HASMUKHBHAI RAGHUBHAI GORIYA,OLD DHUVA vs. INCOME TAX OFFICER, MORBI

Succinctly, the factual panorama of the case is that assessee before us is an individual. The assessee’s case was reopened u/s 147 of the Act, in respect of ITS/NMS details that the assessee has made cash deposited Rs.25,00,000/-, in State Bank of India, Dhuva. Accordingly, notice u/s 148 of the Act was issued to the assessee on 28.03.2018, after recording the reasons for reopening of the case for assessment year (A.Y.) 2011-12, which was duly served upon the assessee. As such, with a view to bring the escapement of income, if any, to the tax net, the case of the assessee was re-opened resorting the provisions of section 147 of the Act. The notices u/s.142(1)/questionnaire and notice u/s 143(2) of the Act were issued to the assessee. The assessee has filed his return of income for A.Y. 2011-12, on dated 01.11.2018. In compliance to questionnaire dated 09.11.2018, the assessee has complied the notice and replied to the assessing officer that he carried agricultural activities and have agriculture income. The assessee has submitted the detail of source of cash deposit of Rs.3,21,400/- and other evidences. However, assessing officer, on the basis of reason recorded and ITS details available, the information u/s133(6) of the Act were called for from SBI, Dhuva. On perusal of the bank statement submitted by the SBI, Dhuva, it was noticed by the assessing officer that the assessee has been maintaining A/c. No.56326006383 with the said bank. During the relevant previous year, assessee has deposited cash in aggregate of Rs.25,00,000/-. The assessing officer noticed that in absence of fully satisfactory documentary evidence of agriculture income, the explanation of the assessee should not be accepted, however, the detail of source of cash deposit of Rs. 3,21,400/-, was accepted by the assessing officer. However, for balance amount Rs.21,78,600/-, (Rs. 25,00,000 – Rs. 3,21,400), the assessing officer noticed that the assessee has not offered any explanation about the nature and source of acquisition of the money of Rs.21,78,600/- (Rs. 25,00,000 – Rs.3,21,400). Accordingly, the amount of Rs.21,78,600/- was being treated as un-explained money of the assessee for the A.Y. 2011-12 and added back to his total income. Similarly, SB interest in aggregate of Rs.12,140/- was also added back to the total income of the assessee.

Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the Ld. CIT(A), who has dismissed the appeal of the assessee. The Ld.CIT(A), just reiterated the findings of the assessing officer and confirmed the addition made by the assessing officer, therefore, the assessee is in appeal before this Tribunal.

At the outset, the Ld. Counsel for the assessee submitted that reasons recorded by the Assessing Officer are bad in law, and the Assessing Officer did not observe the procedure mentioned in the Act. In the reasons recorded by the Assessing Officer, the Assessing Officer was mainly made the inquiry, whether the assessee has filed the Return of Income or not. The Assessing Officer has stated in the reasons recorded that certain cash amount was deposited in the Bank account, however, the Assessing Officer did not make any inquiry, whether the amount deposited in the bank account is from assessee’s business or not. In fact, the Assessing Officer was not in possession of Bank Statement. The Assessing Officer has never explained the entries of transaction in the Page | 3 reasons recorded and necessary inquiry was not conducted by the Assessing Officer from the concerned Bank. The date of transaction was not mentioned in the reasons recorded, therefore, it is a non- application of mind, hence, the reasons recorded by the Assessing Officer are bad in law and based on these facts, the reassessment proceedings should be quashed.

On the other hand, the Ld. Sr. DR for the revenue submitted that reasons recorded are as per the scheme laid down in the Act.

