AO need to consider the reply submitted by Assessee related to cash deposit for Reassessment: Gujarat HC
Hemant Manaharlal Shah (HUF) Vs ITO (Gujarat High Court)
It is a case wherein AO has formed an opinion that income chargeable to tax has escaped assessment for the reason that there is a mismatch between the returned income and cash transactions in the bank accounts.
It was held that AO under no circumstances could have simply ignored the reply of Assessee and proceeded to form a belief that income chargeable to tax has escaped assessment. It was concluded by the court that satisfaction of AO was tainted by wrong facts & his attempt to cover the issue through the order disposing of objections must fail.
Hemant Manaharlal Shah (HUF) Vs ITO (Gujarat High Court)
[Special Civil Application No. 19405 of 2017]
COPY OF JUDGMENT
- Petitioner has challenged a notice dated 28.03.2017 issued by the respondent-Assessing Officer
seeking to reopen the petitioner’s assessment for the assessment year 2010-11.
- Facts are as under.
- Petitioner is an HUF. For the said assessment year 2010-11, the petitioner had filed the return of income declaring total income of Rs.30,833/. The petitioner had agricultural income of Rs.21.56 lakhs (rounded off) during the said year which was otherwise exempt from tax. This return was not taken in scrutiny. After the period for issuing notice for scrutiny assessment was over, the Assessing Officer issued a notice on 21.02.2017 under section 133(6) of the Income Tax Act, 1961 (‘the Act’ for short) and raised certain queries, inter alia, pointing out that the assessee had deposited a sum of Rs.30.75 lakhs during the period relevant to the said assessment year and that therefore, the assessee to furnish the details and evidences as a proof of the financial transactions, clearly providing the date, mode and source of such investment with supporting documents.
- The assessee replied to such query under a communication dated 06.03.2017 pointing out that the assessee had earned agricultural income in cash which was deposited in the bank account. The assessee had also withdrawn such amount from time to time and redeposited the same which comes to Rs.30.75 lakhs during the relevant period. Along with this letter, the assessee also produced a copy of an agreement dated 04.06.2009 for sale of his Mango produce to a dealer for a total sale consideration of Rs.25 lakhs. This agreement recorded that an oral agreement was entered on 25.05.2009. The assessee would receive total of Rs.25 lakhs, Rs.10 lakhs already paid over on 27.05.2009 and remaining 15 lakhs paid on 04.06.2009. The purchaser of the Mango would harvest the entire crop latest by 22.06.2009. The petitioner also produced his bank statement.
- The Assessing Officer thereupon issued the impugned notice on 28.03.2017. He had recorded following reasons for issuing the notice.
“….In this case, the information available on record, it is seen that the assessee has deposited Cash amount of Rs.30,75,000/ in his Saving Bank A/c held with Dena Bank during the year under consideration.
From verification of the return it was seen that the assessee has filed his return of income on 30.03.2011 declaring total income at Rs.30,833/ and Agricultural income for rate purpose of Rs.21,56,458/. As the amount deposited in Bank Accounts was very large with respect to the return shown in ITR, hence a clarification/verification letter was issued to the assessee to furnish his reply in respect of large cash deposit with supporting evidences. However, assessee had not furnished the details/explanation in his regard till date. Moreover, the deposits made in the said Saving Bank Accounts does not corelate with the return of income filed by the assessee, hence, it is clear that the assessee has concealed his income to the tune of Rs.30,75,500/ and failed to disclose fully and truly all material facts necessary for his assessment within the meaning of section 147 of the Act.
In view of the above, the assessee’s cash falls within explanation 2(b) to Section 147 of the I.T. Act, i.e. “where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return.” As mentioned above, the assessee has not fully disclosed his bank accounts and the cash deposits made in that accounts in his return of Income. I am therefore satisfied and have reason to believe that income chargeable to tax of Rs. 30,75,500/ has escaped assessment within the meaning of section 147 of the Act…”
- The petitioner raised objections to the notice of reopening under a letter dated 18.05.2017. Such objections were rejected by an order dated 02.08.2017. Hence, this petition.
