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Facts
The assessee filed returns for AYs 2014-15 to 2017-18. The Assessing Officer (AO) reopened the assessments under Section 147 based on information from the DDIT (Investigation) Wing, alleging escapement of income due to non-disclosure. The AO made additions for unexplained cash deposits and construction expenses. The CIT(A) partly allowed some appeals and confirmed others.
Held
The Tribunal held that the reopening of assessment was invalid as it was based on 'borrowed satisfaction' without independent application of mind by the AO. Furthermore, the AO failed to dispose of the assessee's objections to the reopening in a speaking manner as required by law. Consequently, the reopening and subsequent assessment orders were quashed.
Key Issues
Whether the reopening of assessment under Section 147 was valid when based on borrowed satisfaction without independent application of mind and without proper disposal of assessee's objections. Whether the additions made by the AO for unexplained cash deposits and construction expenses were justified.
Sections Cited
147, 148, 143(3), 68, 142(1), 153C
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Income Tax Appellate Tribunal, “D” BENCH, KOLKATA
Before: SHRI RAJESH KUMAR, AM & SHRI PRADIP KUMAR CHOUBEY, JM
These appeals preferred by the assessee and Revenue against the orders of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 28.08.2025, 27.05.2025 for A.Y. 2014-15, 2015-16, 2016-17 & 2017-18.Since the appeals are relating to same assessee and involves commons issues , therefore all these appeals are decided by this consolidated order for the sake of brevity.
2. The issue raised in ground no.1 is against the order of ld. CIT (A) upholding the reopening of assessment, which was based upon borrowed satisfaction without examining the records and without application of mind and accordingly, the reopening of assessment bas bad in law.
2.1. The facts in brief are that the assessee is an individual deriving income by way of director remuneration, share profit from the partnership firm and rental income, etc. The assessee filed the return of income on 31.03.2015, declaring total income of ₹11,10,020/- u/s 139(1) of the Act. Thereafter, the ld. AO on the basis of information received from DDIT, investigation, Wing Siliguri, reopened the assessment u/s 147 of the Act by issuing notice u/s 148 of the Act on 31.03.2021. The assessee complied with the said notices by filing the return of income on 01.05.2021, by declaring the total income at ₹33,84,970/-. The assessee requested the ld. AO to furnish the copies of reasons recorded on 06.05.2021, which were not supplied. The assessee again requested the ld. AO vide letter dated 17.02.2022 to supply the reasons. Thereafter the assessee was supplied the reasons recorded u/s 148(2) of the Act. The assessee furnished before the ld. AO the details and information as called for by the ld. AO. Finally, the ld. AO made an addition of ₹67,37,100/- on account of unexplained cash deposit and ₹37,53,227/- on account of construction expenses thereby assessing the income of ₹1,38,68,297/- vide assessment order dated 26.09.2022, passed u/s 147 read with section 144B of the Act.
2.3. After hearing the rival contentions and perusing the materials available on record, we find that the ld. DDIT (Investigation) Wing, vide letter dated 30.11.2019, informed the ld. AO that assessee has entered into some suspicious transactions by forwarding the report to the ld. AO. The ld. AO on the basis of the said report of DDIT (Investigation) Wing, issued notice u/s 148 of the Act. The reasons recorded for issuing the said notice are available at page nos. 26 to 28. We observe from the perusal of the said reasons that the ld. AO relied on the report from the DDIT (Investigation) as it is without recoding any satisfaction of his own. Thereafter, the ld. AO concluded that in the light of the above discussion, which is just extraction of the reports supplied by the ld. DDIT, noted that the income of the assessee has escaped assessment due failure on the part of the assessee to fully and truly disclosed his total return of income. In our opinion, the said reasons recorded by the ld. AO is just a borrowed satisfaction of the DDIT and not the AO’s satisfaction. We note that the ld. AO has not recorded is own satisfaction as to how there was a failure on the part of the assessee to disclose fully and truly all material facts. In our opinion, it is the satisfaction of the ld. AO that income has escaped assessment is a pre condition for re-opening the assessment and not a borrowed satisfaction from outside source as has been held by the Hon'ble Delhi High Court in case of Sarthak Securities Co. (P.) Ltd. vs. Income-tax Officer-Ward 7(3) [2010] 329 ITR 110 (Delhi, wherein it is held as under:-
