Facts of the Case

The assessee filed the return of income declaring income as per books of account. Subsequently, the Assessing Officer initiated reassessment proceedings on the basis of information suggesting that the assessee had made substantial cash deposits in bank accounts which were allegedly not commensurate with the returned income.

During reassessment, the Assessing Officer treated the alleged deposits as unexplained and added the entire amount as income under Section 68, also initiating penalty proceedings. The assessee denied the correctness of the information and submitted documentary evidence, including bank statements and statutory records, to demonstrate that the alleged deposits were either incorrect or exaggerated and that actual deposits were duly explained.

Issues Involved

  1. Whether reassessment proceedings initiated under Sections 147/148 based on unverified or incorrect information are legally sustainable.
  2. Whether addition under Section 68 can be made without establishing the existence of unexplained cash credits.
  3. Whether failure to consider the assessee’s explanation and evidence violates principles of natural justice.

Petitioner’s (Assessee’s) Arguments

  • The alleged cash deposits relied upon by the Department were factually incorrect.
  • Actual bank records did not support the figures adopted by the Assessing Officer.
  • The reopening was based solely on third-party or system-generated information without independent verification.
  • Detailed explanations and supporting documents were submitted but not properly considered.
  • In absence of genuine escapement of income, the reassessment proceedings were without jurisdiction.

Respondent’s (Revenue’s) Arguments

  • The reassessment was initiated based on information available with the Department indicating large cash deposits.
  • Such information justified formation of belief that income had escaped assessment.
  • The Assessing Officer acted within statutory powers in issuing notice and completing reassessment.
  • The addition under Section 68 was warranted due to unexplained nature of deposits as per available records.

Court Order / Findings

  • The foundation of the reassessment proceedings was unreliable and not supported by verified material.
  • The Assessing Officer failed to establish that the alleged deposits actually constituted unexplained income.
  • Reliance on incorrect or uncorroborated information cannot form a valid basis for reopening under Sections 147/148.
  • The assessee’s explanations and documentary evidence were not properly evaluated.
  • Such action violates principles of natural justice and constitutes arbitrary exercise of power.

Important Clarification

  • Reopening of assessment must be based on tangible, credible, and verified material.
  • Mere information or suspicion, without independent verification, does not constitute valid “reason to believe.”
  • Additions under Section 68 require clear proof of unexplained credits.
  • Failure to consider the assessee’s reply renders the assessment vulnerable to annulment.

Link to download the order –      

https://itat.gov.in/public/files/upload/1629273425-ita%20nos.%20152%20and%20153%20of%202019%20Sri%20Late%20Surya%20Prakash%20Kesarwani%20and%20Anr.pdf

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.