UDHAVRAO RAGHUNATH KHARATE,AURANGABAD vs. ITO WARD-1(1), AURANGABAD, AURANGABAD

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ITA 1470/PUN/2025Status: DisposedITAT Pune08 August 2025AY 2011-12Bench: DR.DIPAK P. RIPOTE (Accountant Member), SHRI VINAY BHAMORE (Judicial Member)8 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal found that the Assessing Officer failed to provide the "reasons recorded for reopening" to the assessee, a procedural lapse violating the Supreme Court's directives in G.K.N. Driveshaft. Citing Bombay High Court precedents, the Tribunal set aside the assessment order and remanded the matter to the AO to provide the reasons, allow the assessee to file objections, and then pass a fresh order.

What were the facts?

The assessee, a wholesale trader in Bagasse, appealed against a reassessment initiated based on cash deposits in his bank account, which he claimed were business proceeds declared under Section 44AD. The Assessing Officer had not provided the "reasons recorded" for the reopening of the assessment, which the assessee challenged as invalid due to lack of 'reason to believe'.

What were the issues?

Whether the reassessment proceedings were valid when the Assessing Officer failed to provide the assessee with the "reasons recorded" for reopening, and the implication of this procedural lapse on the assessment order.

Which sections of the Income-tax Act were involved?

Section 250,Section 143(3),Section 147,Section 148,Section 44AD,Section 68,Section 142(1),Section 131

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Income Tax Appellate Tribunal, PUNE BENCHES “SMC” :: PUNE

Before: DR.DIPAK P. RIPOTE & SHRI VINAY BHAMORE

For Appellant: Shri Ramesh N. Thete –AR(Virtual)
For Respondent: Shri Ajay D. Kulkarni – Addl.CIT(DR)
Hearing: 06/08/2025Pronounced: 08/08/2025

Assessment Year: 2011-12 Udhavrao Raghunath Kharate, V The Income Tax Officer, 220/1, Raghunandini Niwas, s Ward-1(1), Aurangabad. Near BSNL Tower, At Post Maniknagar, Teh. Sillod District, Aurangabad – 431135. PAN: APUPK3432R Appellant/ Assessee Respondent / Revenue Assessee by Shri Ramesh N. Thete –AR(Virtual) Revenue by Shri Ajay D. Kulkarni – Addl.CIT(DR) Date of hearing 06/08/2025 Date of pronouncement 08/08/2025 आदेश/ ORDER

PER DR. DIPAK P. RIPOTE, AM:

1.

This is an appeal filed by the assessee directed against the order of ld.Addl./Joint Commissioner of Income Tax(A)-1, Gurugram passed under section 250 of the Income Tax Act, 1961 dated 24.04.2025 for the A.Y.2011-12 emanating from the Assessment Order under section 143(3) r.w.s 147 of the Income Tax Act, 1961, dated 05.12.2018.

2. The ld.AR for the Assessee filed a paper book. Ld.AR submitted that sufficient opportunity has not been given by the Assessing Officer. Relevant part of the written submission filed by the assessee reproduced here as under :

“B. Reopening Based Solely on Bank Deposits - Invalid Reason to Believe: The AO initiated reassessment merely on the basis of cash deposits in the appellant's bank account. The appellant is a wholesale trader in Bagasse, and this fact was within the knowledge of the AO even at the time of reopening. Mere deposit of cash, without any further tangible material indicating escapement of income, does not constitute "reason to believe" within the meaning of Section 147. Thus, the reopening is bad in law and deserves to be quashed. C. Business Nature of Deposits Evident from Records: The cash deposits were proceeds from business sales and were declared under presumptive scheme u/s 44AD. The AO himself observed that the withdrawals were "self" in nature, which is consistent with business operations. The bank statement reveals deposits from multiple distant locations such as Pathari, Hingoli, Pachora, RL Colony, Kannad, Bhadgaon, Pangaon, Kingaon, Jalgaon, Pishior, and Jilha Peth Jalgaon. It is impractical for the appellant to travel to deposit cash from so many locations, which clearly indicates deposits were made by purchasers of Bagasse. Further, payments for purchases were made from the same account to material suppliers, indicating the business linkage of deposits. The following payments are made to the parties against the purchases.

Sr.No. Date Party cqh no Amount 1 01-11-10 DharashivSakhar K 5767526 ₹25,005.00 ₹25,005.00 2 12-11-10 DharashivSakhar K 576529 ₹50,005.00 3 15-11-10 Vaidyanath Sahakar 576531 DharashivSakhar K ₹1,0005.00 4 16-11-10 576532 DharashivSakhar K ₹25,005.00 5 19-11-10 576534 DharashivSakhar K ₹20,005.00 6 24-11-10 576536 DharashivSakhar K ₹25,205.00 7 24-11-10 576535 DharashivSakhar K ₹25,005.00 8 29-11-10 576538 DharashivSakhar K ₹20,005.00 9 01-12-10 576539 DharashivSakhar K ₹60,005.00 10 10-12-10 576544 ₹40,005.00 11 05-01-11 Vishwa Krushi Urja 576553 ₹20,005.00 12 06-01-11 DharashivSakhar K 576554 Vishwa Krushi Urja ₹30,005.00 13 21-01-11 576558 Vishwa Krushi Urja ₹30,005.00 14 03-02-11 576564

D. Reconciliation Ignored and Peak Credit Not Considered:

The CIT(A) erred in rejecting the reconciliation statement and explanation filed by the appellant without proper consideration.

