why cash deposits of Rs. 1,2,55,000/- deposited in his saving bank account maintained with Dena Bank Ltd. be not treated as unexplained. The assesssee vide letter dated 8.9.2017 submitted that these cash deposits were made out of the sale proceeds of trading from business of readymade garments and filed computer generated cash books which include cash deposits under consideration. According to AO, the assessee could not submit full details of purchase vouchers and even in the original income tax return filed turnover of any purchase was recorded and he further noted that assessee Printed from counselvise.com 4 | P a g e mentioned in the original ITR that audit is not required in his case whereas in response to notice u/s. 148 of the Act, the return of income was filed which contains only accounts audited having turnover of Rs. 3,44,51,240/- According to AO the accounts have been prepared just to justify the cash deposits whereas, in the original ITR, income was declared on estimated basis. Aggrieved, assessee preferred appeal before the Ld. CIT(A). 5. In appeal, Ld. CIT(A) after going through the submissions of the assessee, confirmed the action of the AO by observing as under:- “6. I have considered the facts of the case along with the submissions of the appellant. I have gone through the reasons to believe recorded by the AO u/s 147 of the Act. It is noted from the record that the AO was having definite information on record that the appellant has made cash deposits in the bank account maintained with Dena Bank which were not prima facie explanation. The AO has drawn such inference on the strength of specific information obtained from the bank. Thus, there was prime facie material before the AO to draw the inference that the income has escaped assessment within the meaning of section 147 of the Act. At the stage of formation of belief u/s 147 of the Act, it is necessary to have existence to believe that income has escaped assessment, their sufficiency cannot be examined at that stage. Clearly in this case the AO was having tangible material to draw such inference. Reliance is placed upon the decision of Hon'ble Supreme Court in the case of RAYMOND WOLLEN MILLS LTD. Vs. ITO 236 ITR 34 (SC) and ACIT VS. RAJESH JHAVERI STOCK BROKERS (P) LTD. 291 ITR 500 (SC), PHOOL CHAND BAJRANG LAL AND ANOTHER VS. ITO &ANOTHER 203 ITR 456 (SC) and Hon'ble Madras High Court in the case of STERLITE INDUSTRIES Printed from counselvise.com 5 | P a g e (INDIA) LTD. V ASSISTANTCOMMISSIONER OF INCOME-TAX AND ANOTHER [2008| 302 ITR275 (MAD.). It is further noted that the Pr. CIT has given his approval after application of mind and after consideration of the information on the record as required in the section 151 of the Act. In view of these facts and discussion it is found that there is no merit in these grounds of appeal taken by the appellant the same are hereby dismissed. Ground No. 4,5 and 6 The appellant has made cash deposits of Rs. 1,12,55,000/- in his bank account maintained with Dena Bank. It was stated by the appellant before the AO that the cash deposits were out of the sale proceeds of ready-made garments. The appellant claimed that he has made sales of Rs.3,44,51,240/- during the year. On the examination of the return filed by the appellant, it was noted by the AO that the particulars regarding turnover and purchases have not been filled and have been left blank. The other columns in part A for the profit and loss account in the Income Tax Return have been left blank. It has been mentioned in the ITR that audit u/s 44AB is not required in this case and therefore, the particulars regarding the auditor and the audit report in Form No. 3CD have not been filled. All the particulars in Part-A (other information) have been left blank. Therefore, the AO has reached to the conclusion that the explanation of the appellant that cash deposits in the bank account of Rs. 1,12,55,000/- were out of sale proceeds of garments was an after-thought. Accordingly, the AO has made addition of Rs. 1,12,55,000/-. During the appellate proceedings the Ld. AR has stated that the appellant has maintained cash book and other books of account supported with vouchers which have been audited u/s 44AB of the Act. The Ld. AR alleged that the AO has not made above observations from the original return filed by the assessee as he has relied upon the copy of ITR downloaded from the system data maintained by the Printed from counselvise.com 6 | P a g e Income Tax Department. The submission of the Ld. AR has been reproduced as above. 