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Facts
The assessee made significant cash deposits of Rs.1.13 crore in FY 2016-17, leading to reassessment proceedings under Section 147 and an addition of Rs.1.11 crore under Section 69A by the AO. The ld. CIT(A) later deleted this addition, citing inconsistencies in the information used for reopening and accepting the assessee's claim of deposits from business sales.
Held
The Tribunal upheld the initiation of reassessment proceedings as valid, rejecting the assessee's arguments of 'borrowed satisfaction' and lack of 'reason to believe'. However, due to the assessee's belated and partial compliance and the AO's failure to provide sufficient opportunity for explanation, the Tribunal remanded the entire matter back to the AO for de novo proceedings. The assessee's Cross Objection was dismissed.
Key Issues
1. Validity of reassessment proceedings under Section 147 concerning 'reason to believe' and 'borrowed satisfaction'. 2. Whether cash deposits constituted unexplained money under Section 69A or legitimate business receipts. 3. Adequacy of opportunity given to the assessee and proper investigation by the Assessing Officer.
Sections Cited
250, 147, 144, 69A, 148, 142(1), 144B, 44AB
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, LUCKNOW ‘B’ BENCH, LUCKNOW
A.Y. 2017-18 Income Tax Officer-1(1)(1), vs. Ajay Kumar Gupta, Kanpur, U.P. 51/92C, Naya Ganj, Kanpur PAN: ABKPG5651J (Appellant) (Respondent) C.O. No.26/LKW/2024 In A.Y. 2017-18 Ajay Kumar Gupta, vs. Income Tax Officer-1(1)(1), 51/92C, Naya Ganj, Kanpur Kanpur, U.P. PAN: ABKPG5651J (Appellant) (Respondent) Assessee by: Sh. Rakesh Garg, Adv Revenue by: Sh. R.R.N. Shukla, Addl CIT DR Date of hearing: 04.09.2025 Date of pronouncement: 25.09.2025 O R D E R PER NIKHIL CHOUDHARY, A.M.: [ This Appeal and Cross Objection have been filed by the Revenue and the assessee respectively, against the orders of the ld. CIT, NFAC passed under section 250 of the Income Tax Act, 1961 on 10.05.2024, wherein the ld. CIT(A) has allowed the appeal of the assessee against the orders of the AO under section 147 r.w.s. 144 passed on 30.03.2022. The grounds of appeal are as under:-
1. Ld. Commissioner of Income Tax (Appeal) has erred in law and on facts in accepting the contention of the assessee that the proceedings made u/s 147 is not in accordance with law.
2. Ld. Commissioner of Income Tax (Appeal) has erred in law and on facts in deleting the addition made by the AO on account of unexplained money u/s 69A of Income Tax Act, 1961 deposited during the F.Y.2016-17 without appreciating that the AO has clearly discussed in the assessment order that no satisfactory explanation in this regard was furnished by the assessee during assessment proceedings and the same was devoid of merit.
3. Ld. Commissioner of Income Tax (Appeal) has erred in law and on facts that now all branches of all the banks are linked so that two account holders of the bank cannot have same bank account number. Thus, it is clear that the said accounts pertain to the assessee as appears from the record. The assessee has not discharged the onus of proving the amount deposited in the bank account does not belong to him.
4. Ld. Commissioner of Income Tax (Appeal) has erred in law and on facts as he has ignored noncompliance of the assessee who has not made any compliance of initial five notices and opportunities and made compliance only at the eleventh hour so as to ensure the AO does not have time to further investigate the same.
The order of the Ld. Commissioner of Income Tax(Appeal) dated 10.05.2024 being erroneous in law and on facts, be vacated and the assessment order dated 30.03.2022 passed under section 147 r.w.s 144 read with section 144B of Income Tax Act, 1961 by the Assessing Officer be restored.
That the appellant craves leave to modify any of the grounds of appeal mentioned above and/or to add any fresh grounds as and when it is required to do so.
The grounds of appeal
in Cross Objection are as under:- “1. That the L.D A.O Erred In Law as Well As On Facts in Reopening the Assessment o the Basis of a Borrowed Satisfaction.
2. That the L.D A.O Erred In Law as Well As On Facts in not considering the fact that the reasons Recorded in the case of the appellant do not constitute a valid "Reason To Believe".
