Cash deposit in excess of Rs. 10lakhs does not imply that income has escaped assessment

In a recent case, Bir Bahadur Singh Sijwali Vs. ITO, the assessee has deposited cash of more than Rs. 10lakhs in bank. The AO has reopened the assessment. The Tribunal held that cash deposit in excess of Rs. 10 lakhs in bank does not imply that the income has escaped assessment.   images

Facts of the case:

The assessee had deposited more than Rs. 10 lakhs in his saving bank account. He did not file his return of income. The AO had reason to believe that the income of Rs. 10lakhs had escaped assessment. Thus, AO reopened the assessment of the assessee u/s 147. The assessee went for appeal against the reassessment proceedings.

It was held that:

Section 147 authorises the AO to assess or reassess the income of the assessee for the relevant year, if he has the ‘reason to believe’ that the income has escaped assessment. For re-assessment u/s 147, a notice u/s 148 shall be served to the asessee. Through such notice, the assessee is required to furnish the return of income, and the provisions of the Act will apply as this was a return filed u/s 139. Such notice shall be issued if:

  • The Assessing Officer
  • Has reason to believe that the income has escaped assessment
  • The AO has recorded his reason before issuing notice u/s 148

It is also necessary that there must be something which indicates, even if not establishes, the escapement of income from assessment.

In the case in light, the fact that deposits have been made in a bank account do not imply that these deposits constitute an income which had escaped assessment. If AO believes that any further investigation could have led to detection to an income escaping assessment then such a reason is not enough to hold the view that income had escaped assessment.

The AO neglected the fact that the sources of deposit need not necessarily be income of the assessee. AO’s reason to believe that bank deposits constituted undisclosed income was not the apt reason for the re-assessment proceedings to be initiated. The reassessment proceedings could not be resorted to unless there was reason to believe, rather than suspect, that income had escaped assessment. Cash deposit in excess of Rs. 10lakhs does not imply that income has escaped assessment Thus, reassessment proceeding was set aside and the case was in favour of the assessee.

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