The concept of peak credit - i.e., the maximum unexplained balance at any point was not applied by the AO, which is a standard principle when dealing with multiple cash deposits and withdrawals.

The peak cash balance was ₹ 3,12,100, which should have been considered while computing any possible addition, even if the explanation was not fully accepted.

4. Prayer:

In light of the above submissions, it is most respectfully prayed that:

1. The addition of ₹12,05,440 made u/s 68 be deleted in full as the same is based on bank statements and not books of account;

2.

The reassessment u/s 147 itself be held invalid and void ab initio for want of valid "reason to believe";

3.

The additional ground raised on legal issue may be kindly admitted and allowed;

4.

Any other relief which this Hon'ble Tribunal deems fit in the facts and circumstances may be granted.

2.1 We specifically asked ld.AR to provide copy of the reasons recorded by the Assessing Officer for reopening of the Assessment.

Submission of ld.DR : 3. Ld.DR for the Revenue relied on the order of Assessing Officer and ld.CIT(A).

3.1 We specifically asked ld.DR for the Revenue to explain why reasons recorded were not provided to the Assessee! Ld.DR could not answer our question.

Findings &Analysis : 4. We have heard both the parties and perused the records. In this case, the Assessee had filed Return of Income for A.Y.2011-12 on 20.06.2012. The copy of the acknowledgement for filing Return of Income has been filed by the ld.AR for the Assessee in the paper book. Ld.AR had submitted that Assessee had shown business income and offered Profit for Taxation u/s.44AD of the Act.

4.1 It is observed that the Assessing Officer issued notice u/s.148 on 20.03.2018. The assessee filed Return of Income in response to notice under section 148 on 14.06.2018 declaring total income of Rs.4,39,780/-. The Assessing Officer issued notice u/s.143(2) and 4

5.

We have perused the assessment order and nowhere it is mentioned that copy of the reasons recorded for reopening were provided to the Assessee. We asked ld.AR regarding copy of the reasons recorded and he submitted that reasons recorded by the Assessing Officer have not been provided to the Assessee. However, Ld.AR could not show us the documentary evidence that the Assessee had made a request to the Assessing Officer to provide copy of reasons.

5.1 Ld.DR for the Revenue also could not confirm whether the reasons for reopening were provided or not! We have already reproduced that assessment order is silent about this. In this case, “Reasons recorded for reopening” becomes important, because the assessee has challenged the validity of reasons.

5.2 The Hon’ble Supreme Court in the case of G.K.N. Driveshaft Vs. ITO 259 ITR 19 has categorically stated that once assessee files Return of Income in response to notice u/s.148 of the Act, the 5

6.

In this case, the above referred direction of Hon’ble Supreme Court has not been followed by the Assessing Officer. However, since this is the procedural error, we set-aside the assessment order to the Assessing Officer for denovo adjudication.

6.1 We find support from the decision of Hon'ble Bombay High Court in the case of Rahul Suri vs ACIT, Writ Petition No.2016 of 2022 for A.Y.2018-19,Writ Petition No.2196 of 2022 for A.Y.2015- 16, Writ Petition No.2276 of 2022 for A.Y.2014-15, Writ Petition No.2822 of 2022 for A.Y.2013-14, wherein vide Order dated 14/11/2022 the Hon'ble Bombay High Court held as under: Quote, " In the response fled by the revenue, it is admittedthat the reasons sought for by the Petitioner were not furnisheddespite having fled the return in response to the notice underSection 148 of the Act and, therefore, under those circumstances, itis stated that the Order of assessment dated 3 March 2022 be setaside. Be that as it may, in view of the specific averments, whichremained un-controverted and rather admitted by theRespondents, the assessment Order 3 March 2022 is set aside and the matter remanded to jurisdictional assessing officer for passing Orders afresh in accordance with law." Unquote. 6

7.

In this case in the Assessment Order at Page No.3, the Assessing Officer has referred to statement recorded u/s.131 dated 16.11.2018 of the Assessee. However, Assessing Officer has not reproduced the contents of the statements. Assessing Officer has merely stated as under: "In this regard a statement on oath u/s 131 of the LT Act was recorded on 16/11/2018. The assessee could not explain the cash deposits in his saving bank account."

7.1 Thus, Assessing Officer has not reproduced the contents of the statement. We specifically asked ld.AR and ld.DR to show us the statement, but both of them failed to do so.

8 The Assessing Officer shall provide copy of reasons recorded for reopening along with copy of approval granted to the Assessee. The Assessee shall be at liberty to raise objections if any. Assessing Officer shall dispose of the objections raised by Assessee, if any. Assessing Officer shall provide opportunity of hearing to the assessee. The Assessee shall file necessary details before the Assessing Officer.

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