“3. Further, the alleged information provided by the Addl. DIT has been accepted as gospel truth without any verification by the Assessing Officer. The law postulates the Assessing Officer (and not the Addl. DIT) to have reason to believe. Blind acceptance of “26. The first part of Section 147 (1) of the Act requires the AO to have "reasons to believe" that any income chargeable to tax has escaped assessment. It is thus formation of reason to believe that is subject matter of examination. The AO being a quasi judicial authority is expected to arrive at a subjective satisfaction independently on an objective criteria. While the report of the Investigation Wing might constitute the material on the basis of which he forms the reasons to believe the process of arriving at such satisfaction cannot be a mere repetition of the report of investigation. The recording of reasons to believe and not reasons to suspect is the pre- condition to the assumption of jurisdiction under Section 147 of the Act. The reasons to believe must demonstrate link between the tangible material and the formation of the belief or the reason to believe that income has escaped assessment. ……………… 36. In the present case, as already noticed, the reasons to believe contain not the reasons but the conclusions of the AO one after the other. There is no independent application of mind by the AO to the tangible material which forms the basis of the reasons to believe that income has escaped assessment. The conclusions of the AO are at best a reproduction of the conclusion in the investigation report. Indeed it is a 'borrowed satisfaction'. The reasons fail to demonstrate the link between the tangible material and the formation of the reason to believe that income has escaped assessment.” 2.5. Similarly, the Hon'ble Bombay High Court in case of Principal Commissioner of Income-tax-5 vs. Shodiman Investments (P.) Ltd. [2020] 422 ITR 337 (Bombay)[16-04-2018], has held as under:-
“13. In this case, the reasons as made available to the Respondent- Assessee as produced before the Tribunal merely indicates information received from the DIT (Investigation) about a particular entity, entering into suspicious transactions. However, that material is not further linked by any reason to come to the conclusion that the Respondent-Assessee has indulged in any activity which could give rise to reason to believe on the part of the Assessing Officer that income chargeable to tax has escaped
The second issue raised in ground no.2 is against the order of ld. CIT (A) upholding the reassessment made by the ld. AO by ignoring the fact that the objection filed by the assessee to the reopening of assessment were not disposed off as per the procedural laid down in the case of GKN Driveshafts (India) Ltd. vs. Income-tax Officer [2003] 259 ITR 19 (SC).
3.1. The facts of the case have been discussed while dealing with ground no.1. We note that the ld. AO did not supply the reasons despite the assessee filing the return of income on 01.05.2021, in response to notice issue u/s 148 of the Act on 30.03.2021. The assessee requested the ld. AO on 06.05.2021, for supply of reasons, however, no reasons were provided to the assessee. Thereafter, issued notice u/s 143(2) on 10.11.2021, without providing reasons to the “We see no justifiable reason to interfere with the order under challenge. However, we clarify that when a notice under section 148 of the Income Tax Act is issued, the proper course of action for the noticee is to file return and if he so desires, to seek reasons for issuing notices. The Assessing Officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the Assessing Officer is bound to dispose of the same by passing a speaking order. In the instant case, as the reasons have been disclosed in these proceedings, the Assessing Officer has to dispose of the objections, if filed, by passing a speaking order, before proceeding with the assessment in respect of the abovesaid five assessment years.” 3.2. Similar issue has been laid down by the Hon'ble Madrass High Court in case of Karti P. Chidambaram vs. Assistant Commissioner of Income Tax, Chennai [2018] 402 ITR 488 (Madras)/[2018 wherein it has been held that the assessment order passed without disposing off the assessee’s objections to reopening of assessment and without passing a speaking order was unjustified.
The issue raised in ground no.3 and 4 is against the confirmation of addition of ₹59,73,221/-, by the ld. CIT (A) as made by the ld. AO on account of cash deposits in the bank account by treating the same as unexplained cash credit u/s 68 of the Act.
4.1. The facts in brief qua this ground are that the assessee has a banking account with the Indian bank in Siliguri Branch no. 20904. The ld. AO observed from the bank statements that during the year the assessee has deposited cash of ₹66,33,500/- and also made withdrawals of cash of ₹3,62,000/-. Accordingly, the assessee was called upon to explain the same. The assessee submitted before the ld. AO that the total cash deposits and withdrawals from Indian Bank of Siliguri were ₹67,30,100/- and ₹45,44,150/- respectively. The assessee submitted before the ld. AO the statement of funds available for deposit into the bank account which were out of opening cash in hand available as on 01.04.2013, of ₹41,89,518.90/- and ₹28,00,000/- received from Shelter Enclave Pvt. ltd. for sale of land. However, the ld. AO disbelieved the submissions of the assessee and made an addition of ₹67,30,000/- was made u/s 68 of the Act on account of unexplained cash credit.