I have heard both the parties and perused the material available on record. I note that on a similar facts and circumstances, on technical issue, the reopening assessment, was quashed by the co-ordinate bench of ITAT, Rajkot in the case of Prabhaben Nandlal Ratpiya, in vide order dated 17.03.2025, wherein it was observed as follows: “10. We have gone through the facts of the case, the reasons recorded for reopening u/s 147 of the Act, the submission and the various decisions of the Courts including those relied upon by the assessee. Since, the assessee has challenged the reopening of assessment and also challenged the reasons for reopening of the assessment, therefore, it is appropriate to go through the reasons recorded by the assessing officer, which are reproduced below: “Reasons for reopening of the assessment in case of above names assessee For AY.2011-12 u/s 147 of the Act: - As per information/details available, the assessee did not filed his return of income for AY.2011-12. Credible information/source information has been received to the effect that the assessee has deposited aggregate cash of Rs.27,91,500/- in his savings bank account(s) maintained with Junagadh Comm. Co-Operative Bank Ltd during the year under consideration. Since the assessee did not file his return of income, the source of cash deposited in his bank account remains unexplained and required to be taxed. In view of the above, I have reason to believe that the income chargeable to tax has escaped to the extent of Rs.27,91,500/- for the A.Y.2011-12 within the meaning of section 147 of the I.T., Act, 1961. The above income has escaped assessment by reason of failure on the part of the above-named assessee who failed to disclose fully and truly all material facts necessary for the assessment year 2011-12 within the meaning of section 147 of the I.T. Act. In this case no return of income was filed for the year under consideration, accordingly, in this case, no assessment was made and the only requirement to Page | 4 initiate proceeding u/s. 147 is reason to believe which has been recorded above. It is pertinent to mention here that in this case the assessee has chosen not to file return of income for the year under consideration although the total income of the assessee had exceeded the maximum amount which is not chargeable to tax as discussed above and the assessee was assessable under the Act. In view of the above, the provisions of clause (a) of Explanation 2 to Section 147 are applicable to facts of this case and the assessment year under consideration is deemed to be a case where income chargeable to tax has escaped assessment. In this case more than four years have lapsed from the end of the assessment year under consideration. Hence, necessary sanction to issue the notice u/s. 148 has been obtained separately from the Principal Commissioner of Income-tax-3, Rajkot as per the provisions of Section 151 of the Act.”

Having gone through the above reasons recorded, by the assessing officer, we find the following, inconsistency and irregularities in the reasons recorded by the assessing officer: (i)The above reasons recorded by the assessing officer does not mention the bank account number, which was escaped assessment. (ii) The nature of transactions have not been mentioned, in the reasons recorded. (iii) There is non-application of mind of the assessing officer. The assessing officer has not verified the bank account number before issuing notice u/s 148 of the Act. (iv) Mere deposit in the bank account does not constitute that income escaped assessment, the money in the bank account may be deposited out of the past savings / by sale of investment etc, which was not verified by assessing officer and hence there is complete non-application of mind. The Ld. AO had not applied his mind and acted on mere information basis. The Ld. AO even failed to prove direct nexus with the information and reason recorded for reopening. The above reasons recorded by the assessing officer does not mention the bank account number, which was escaped assessment. The nature of transactions have not been mentioned, in the reasons record. There is non-application of mind of the assessing officer. The assessing officer has not verified the bank account number before issuing notice u/s 148 of the Act. Mere deposit in the bank account does not constitute that income escaped assessment, the money in the bank account may be deposited out of the past savings / by sale of investment etc, which was not verified by assessing officer and hence there is complete non-application of mind. Hence, the Ld. AO reopened assessee`s case on mere borrowed satisfaction and without verifying details.

The reasons must show due application of mind to the information. Assessing officer also cannot reopen assessment merely because he has been directed to do so by a superior officer. Hon`ble Delhi High Court held that the AO cannot reopen the assessment merely on the basis of information received without applying his mind to the information and forming an opinion, CIT vs. Sfil Stock Broking Ltd, 325 ITR 285 (Del) Therefore, the reasons of the AO for reopening assessment should be based on direct and circumstantial evidence; such reasons could not be based on simply suspicion, rumor or gossip.