3. That the L.D A.O Erred In Law as Well As On Facts in not considering the fact that the reasons recorded constitute a "Reason To Suspect" and not a "Reason To Believe".
4. That the Ld. A.O. erred in law as well as on facts in re-opening the assessment without obtaining proper approval from the Pr. CIT as the form 151 was not properly signed by both of them and also the satisfaction was given mechanically.
5. That the Ld. A.O. erred in law as well as on facts in finalizing the assessment under section 144 of the Act though requisite compliances were made by the appellant.
6. That the Ld. A.O. erred in law as well as on facts in completing the assessmet without disposing the objections raised by the appellant.”
3. It is seen that the cross objection is delayed. The assessee has filed an application submitting that due to his ill health and the ongoing festive season, he could not take necessary action regarding the filing of memorandum of cross objections within time, an affidavit was also filed in this regard and accordingly he has prayed that the delay may be condoned. After considering the application and affidavit of the assessee, the delay of 10 days in filing the cross objection is condoned.
The facts of the case are that the ld. Assessing Officer received an information that during the F.Y. 2016-17, the assessee had made a suspicious transaction in the nature of cash deposit to the tune of Rs.1,13,24,000/- in his bank account. Notice under section 148 was issued and the assessee was asked to file a return of income. However, the assessee did not file a return of income. He also did not make compliance to the notices under section 142(1) seeking details from him. A Show cause notice for best judgment assessment under section 144 was also issued and served through the verification unit. However, the assessee did not make any response to this notice also. Finally, on 23.02.2022, a final show cause notice was issued to the assessee, to which the assessee made a reply. It was submitted that the total amount of cash deposited by him in Axis Bank, Halsey Road, Kanpur was Rs.15,20,000/- while the total amount of cash deposited in the current account at State Bank of India, Halsey Road, Kanpur was Rs.1,14,000/-. No cash had been deposited in any other bank account. The details of the deposits were also furnished. It was submitted that all the cash transactions were contained in the audited books of accounts / cash book / bank statements and he had e-filed cash details from 11.11.2016 to 31.12.2016. It was submitted that of the aforesaid deposits of Rs.16,34,000/-, deposit of SBN was limited to Rs.10,80,000/- and Rs.5,54,000/- and these deposits were made out of cash sales, recovery from debtors, bank withdrawals during the demonetization period. However, the ld. AO did not accept the reply of the assessee. He observed that as per the information received, during the year there were cash deposits totalling to Rs.1,12,31,247/- of which cash deposits of Rs.79,68,007/- were made during the demonetization period. He reproduced the extract of 26AS in his assessment order. He noted that the assessee had provided extracts of his bank accounts and observed that there were total cash deposits of Rs.1,11,54,966/- and total other credits of Rs.34,40,434/- and therefore, the total credit transactions as per the Axis Bank statement provided by the assessee were Rs.1,45,95,400/-. However, the assessee had failed to explain the same and therefore, he brought the entire deposits so reported of Rs.1,11,54,966/- to tax under section 69A of the Income Tax Act, 1961.
5. Aggrieved with the said addition, the assessee went in appeal to the ld. CIT(A). Before the ld. CIT(A), it was submitted that an amount of Rs.1,11,54,966/- had been added under section 69A of the Act on the premise of non-substantiated cash deposits in the current account of the assessee. However, it was submitted that the assessee was an individual engaged in the business of Kirana Goods for several years as a proprietary concern under the name and style of M/s Arohi Enterprises at Naya Ganj, Kanpur. The total sales of the assessee were Rs.1,47,85,001/- and the cash collection out of the sales proceeds were regularly been deposited in the bank account. However, this was not a case where a substantial amount of cash had been deposited during the demonetization period. The cash deposited during the demonetization period was commensurate with the cash deposited during other months, which forms part of sale proceeds. It was submitted that the books of accounts of the assessee were subjected to audit and the total cash deposit was less than the turnover of the assessee. Since, the reassessment was initiated to investigate the said cash deposit only, as such there was no reason to believe or even suspect that income had escaped assessment. The ld. CIT(A) considered the matter and held, that whereas the 26AS statement showed that the cash had been deposited in Axis Bank, Trishul, Ahmedabad and the assessee had categorically denied in having an account at Ahmedabad, which had been conceded by the ld. AO in his assessment order in para 6.3, wherein he had written that there seems to be an error while uploading the data and furthermore, there was deviation in the observation of cash deposit wherein sometimes the figure had been written as Rs.1,13,24,000/-, sometimes Rs.1,12,31,247/- and addition had been made of Rs.1,11,54,966/-. Therefore, the ld. CIT(A) held that there was infirmity in the basic initiation of the assessment proceeding that the order of the AO was riddled with contradictions and therefore, he deleted the additions made by the ld. AO.