- Having heard learned counsel for the parties and having perused the documents on record, we gather that in case of the present petitioner, two notices for reopening were issued by two separate Assessing Officers. The present notice dated 28.03.2017 was issued by the Income Tax Officer, Ward No.8, Vapi. Another notice dated 27.03.2017 was issued by Assessing Officer, Ward No.3, Vapi, also for reopening assessment for the same assessment year. Despite best efforts, the department has not been able to explain two parallel notices issued by two separate officers seeking to reopen the assessment for the same assessment year. No matter what the reason for the confusion, it is simply impermissible that two notices for reopening can be issued validly that too by two separate Assessing Officers. Jurisdiction of assessment over an assessee is a well-documented procedure. Two Assessing Officers
cannot simply claim jurisdiction over the same assessee.
- Now that the department has abandoned the notice issued by Assessing Officer, Ward No.3, Vapi, we do not propose to quash the present notice on this ground. On the merits of the notice issued by the Assessing Officer, we may recall, in the reasons, he had stated that the assessee had declared a total income of barely Rs.30,833/ and agricultural income for the same period was shown at Rs.21,56,458/. The amount deposited in the bank account was very large as compared to the return shown by the assessee. Therefore, a letter was issued seeking clarification and asking the assessee to furnish certain details. According to the Assessing Officer, as stated in the said reasons “the assessee had not furnished the details/explanation in this regard till date.”.
- We are conscious that in the present case, the return filed by the assessee was accepted without scrutiny. The Assessing Officer therefore not having formed any opinion on the proposed addition, the principle of change of opinion would not apply. Nevertheless, even in such a case, the Assessing Officer must have valid reason to believe that income chargeable to tax has escaped assessment. The
observations made by this Court in case of Inductotherm (India) P. Ltd. v. M. Gopalan, Deputy Commissioner of IncomeTax reported in  356 ITR 481 (Guj), may be noted.
“16. It would, thus, emerge that even in case of reopening of an assessment which was previously accepted under section 143(1) of the Act without scrutiny, the Assessing Officer would have power to reopen the assessment, provided he had some tangible material on the basis of which he could form a reason to believe that income chargeable to tax had escaped assessment. However, as held by the Apex Court in the case of Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stock Brokers P. Ltd., (supra) and several other decisions, such reason to believe need not necessarily be a firm final decision of the Assessing Officer.
- If we accept such proposition, the petitioner’s apprehension that the Assessing Officer would arbitrarily exercise powers under section 147 of the Act to circumvent the scrutiny proceedings which could not be framed in view of notice under section 143(2) having become time barred, would be taken care of. To reiterate, even for reopening of an assessment which was accepted previously under section 143(1)of the Act without scrutiny, the Assessing Officer should have reason to believe that income chargeable to tax has escaped assessment.”
- The Assessing Officer formed a belief that income chargeable to tax has escaped assessment, on the ground that noticing a big mismatch between the returned income and cash transactions in the assessee’s bank accounts, queries were raised, which remained unreplied. This is contrary to the facts on record. As noted, in reply to the notice dated 21.02.2017 issued by the Assessing Officer, the assessee had given a detailed reply on 06.03.2017. He had pointed out that he had received Rs.25 lakhs in cash for sale of his Mango crop. Such amount was deposited in the bank account. Part of it was withdrawn and redeposited. That is how the total cash deposit in his account reached Rs.30.75 lakhs during the relevant period. Along with his reply, the assessee had also furnished a copy of the agreement between the assessee and the purchaser of the Mango crop. The bank statement was also produced. If the Assessing Officer was not still satisfied, it was always open for him to call for further details or even for valid reason to discard the assessee’s reply and reopen the assessment recording the reasons. However, under no circumstances, he could have simply ignored the reply and proceeded to form a belief that income chargeable to tax has escaped assessment on the premise that his queries had remained unreplied. In plain terms, his reasons proceeded on wrong facts. His satisfaction was thus, tainted by wrong facts. His attempt to cover the issue through the order disposing of objections must fail. His assertion that such large amount of agricultural income required verification, would amount to improving the reasons and also seeking to carry out fishing inquiry through the process of reopening of the assessment.
- In the result, impugned notice dated 28.03.2017 is quashed. Petition is disposed of.