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Addition for Cash deposited in Bank out of Business receipts: Draft Submission
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 Sandeep Jain (https://taxguru.in/author/skjain1147/) |

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Written Submission before the Hon’ble
CIT(A), Faceless in respect of Sh. Xxxxxxx
One Audit for Multiple Clients
for the A.Y. 2011-12 [XXXXXXXXXX]
Sedex Ethical Audit -ADVERTISEMENT-

We Are Conducting Audits Worldwide, Speak Appeal filed against the order of
with an Insite SMETA Expert assessment u/s 144/147 of the Income Tax
insitecompliance.com
Act made by ITO, Ward No. X(X), XXXXXXX
dated 26.11.2018

OPEN Most respectfully submitted before the

Hon’ble CIT(A), Faceless. my written
submissions as under:

My case on Merit
Introduction of the Assessee:

ADVERTISEMENT

-ADVERTISEMENT-

The assessee is an individual assessed to tax. During the F.Yr. 2010-11, he is doing
business of sale purchase of old cars and accessories. During the F.Yr. 2009-10, he was
doing the same business and also doing same business during the earlier years. He has
done the entire business on cash basis. He is also an agriculturist.

Statement of facts of the case

The case of the assessee was decided ex-parte u/s 144 of the Income Tax Act, 1961 in
which a demand of Rs. 2320480/- has been created which is quite huge, illegal, baseless
and not justified. A very small trader cannot earn so much income that he has to pay tax
liability of Rs. 2320480/-. Comparison can be made with the returns filed earlier.
The I.T.O Ward No. X(X), XXXXXXX treated the entire cash of Rs.3188000/- deposited
with SB A/c of the assessee as income of the assessee which cannot be possible and it is
a mere presumption of the AO which is evidenced here at CIT (A), Faceless level.

The assessee is not an educated person and not at all well versed with computer
operation and he cannot access to the computer. The department may have sent the
notices through net but in person all notices has not been received by the assessee.
Moreover, he is not well and all medical reports are with the assessee which can be
produced before you. (Page no. 3-13 of the paper book). Due to ill health, assessee could
not approach his CA and could not visit the Income Tax Department.

The entire cash deposited with the bank cannot be income of the assessee. There was
sufficient time with AO to finalize the assessment before 31.12.2018 but AO decided the
case ex parte u/s 144 Dt. 26.11.2018 which is too earlier.

Huge demand of Rs. 2320480/- has been created. Even under presumptive taxation u/s
44AD profit is calculated @ 8% of the Turnover.

The addition of Rs. 3188000/- by AO is being challenged before you as Rs. 3188000/- is
not income of the assessee. Even if guesswork was to be framed by AO, then the same
must be in line with assessment already framed u/s 143(3) for the A.Yr. 2010-11 by the
then ITO, Ward No. X(X), XXXXXXX. The nature of cash deposited is same in both the
years. Copy of order of Assessment year 2010-11 is enclosed as part of the Paper Book.
(Page no. 43-45 of the paper book)

The income of the assessee is below taxable limit. This was the reason for non-filing of
return by the assessee. The assessee has filed his ROI online vide e-filing Ackd. No.
XXXXXXXXX Dt. 22.12.2018 before filing appeal. The turnover part is reflected in this
return. (Page no. 65-66 of the paper book)

-ADVERTISEMENT-

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The Ld. AO indulged in speculation, surmises and conjectures in treating the cash deposit
of Rs. 3188000/- as complete income of the assessee for the A. yr. 2011-12. The case of
the assessee for the A.Yr. 2010-11 was also decided u/s 143(3) of the act and the entire
material including order of the A.Yr. 2010-11 was with AO but ITO has not looked into it at
the time of finalization of the assessment for the A.Yr. 2011-12. Before making best
judgment assessment the AO is duty bound to gather all material including history and
past records of the assessee to come at a genuine conclusion. He cannot pass the
assessment order with blind eyes which he has done in the case of the assessee.

Without prejudice, while completing the assessment, the AO ought to have taken
cognizance of the age, history of the assessee and past assessment of his income for the
estimation of the income under dispute. AO has not bothered to arrive at a reasonable
figure looking at peak figure of the cash deposited with the bank and also ignored
withdrawals from the same bank which is unjustified at the back of the assessee.

No summons u/s 131(1) of the act was ever issued to the assessee to nail the truth from
the assessee recording statement on oath.

The entire assessment made u/s 144 of the act is quite baseless and beyond the legal
frame work of the law.

The nature of business of the assessee is such that most of the transactions are done in
cash. The source of cash deposit with SB Account is as below:

a) Cash withdrawals from the same bank and in turn out of cash book.

b) Cash received on sale of cars and accessories and deposited with the bank and
in turn out of cash book.

c) Cash in hand as on 31.03.2010 and in turn out of cash book.

d) Cash received on sale of Agriculture land and in turn out of cash book.

e) Cash received out of Agriculture Income and in turn out of cash book.

f) Advances received from the customers for purchase of the cars.

Sale proceeds of old cars & accessories -ADVERTISEMENT-

Cash is received from the customers which is deposited with the bank. Withdrawals are
made through ATM which has limit and also through self mode cheques. Withdrawls are
made for booking cars as well as purchase of accessories and payment to the sellers of
the cars. Sometimes the same cash which is lying with the assessee and as per cash
book the cash is deposited with the bank.

In the result the cash deposited with the bank is out of the Gross receipts and not out of
the Income of the assessee.

Grounds of Appeal

The initiation of assessment proceeding u/s 148 was without jurisdiction since the notice
was never served on the assessee personally.
The initiation of re-assessment proceedings u/s 148 is also without jurisdiction since
approval u/s 151 by the JCIT; XXXXXXX was never supplied to the assessee which is
contrary to the legal position as declared by SC.

Copy of reasons recorded for issuing notice u/s 148 was never supplied to the assessee.

The addition of Rs. 3188000/- in the hands of the appellant is unwarranted in law since
the entire cash deposited with the bank cannot be treated as income of the assessee. If
all the requisite notices had been received by the assessee personally or if some more
opportunity had been given to the assessee then he would have been able to produce
plausible explanation regarding cash deposited with the bank as every evidence which
can be produced before the Hon’ble CIT (A), Faceless on demand.

The Hon’ble CIT (A), Faceless is prayed to give a chance to produce all the evidences
and books of accounts before him which could not be produced at AO level so that
assessee gets full justice as taxing statutes demand tax on earned income and not on
income which was never earned. Tax is paid on the net income and not on the gross
receipts.

In view of the above ground it is prayed that the impugned order be quashed or suitable
relief be allowed as your good self may deem fit.

The appellant also craves to add or amend the grounds of appeal if required at the time of
hearing of appeal and also prays to produce additional evidence under Rule 46A of the
Income Tax Rules, 1962 at the time of hearing or before it.

The case of the assessee was decided u/s 144 of the Act. The assessee could not appear
before the AO during the course of assessment proceedings which were going on at ITO,
Ward No. X(X), XXXXXXX during the F.Yr. 2018-19. The assessee was not well during the
same year. The reason for non appearance was ill health of the assessee. The evidences
which could not be produced before AO due to ill -ADVERTISEMENT-
health of the assessee, are
produced/submitted before you with a prayer to be accepted u/s 46A of the Income Tax
Rules, 1962.

The additional evidences which are listed below are enclosed with this application:

1. Copy of medical reports showing that assessee was unwell during the F.Yr. 2018-
19 when assessment proceedings were going on at Ward No. X(X), XXXXXXX. This
is the reason he could not appear before AO.

2. The assessee has purchased old cars during the year and sold old cars to
different customers. He purchased old cars and sold these cars in market. He also
did trading of car accessories. The profit part is always less and further expenses
are also borne by the assessee after purchase of the old cars for repairing and
finishing. The cash received on the sale of cars is deposited with the bank of the
 assessee and made withdrawals from the same bank as and when cash is required
for expenses as well as required for purchase & booking of the cars and also for
personal use and expenses of the business.

3. Complete Bank Statement of SB A/c with XXXXX Bank for the F.Yr. 2010-11.

4. Detail of cash withdrawals and cash deposited with the Bank during the Financial
Year 2010-11

5. Copy of order of the A.Yr. 2010-11 framed by the same jurisdictional ITO, Ward
No. X(X).

6. Copy of Income Tax Returns filed for the A.Yr. 2011-12.

7. Proof for sale of Agriculture Land by the assessee and his wife.

8. He was member of the All India Car Dealers Association during the F.Yr. 2010-11.
Every year it is renewed. Assessee is registered with the association since the year
2010.