6. The Department is aggrieved by the decision of the ld. CIT(A) and has accordingly come in cross objection. Sh. R.R.N. Shukla, Sr. DR (hereinafter referred to as the ld. Sr. DR) appearing on behalf of the Department submitted that the ld. CIT(A) had erred in law and in facts in accepting the contention of the assessee that the proceedings made under section 147 were not in accordance with law. He submitted that the ld. CIT(A) had failed to appreciate that the assessee had not been able to submit a satisfactory explanation with regard to the cash deposits made by the assessee and therefore, his submissions were without merit. It was further submitted that since all branches of the banks were linked, therefore, it was clear that the said bank account in which the amount had been deposited was belonging to the assessee and the assessee had not discharged the onus of proving that the amounts deposited in the bank account did not belong to him. The ld. CIT(A) had ignored the non-compliance of the assessee and also ignored the fact that the compliance had only been made at the eleventh hour so as to ensure that the AO did not have time to further investigate the matter. In these circumstances, the ld. Sr. DR submitted that the order of the ld. CIT(A) was deserving of being vacated and that of the AO should be restored.
On the other hand, Sh. Rakesh Garg, AR (hereinafter referred to as the ld. AR) drew our attention to pages 32 to 40 of his paper which contained the bank statement of the assessee and invited our attention to the fact that the total amount of cash deposited into the said account during the period of demonetization was only Rs.15,20,000/-. He also drew our attention to page no. 66 of his paper book to show that the total amount of cash deposit during the demonetization period in the assessee’s account with the State Bank of India at Halsey Road, Kanpur was only Rs.1,14,000/-. Therefore, the ld. AR pointed out that in view of the fact that the assessee simply had not made that extent of cash deposit in the concerned bank accounts, the information on the basis of which the assessment was reopened was in itself incorrect and therefore, the additions were deserving of being quashed. With regard to the cash deposited in his bank account, the ld. AR submitted that all these deposits were made out of sales and were duly recorded in the assessee’s books of accounts. Arguing in support of his cross objection, the ld. AR submitted that the ld. AO had opened the assessment on the basis of borrowed satisfaction and the information that was brought on record did not constitute a valid reason to believe. It was argued that at best it could constitute a reason to suspect but definitely not reason to believe. Furthermore, the ld. AO had not obtained proper approval from Pr. CIT because the forms had not been properly signed by both of them and the satisfaction had been given mechanically.
We have duly considered the facts and circumstances of the case and the arguments made by the rival parties. We observe from the assessment order that the information that was received by the ld. AO, was that the assessee had made cash deposit to the tune of Rs.1,13,24,000/- in his bank account during the F.Y. 2016-17. Thus, the information on the basis of which the case was reopened was not the deposit during the demonetization period. Therefore, the arguments presented by the ld. AR, that the assessee simply had not made deposits to the extent shown in the bank account during demonetization period, are not relevant to the facts and circumstances of the case and his challenge to the initiation of the assessment proceedings on this ground, is fit to be rejected. Perusal of the bank account at Halsey Road, Kanpur, maintained with the Axis Bank Branch there, showed that during the course of the year, the assessee had made cash deposits approximating to the figure on the basis of which the case was reopened and also approximating to the figure that was ultimately added back by the ld. AO in the assessment order. Hence the information was not incorrect. However, we note that the assessee has explained the same to be arising out of his sales receipts, in his submissions made before the ld. CIT(A). It is further seen that the assessee had submitted before the ld. AO that its accounts were audited and all the deposits made by it in the said bank account were explained out of its audited accounts and regular business proceeds. It is seen from the reply furnished by the assessee on 1.03.2022, that the assessee had submitted that he was a registered dealer under the U.P. VAT Act and Central Sales Tax since 2022 was regularly filing VAT returns and was also getting his accounts audited under section 44AB of the Income Tax Act. The audit report and the required details had been e-filed by his auditor which were on record. It is also seen that the assessee, in his reply dated 29.03.2022, has submitted before the ld. AO that in the current accounts with SBI, Halsey Road, Kanpur and Axis Bank, Halsey Road, Kanpur, he had only