IT : Where before issuing reassessment notice Assessing Officer had asked

assessee to explain source of cash deposit post-demonetization and assessee

disclosed such source being her own bank accounts and their withdrawals
matching quite closely to deposits, issuance of notice discarding such
disclosure was not justified
■■■

[2018] 98 taxmann.com 447 (Gujarat)

HIGH COURT OF GUJARAT
Swati Malove Divetia
v.
Income Tax Officer*
AKIL KURESHI AND B.N. KARIA, JJ.
R/SPECIAL CIVIL APPLICATION NO. 7628 OF 2018
SEPTEMBER  10, 2018 

Section 69, read with section 147, of the Income-tax Act, 1961 - Unexplained
investments (Bank deposits) - Assessment year 2015-16 - Assessing Officer issued
notice under section 147 to reopen assessment on ground that assessee had deposited
certain cash post-demonetization while its return of income for relevant assessment
year did not justify such cash deposit and, thus, he had reason to believe that income to
that extent had escaped assessment - Whether when in pre-notice queries, Assessing
Officer had asked assessee to explain source of aforesaid cash deposit and assessee
disclosed such source being her own bank accounts and their withdrawals matching
quite closely to deposits, Assessing Officer having no reason to discard such
disclosure was not justified in issuing impugned notice - Held, yes [Para 10] [In favour
of assessee]
FACTS
 
■   The assessee had filed the return of income declaring total income of Rs. 9.83 lacs. Such
return was accepted by the Assessing Officer under section 143(1) without scrutiny.
■   Thereafter, the Assessing Officer noticed that the assessee had deposited Rs. 17.86 lakhs
post-demonetization and income returned did not justify such deposit. He, therefore, had
reason to believe that assessee had taxable income which had not disclosed to the
department. He issued notice under section 147 to reopen assessment.
■   The assessee raised objections pointing out that the amount deposited post-demonetization
was withdrawn from the assessee's disclosed bank accounts.
■   The Assessing Officer rejected the objections.
■   The assessee filed petition against impugned notice.
HELD
 
■   In pre-notice queries, the Assessing Officer had asked the assessee to explain the source of
the cash deposits post-demonetization. The assessee disclosed such source being her own
bank accounts and their withdrawals matching quite closely to the deposits which
 withdrawals were made within the close proximity of the deposits. If the Assessing Officer
had any reason to discard such disclosures and still formed a belief that the deposits were
from the sources not indicated by the assessee, nothing of the sort has come in the form of
reasons recorded. In fact, the reasons recorded completely ignored the Assessing Officer's
query and the response made by the assessee to such queries. In other words, the Assessing
Officer in the reasons recorded has simply kept aside the assessee's explanation for the
availability of cash on hand for deposit post-demonetization. The reasons, thus, clearly
lacked validity and proceeded on erroneous premise. [Para 10]
■   Impugned notice is, therefore, quashed. [Para 11]
CASES REFERRED TO
 
Gujarat Power Corpn. Ltd. v. Asstt. CIT [2012] 26 taxmann.com 51/211 Taxman 63 (Mag.)/[2013] 350
ITR 266 (Guj.) (para 7).
B.S. Soparkar for the Petitioner. Mrs. Mauna M. Bhatt for the Respondent.
ORDER
 