9. Cash flow statement (Consolidated as well as separately maintained for personal

and business) prepared out of the Cash book maintained by the assessee is
enclosed. Assessee is having cash book which can be produced on demand.

Assessment Framed u/s 144 is bad in law

Assessment framed u/s 144 is without looking at the surrounding circumstances, without
making field enquiries, without looking at the entire bank A/c of the assessee, without
gathering any material for making assessment u/s 144 of the Act, without looking the
Assessment order u/s 143(3) passed by the same jurisdictional AO for the AY 2010-11.

1. The assessment framed u/s 144 is bad enough as mandatory provisions and
procedures enshrined in the Act is not followed by AO.
-ADVERTISEMENT-

2. Reasons recorded as vague, without tangible material, copy not given to the
assessee.

3. AIR information not sufficient for re-opening of the case.

4. Copy of approval sought from PCIT not provided to the assessee.

5. In a hurried manner, AO decided the case of the assessee as still time was there
for finalization of the case.

6. The entire assessment framed is prayed to be made null & void.

Explanation regarding cash deposited with the saving Bank A/C of Sh. Xxxxxxx
with XXXXX Bank Ltd. A/C No -XXXXXXXX
The assesse is doing business of sale purchase of Old car during the F.yr. 2010-11 and
also sale and purchase of car accessories. He has done the entire business in cash. The
total turnover of the assessee from Retail trading is Rs. 3148142.00 which includes sales
of old cars and accessories. Little profit on sales of cars has been earned. The assessee
is in this line of business for the last many years. The assessment of the assessee for the
A.Yr. 2010-11 was framed u/s 143(3) of the Act and assessee during that year did the
same business. Copy of the return is enclosed. Assessee has made withdrawals from the
Bank as he requires cash for purchase of cars, for Booking of the cars, for use in retail
trading and for house hold expenses. When there is no seller in the vicinity, he deposits
the cash with his Bank. Sometimes cash has been taken from business and when it is not
required assessee has invested with the business.

Personal cash Book has been maintained separately and entire deposits with the bank
has been made out of the personal cash book of the assessee. If personal cash book is
not maintained then there will remain no control on the cash with the assessee. The entire
business is done in cash. Assessee makes withdrawals from his SB A/c for purchase of
cars but when purchase of cars is not matured, he deposits the same cash with him with
the bank. When sufficient cash is there in the business which comes on sale of material
and there is no car available for purchase; he deposits the same accumulated cash with
his Bank A/c. The following documents are enclosed:

1. Cash flow statement which is personal, business and consolidated.

2. Copy of return of the assessee for the A.Yr. 2010-11 doing the same business

The assessee has purchased old cars during the year and sold old cars to different
customers. He purchased these old cars and sold these cars after repair and refinishing
so that cars are sold in the market conveniently.

The profit part is always very less and further expenses are also borne by the assessee.
-ADVERTISEMENT-
The entire cash received on sales was deposited with the Bank of the assessee and
made withdrawals from the same Bank as and when cash is required for expenses as well
as for booking of old cars.

The assessee has requested the ITO, Ward No. X(X), XXXXXXX Dt. 07.03.2021 and
requested for copies of the notices which the assessee has not received but AO has not
allowed the assessee to inspect the file and not provided the copy of the notices.

Chart of Notices is enclosed below:

Sr Notice Date of To appear Mode of service of Assessee

No. issued u/s issue of as per notice by the deptt. appeared or not
by the deptt. notice notice To the assessee and reason for
non appearance
1 Query on 8/8/2017 18/8/2017 Hard copy not To explain the
transaction received by the source of cash
on F.Yr. assessee. deposit of Rs.
2010-11 3188000/- but
assessee has not
replied (Not
Appeared). The
reason was ill
health of the
assessee.

2 148 30/3/2018 Assessee Only on portal, hard Assessee did not

had to file copy not received by appear and not
the return the assessee filed any return
within 30 due to the reason
days from notice not
the date of received. He is not
receipt of the aware of the
notice computer work,
mail etc. He has
not checked his
mail.

3 142(1) 19/06/2018 29/06/2018 On portal only Not Appeared

due to ill health
of the assessee.

4 142(1) 07/09/2018 13/09/2018 Hard copy not Assessee has not

142(1) 07/09/2018 13/09/2018 received by the appeared and also
assessee. This is not filed any reply.
questionnaire. The reason for
Received on portal non appearance
and mail:- was ill health of
xxxxx@gmail.com the assessee .
-ADVERTISEMENT- (Not Appeared)

5 142(1). 14/09/2018 24/09/2018 This is final show No one attended.

Written in the cause notice (Not
assessment Received) May be
order page only on mail.
no. 2 but in
fact notice
not issued

6 142(1) 30/10/2018 To file the Hard copy not Assessee has not
return upto received by the filed the return in
12-11-2018 assessee. This is response to the
and reply detailed show cause notice and also did
notice. not appear before
AO (Not
Appeared) due to
ill health.
Analysis of the Assessment order Dt. 26.11.2018 passed u/s 144/147 of the Income
tax Act, 1961

Page No. 1 Para No. 1

On the basis of AIR information AO has come to know that the assessee has deposited
cash of Rs. 3188000.00 (Actual cash deposit is Rs. 3238000.00) to his saving bank
account. AIR information is not sufficient to reopen the case of the assessee. Though
assessee could not reply to the query notice issued (Dt. 08.08.2017) not issued u/s 133(6)
of the Act but even reopening has been made without following the set procedure
enshrined in the Income Tax Act, 1961. No notice u/s 133(6) was issued to the assessee.
No notice u/s 148 of the Act was received by the assessee.

Page No. 1 Para No. 2

The income of the assessee was non-taxable. This was the reason for non-filing of the
return. Moreover assessee was unwell and also had not received the notice till end of the
assessment. A separate chart has been submitted above which clearly depicts that
notices has not been received by the assessee personally and he was unwell and not well
versed with the computer so that he could see the notices on his portal as well as mail.
CA XXXXXXX was appointed by the assessee and he appeared before the AO and he
sought the adjournment for collecting papers. The ill health of the assessee was the main
reason for non compliances of the notices and this made assessee unable to submit the
reply to the show cause notices issued on 30.10.2018 for appearing on 12.11.2018. Time
and again, AO is writing that the assessee has not appeared on such and such date.
There was inability of the assessee to appear as the whole year he remained not well.
Assessee was not required to maintain the books of accounts but he has maintained the
account books and has calculated his profit as per section 44AD of the Income tax Act,
1961 which is non-taxable.
-ADVERTISEMENT-
Page No. 2 para (i),(ii), (iii)

It is true that the assessee could not reply to the notices but it is also true that assessee
had not received the notices in person, by courier or speed post. It is true that the
assessee has deposited Rs. 3188000.00 but it is also true that he has withdrawn a sum of
Rs. 2846500.00 from the same bank account. The AO has written the deposit part. He
has checked one side of the bank not the other and without thinking added the entire cash
deposited as income of the assessee. The order passed is quite vague in the eyes of law.

The AO has made the assessment u/s 144 of the Act but without looking at the material
record as he never wanted to provide any relief to the assessee. He wanted to enlist the
case with the list of cases decided at the earliest.

The AO has not checked the following record available on the file:

a) The assessment order for the AY 2010-11 passed u/s 143(3) of the Act.
 b) The complete bank statement which he might be having or not.

c) He has not issued notice u/s 133(6) of the act to the bank as well as to the
assessee for calling for the complete bank statement.

d) He has never desired to look at the debit side of the bank for cash withdrawals.

e) He has not checked the peak figure.

f) He never sent his inspector to the location of the assessee.

g) He has not tried to gather any material before deciding the case u/s 144.

h) Officer seems to enjoy the Ex-party assessment of the assessee otherwise he

would have thought so many times before imposing tax of Rs. 2320480.00. And
further tried to impose penalty.

Page No. 3 point No. 3

Assessee has failed to discharge the onus but at the same time AO failed to decide
assessment of the assessee correctly. There is clear cut violation of section 144 of the act
as AO has not gathered any material before assessment. He has not followed the higher
court judgments in this regard. How entire cash deposited can be income of the assessee.
Actually, he did not want to provide any relief to the assessee. He made himself easy by
writing the order and adding the entire cash to the income of the assessee and made
assessee to suffer in dark for many years.

Page No. 3 Para No. 4

The assessee has never made any effort deliberately and intentionally not to produce the
evidence before the AO as alleged by the AO. This is their stereo type language which
they copy cut paste in every order. But on the other side assessee has not received the
notices otherwise he would have sent his counsel to the AO as he did during the
-ADVERTISEMENT-
Assessment of the assessee for the A.Yr. 2010-11. Copy of order enclosed. Silence on
the part of the assessee does not give power to the AO to do injustice.

