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Budhu Vs. Income Tax Officer - (Income Tax Appellate Tribunal) (23 Dec 2020)

Notice under Section 148 of IT Act cannot be issued merely on basis of suspicion


Direct Taxation

Assessee, an individual, was engaged in agricultural activity during the relevant year. In the case of the assessee, an information was received through annual information return (AIR) that, the assessee had deposited Rs. 23,59,000 in his saving bank account maintained with the Punjab National Bank, (Uttar Pradesh). On being asked by the Assessing Officer, the assessee submitted explanation of source of deposit; however, the AO was not satisfied with the explanation of the assessee. In view of the information, the Assessing Officer issued a notice under Section 148 of the Income-tax Act, 1961 (IT Act).

The assessee filed return of income declaring agriculture income of Rs. 66,000 and interest income of Rs. 10,361 along with copy of receipt of advance of Rs. 25 lakh and copy agreement to sale of land. After filing return of income, the assessee was provided reasons recorded for issuing notice under Section 148 of the Act. The objections filed by the assessee against the reasons recorded were also addressed by the Assessing Officer. The assessment under Section 147 read with section 143(3) of the IT Act was completed on 31st March, 2014, after making addition of Rs. 20 lakh. The Learned Commissioner of Income Tax (Appeal) [CIT(A)] vide impugned order upheld the addition to the extent of Rs. 18.59 lakhs. Aggrieved, the assessee is in appeal before the Tribunal. The Hon'ble Punjab & Haryana High Court in the case of VMT Spinning Co. Ltd. Vs. CIT & Anr., has held that, for raising the ground, the assessee can seek leave of the Tribunal orally also.

It is evident from the reasons recorded that at the stage of issue notice under Section 148 of the IT Act, the Assessing Officer was suspicious on the source of the cash deposits and, therefore, he wanted to investigate further to find out the actual source of the cash deposits. At the stage of issue of notice, the Assessing Officer was not sure whether income had escaped to tax or not. No notice under Section 148 of the IT Act can be issued merely on such suspicion. There has to be a reasonable material before the Assessing Officer on the basis of which a reasonable person can make requisite belief.

In the instant case, there is lack of reasonable material to form a reasonable belief that income has escaped tax. Under the circumstances, the action of the Assessing Officer of reopening assessment in exercise of the power under Section 148 of the IT Act cannot be sustained. Accordingly, the re-assessment proceeding initiated in the case of the assessee is quashed. The appeal of the assessee is allowed.

Relevant : VMT Spinning Co. Ltd. Vs. CIT & Anr., MANU/PH/2404/2016


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