operated the business transactions and that these had been shown in their regular books of accounts. Furthermore, it had been submitted that the books of accounts were being regularly audited by the C.A. and the income tax returns had been submitted on that basis from time to time and tax liabilities had been paid regularly. However, it is seen that the entire discussions during the course of assessment and first appeal centered around whether the assessee had an account at Axis Bank Limited, Ellisbridge, Ahmedabad or not, whereas the focus of the assessment ought to have been whether the cash deposits made in the bank account were explained or not out of previous returns filed by the Assessee. It appears the confusion arose on account of the misconception of whether assessee was maintaining a bank account in Gujarat or not on account of the fact that the SFT has been filed by Axis Bank from its office at Trishul, 3rd Floor Opp. Samarth Eshwar Temple, Law Garden, Ellisbridge Ahmedabad, which on close examination is seen to be the registered office of Axis Bank and only implies that the SFT with regard to bank account maintained by the assessee in Axis Bank, was filed by the registered office located at this address. The Ld CIT(A) has chosen this fact of non-maintenance of account at Ahmedabad as one 7 of the cornerstones to hold the initiation as invalid, but we note that this observation is in fact an incorrect appreciation of the reality and therefore could not be the basis for declaring the proceedings to be invalid. Further we do not believe that the variation in figures of cash deposit as written by the Ld AO in his order can prejudice the initiation of proceedings. It is quite possible that information may only be available about a particular sum at the time of initiation, but subsequently during assessment, another figure can be ascertained. So, the proceedings cannot be held to be invalid on this ground.
Be that as it may, the ld. AO, before initiating proceedings against the assessee, ought to record his satisfaction that the cash deposits were unexplained with reference to the returns filed by the assessee, because simply depositing cash in a current account does not make the same as unexplained unless the said deposits are not matched by duly declared receipts. However, we note that while the assessee has provided evidence of having filed an audit report, which the Assessing officer seems to be unaware about, he has not filed any evidence before us to show that it had filed a return of income pursuant to the audit of its accounts or that the same was processed. Furthermore, we note that that the cash transactions were classified as suspicious transactions by the agency providing the information Therefore, in these circumstances we are not inclined to hold that the initiation of the proceedings by issue of notice under section 148 was bad in law. However we observe, that before the Ld AO could have come to the conclusion that the deposits in the said bank account at Halsey Road, Kanpur were unexplained, he was obliged to ask the assessee the assessee to furnish the necessary details to demonstrate that the cash deposits made by him were out of his regular business proceeds and had duly been considered in his audit report, once the assessee had intimated him about the maintenance of Books or accounts and their audit in his reply dated 1.03.2022. However, we notice that this was not done, once again because the assessee in his reply focused on what was deposited during demonetization period and thereafter because in his reply dated 29.3.2022, the assessee contested that he did not have any bank account at Ellisbridge, Ahmedabad. It therefore appears that the fact that the assessee was running a business with a turnover of Rs 1,47,85,001/-, which could satisfactorily explain his deposits in the said bank account and the fact that these deposits were not made at one go but over the course of the entire year, were never explained to the AO at the time of assessment proceedings. We notice that due to the fact that the assessee made compliance only towards the fag end of the assessment period, the ld. AO could not provide the assessee sufficient opportunity to bring these facts out during the course of assessment proceedings. Accordingly, after considering the facts of the case , we believe that it is in the interest of justice to both parties that the entire matter is restored back to the file of the ld. AO for de novo proceedings so that the ld. AO may afford opportunity to the assessee to furnish copies of the audit report and the earlier returns submitted by him and demonstrate that the cash deposited in the Axis Bank A/c No.916020013834951 are duly explained out of his regular business receipts and only consider making any additions, if the same are not found to be so. With regard to the Cross Objection filed by the assessee, we have already upheld the initiation of the proceedings and the other grounds have not been argued before us. In view of the same, the Cross Objection is dismissed.