Where AO did try to make the preliminary enquiry from the assessee and having failed in his efforts to solicit assessee's response reopens assessment, there is no fault if AO forms a prima facie belief that cash deposited represents the income which has escaped assessment.

Held Reasons have been duly recorded by the AO on 03.03.2016 and thereafter, the proposal for seeking sanction was moved by the AO through JCIT and the approval was finally granted by the Pr CIT on 17.03.2016 and therefore, it is not a case where the approval for reopening the assessment has been accorded by the ld Pr CIT even prior to recording of reasons by the AO. (para 8) AO did try to make such primary enquiry and has tried to reach out to the assessee and has issued a letter dated 27.01.2016 seeking details of filing of return of income and the income so disclosed therein. However, for reasons best known to the assessee, the latter had chosen to ignore and not even responded to such enquiry and letter issued by the AO. In such a scenario, the assessee cannot now come and plead that the AO must make atleast some primary enquiry before coming to believe that income has escaped assessment. At the time of issuance of notice, what is required is that the AO should be in possession of tangible information and material which in the present case is cash deposit in the bank account and it is not the case of the assessee that the bank account doesn't belong to it or the fact that he is not aware of the cash so deposited in the said bank account. Where the assessee is not disputing the bank account and cash transactions so reflected in such bank account, there is thus no dispute that such information qualify as tangible piece of information duly substantiated. In terms of establishing nexus between such tangible information and formation of belief that the same represent the income which has escaped assessment, the AO did try to make the preliminary enquiry from the assessee and having failed in his efforts to solicit assessee's response and the fact that the assessee is not a regular tax filer and has thus no past tax history, there is no fault where the AO forms a prima facie belief that cash so deposited represents the income which has escaped assessment. There may be a situation where after issuance of notice u/s 148 (of Income Tax Act, 1961), the assessee decide to respond and explain the source of such cash deposit and the explanation so offered by the assessee may or may not find favour with the AO fully or there could be a scenario where only part of the cash deposit is finally assessed to tax, the same cannot preclude the AO in exercising his jurisdiction u/s 147 (of Income Tax Act, 1961) as all that is required at the time of recording of the reasons is that the formation of a prima facie view that the income has escaped assessment. Issuance of notice u/s 148 (of Income Tax Act, 1961) and the consequent assessment order u/s 147 (of Income Tax Act, 1961) is upheld and the ground of appeal is thus dismissed.

This is an appeal filed by the assessee against the order of ld. CIT(A), Ajmer dated 09.01.2019 wherein the assessee has taken the following grounds of appeal:-

“1. Under the facts & circumstances of the case, the notice issued u/s 148 (of Income Tax Act, 1961) and the consequent order passed u/s 147 (of Income Tax Act, 1961) is illegal & bad in law.

2. The ld. CIT(A) has erred on facts and in law in confirming the addition of Rs.20,04,900/- by treating the cash deposit in the bank account as unexplained.

2.1 The Ld. CIT(A) has further erred on facts and in law in confirming the addition by:-

(i) not accepting the contention of assessee that part of the deposit in the bank account is out of the cash amount received on sale of 3 flats for Rs.25 lacs.

(ii) not allowing the credit of withdrawal made in cash from the same bank account which is a source of deposit in the bank account.

(iii) making various incorrect observations while confirming the addition.”

2. Regarding Ground No. 1, the ld AR submitted that the assessee is engaged in the business of retail trading of gift items in the name & style M/s Jeetu Gift Centre. The AO issued notice u/s 148 (of Income Tax Act, 1961) dated 22.03.2016 for the following reasons:-

“As per information available on record, it is gathered that the assessee deposited in case of Rs.20,94,000/- during FY 2008-09. On verification of record it is found that as per AST no return of income was filed for the AY 2009-10. In absence of the return of income, cash deposit could not be verified. Thus the assessee has failed to disclose fully and truly all material facts necessary for his assessment.

Therefore, I have reason to believe that the income liable to tax has escaped assessment of Rs.20,94,900/- within the meaning and purview of section 147 (of Income Tax Act, 1961) and it is a fit case to issue notice u/s 148 (of Income Tax Act, 1961).”

