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Milind Madhukar Edake vs. Income-Tax Officer - (Income Tax Appellate Tribunal) (18 Jan 2023)

Reasons for the formation of the belief must have rational connection with or relevant bearing on the formation of the belief


Direct Taxation

The assessee is a resident individual engaged in Multi-Level-Marketing on agency basis, had filed return of income ["ITR"] for AY 2011-12 declaring total income of ₹3,76,966 under presumptive taxation under Section 44AD of the Income Tax Act, 1961. On the basis of annual information return ["AIR"] observing the cash deposits into saving bank account of the assessee, the learned AO invoked the reassessment jurisdiction by issue of notice under Section 148 and eventually framed the assessment by bringing to tax the entire cash deposits of ₹47,63,510 as unexplained investment under Section 69 coupled with net commission income after allowing 50% deduction under Section 44AD of the Act. When matter travelled before first appellate authority ["FAA"] in an appeal, the Learned CIT(A) reiterating the findings confirmed the action of Ld. AO.

The 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 Act. While recording the reasons to believe merely relying upon financial information cannot be treated as good enough to reopen the case. There can be multiple capital sources of cash deposits available to the assessee and unless and until it is brought out in the reasons to believe as to how the cash deposits represent income or investment from undisclosed sources same cannot give justification to reopen the case under Section 148 of the Act. The requirement of application of mind is missing in the present case on the face of reasons recorded, thus the cardinal principle of taxation that all receipts are not income and all income are not taxable income applies squarely to present facts.

It is a well settled law that, the reasons for the formation of the belief must have rational connection with or relevant bearing on the formation of the belief. Whereas in the absence of nexus between the prima facie inference arrived in the reasons recorded and information vis-a-vis material much less tangible, credible, cogent and relevant to form a reason to believe could not be made a basis to assume jurisdiction, hence cannot be relied upon; thus the proceedings initiated are purely based on surmises, conjectures and suspicion and therefore, the same are without jurisdiction; that the reasons recorded are highly vague, far-fetched and cannot by any stretch of imagination lead to conclusion of escapement of income which deserve to be quashed. Appeal allowed.


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