8. It is noted from the material placed on record that the AO has rejected the explanation of the appellant regarding the source of the cash deposits in the bank account of the appellant. The AO has rejected the said explanation on the basis of particulars furnished in the ITR filed by the appellant. It has been observed by the AO that the appellant has not furnished any particulars regarding sales, purchases, various items of the profit and loss account, the particulars regarding the auditor and the audit report u/s 44AB of the Act in the ITR filed. All such columns have been left blank. On this basis the AO drew the conclusion that the explanation of the appellant regarding the source of cash deposits in his bank account out of sales proceeds of garments was an after-thought. The Ld. AR during the appellate proceedings could not put on record any evidence to contradict the observations made by the AO. In the paper book during the appellate proceedings the Ld. AR has furnished copies of the purchase bills from different entities. Ongoing through the same, peculiar observations have been made. The appellant has claimed as having made purchases from Ms. Alka Chawla, Ms. Komal Chawla, M/s Graintech Engg Pvt. Ltd., M/s CJ Exim Pvt. Ltd., Sh. Raj Kumar Rathi. All the purchase invoices have been printed from the same computer having similar format complete description of the goods has not been given in the purchase invoices. Though the purchase invoices have been issued by the different persons with the names as above but the invoice are running in the same serial number for all such persons. For example, Ms. Alka Chawla has issued invoice No. 1 to the appellant on 19.04.2009, Ms. Komal Chawla has issued invoice No. 2 to the appellant on 19.04.2009, M/s Graintech has issued invoice No. 3 to the appellant on 04.05.2009, M/s C. J. Exim has issued invoice No. 4 to the appellant on 14.05.2009 and so on till Sr. No. 42. It is not possible that purchase invoices issued by different Printed from counselvise.com 7 | P a g e persons to the appellant are serially numbered in the same order. These observations clearly prove that the explanation of the appellant furnished was an after- thought. 9. The appellant has thus failed to furnish a satisfactory explanation regarding the source and nature of the cash deposits in his bank account. Therefore, the AO was justified in making addition of Rs. 1,12,55,000/- the same is hereby confirmed Ground Nos. 4, 5 and 6 of the appellant are dismissed.” 6. Now the assessee has raised the issue of reopening as bad in law for the reasons that the AO has assumed jurisdiction to reopen the assessment u/s. 147 of the Act, without a reasonable belief and hence, the reopening is bad in law. Ld. Counsel for the assessee pointed out that the very basic finding in the reasons recorded is wrong qua the assessee has filed the return of income for the relevant assessment year, but AO recorded that the AO has not filed the return of income. There is no reasonable belief that the cash deposits in assessee’s bank account are undisclosed whereas the entire cash deposits is out of the business receipts and properly disclosed in the books of accounts. 7. On the other hand, Ld. Sr. DR argued that the reopening is on sound basis and she stated that the AO has given a Report vide letter F.No. ITO/W-1(4)/FBD/2024-25/29 dated 14.05.2024 wherein, he categorically held that the PAN details of assessee are not available and without PAN Printed from counselvise.com 8 | P a g e details it cannot be found that the assessee has filed return of income or cash deposits are out of the business receipts. She referred to para 3 of the said Report, which reads as under:- “3. Further, in respect of point (iii) of Para-2 of your letter, it is submitted that the assessment record has been perused and found that the information of cash deposits was forwarded to this office as a Non-PAN case to examine the issue. This fact is evident from the letter issued by the then AO on 28.02.2017 to the assessee seeking information regarding the said transaction, vide which, the assessee has been asked to furnish his PAN also, which clearly indicates that the then AO did not have PAN details of the assessee. The Assessee has failed to furnish any reply in response to the said notice, so at that time PAN details of assessee was not available with the then AO. Further, this fact is also strengthened by the fact that, in reason also, recorded by the then AO, no PAN has been mentioned, as PAN details were not available with the then AO. As the PAN of the assesssee was not available at that time, till recording reasons, issuing of notice u/s. 148 and till the issuance of notice u/s. 142(1) on 16.05.2017, so there was no way with the AO to know whether the assessee had filed his ITR or not. So, this must be the reason as to why it had been mentioned in the reasons recorded by the AO that the assessee had not filed his ITR. So, the reasons were recorded by the then AO after proper application of mind on the basis of information available on records.” 