Reasons To Believe Of Income Escaping Assessment Must Have Nexus With Information Before AO Which Led To Formation Of Such Belief: Ahmedabad ITAT

The Ahmedabad ITAT held that at the stage of reopening, conclusive proof of income escaping assessment is not required rather a prima-facie formation of a belief that income of assessee has escaped assessment of the AO is required based on tangible material.

The said reasons to believe that income have escaped assessment should have a live link or nexus with the information before the AO which led to the formation of belief that income has escaped assessment, added the Tribunal.

Single Bench of Ramit Kochar (Accountant Member) observed that “Existence of reasons to belief by way of tangible material and its live link/nexus with formation of belief by the AO that income of the assessee has escaped assessment is relevant, and not the sufficiency of material because at the stage of reopening prima-facie belief of the AO based on material on record that income has escaped assessment”.

Facts of the case

The assessee, an individual, had deposited cash in his bank account. During assessment, the AO observed that assessee has entered into share transactions and earned income from commodities through Multi Commodity Exchange. Since the assessee did not file his return, the AO after verification of the source of cash deposits made by the assessee in his bank and share transactions as well transactions made in commodities, reopened the assessment. The assessee however, failed to file return in pursuance to notice u/s 148 and also failed to comply with statutory notices u/s 142(1) during the reassessment proceedings. Accordingly, the AO proceeded to frame ex-parte assessment u/s 144 by making additions to the tune of Rs.29,93,000/- to the income of assessee towards undisclosed cash deposits.

Observation of the Tribunal

The Bench noted that the assessee had neither complied with the notices issued by CIT(A) as well as the AO, nor had filed the return.

Also, no cogent reasons were submitted by the assessee for its non-compliances before the AO as well the CIT(A), added the Bench.

Since there were cash deposits in the bank account of the assessee to the tune of Rs. 24,83,000, the Bench clarified that the onus lies on assessee to explain the sources of cash deposits.

Further, since the assessee had neither filed his return u/s 139 nor u/s 148 even though he has undertaken share transactions to the tune of Rs. 4,29,916/- as well commodities transactions to the tune of Rs. 302,75,77,050/- through MCX, the Bench pointed that the AO has rightly invoked provisions of Section 147/148 of the Act.

The Bench observed that the AO was having sufficient and tangible incriminating information that the income of assessee has escaped assessment.

Therefore, concluding that the AO has rightly invoked provisions of Section 147/148, the ITAT upheld the reopening exercise and remitted the matter for considering additional evidences on sufficiency of cash deposits.

Counsel for Appellant/ Assessee: CA Preyashi Tated

Counsel for Respondent/ Revenue: Hrishikesh Hemant Patki

Case Title: Pareshkumar Punamchand Shah versus ITO

Case Number: ITA No. 1096/Ahd/2023

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