SIVA MADHAVI GARAPATI,SECUNDERABAD vs. ITO, WARD-10(1), HYDERABAD

Shri A V Raghuram, the Ld. Authorized Representative (for short “Ld. AR”) for the assessee, at the threshold of hearing, submitted that the case of the assessee was reopened beyond a period of 3 years on the ground that the income that had escaped assessment exceeded Rs. 50 lakhs. It is stated that at the stage of reopening, the AO had observed that the assessee had purchased a property for Rs. 1.10 crore during the relevant year. However, in reply to the notice u/s 148A(b) of the Act, the assessee had explained that investment in the subject property to the tune of Rs. 97.45 lakhs was sourced from a housing loan obtained by the assessee from Sundaram Home Finance Limited, and the balance Rs. 12.55 lakhs was received from the assessee’s daughter settled in the USA. It was further stated that the AO, after considering the explanation, did not make any addition on account of investment in property and restricted the assessment only to the cash deposits of Rs.

Per contra, Shri T Sunil Gowtham, the Ld. Senior Departmental Representative (for short, “Ld. Sr-DR”) submitted that at the stage of reopening, the AO had information that the assessee, a non-filer, had made an investment in property of Rs. 1.10 crore and cash deposits of Rs. 10,08,800/-, therefore, as at the stage of initiation of proceedings, the AO had material indicating escapement of income exceeding Rs.50 lakhs, therefore, he had remaining well within his jurisdiction reopened the case beyond a period of 3 years. It was submitted that subsequent acceptance of an explanation regarding property investment does not invalidate the jurisdiction already assumed.

We have considered the Ld. Authorized Representatives of both parties and perused the material on record. At the outset, it is noted that at the stage of initiation of reassessment proceedings, the AO was in

We find that it is a settled principle that the validity of reopening has to be tested on the basis of material available before the AO at the stage of initiation of proceedings and not on the basis of the final additions ultimately made in the assessment order. We are of firm conviction that, merely because the AO, after verification, did not make any addition on account of property investment, it cannot be said that the jurisdiction assumed at the time of reopening becomes invalid. In the present case, the information available at the stage of reopening clearly indicated escapement of income represented by investment in immovable property and cash deposits aggregating to more than Rs. 50 lakhs. We, thus, do not find any merit in the Ld. AR’s contention that the reopening of the assessee’s case beyond 3 years from the end of the subject assessment year was without jurisdiction.

Coming to the merits of the addition, we find that the AO has treated the entire amount of cash deposits of Rs. 10,08,800/- as an unexplained investment under section 69 of the Act.

At the same time, it cannot be completely ruled out that the assessee may have had some availability of cash in hand out of her accumulated savings and small incidental receipts. We thus, taking a reasonable view of the matter, and following a pragmatic approach consistent with CBDT Circulars (though issued in the context of demonetization), consider it appropriate to accept the availability of cash in hand with the assessee to the extent of Rs. 2,50,000/-. Accordingly, we hold that the benefit of Rs. 2,50,000/- deserves to be granted to the assessee as an explained source of cash deposits, while for the balance amount over and above Rs. 2,50,000/-, i.e., Rs. 7,58,800/-, is upheld.

In the result, the appeal of the assessee is partly allowed in terms of our aforesaid observations.