3. It was submitted that in response to notice u/s 148 (of Income Tax Act, 1961), assessee filed his return of income on 29.08.2016 declaring profit of Rs.4,347/- u/s 44AF (of Income Tax Act, 1961) and profit of Rs.2 lacs u/s 44AD (of Income Tax Act, 1961). Before the Ld. CIT(A) assessee challenged the validity of notice issued u/s 148 (of Income Tax Act, 1961) stating that at the time of approval from Pr. CIT, no reasons has been recorded by the AO. The Pr. CIT has given the approval without seeing the reasons recorded by AO. Further the Pr. CIT has given common approval in 33 cases and in the list there is no mark against the name of assessee. The Ld. CIT(A), however, upheld the reopening by holding that the assessment was reopened after obtaining approval of the competent authority u/s 151 (of Income Tax Act, 1961). The AO had specific information that there was cash deposit of Rs.20,94,900/- in the bank account maintained by the appellant for which no satisfactory explanation was available looking to the fact that no return of income was filed by the assessee. Therefore, AO had sufficient material in his possession to form the belief that income chargeable to tax had escaped assessment.

4. Further, our reference was drawn to the provisions of section 151(1) (of Income Tax Act, 1961) which read as under:-

“No notice shall be issued under section 148 (of Income Tax Act, 1961) by an Assessing Officer, after the expiry of a period of four years from the end of the relevant assessment year, unless the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner is satisfied, on the reasons recorded by the Assessing Officer, that it is a fit case for the issue of such notice.”

5. It was submitted that in the present case, the AO recorded the reasons on the order sheet on 18.03.2016 and thereafter issued notice u/s 148 (of Income Tax Act, 1961) on 22.03.2016. However, before recording of the reasons, the Ld. PCIT has accorded the approval u/s 151 (of Income Tax Act, 1961) for issue of notice u/s 148 (of Income Tax Act, 1961) in 33 cases for AY 2009-10 on 17.03.2016 as is evident from the communication made from the office of PCIT to the JCIT. Thus, the PCIT has given the approval prior to the reasons recorded by the AO for reopening the assessment. Thus, when no reasons were recorded by AO before the approval, question of satisfaction by PCIT does not arise. Further, the PCIT has given common approval in 33 cases and in the list there is no mark against the name of assessee. Thus, the notice issued u/s 148 (of Income Tax Act, 1961) is illegal and bad in law and the same be quashed.

6. It was further submitted that the AO solely on the basis of information that there is cash deposit in the bank account of the assessee has presumed that income has escaped assessment as return of income is not filed by the assessee. Only on presumption, notice u/s 148 (of Income Tax Act, 1961) cannot be issued as the primary condition for reopening is that AO should have reasons to believe that income has escaped assessment. For arriving at reason to believe, the AO must make at least some primary enquiry at his end to come to believe that income has escaped assessment. No such enquiry is made by the AO before issuance of notice u/s 148 (of Income Tax Act, 1961). Hence, the reopening is bad in law. In this connection reliance was placed on the following decisions:-

• Vinod Commodities Ltd. Vs. ACIT (2019) 182 DTR 49 (Jodh)

• Sh. Mahavir Parsad Vs. ITO (ITA No.924/Del/2015 dt. 09.10.2017)

7. Per contra, the ld DR submitted that the contention of the ld AR that the approval for reopening the assessment has been accorded by the ld Pr CIT even prior to recording of reasons by the AO is factually incorrect and is not borne out of the records. It was submitted that there cannot be a situation where the approval is accorded by a higher authority even prior to the AO recording the reasons and initiating the proposal for seeking such approval. In the instant case, the reasons were recorded by the AO on 03.03.2016 as apparent from the “Form for recording the reasons for initiating the proceedings under section 148 (of Income Tax Act, 1961) and for obtaining the approval from the Pr. CIT-II, Jaipur”, thereafter, the proposal for seeking approval along with relevant records were to the ld Pr CIT- II Jaipur through Joint Commissioner of Income Tax, Range – 4 Jaipur on 08.03.2016. The Joint Commissioner of Income Tax, Range – 4 Jaipur accorded her approval on 11.03.2016 and the matter was thereafter sent on 17.03.2016 for approval of ld Pr CIT- II Jaipur who accorded his approval on 17.03.2016 and on receipt of such approval, entry in the order sheet was made by the AO on 18.03.2016 and notice u/s 148 (of Income Tax Act, 1961) was issued by the assessee on 22.03.2016. It was accordingly submitted that entry in the order sheet dated 18.03.2016 cannot be read and understood as the date of recording of the reasons as the reasons were recorded earlier on 03.03.2016 as borne out of the records and thereafter, on receiving the approval, the notice was issued to the assessee. It was accordingly submitted that the contention of the ld AR that the approval for reopening the assessment has been accorded by the ld Pr CIT even prior to recording of reasons by the AO is factually incorrect and is not borne out of the records and thus, needs to be rejected. It was further submitted that the AO prior to recording of the reasons have tried to carry out preliminary enquiry and a letter dated 27.01.2016 was issued to the assessee to furnish the return of income along with computation of income, however, there were no compliance on part of the assessee. In such a scenario, where the AO is in possession of tangible information that there are cash deposits in the bank account of the assessee and the latter is not willing to come forward to explain the source of such deposit, the AO is clearly having a reason to believe that the income of the assessee has escaped assessment. It was accordingly submitted that there was no presumption on part of the AO while issuing the notice, rather he has the tangible information and the basis to form a prima facie belief that the income has escaped assessment and thus, there is no infirmity in issuance of notice u/s 148 (of Income Tax Act, 1961) and the consequent assessment order passed u/s 147 (of Income Tax Act, 1961) and the ground of appeal so taken by the assessee should therefore be dismissed.