Page No. 4 Para No. 5

AO has not given any relief to the assessee though he had seen sufficient withdrawals
from the bank. Recycling of the cash withdrawals and deposit of the same is done always
in business and in general sense.

He has not considered the entire cash of the assessee as turnover of the assessee and
calculating the net profit u/s 44AD of the act as he did not want to provide any relief to the
assessee.

He has not seen the earlier assessment year’s returns for knowing the nature of business
of the assessee.
An allegation on the assessee that assessee has concealed the income of Rs.
3188000.00 is false, imaginary thinking. It has no character of truth. This order kills the
assessee and nothing else. The law makers, the courts, never desired to make and
interpret the law in such an illegal manner. The assessment order is prayed to be made
null and void.

At the time of hearing before CIT (A) Dt. 06.11.2019, cash flow statement was submitted.
At the time of remand report, hearing before AO cash flow statement personal in nature as
well as cash flow statement related to business was submitted. Even assessee submitted
personal cash book of the assessee before AO during the remand proceedings.

Analysis of the Remand Report of the AO, Ward No. X(X), XXXXXXX Dt. 28.02.2020

The assessee was prevented by sufficient cause due to ill health of the assessee

The restraints were with the assessee

He was not well during the F.Yr. 2018-19 when proceedings were going on.

He had not received the notices in a proper manner. He is not an educated person and
does not know the computer operation.

He is not able to check his mails.

Even then assessee has tried to produce the evidence at the CIT (A) level and even
before AO during the course of remand proceedings and even he has submitted the cash
books maintained for his personal use.

Eventhere is judgement of the PCIT Vs Daljit Singh Sra Prop M/s Sra Construction
Co. Bathinda (Punjab & Haryana High Court) (https://taxguru.in/income-tax/hc-
allows-additional-evidence-assess-real-income-appellant.html)

Case Law on Additional Evidences Filed Under Rule 46A: PCIT Vs Daljit Singh Sra
-ADVERTISEMENT-
(https://taxguru.in/income-tax/hc-allows-additional-evidence-assess-real-income-
appellant.html) (2017) (P&H)

Where additional evidences filed under rule 46A was relevant for calculation of real
income of assessee, same was to be admitted.

Before the Commissioner (Appeals), the assessee filed an application under section 250,
read with rule 46A of the Income-tax Rules, 1962. The said application was not admitted
by the Commissioner (Appeals) holding that the assessee was given various opportunities
to produce books of account and thus his case was not covered under rule 46A of the
Rules. The Commissioner (Appeals), dismissed the appeal.

On appeal, the Tribunal directed the Commissioner (Appeals) to admit additional evidence
and decide the case afresh after affording reasonable opportunity to the assessee of
being heard by holding that to deliver natural justice despite the non-co-operative attitude
of the assessee towards assessment proceedings, real income was to be assessed. On
appeal to the High Court:

The matter was examined by the Tribunal in detail on the basis of the entire material
available on record. It was noticed by the Tribunal that the assessment was completed
under section 144 as the assessee did not co-operate in assessment proceedings. On
account of sickness of the assessee, he wanted to file additional evidence under rule 46A
of the rules before the Commissioner (Appeals). It has been recorded by the Tribunal that
no doubt the assessee did not co-operate with the Assessing Officer in completion of the
assessment proceedings and that the books of account etc were not produced in spite of
opportunity but the said evidence might have been relevant for the calculation of the real
income of the assessee. The Tribunal keeping in view the overall facts and circumstances
of the case rightly directed the Commissioner (Appeals) to admit additional evidence and
decide the case afresh after affording reasonable opportunity to the assessee of being
heard.

In view of the above facts and circumstances, there is no doubt assessee did not co-
operate with the Assessing Officer in completion of assessment proceedings but the fact
remains that in the delivery of justice the real income of assessee has to be assessed and
that too after hearing the assessee. The Commissioner (Appeals) has not commented
upon the nature of evidence filed under rule 46A. Such evidence might have been
relevant for the calculation of real income of the assessee, therefore, in view of the
substantial justice, Commissioner (Appeals) was directed to admit additional evidence
and decide the case afresh after affording a reasonable opportunity to the assessee of
being heard.

On the basis of above judgement, the Hon’ble CIT (A), Faceless is prayed to accept the
additional evidences which could not be produced before the AO at the time of original
proceedings but submitted at the time of remand proceedings.
-ADVERTISEMENT-

Para No. 2

Opening cash in hand is as per the earlier assessment done by the AO u/s 143(3) of the
Act. As it is crystal clear that assessee is doing business of sale purchase of old cars and
accessories too. The turnover of the assessee is Rs 3148412.00 during the year and he
has withdrawn a sum of Rs. 1016500.00 from the business and even has given Rs.
1144000.00 to the business in cash as per cash flow statement. His case was decided u/s
143(3) for the A.Yr. 2010-11 and even A.Yr. 2012-13 with the same business. In these
circumstances the source of Rs. 450000.00 is a genuine source. The deposit of Rs.
590000.00 is out of the cash book submitted with the AO at the time of remand
proceedings. Tiny entries no doubt are business expenses or we can say day to day
expenses of the assessee as cash can be withdrawn using ATM only upto 10000.00.
There remains a limit through ATM. He has maintained one account only. No other
account is there. He shall be depositing with the bank when even he finds surplus cash.
The AO has to examine the consolidate effect.

Business has been done by the assessee.

The business has been done is cash

The turnover is Rs. 3148412.00 in cash

Agriculture land has been sold and cash received

Advances are also received in cash from the customers in this line of business.

Opening cash in hand is also there Rs. 210000.00 which evident from the assessment
records of the A.Yr. 2010-11 and in business generally some closing cash is always there.
This opening cash in hand cannot be denied.

Simultaneously, assessee has withdrawn sufficient cash from the bank Rs. 2846500.00.

Agriculture income has been earned by the assessee Rs. 100000.00

This is a justification that cash has been deposited by the assessee to his personal
account as and when it is surplus or it is required to make payment. Cash shall come from
the above enumerated sources and the main source is business and moreover he has
also contributed to the business. Taking the consolidated effect the cash deposit of Rs.
590000.00 on 20.04.2010 is quite justified.

The certificate depicts only that assessee is doing this line of business. He has picked the
big entries like 3 lacs and 9 lacs and small entries of Rs. 5000.00 and 20000.00 on the
debit side. He has not discussed the cash flow statement in the remand report though he
is asking cash flow statement during the course of remand proceedings. He has not
picked cash withdrawn of Rs. 128000.00 on 1.10.2010. The findings of the AO are
-ADVERTISEMENT-
perverse and contrary to the human spirits.

AO is saying that it is well knitted story but why he has decided the case of the assessee
with the same line of business for the AY 2010-11. There is no liability of the assessee to
submit cash book which is personal in nature. AO has to decide the case on the basis of
cash flow statement and its justification. Assessee has not submitted his cash book for the
purpose of business but he has submitted which is personal in nature. The consolidate
effect has to be taken from the cash flow statement. Here AO is unable to understand the
concept of cash book and cash flow statement. During the remand proceedings, one
notice was issued to the assessee and AO is asking only cash flow statement in this
notice.

There are no persons in relation to the XXXX and XXXXXX. This para is vague. Not
related with the case of the assessee.
The remand report is totally biased and unmindful exercise of the AO. Copy of remand
report is enclosed.

There are thousands of small traders in the area where they are doing small trade of sale
purchase of old cars and most of them use their saving bank account for the purpose of
business too. It means assessee has earned Rs. 3188000 out of the turnover of Rs.
3148412 i.e. more than 100% profit which cannot be possible. He has decided the case
without application of mind.

No material was with AO at the time of opening of the assessment and hence the opening
is bad in law and spirits. In this regard assessee relies on the judgment of ITAT, Delhi in
the case of Shri Mahavir Prasad Vs ITO Dt. 9.10.2017 (https://taxguru.in/income-
tax/reassessment-for-mere-cash-deposit-info-received-through-air-is-invalid.html).

No notice was received by the assessee in person, by speed post, on registered mail and
assessee could not access to his portal. In the absence of notices, assessee could not
appear before the ITO which resulted in assessment u/s 144 ex parte. Even assessment
u/s 144 has not been made taking into care the relevant material like bank statement,
earlier ITR filed by the assessee, without gathering any material, without making field
enquires, without acknowledging surrounding circumstances, without knowing that the
entire cash deposited cannot be income of the assessee. The assessment framed is
invalid in the absence of valid notice and without acknowledging the relevant material as
narrated above.