An error discovered on a reconsideration of the same material (and no more) does not give AO power to assume jurisdiction to make reassessment. The aforesaid view on the above proportion has been reiterated by the Apex Court in A.L.A. Firm vs. CIT 183 ITR 285.Reasons must have a live link with the formation of the belief. This is supported by Circular No.549 dated 31.10.1989 which clarified that the words “reason to believe” did not mean a change of opinion. The Hon’ble Supreme Court in ITO vs Lakhmani Mewal Das [1976 ]103 ITR 437 has lucidly explained the power of assessing officer to bring to tax income escaping assessment u/s 147 of the Act. The Hon’ble Court first held that the section provides that there must exist “reasons to believe“ and not “reasons to suspect”. The following were the relevant observations: “The fact that the words "definite information" which were there in section 34 of the Act of 1922, at one time before its amendment in 1948, are not there in section 147 of the Act of 1961, would not lead to the conclusion that action can now be taken for reopening assessment even if the information is wholly vague, indefinite, far-fetched and remote. The reason for the formation of the belief must be held in good faith and should not be a mere presence. The powers of the Income-tax Officer to reopen assessment, though wide, are not plenary. The words of the statute are "reason to believe" and not "reason to suspect". The reopening of the assessment after the lapse of many years is a serious matter. The Act, no doubt, contemplates the reopening of the assessment if grounds exist for believing that income of the assessee has escaped assessment. The underlying reason for that is that instances of concealed income or other income escaping assessment in a large number of cases come to the notice of the income-tax authorities after the assessment has been completed.”

The purpose behind the relevant provisions imposing condition precedent for initiating reassessment proceedings is to ensure finality of proceedings. The Act also provides that such reason must be recorded in writing before issue of notice of reassessment so as to judge the existence of such belief before initiating reassessment proceedings by issue of notice u/s 148 of the Act. The above requirements are meant to ensure that powers to initiate reassessment proceedings are not exercised in an arbitrary manner. The Courts have analysed and explained in several cases as to what could be the valid reason to believe escapement of income, which would enable the Assessing Officer to successfully reopen the assessment. It has been held that the words ‘reason to believe’ are stronger than the words ‘reason to suspect’ or ‘reason to doubt’. It requires more than merely ‘satisfaction’ of the Assessing Officer. The belief entertained by the Assessing Officer must not be arbitrary or irrational. The expression ‘reason to believe’ does not mean purely subjective satisfaction of the Assessing Officer. The belief must be held in good faith. It cannot be merely pretence. Again, the belief must be of an honest and reasonable person based upon reasonable grounds. The Assessing Officer may act upon direct or circumstantial evidence, but his belief must not be based on mere suspicion, gossip or rumours. The Assessing Officer would be acting without jurisdiction, if the reasons for his belief are not material or relevant. There should be nexus between the information coming into possession of the AO and his belief on the basis of such information that income of the Page | 6 Assessee chargeable to tax has escaped assessment. In view of the aforesaid discussion, in our view, the reasons recorded by the Assessing Officer suffer from an infirmity of being misconceived in law and, therefore, initiation of proceeding thereupon is bad in law. Consequently, the assessment finalized by the Assessing Officer u/s 147 of the Act dated 10.10.2018 is held to be invalid and bad in law, and is hereby quashed.

As the reassessment itself is quashed, all other issues on merits of the additions, in the impugned assessment proceedings, are rendered academic and infructuous.”

I have gone through the reasons recorded by the Assessing Officer and noted that, first of all, the Assessing Officer did not follow the required procedure laid down in the Act. There is non -application of mind, in the reasons recorded by the Assessing Officer, besides, there was no preliminary inquiry conducted by the Assessing Officer. Moreover, in the reasons recorded, it is mentioned that the said reasons were recorded by the Assessing Officer just to verify whether the assessee filed the Return of income or not. The Assessing Officer has also not applied his mind and in the reasons recorded there is no date of transaction, no bank account has been referred, in the reasons recorded. Therefore, based on the facts and circumstances, I noted that the reasons recorded by the Assessing Officer are not as per the scheme of section 147/148 of the Act, therefore, I quash the re-assessment proceedings.

In the result, appeal filed by the assessee is allowed. Order pronounced in the open court on 06/08/2025. Sd/- (Dr. A.L. SAINI) ACCOUNTANT MEMBER Rajkot �दनांक/ Date: 06/08/2025 Dkp Outsourcing Sr.P.S