4.2. In the appellate proceedings the ld. CIT (A) partly allowed the appeal by sustaining the addition to the extent of ₹59,73,221/- while deleting the addition to the tune of ₹7,56,879/- by observing and holding as under:-
“7.2 I have perused the assessment order, grounds of appeal
, and submission filed by the appellant carefully. I find that during the course of assessment proceedings, the AO noted that the appellant had deposited cash of Rs.67,30,100/- in bank account and not 19. Per contra, disputed facts are that while assessee explains the source for the cash deposits amounting Rs 3.22 cr is the unutilized cash on hand withdrawn from the same bank accounts; revenue does not believe the said explanation of the assessee. Revenue holds that the assessee needs to establish the nexus and assessee claims that the nexus is already established.
On considering the divergent stands of the parties, in our considered opinion, there is need for addressing to various issues before addressing to the core issue. They are: (i) if the assessee has discharged initial onus of explaining the purpose of cash withdrawal; (ii) if the assessee has explained as to why the assessee kept the withdrawn cash in the house without depositing the same in the bank accounts; (iii) if the assessee has successfully explained the sources of the cash deposited in the bank accounts; (iv) if the assessee cash flow of the assessee suffer from any incrimination; (v) if there is availability of cash with the assessee prior to the date of cash deposit in Bank accounts and finally (vi) if the AO is under obligation to accept the claim of the assessee.
The above judgments from various benches of the Tribunal as well as the Higher courts suggest that the assessee can explain the cash deposit in the banks using the cash held by him for period longer than 2 years and there is no restraining provisions against such maintaining balance for the said periods. Hon’ble Karnataka High Court has found an assessee has kept cash for 2 years and the same is accepted as the source for explaining a cash deposit. Of course, Ld DR attempted to distinguish the above cases as cases of few credits and incomparable to the 298 transactions reported in the instant case. In our opinion, number of transactions is not a relevant factor as the transactions number vary from assessees to assessee depending on their requirements relating to business, domestic and their plans and perspective. Therefore, the instant case being the retaining of cash for few weeks/months only, the arguments of Ld DR has to be dismissed and uphold the views of the AR for the revenue. In the process, we rely on the decision tabulated above. (iii) & (iv) if the assessee has successfully explained the sources of the cash deposited in the bank accounts and existence any incrimination in the cash flow statement & (iv) if the assessee cash flow of the assessee suffer from any incrimination: We have discussed in the preceding paragraphs of this order about various aspects vis avis discharging of ‘initial onus’ by the assessee in matters of (a) furnishing of the explanation about the sources of funds; (b) rerouting of the cash into the bank accounts adequately to meet the withdrawal of Rs 3.22 cr; (c) AO failure to rebut that the withdrawn cash was not existing in the system and diverted towards other unaccounted purposes etc. We have held that the assessee has discharged his part of the onus which is the duty of the assessee to discharge the initial onus. We have also discussed the settled legal proposition that the assessee is not prevented by any law from parking the cash withdrawn as ‘cash in hand’. Thus, when the withdrawn cash exists in the system and not utilised for any other business or personal utilities, the question arises, where did that cash go? Why cannot that cash be used to explain the cash deposits into the bank accounts? If the AO could have found any weakness in the explanation of the assessee or AO is in a possession of any incriminating material against the assessee, inference may be different. But in this case, the AO has not made out any case to say that the said cash was used for other unaccounted or accounted activities of the assessee or others and the same not available for explaining the source of the impugned cash deposits. In our opinion, the explanation of the assessee is a plausible one. Therefore, we have no doubt in our minds to drawn the obvious inference that the withdrawn cash constitutes the sources for 4.5. Considering the facts of the assessee’s case in the light of above decisions, we note that the assessee has fully established the source of cash deposits into the banks and therefore, the order of ld. CIT (A) is not sustainable on this issue. Consequently, we set aside the order of ld. CIT (A) on this issue and direct the ld. AO to delete the addition.
In the result, the appeal of the assessee is allowed.
A.Ys. 2015-16 & 2016-17 & 1631/KOL/2025 6. The issues raised in these appeals are similar to one as decided by us in ITA No. 2178/KOL/2025. Accordingly, our decision would, mutatis mutandis, apply to these appeals of assessee in & 1631/KOL/2025 as well. Hence, the appeals of assessee are allowed.