Revenue must act fairly in the matter of Assessment

It is a continuous proceeding before Hon’ble CIT (A), Faceless and what AO left CIT (A),
Faceless can do the same. As held in Sri Shankar Khandasari Sugar Vs. CIT 193 ITR
669.

The revenue must act fairly in the matter of assessment-ADVERTISEMENT-

as much as it is interested in
collecting the tax. In the absence of any prejudice to the revenue and the basis of the tax
under the act being to levy tax, as far as possible, on the real income, the approach
should be liberal in applying the procedural provisions of the Act. An appeal is but a
continuation of the original proceeding and what the income tax officer could have done
the appellate authority could also do. The Hon’ble CIT(A), Faceless is requested to accept
the total income of the assessee on the basis of section 44AD of the Income Tax Act ,
1961.

Destination of cash withdrawals from SB A/c with XXXXX Bank Ltd, XXXXXXX
during the F.Yr. 2010-11

The assessee runs his business of sale purchase of old cars and accessories. He makes
withdrawals from the bank for payment to parties and also for his own expenses personal
in nature. He has to keep the cash with him for running the family and also running the
business. When he has cash in surplus through the business he deposits the cash
withdrawn earlier and also cash accumulated from the business of sale and purchase of
old cars. Assessee has to keep the cash with him for purpose of the making payment to
parties. It is not proper to keep the cash with him at home for the purpose of safety of
cash and desire for earning some interest; assessee deposits the cash with the bank.
Normally a person thinks it proper to deposit the cash in bank instead of keeping it at
home as deposit of cash with the bankis safe. There was no fear with him to deposit the
cash in bank as he was knowing that this cash belong to the gross receipts of the
business and out of the withdrawals from the same bank.

ITAT judgments regarding withdrawals and deposit with the same bank

The assessee relies on the following judgments of the Hon’ble ITAT, New Delhi regarding
cash deposited with the bank out of the cash withdrawals from the same bank earlier to
the deposit.

Gordhan, Delhi, Vs. Assessee Dt. 19.10.2015 ITAT, Delhi

DCIT Vs. Smt. Veena Awasthi (ITAT) (Lucknow) Dt. 30.11.2018

(https://taxguru.in/income-tax/no-addition-mere-frequent-withdrawal-deposit-own-
money.html)

Same cash was deposited by the assessee with the bank which was withdrawn
earlier

When an assessee is able to establish that withdrawals of cash and redeposit of the same
after sometime gap in the cash flow statement, such explanation of the assessee cannot
be rejected by AO without establishing the fact that cash withdrawals was utilized, was
used by assessee for other purpose and was not hold by assessee which was re-
deposited after some gap of time. The same view was upheld by Tribunal in favor of the
assessee in the following judgment: -ADVERTISEMENT-

ITO Vs. Deepali Sehgal: Explanation of assessee that cash deposits in bank was from
cash withdrawals made in the past cannot be rejected by AO simply without establishing
the fact that cash withdrawn was utilized by assessee for other purpose and not hold by
assessee.

Addition made only on the basis of Presumption

“No doubt it is true that when the returns and the books of account are rejected, the
assessing officer must make an estimate, and to that extent he must make a guess: but
the estimate must be related to some evidence or material and it must be something more
than mere suspicion.” It is horrible and strange that ITO added to the income entire cash
deposited without any cogent evidence, without applying the mind, without acknowledging
the earlier returns and without looking at the complete bank statement.

Complete books in the possession of the Assessee

Such books of accounts are in the possession with the assessee which can be produced
before the Hon`ble CIT (A), Faceless if asked for the same. The assessee feels at ease to
surrender his income under section 44AD being eligible assessee for sale purchase of old
cars and accessories. The cash flow statement has been prepared out of the cash book
daily maintained by the assessee.

Huge Addition of Rs. 3188000/-

The addition of Rs. 3188000/- by AO is being challenged before you as Rs. 3188000/- is
not income of the assessee. The entire cash deposited with the bank can never be the
income of the assessee. The AO has looked at the one side of the bank statement but
ignored the other side. If looking at the document is half then the assessment has not
been done with the legal frame of mind and the assessment done is bad in law and spirits.
He cannot pass the assessment order with blind eyes which he has done in the case of
the assessee. If it is considered the entire cash deposited as turnover of the assessee
from sale and purchase of old cars and accessories, and then on presumptive basis, we
calculate profit @8 %, the profit comes to Rs. 251873/- instead of Rs. 3148412.00.

The entire cash deposited can not be income of the assessee

Apex Court judgment in the case of Parimisetti Sethramamma Vs CIT reported in 57 ITR
532 has held as under:-

By section 4 of the Income Tax Act, 1961 imposes a general liability to tax upon all
income. But the Act does not provide that whatever is received by a person must be
regarded as income liable to tax. Even withdrawals from the same bank and redeposit of it
have been treated as income of the assessee. Under Section 4, charge of Income tax is
on total income not on the gross receipts.

In this way the cash deposited by the assessee in his saving bank account is nothing but
cash deposited out of the cash book. -ADVERTISEMENT-

AIR information in respect of the assessee:

In the instant case, pursuant to receipt of AIR information from an external agency that
cash has been found deposited in assessee’s saving bank account, there has been no
further examination by the AO. It is submitted that the reasons to believe has no nexus
and live link with the escapement of Income of the assessee.

The addition of Rs. 3188000/- has been made to the total income of the assessee u/s 69A
but section not mentioned by the AO.

Section 69A is applicable where in any financial year, the assessee is found to be the
owner of any money and such money is not recorded in the books of account, if any
maintained by him for any source of income, and the assessee offers no explanation
about the nature and source of the acquisition of the money. The money may be deemed
to be the income of the assessee for such financial year.
This section relates to if search is made by the department and cash is found at the
premises of the assessee. This section does not pertain to cash deposited with the bank.
Assessee has every explanation of the cash deposited with the bank and also maintained
the books of accounts for his own use and hence no question of unexplained money
arises. The addition made by the AO is quite contrary to the law. The assessee surrenders
his income u/s 44AD of the Income Tax Act, 1961.

Here is summary of the judgments relied upon by the assessee:

Sr. No. Judgments relied upon by the Decision of the court

assessee

-ADVERTISEMENT-
1 Shri Mahavir Prasad Vs ITO Dt.
9.10.2017 (https://taxguru.in/income-
tax/reassessment-for-mere-cash-
deposit-info-received-through-air-is-
invalid.html)
That mere information from annual information
return is made as the basis in the reasons
without describing the contents of the
information, when was the same received,
bank account details, and most importantly the
copy of the bank account which is made as
basis of reopening was never gone through by
the assessing officer while recording the
purported reasons to believe. Without going to
the contents of the entries in the bank account
concerned merely deposits cannot be treated
as income escaping assessment within the
meaning of section 147/148 of the income tax
act, 1961.
That reasons recorded in present case at best
can be treated to be reason to suspect which is
not sufficient for reopening the case under
section 148 of the income tax act, 1961. While
recording the reasons to believe merely relying
upon financial information cannot be treated as
good enough to reopen the case. There can be
number of sources of cash deposits by the
assessee in the bank account. Unless and until
it is brought out in the reasons to believe as to
how the cash deposits represent income from
undisclosed sources same cannot give
justification to reopen the case under section
147/148 of income tax act. The requirement of
application of mind is missing in the present
case on the face of it in the reasons recorded.
It is cardinal principle of taxation that all
receipts are not income and all income are not
-ADVERTISEMENT-
taxable income applies squarely to present
facts.
The reasons to believe ought to spell out all the
reasons and grounds available with the AO
forre-opening the assessment. The reasons to
believe ought to also paraphrase any
investigation report which may form the basis
of the reasons and any enquiry conducted by
the AO on the same and if so, the conclusions
thereof;
where the reasons make a reference to another
document, whether as a letter or report, such
document and/ or relevant portions of such
report should be enclosed along with the
reasons;
 2 Gordhan, Delhi , Vs. Assessee Dt.
19.10.2015 ITAT , Delhi
No addition can be made u/s. 68 of the I.T. Act
on the sole reason that there is a time gap of
5Monthsbetween the date of withdrawal from
bank account of the cash in question and the
redepositof the same in the Bank Account,
unless the AO demonstrates that the amount in
question has been used by the assessee for
any other purpose. Addition is made on
inferences and presumptions, which is bad in
law. Hence, the addition in question is deleted
and the Appeal of the assessee is allowed.