8. In view of the above, Ld. Sr. DR stated that the reasonable belief found by the AO for recording reasons, which is as per provisions of law as unexplained cash deposits of Rs. 1,12,55,000/- was rightly to be brought to tax and even on merits the assesssee could not explain how these cash Printed from counselvise.com 9 | P a g e deposits are out of the business receipts. Hence, she urged the Bench to confirm the reopening 9. We have heard the rival contentions and gone through the facts and circumstances of the case. We note that the very basis reason for reopening is that the assessee has not filed return of income for the relevant assessment year, does not exists. Admittedly, the assessee originally filed return of income for the relevant assessment year on 02.03.2012 and even the return of income, PAN details of the assessee was mentioned. The assessee filed audited accounts alongwith return of income wherein the total turnover declared in the audited accounts is Rs. 3,44,51,240/-. We have gone through the purchase register and the bank account of the assessee as well as payments made to purchase parties and noted that the cash deposits after withdrawing the payment is made to these purchase parties. Even the deposits i.e. cash deposits seems to be aligned with the sale made by the assessee of readymade garments. It means that the assessee in the original return of income has filed all the details. The only lacuna left is that there is no PAN details, but that cannot be reason for reopening of the assessment u/s. 147 read with Section 148 of the Act. It is the duty of the department to ascertain the PAN details before invoking the provisions of section 147 of the Act. We further noted that this issue that there should be ‘reason to believe’ exists and there is formation of belief that the income has escaped, as held by the Hon’ble Supreme Court in the case of Calcutta Discount Co. Ltd. Vs. ITO 41 ITR 191 by holding that the expression “reason to believe” predicated that the AO holds the belief induced by the existence of reasons for holding such belief. It contemplates existence of reasons on which the belief is founded Printed from counselvise.com 10 | P a g e and not merely a belief in the existence of reasons inducing the belief. Such a belief has not to be based on mere suspicion, but it must be based on information. Further, Hon’ble Supreme Court in the case of Ganga Saran & Sons Pvt. Ltd. Vs. ITO 130 ITR have held that the words “reasons to believe” are stronger than the word “satisfied” and the belief entertained must not be arbitrary or irrational and it must reasonable and be based on reasons which are relevant and material. Further, Hon’ble Supreme Court in the case of S. Narayanappa vs. CIT 63 ITR 219 that belief must be held in good faith and it cannot be merely a pretence. It is open to the court to examine whether the reasons for the belief have a rational connection or relevant bearing to the formation of the belief and to this extent action of AO in starting the proceeding u/s. 147 is open to challenge in a court. It is open to the court to examine the question whether the reasons for belief have a rational connection or a relevant bearing to the formation of the belief and are not extraneous or irrelevant to the purpose of the section. 10. In view of the above facts and the case laws discussed above, we are of the considered view that in the present case before us, the reason to belief formed by the AO is without any basis that the cash deposits is out of unexplained money or deposits. In our view and as discussed above, we find that the cash deposits are out of the sale receipts of business and while forming reasonable belief, AO has failed in his duty. Hence, we are of the view that the reopening is bad in law and accordingly, we quash the assessment by allowing the jurisdictional ground raised by the assessee. Printed from counselvise.com 11 | P a g e 11. As regards, other issues and issue on merits are concerned, the same need not be adjudicated, as we have already quashed the assessment, as discussed above, and decided the jurisdictional issue in favour of the assessee. 12. In the result, the assessee’s appeal stand allowed in the aforesaid manner. Order pronounced 24.09.2025. Sd/- Sd/- (BRAJESH KUMAR SINGH) (MAHAVIR SINGH) ACCOUNTANT MEMBER VICE PRESIDENT Date: 24-09-2025 SRBhatnaggar Copy forwarded to: - 1. Appellant 2. Respondent 3. DIT 4. CIT (A) 5. DR, ITAT Assistant Registrar, ITAT, Delhi Benches Printed from counselvise.com "