Akil Kureshi, J. - Petitioner has challenged a notice dated 17.01.2018 issued by the respondent-
Assessing Officer to re-open the petitioner's assessment for the assessment year 2015-16.
2. Brief facts are as under:
Petitioner is an individual and is employed in a bank. For the assessment year 2015-16, the petitioner
had filed the return of income and declared total income of Rs. 9.83 lacs (rounded off). Such return was
accepted by the Assessing Officer under section 143(1) of the Income-tax Act, 1961 ['the Act' for short]
without scrutiny. To re-open such assessment, he recorded following reasons and issued impugned
notice:
"It is noticed that the assessee has deposited Rs. 17,86,000/-post demonetization. Further on
verification of return of income for the A.Y. 2015-16 assessee had shown income of Rs. 9,86,230/-
only and further on verification of return of income it does not justify cash deposit of Rs.
17,86,000/- in a short period i.e. post demonetization and hence the assessee had regular source of
income which is undisclosed to the department. Therefore, I have reason to believe and satisfied
that assessee has taxable income during A.Y. 2015-16 which has not disclosed to the department
and income has escaped assessment within the meaning of section 147 of the Income-tax Act."
3. The petitioner raised objections to the notice of reopening under communication dated 09.03.2018.
Such objections were rejected by the Assessing Officer by an order dated 09.04.2018.
4. Learned counsel for the petitioner submitted that the reasons recorded by the Assessing Officer lacked
validity. There was no basis to even prima facie believe that income chargeable to tax in case of the
assessee had escaped assessment. Merely because the assessee deposited some cash amounts post
demonetization of currency would not ipso facto mean escapement of income chargeable to tax. Even if
cash deposits were made, there was no indication that the same related to the income, needed to be
assessed for the assessment year in question. The reasons are thus invalid, vague and unsustainable.
Counsel submitted that before issuing notice, the Assessing Officer had raised certain queries with
respect to the assessee's cash deposits. The assessee had replied to such queries by filing reports pointing
out that the amount deposited post demonetization was withdrawn from the assessee's disclosed bank
accounts. Such withdrawals were also reflected in the assessee's accounts. Counsel submitted that
withdrawal entry of Rs. 2.84 lacs from assessee's bank account No. 03260100000133 of Bank of Baroda
was not indicated therein due to oversight. If such additional amount is taken into account, the total
withdrawals would be far in excess of the assessment of the assessee during the said period. Even
without the aid of this missing entry, the assessee's withdrawals and deposits matched.
5. On the other hand, learned counsel Ms. Bhatt for the department opposed the petition contending that
no scrutiny assessment was carried out in case of the assessee. The Assessing Officer has recorded
proper reasons. At this stage, the Court would not examine the sufficiency of such reasons. The reasons
being valid, reopening of assessment should be permitted.
6. We may recall, in the reasons recorded by the Assessing Officer for issuing notice for reopening, he
noted that the assessee had deposited a sum of Rs. 17.86 lacs post demonetization. Upon verification of
the reports for the year under consideration he noted that the assessee had shown the income of Rs. 9.86
lacs. Upon further verification of the return, he was of the opinion that the same does not justify cash
deposit of Rs. 17.86 lacs in a short period post demonetization. He was therefore of the opinion that the
assessee had regular source of income which was not disclosed to the department.
7. In the present case, the challenge to the notice of reopening is in case of a return which was accepted
without scrutiny. Under such circumstances, as is well settled, the concept of change of opinion would
not apply since no scrutiny assessment having taken place. The Assessing Officer cannot be stated to
have formed an opinion. Nevertheless, as held by this Court in case of Gujarat Power Corpn. Ltd. v.
Asstt. CIT [2012] 56 taxmann.com 51/211 Taxman 63 (Mag.)/[2013] 350 ITR 266 (Guj.), the concept of
the Assessing Officer having reason to believe that income chargeable to tax had escaped assessment is
continued to hold the field. In this context, we may examine the materials on record more minutely.
8. In the present case, the Assessing Officer had raised certain queries with the assessee before issuing
the impugned notice. In such queries, he pointed out to the assessee that the department had received
information showing total cash deposit of Rs. 17.86 lacs by her during the period between 09.11.2016
and 30.12.2016. She was asked to give her response by submitting on-line reply. She gave such details
in prescribed format in two separate reports. In first such report, she showed the cash withdrawn from
the bank account of Rs. 1,39,460/- and the cash deposited in the account between 09.11.2016 to
30.12.2016 of Rs. 2 lacs. She gave precise details of six different withdrawals which totaled to the said
sum of Rs. 1,39,460/-. In second such report, she showed a total cash withdrawal of Rs. 15,85,160/- and
gave details of as many as 20 withdrawals from a bank account which totaled to the said sum of Rs.
15,85,160/-. She showed her cash deposits during the crucial period at Rs. 15,86,000/-. Department has
produced such reports of the petitioner at Annexure R2 along with an affidavit dated 05.07.2018.
Counsel for the petitioner pointed out that the last page of this document is missing. He therefore
produced the correct document which is taken on record.
9. The case of the petitioner thus all along has been that the entire amount, which was deposited by the
petitioner in the bank account post demonetization, was withdrawn from her accounts which was
disclosed to the department. This is what she had stated in their objections to the notice of reopening. In
the present petition also, the contentions of the petitioner has been that the entire amount was withdrawn
since January 2016 and came to be deposited post demonetization.
10. Reason recorded by the Assessing Officer must be seen in light of such facts. We are not for a
moment judging sufficiency of the reasons enabling the Assessing Officer to form a belief that income
chargeable to tax had escaped assessment. We are testing the reasons on the basis of material which was
available with him. In pre-notice queries, the Assessing Officer had asked the assessee to explain the
source of the cash deposits post demonetization. The assessee disclosed such source being her own bank
accounts and their withdrawals matching quite closely to the deposits which withdrawals were made
within the close proximity of the deposits. If the Assessing Officer had any reason to discard such
disclosures and still form a belief that the deposits were from the sources not indicated by the assessee,
nothing of the sort has come in the form of reasons recorded. In fact, the reasons recorded completely
ignored the Assessing Officer's query and the response made by the assessee to such queries. In other
words, the Assessing Officer in the reasons recorded has simply kept aside the assessee's explanation for
the availability of cash on hand for deposit post demonetization. The reasons thus clearly lacked validity
and proceeded on erroneous premise.
11. Impugned notice is therefore quashed. Petition is allowed and disposed of.
varsha

*In favour of assessee.