3 DCIT Vs. Smt. Veena Awasthi (ITAT)
(Lucknow) Dt. 30.11.2018
(https://taxguru.in/income-tax/no-
addition-mere-frequent-withdrawal-
deposit-own-money.html)
That nowhere Revenue has doubted availability
of cash with the assessee and Assessing
Officer has also not brought out any material on
record to show that cash which was withdrawn
was spent on some other purpose and that
cash deposited again was from undisclosed
sources. The Assessing Officer has only
doubted behavioral pattern of the assessee but
has accepted availability of own funds in the
hands of the assessee. When source of cash
deposit is explained and it is evident that it is
the own cash of the assessee, which has been
deposited in bank account, then there is no
question of making addition under the head as
income from undisclosed sources.

4 ITO Vs. Deepali Sehgal We reach to a conclusion that the AO made

addition without any legal and justified reason
which was rightly deleted by the CIT(A). Hence,
both the grounds of the assessee are being
devoid of merits and dismissed.

5 Parimisetti Seethramamma Vs CIT The Court held that the Act does not make a
-ADVERTISEMENT-

reported in 57 ITR 532 blanket provision whereby any and every

receipt is to be treated as income and thereby
made exigible to tax. In all cases, the burden
lies on the Revenue to prove that the receipt is
income within a taxing provision.

Application under rule 46A of the Income Tax Rules, 1962 is separately enclosed for your
kind consideration in the matter.

Beside merits of the case, the assessee desire to plead his case on the basis of technical
ground simultaneously.

Core issues

A.Yr. 2011-12, Reopening u/s 147, Issue of notice u/s 148 not received by assessee at his
address, cash deposit by assessee in his SB A/c. Source of the cash deposited is
withdrawals from the same bank and cash opening balance and current year income.
Receipts from sale of Agriculture Land Without looking at the entire bank A/c of the
assessee, without gathering any material, the assessment framed is bad enough.
Reasons recorded are vague, without material, copy not given to assessee. AIR
information is not sufficient for reopening of the case. The entire assessment is prayed to
be made null & void. Query letter was issued but not replied by the assessee as he was ill
that year.

Limitation period for deciding the case of the assessee for the A.Yr. 2011-12

That the Ld. AO decided the case of the assessee too earlier on 26.11.2018 though the
time barring was on 31.12.2018.

Copy of reasons recorded not supplied to the assessee

AO formed a false opinion regarding cash deposited by the assessee with his SB A/C as
income of the assessee from undisclosed sources. There seems to be no reason to
believe that the cash deposited by the assessee to his SB A/C is income of the assessee
from some sources not disclosed to the department. Copy of reasons to believe could not
be provided to the assessee. In the facts and circumstances of the case the AO is not
justified as AIR information is not sufficient for forming reason to believe by the AO
regarding reopening of the assessment u/s 147 and issue of notice u/s 148 of the Act.
There was no material with AO at the time of framing of reasons to believe. There existed
no live link between the material and escaped income as there was no material with AO,
even no bank statement. Copy of reasons recorded were never supplied to the assessee
and approval obtained from worthy PCIT, XXXXXXX never supplied to the assessee.

How it will be known to the assessee if approval obtained as not. In this absence of these
copies not supplied to the assessee, the assessment framed is quite bad in law and
spirits.

Reasons recorded are far-fetched, not based on any cogent material. In the same way
-ADVERTISEMENT-

PCIT gave approval without material. The approval given is bad in law and spirits.

Reason to believe is nothing but reason to suspect. Clause (a) of Explanation 2 of section
147 is applicable when income of the assessee is chargeable to tax and even then he has
filed no return of Income. The reopening is bad. The initiation of proceedings u/s 147 of
the Act is based on no material, no formation of belief of escapement of Income is there.
This is only unmindful act of the AO. The assessment framed is bad in law and spirits.

There is no nexus between the prima facie inference arrived in the reasons recorded and
information; the information was restricted to cash deposits in the bank account but there
was no material much less tangible, credible, cogent and relevant material to form a
reason to believe that cash deposits represents income of the assessee.
That the proceeding initiated is based on surmises, conjectures and suspicion and
therefore, the same are without jurisdiction. That the reasons records are highly vague,
far–fetched and by any stretch of imagination lead to conclusion of escapement of income
and there are merely presumption in nature; that it is a case of mechanical action on the
part of the AO as there is non-application of mind much less independent application of
mind so as to show that he formed an opinion based on any material that such deposits
represented income. The assessee has relied on the judgements of Hon’ble ITAT, Delhi,
ITA No. 2740, 1384 & 2647/Del/2018 Shri Inder Jeet, Delhi and Shri Ashok Kumar
Ghaziabad.

When the assessment proceedings u/s 147 are initiated on the fallacious assumption that
the bank deposits constituted undisclosed income, over-looking the fact that the source of
the deposits need not necessarily be the income of the assessee. The proceeding is
neither countenanced, nor sustainable in law as held in ITAT, Amritsar Bench in case of
Amrik Singh vs. ITO 159/ITD 329 (Amritsar).

A perusal of section 148 to 153 would show that in order to harbor a belief that income
has escaped assessment; the assessing officer ought to have formed an opinion on the
basis of material possessed by him, exhibiting the facts that income has escaped
assessment. A perusal of reason recorded indicate that the learned AO has basically not
made reference to any material possessed by him except the AIR communicated to him. It
is pertinent to observe that he has not analyzed the information in right perspective and
he sought to reopen by conceiving a fact that the assessee failed to response query letter
raised about these cash deposits. At the time of issue of query letter, there was no
proceeding pending before the AO, when he sought the clarification of the assessee vide
alleged query notice. The ITAT Amritsar bench has dealt with this issue elaborately and
recorded a finding that under the Income Tax Act, there is no such proceeding to conduct
an enquiry without pendency of assessment proceedings. If this reasoning is being
excluded from the copy of reasons recorded by AO, then-ADVERTISEMENT-
nothing will remain with the AO
except the information transmitted by the AIR Wing. Apart from the above, it is to be seen
that in the reasons that AO has nowhere alleged escapement of income. The thrust of the
reasoning would show that he wants to make an enquiry about the cash deposits. No
doubt, for reopening of an assessment, he has to just form a prima facie opinion and not
to arrive at a firm conclusion, but the formation of a prima facie opinion should also depict
escapement of income.

The belief of the AO should be based on some specific and tangible material for the
purpose of reopening of the assessment.

In the case of the assessee, the assessing officer after obtaining the AIR information
wanted to verify the same and issued a letter of enquiry to the assessee. The officer thus
did not apply his independent mind to the information received from the AIR. Since no
proceedings are pending before the assessing officer when he issued a letter of enquiry to
the assessee, therefore such enquiry letter is not valid in the eyes of law, therefore, the
assessee was not required to respond to invalid letter of enquiry issued by the assessing
officer. The assessing officer in the absence of reply of the assessee presumes that cash
deposits in the bank account are income from escaped assessment. The deposit in the
bank account per se cannot be income of the assessee. It is mere suspicion of the
assessing officer based on incorrect facts that income chargeable to tax has escaped
assessment. The issue was covered in the favour of the assessee by order of ITAT, SMC
Delhi in the case of Tajendra Kumar Ghai.

Only AIR information that assessee has deposited cash in his bank account and recording
of reasons of assessment is bad in law. In many cases, the stand of the ITAT, Delhi is that
there is no nexus between the cash deposit with the bank and escapement of income.

No Notice u/s 133(6) was issued; if issued not received by the assessee

Assessment framed is bad in law and spirits as no notice u/s 133(6) was issued to the
assessee regarding explanation of the cash which is mandatory requirement. Only query
letter dated 08.08.2017 was issued. No enquiry notice was ever received by the assessee
u/s 133(6) of the Act, 1961. No summons was ever issued to the assessee before framing
best judgment assessment. The entire assessment has been done at the back of the
assessee which is contrary to the legal position. It is legal requirement of the notice to be
issued u/s 133(6) before issue of notice u/s 148 dated 30.03.2018.

The assessee never received notice u/s 133(6) of the act either in person, on ITD website
portal, through mail, speed posts. Issuance of the notice u/s 133(6) is the primarily
requirement before issue of notice u/s 148 dated 30.03.2018. In the absence of notice u/s
133(6), proceedings initiated u/s 147 of the Act is bad in law.

The reasons recorded are totally silent on three issues

1. Mere cash deposit is treated to be equivalent to-ADVERTISEMENT-

income escaping assessment.
Mere cash deposit in bank account cannot be treated as undisclosed income as the
reason for income escaping assessment. There is no nexus between the prima facie
inference arrived in the reasons records and information available with the
assessing officer.