7. The present appeal has been filed by the Revenue against the order of ld. CIT (A) deleting the addition of ₹89,69,000/- as made by the ld. AO on account of cash deposit by the assessee into the bank account and the second issue is against the deletion of ₹6,48,620/- by the ld. CIT (A) as made by the ld. AO in respect of cost of construction incurred by the assessee.
The assessee has also raised legal issue under Rule 27 of the ITAT Rules, 1963 challenging the appellate order passed by the ld. CIT (A), wherein the reopening of assessment has been affirmed by the ld. CIT (A).
8.2. The assessee under Rule 27 of the ITAT Rules, 1963, has challenged the reopening of assessment as confirmed by the ld. CIT (A). For the sake of ready reference, the Rule 27 is extracted below:-
“"Respondent may support order on grounds decided against him.
The respondent, though he may not have appealed, may support the order appealed against on any of the grounds decided against him." 8.3. The Rule 27 of ITAT Rules provides an opportunity to the respondent where he has not filed any appeal or cross objection before the Tribunal against the appellate order on the issue decided against him by the CIT(A). The case of the assessee is supported by the decision of Hon'ble Delhi High Court in case of Sanjay Sawhney vs. Principal Commissioner of Income-tax [2020] 116 taxmann.com 701 (Delhi)/[2020] 273 Taxman 332 (Delhi)[18-05-2020), wherein it has held as under:-
The upshot of the above discussion is that Rule 27 embodies a fundamental principal that a Respondent who may not have been aggrieved by the final order of the Lower Authority or the Court, and therefore, has not filed an appeal against the same, is entitled to defend such an order before the Appellate forum on all grounds, including the ground which has been held against him by the Lower Authority, though the final order is in its favour. In the instant case, the Assessee was not an aggrieved party, as he had succeeded before the CIT (A) in the ultimate analysis. Not having filed a cross objection, even when the appeal was preferred by the Revenue, it does not mean that an inference can be drawn that the Respondent- assessee had accepted the findings in part of the final order, that was decided against him. Therefore, when the Revenue filed an appeal before the ITAT, the Appellant herein (Respondent before the Tribunal) was entitled under law to defend the same and support the order in appeal on any of the grounds decided against it. The Respondent-assessee had taken the ground of maintainability before Commissioner (Appeals) and, therefore, in the appeal filed by the Revenue, it could rely upon Rule 27 and advance his arguments, even though it had not filed cross objections against the findings which were against him. The ITAT, therefore, committed a mistake by not permitting the assessee to support the final order of CIT (A), by assailing the findings of the CIT(A) on the issues that had been decided against him. The Appellant - assessee, as a Respondent before the ITAT was entitled to agitate the jurisdictional issue relating to the validity of the reassessment proceedings. We are, therefore, of the considered opinion that the impugned order passed by the ITAT suffers
Ground no.1 raised by the assessee is against the order of ld. CIT (A) confirming the order of ld. AO, wherein the reopening on borrowed satisfaction was made which was invalid and deserves to be quashed.
9.1. Since, the facts of the present case are quite similar to one as decided by us in ground no.1 of for A.Y. 2015- 16, wherein we have quashed the reopening of assessment on legal issue on the ground that same is without application of mind and based on the borrowed satisfaction. Therefore, our decision would mutatis mutandis, apply to this ground of assessee. Consequently, ground no. 1raised under Rule 27 of the Rules is allowed.
The second issue raised in ground no.2 is against the order of ld. CIT (A) upholding the reassessment made by the ld. AO by ignoring the fact that the objection filed by the assessee to the reopening of assessment were not disposed off as per the procedural laid down in the case of GKN Driveshafts (India) Ltd. vs. Income-tax Officer [2003] 259 ITR 19 (SC).
10.1. Since, the facts of the present case are quite similar to one as decided by us in ground no.2 of for A.Y. 2015-16, wherein we have quashed the reopening of assessment on legal issue on the ground of non disposal of objections filed by the assessee to re-opening of assessment by the AO. Therefore, our
Since, we have allowed the grounds raised under Rule 27 by quashing the reopening of assessment, the appeal of the Revenue become infructuous and hence, dismissed.
In the result, the appeal of the Revenue is dismissed and the appeals of the assessee are allowed.
Order pronounced in the open court on 18.12.2025.