2. No details of XXXXX Bank ltd are mentioned.

3. Information is available but not contents of the information.

That the initiation of reassessment proceedings is illegal being void-ab-initio in as much

as the reasons recorded are not in accordance with the provisions contemplated u/s 147
of the Act as well as judicial pronouncements. Rather reasons have been recorded in a
mechanical manner and without application of mind. Reasons do not disclose
escapement of income and that mere cash deposit in bank account is not sufficient to
presume that it is a case of escapement of income. The assessee relies upon the
following judgements:

i) Shri Bhajanlal vs ITO, Ward 2, Narnaul, Haryana dated 20.09.2018 ITAT Delhi

ii) Smt Swati Verma, New Delhi vs ITO, Noida dated 01.08.2018 ITAT Delhi

iii) Shri Jagat Singh, Noida vs ITO, Ghaziabad dated 04.09.2018 ITAT Delhi

Merely stating the reasons in a letter addressed by the AO, is not enough. Then, the
reasons to believe for escapement of income need to spell out all the reasons and
grounds available with the AO for reopening the assessment. The reasons must also
paraphrase any investigation report, which may form the basis of the reasons and any
enquiry conducted by the AO thereon, as also the conclusions thereof.

In the case of CIT vs. Videsh Sanchar Nigam Ltd. (2012) 340 ITR 66 (Bom.) has held that
though the reopening of assessment was within time, since the reasons recorded for
reopening of the assessment were not furnished to the assesses till date the completion
of assessment, the reassessment order cannot be upheld.

After 1.4.1989, the Assessing Officer has power to re-open, provided there is “tangible
material” to come to the conclusion that there is escapement of income from assessment.
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 – CIT vs. Kelvinator of India (320 ITR 546 / 228 CTR 488
/ 187 Taxman 312) (https://taxguru.in/income-tax/ao-deemed-to-have-applied-his-
mind-if-facts-are-on-record-and-reopening-on-change-of-opinion-is-not-
permissible-even-within-4-years.html)

The assessee has relied on the judgment of High court of Delhi in the case of “Signature
Hotels (P) Ltd. 338ITR 51 (Delhi)” where in it was held that:
-ADVERTISEMENT-

“The reasons and the information referred to were extremely scanty and vague. There
was no reference to any document or statement except AIR information. The AIR could
not be regarded as a material or evidence that prima facie showed or established nexus
or link which disclosed escapement of income. The AIR information was not a pointer and
did not indicate escapement of income. Further it was apparent that the assessing officer
did not apply his own mind to the information and examine the basis and material of the
information. The assessing officer accepted the plea on the basis of vague information in
a mechanical manner. The commissioner also acted on the same basis by mechanically
giving her approval; therefore proceedings under section 148 were to be quashed.

Notices not received by the assessee

If notice u/s 142(1) would have been received by the assessee certainly he would have
appeared before AO through his counsel. It is true by heart that the assessee has never
received any notice from the department. If all the requisite notices had been received by
the assessee personally or if some more opportunity had been given to the assessee then
he would have been able to produce the books of accounts and plausible explanation
regarding cash deposited with the bank. Hence in the absence of proper opportunities the
assessment framed is bad on law and spirits of the fair and best judgment assessment.

AIR information made basis for reopening of the assessment

The information received from the department without independent enquiries is not
sufficient for reopening the assessment u/s 147 of the Act.

In the facts and circumstances of the case the AO is not justified in relying only on the
information of the department. Not making independent enquiries. He has not gathered
any material before framing assessment u/s 144 of the Act. He has not checked the
complete bank account before framing the best judgment assessment.

Only AIR information with the ITO that assessee has deposited cash with his saving bank
account and formation of belief regarding escapement of income and recording of reasons
is bad in law. In many cases, the stand of the Hon’ble ITAT, Delhi is that there is no nexus
between the cash deposit with the bank and escapement of Income. The assessee has
relied on the judgment of Shri Inderjeet, Sohna Gurgaon, ITAT Delhi Dt. 3.12.2018
passed by a common order. It has been held that mere cash deposit in bank account is
not sufficient to presume that it is a case of escapement of Income and formation of
reasons to believe for escapement of Income and recording of the reasons is bad in law.
First para of the assessment order clearly states that on the basis of AIR information
notice u/s 148 was issued to the assessee dated 30.03.2018 which is bad enough without
any corroborative evidence.
-ADVERTISEMENT-
ITO did not gathered any material before framing the assessment

In the facts and circumstance of the case the Ld. AO is not justified in framing the
assessment u/s 144 without gathering any material as it is the prime duty of the AO to
gather the sufficient material before making assessment. Which he failed to do so and
decided the case in hurry.

Notice u/s 148 and approval obtained u/s 151 never received:

Notice was not received by the assessee in person, by speed post, on mail sent by the
ITD on portal. Assessee has never checked the notice on ITD website as he does not
know basics of the computer. This notice was never received by the assessee before
31/03/2018. Moreover in the absence of notice u/s 133(6), this notice if considered
deemed to be issued but will not stand in the eyes of law. The entire proceedings should
be made null & void in the absence of proper service of notice.
The notice u/s 148 is issued when definite information is there not for an enquiry. The
notice has been issued on the presumption that the cash deposited with the bank is
income of the assessee. This is only a presumption. The presumption however strong
cannot take place of evidence.

Further, the approval obtained from Pr. CIT, XXXXXXX was never supplied to the
assessee neither on mail, nor on Income Tax portal and not in person which is mandatory
requirement and hence the entire assessment is null and void.

ITO Ignored Peak figure of the Bank

Even at the time of assessment proceeding the AO overlooked the debit entries in the
bank statement, he ignored peak figure, decided the case of the assessee u/s 144 of the
act which is unmindful job on the part of the AO.

AO has not bothered to arrive at a reasonable figure looking at peak figure of the cash
deposited with the bank and also ignored withdrawals from the same bank which is
unjustified. The cash deposited is nothing but out of the gross receipts of the assessee
and also withdrawals from the same bank and opening cash in hand.

As held in the judgment S. Venkat Reddy, Hyderabadvs. ITO[TS-6716-ITAT-

2016(HYDERABAD)-O] (https://taxguru.in/income-tax/penalty-proceedings-initiated-
reasonable-complying-section-269s.html): Peak credit & unexplained Credit – Only peak
credit to be taxed u/s. 68, huge cash deposits in the savings bank account of assessee
cannot be taxed – ITAT rules in favour of assessee; Holds that assessee having furnished
the bank statement, AO could have verified and noticed that there were credits and
corresponding debits which would give an indication that some amount has been recycled
and that in such cases ordinarily, peak credit is to be taken into consideration for making
an addition; AO should keep in mind the normal turnover of the assessee, the expected
profit in each year, based on the earlier year’s income declared and accepted and the
-ADVERTISEMENT-
material available to make the addition.

The surrounding circumstances were quite ignored by AO. The transactions could not be
noted by the AO. AO ignored the debit entries of the bank. No field enquiries were made.
No enquiries from bank were made regarding the nature of work of the assessee. No
reality of the transactions were noted/ found out before treating income from undisclosed
sources.

The cash flow statement is placed on record and every instance of cash deposited the
assessee is having sufficient cash balances. The deposits with the bank have been made
out of the cash available in the cash book. Deposits have not been made from
undisclosed sources. As held in Dy CIT, Range 2, Lucknow Vs. Pawan Aggarwal ITA
No. 374/LKW/2013 A.Yr. 2009-10.

Reopening u/s 147 of the assessment is bad

The assessee has relied on the judgment of ITAT Delhi in the case of Ashok Kumar,
Ghaziabad Vs. ITO Ward No. 1(1), Ghaziabad on 3.12.2018. ITA No. 2740/Del/2018.A.Yr.
2011-12 and other appeals decided with a common order wherein held the initiation of
proceedings u/s 147 and issue of notice u/s 148 of the Act has been held invalid.

In the case of ITAT, Delhi Bench decision in the case of Parveen Kumar Jain Vs ITO No.
133/D/2015 for the A.Yr. 2006-07 Dt. 22.01.2015 wherein it has been held as under:

Thus it is clear that the basic requirement for reopening of assessment that the AO must
apply his mind to the materials in order to have reasons to believe that the income of the
assessee escaped assessment was found to be missing when the AO proceeded to
reopen the assessment.

At the time of formation of belief by the ITO that the income has escaped assessment, the
material must indicate income escaping assessment rather than desirability of further
probe in the matter which may or may not lead to income escaping the assessment.

The observations of the Hon’ble Supreme Court in the case of ‘ITO vs. Lakhmani Mewal
Das’103 ITR 437(SC), were reproduced as under:

It may be desirable, from the point of view of revenue authorities, to examine the matter in
detail, but then reassessment proceedings cannot be resorted to only to examine the facts
of a case, no matter how desirable that be, unless there is a reason to believe, rather than
suspect, that an income has escapement assessment.”

Mere cash deposited information is not sufficient, not a prima facie belief that
income is from undisclosed sources

Similarly in the case of CIT v. Indo Arab Air Services (2016) 130 DTR 78/ 283 CTR 92
(Delhi)(HC) (https://taxguru.in/income-tax/reassessment-proceeding-based-ed-
information-correlating-returns-filed-invalid.html) it was held that mere information
that huge cash deposits were made in the bank accounts could not give the AO prima
-ADVERTISEMENT-

facie belief that income has escaped assessment. The AO is required to form prima facie
opinion based on tangible material which provides the nexus or the link having reason to
believe that income has escaped assessment.

Reopening on borrowed satisfaction is bad

Re-opening based on borrowed satisfaction of the Assessing Officer is not valid – (CIT v.
Greenworld Corporation 314 ITR 81)

Approval u/s 151 of the Income tax Act .

As per order of the assessment the approval from the Principal Commissioner of Income
tax, XXXXXXX has been obtained in a mechanical manner without any concrete finding,
without looking at the bank account of the assessee, without preparing separate notes.
Mere writing “I am satisfied“is an abuse and misuse of powers enshrined in the Act.
Regarding this issue assessee has relied on the Judgment of ITAT, Delhi Bench, ITA No.
988/Del/2018 in the case of Sunil AggarwalVs. ITO, Ward No. X(X) (3), Haridwar.

The Hon’ble Supreme Court of India in the case of CIT Vs. S. Gayanka Lime and
Chemical Ltd. Reported in (2015) 64 taxmann.com 313(SC) in the Head notes has held
that (Section 151, read with section 148 of the Income tax Act , 1961 – Income escaping
assessment –Sanction for issue of notice (Recording of Satisfaction) – High court by
impugned order held that where joint commissioner recorded satisfaction in mechanical
manner and without application of mind to accord sanction for issuing notice u/s 148,
reopening of assessment was invalid – Whether special leave petition filed against
impugned order was to be dismissed – Held, yes ( in favour of the assessee)

The approval obtained from Pr. CIT, XXXXXXX was never supplied to the assessee
neither on mail, nor on income tax portal and not in person and not by speed post which is
mandatory requirement hence the entire assessment is prayed to be quashed.

Explanation 2(b) of section 147 The reopening u/s 147 of the Act is challenged

Explanation 2(b) of section 147 authorizes the AO to reopen an assessment wherever

there is an “understatement of income”, the AO is not entitled to assume that there is
“understatement of income” merely because the assessee’s income is “shockingly low”
and others in the same line of business are returning a higher income. The invocation of
the jurisdiction u/s 147 on the basis of suspicions and presumptions cannot be sustained.
(WP. No. 36483/2016, dt. 13.02.2017) (AY. 2012-13).

The reopening is bad only on the basis of cash deposited with bank not seen bank
account not seen debit entries. It is purely guess work of the AO that income has
escaped. The AO proceeded on the fallacious assumption that bank deposits in cash
constituted undisclosed income and overlooked facts that the cash deposits need not
-ADVERTISEMENT-
necessarily be the income of the assessee. It can be the gross receipts but entire cash
deposits cannot be the income of the assessee. The assessee has relied on the judgment
IN the ITAT Delhi bench “A” BirBahadurSijwali VS ITO , Ward 1,Haldwani Appeal No.
3814(Delhi) of 2011.

After 01.04.1989, the power to re-open an assessment is much wider but the reason
should be fair and not necessarily due to the failure of the assessee to disclose fully or
partly some material facts.

The reason to believe of the ITO is not based on any tangible material but is based on AIR
information. The reason is not fair as required by law.

Nature of income declared by the assessee in his return of income and cash deposit in his
saving bank account of the assessee is not reason to believe to form an opinion for
escapement of income of the assessee as assessee has used his saving bank account
for the purpose of business as well. The reopening is bad enough.

The expression information must be something more than a mere rumor or a gossip or a
hunch, there must be some material which can be regarded as information which must
exist on the file on the basis of which reason to believe is formed. The “reason to believe”
must be tenable in law. Only if the information or the reason has no nexus with the belief
or there is no material or tangible information for formation of requisite belief. The opening
is bad in law.

Judgments relied on by the assessee

Pawan Aggarwal judgement, in favour of the assessee:

The cash flow statement or cash book is placed on record and every instance of cash
deposited the assessee is having sufficient cash balances. The deposits with the bank
have been made out of the cash available in the cash book. Deposits have not been
made from undisclosed sources. As held in Dy CIT, Range 2, Lucknow Vs. Pawan
Aggarwal ITA No. 374/LKW/2013 A.Yr. 2009-10.

Ashok kumar Ghaziabad in favour of the assessee:

The assessee has relied on the judgment of ITAT Delhi in the case of Ashok Kumar,
Ghaziabad Vs. ITO Ward No. 1(1), Ghaziabad on 3.12.2018. ITANo.740/Del/2018 A.Yr.
2011-12 and other appeals decided with a common order wherein held the initiation of
proceedings u/s 147 and issue of notice u/s 148 of the Act has been held invalid.

Prayer to the Hon’ble CIT (A), Faceless for production of all the documents

The Hon’ble CIT (Appeals), Faceless is prayed to give a chance to produce all the
evidences and books of accounts before him which could not be produced at AO level so
that assessee gets full justice as taxing statutes demand tax on earned income and not on
income which was never earned. Tax is paid on the net income and not on the gross
-ADVERTISEMENT-
receipts.

The appellant also prays to produce additional evidence under Rule 46A of the Income
Tax Rules, 1962 at the time of hearing or before it.

Thanking You,

Yours Faithfully

Xxxxxxx

Assessee

Counsel of the Assessee

The following is the list of judgments relied on by the assessee:

Sr. No. Name of the Judgment Decision taken by the Court

CIT vs. Videsh Sanchar Nigam
Ltd. (2012) 340 ITR 66 (Bom.)
CIT vs. Kelvinator of India (320
ITR 546 / 228 CTR 488 / 187
Taxman 312)
(https://taxguru.in/income-
tax/ao-deemed-to-have-
applied-his-mind-if-facts-are-
on-record-and-reopening-on-
change-of-opinion-is-not-
permissible-even-within-4-
years.html)
Though the reopening of assessment was within
three years from the end of relevant A.Y., since the
reasons recorded for reopening of the assessment
were not furnished to the assessee till date the
completion of assessment, the reassessment order
cannot be up held, moreover, special leave petition
filed by revenue against the decision of this court in
the case of CIT v. Fomento Resorts and Hotels Ltd.,
has been dismissed by Apex Court, vide order dated
July 16, 2007. The Court dismissed the appeal of the
revenue.
Though the power to reopen under the amended s.
147 is much wider, one needs to give a schematic
interpretation to the words “reason to believe” failing
which s. 147 would give arbitrary powers to the AO
to re-open assessments on the basis of “mere
change of opinion”, which cannot be per se reason
to re-open. One must also keep in mind the
conceptual difference between power to review and
power to re-assess. The AO has no power to review;
he has the power to re-assess. But re-assessment
has to be based on fulfillment of certain pre-condition
and if the concept of “change of opinion” is removed,
as contended on behalf of the Department, then, in
the garb of re-opening the assessment, review would
take place. One must treat the concept of “change of
opinion” as an in-built test to check abuse of power
by the AO. Hence, after 1.4.1989, the AO has power
to re-open, provided there is “tangible material” to
come to the conclusion that there is escapement of
income from assessment. 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
-ADVERTISEMENT-
that the words “reason to believe” did not mean a
change of opinion.
Signature Hotels (P) Ltd.
338ITR 51 (Delhi)
(https://taxguru.in/income-
tax/ao-issue-notice-148-basis-
scanty-vague-information-
material-escapement-
income.html)
Hon’ble SC in ACIT & Anr. Vs.
Hotel Blue Moon: (2010) 321
ITR 362(SC)
(https://taxguru.in/income-
tax/issue-of-s-143-2-notice-is-
mandatory-for-block-
assessment-proceedings-
disclosed-items-cannot-be-
assessed-in-block-
assessment-circulars-are-
binding-on-the-revenue.html).
S. Venkat Reddy , Hydrabad vs.
ITO [TS-6716-ITAT-
2016(HYDERABAD)-O]
(https://taxguru.in/income-
tax/penalty-proceedings-
initiated-reasonable-
complying-section-269s.html)
“The reasons and the information referred to were
extremely scanty and vague. There was no
reference to any document or statement except AIR
information. The AIR could not be regarded as a
material or evidence that prima facie showed or
established nexus or link which disclosed
escapement of income. The AIR information was not
a pointer and did not indicate escapement of income.
Further it was apparent that the assessing officer did
not apply his own mind to the information and
examine the basis and material of the information.
The assessing officer accepted the plea on the basis
of vague information in a mechanical manner. The
commissioner also acted on the same basis by
mechanically giving her approval; therefore
proceedings under section 148 were to be quashed.
It is mandatory for the AO to issue notice u/s 143(2).
It is mandatory not only procedural. Reassessment
order Invalid due to want of notice u/s 143(2).
Peak credit & unexplained Credit – Only peak credit
to be taxed u/s. 68, huge cash deposits in the
savings bank account of assessee cannot be taxed –
ITAT rules in favour of assessee; Holds that
assessee having furnished the bank statement, AO
-ADVERTISEMENT-
could have verified and noticed that there were
credits and corresponding debits which would give
an indication that some amount has been recycled
and that in such cases ordinarily, peak credit is to be
taken into consideration for making an addition; AO
should keep in mind the normal turnover of the
assessee, the expected profit in each year, based on
the earlier year’s income declared and accepted and
the material available to make the addition.
Mahavir Prasad Vs. ITO ITAT
Delhi 9.10.2017
Dy CIT, Range 2,Lucknow Vs.
Pawan Aggarwal ITA No.
374/LKW/2013
The reasons to believe ought to spell out all the
reasons and grounds available with the AO for re-
opening the assessment – especially in those cases
where the first proviso to Section 147 is attracted.
The reasons to believe ought to also paraphrase any
investigation report which may form the basis of the
reasons and any enquiry conducted by the AO on
the same and if so, the conclusions thereof; where
the reasons make a reference to another document,
whether as a letter or report, such document and/ or
relevant portions of such report should be enclosed
along with the reasons;
Assessee has demonstrated through cash flow
statement that at every point of time when even cash
was deposited in the bank, the assessee was having
sufficient cash balance. Copy of the cash flow
statement is also placed on record. Once the
assessee has discharged his onus by placing cash
flow statements, the onus shifts upon the Revenue
to demonstrate that the cash withdrawn by the
assessee was consumed or utilized for his own
purposes and deposits were made out of
undisclosed sources. In the absence of any evidence
in this regard, the contention of the assessee should
be accepted. Though cash flow statement was
furnished before him, but he has not looked into
while making the addition; whereas the ld. CIT(A)
has examined all the entries in the cash flow
statement, which is available on record. In the cash
flow statement, the movement of cash was disclosed
and it is evident that on all dates whenever cash was
deposited in the bank, the assessee was having
sufficient cash balance.
-ADVERTISEMENT-
Hon’ble ITAT Lucknow Bench,
ITO Vs. Kamal Kumar Mishra
ITA No. 398/LKW/2012
(https://taxguru.in/income-
tax/no-tax-mesne-profits-
wrongful-deprivation-of-use-
occupation-property.html)
ShriInderjeet, Sohna Gurgaon,
ITAT Delhi Dt. 3.12.2018
Sri Shankar Khandasari Sugar
Vs. CIT 193 ITR 669
Ashok Kumar, Ghaziabad Vs.
ITO Ward No. 1(1), Ghaziabad on
3.12.2018. ITA No.
2740/Del/2018.
The ld. CIT(A) has adjudicated the issue in the light
of the aforesaid judgment and has held that
provisions of section 68 of the Act cannot be
invoked. Besides, he has also examined the
additions made by the Assessing Officer through
grounds No.1 to 6 on merit also and has noted that
in each and every case the assessee has furnished
plausible and reasonable explanations with respect
to the deposits found recorded in the bank passbook
of the assessee and on merit also the ld. CIT(A) did
not find any justification in the additions made by the
Assessing Officer. Though we are of the view that
provisions of section 68 of the Act cannot be invoked
on the deposits made in the bank account of the
assessee, yet we have examined the veracity of the
additions made by the Assessing Officer on certain
deposits by invoking the provisions of section 68 of
the Act and we find that before the ld. CIT(A) the
assessee has furnished reasonable and plausible
explanations along with confirmation with regard to
the different deposits. Since the ld. CIT(A) has
adjudicated the issue on merit also in the light of the
explanations and confirmations placed before him, in
a proper perspective and we find no infirmity therein,
we confirm the same. Accordingly, finding no merit in
the Revenue’s appeal, we dismiss the same.
When the assessment proceedings u/s 147 are
initiated on the fallacious assumption that the bank
deposits constituted undisclosed income, over-
looking the fact that the source of the deposits need
not necessarily be the income of the assessee, the
proceedings is neither countenanced, nor
sustainable in law.”
-ADVERTISEMENT-
An appeal is but a continuation of the original
proceedings and what the Income tax officer could
have done, the appellate authority could also do.
When the assessment proceedings u/s 147 are
initiated on the fallacious assumption that the bank
deposits constituted undisclosed income, over-
looking the fact that the source of the deposits need
not necessarily be the income of the assessee, the
proceedings is neither countenanced, nor
sustainable in law.”
Parveen Kumar Jain Vs ITO No.
133/D/2015
ITO vs. Lakhmani Mewal Das’103
ITR 437(SC),
CIT v. Indo Arab Air Services
(2016) 130 DTR 78/ 283 CTR 92
(Delhi)(HC)
(https://taxguru.in/income-
tax/reassessment-proceeding-
based-ed-information-correlating-
returns-filed-invalid.html)
CIT v. Greenworld Corporation
314 ITR 81
ITAT , Delhi Bench , ITA No.
988/Del/2018 in the case of Sunil
Aggarwal Vs. ITO , Ward No.
X(X) (3) , Haridwar
Thus it is clear that the basic requirement for
reopening of assessment that the AO must apply his
mind to the materials in order to have reasons to
believe that the income of the assessee escaped
assessment was found to be missing when the AO
proceeded to reopen the assessment.
At the time of formation of belief by the ITO that the
income has escaped assessment , the material must
indicate income escaping assessment rather than
desirability of further probe in the matter which may
or may not lead to income escaping the assessment.
It may be desirable, from the point of view of
revenue authorities, to examine the matter in detail,
but then reassessment proceedings cannot be
resorted to only to examine the facts of a case, no
matter how desirable that be, unless there is a
reason to believe, rather than suspect, that an
income has escapement assessment.”
it was held that mere information that huge cash
deposits were made in the bank accounts could not
give the AO prima facie belief that income has
escaped assessment. The AO is required to form
prima facie opinion based on tangible material which
provides the nexus or the link having reason to
believe that income has escaped assessment.
Re-opening based on borrowed satisfaction of the
Assessing Officer is not valid. Moreover, AIR
information is not sufficient. Even, there is no
satisfaction note what to speak of borrowed
satisfaction. Hence, the reopening is bad.
-ADVERTISEMENT-
The Hon’ble Supreme Court of India in the case of
CIT Vs. S.Gayanka Lime and Chemical Ltd.
Reported in (2015) 64 taxmann.com 313(SC) in the
Head notes has held that (Section 151, read with
section 148 of the Income tax Act , 1961 – Income
escaping assessment –Sanction for issue of notice (
Recording of Satisfaction) – High court by impugned
order held that where joint commissioner recorded
satisfaction in mechanical manner and without
application of mind to accord sanction for issuing
notice u/s 148 , reopening of assessment was invalid
– Whether special leave petition filed against
impugned order was to be dismissed – Held ,yes ( in
favour of the assessee )
 ITAT Delhi bench “A” Bir
Bahadur Sijwali VS ITO
(https://taxguru.in/income-
tax/reopening-mere-ground-
cash-deposit-bank-account-
valid.html)
The Assessing Officer has opined that an income of
Rs 10,24,100 has escaped assessment of income
because the assessee has Rs 10,24,100 in his bank
account but then such an opinion proceeds on the
fallacious assumption that the bank deposits
constitute undisclosed income, and overlooks the
fact that the sources of deposit need not necessarily
be income of the assessee. Of course, it may be
desirable, from the point of view of revenue
authorities, to examine the matter in detail, but then
reassessment proceedings cannot be resorted to
only to examine the facts of a case, no matter how
desirable that be, unless there is a reason to believe,
rather than suspect, that an income has escaped
assessment.

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 Cash withdrawn and redeposit is not income from Undisclosed Sources (https://taxguru.in/income-
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Sufficient time to comply with section 143(2) notice & valid notice u/s 142(1)(ii) is mandatory
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