8. We have heard the rival contentions and purused the material available on record. Firstly, on perusal of records and the sequence of events right from recording of the reasons by the AO on 03.03.2016 to according of approval by the JCIT on 11.03.2016 to according of approval by Pr CIT on 17.03.2016 to entry in the order sheet on 18.03.2016 to the final issuance of notice u/s 148 (of Income Tax Act, 1961) on 22.03.2016, we find that the reasons have been duly recorded by the AO on 03.03.2016 and thereafter, the proposal for seeking sanction was moved by the AO through JCIT and the approval was finally granted by the Pr CIT on 17.03.2016 and therefore, it is not a case where the approval for reopening the assessment has been accorded by the ld Pr CIT even prior to recording of reasons by the AO and accordingly, the contention so advanced by the ld AR in this regard cannot be accepted as the same is not borne out of records.

9. Now, coming to other contention advanced by the ld AR that only on presumption, notice u/s 148 (of Income Tax Act, 1961) should not be issued and the AO should have carried out certain primary enquiry at his end to come to believe that income has escaped assessment, we find that the AO did try to make such primary enquiry and has tried to reach out to the assessee and has issued a letter dated 27.01.2016 seeking details of filing of return of income and the income so disclosed therein. However, for reasons best known to the assessee, the latter had chosen to ignore and not even responded to such enquiry and letter issued by the AO. In such a scenario, the assessee cannot now come and plead that the AO must make atleast some primary enquiry before coming to believe that income has escaped assessment. In the present case, the AO had the tangible material in form of information that the assessee had deposited cash amounting to Rs 20,94,900/- in his bank account during the financial year 2008-09 and basis such information in his possession, the AO tried to make preliminary enquiry directly from the assessee and the latter having failed to respond to such enquiries and in absence of past tax history of the assessee, we find that the AO has rightly exercised his jurisdiction u/s 147 (of Income Tax Act, 1961) and issued notice u/s 148 (of Income Tax Act, 1961). At the time of issuance of notice, what is required is that the AO should be in possession of tangible information and material which in the present case is cash deposit in the bank account and it is not the case of the assessee that the bank account doesn’t belong to it or the fact that he is not aware of the cash so deposited in the said bank account. Where the assessee is not disputing the bank account and cash transactions so reflected in such bank account, there is thus no dispute that such information qualify as tangible piece of information duly substantiated. In terms of establishing nexus between such tangible information and formation of belief that the same represent the income which has escaped assessment, the AO did try to make the preliminary enquiry from the assessee and having failed in his efforts to solicit assessee’s response and the fact that the assessee is not a regular tax filer and has thus no past tax history, we donot see any fault where the AO forms a prima facie belief that cash so deposited represents the income which has escaped assessment. There may be a situation where after issuance of notice u/s 148 (of Income Tax Act, 1961), the assessee decide to respond and explain the source of such cash deposit and the explanation so offered by the assessee may or may not find favour with the AO fully or there could be a scenario where only part of the cash deposit is finally assessed to tax, the same cannot preclude the AO in exercising his jurisdiction u/s 147 (of Income Tax Act, 1961) as all that is required at the time of recording of the reasons is that the formation of a prima facie view that the income has escaped assessment. We have also gone through the decisions cited at the Bar and find that there are distinguishable on facts and hence, doesn’t support the case of the assessee. We accordingly upheld the issuance of notice u/s 148 (of Income Tax Act, 1961) and the consequent assessment order u/s 147 (of Income Tax Act, 1961) and the ground of appeal is thus dismissed.

10. Now, coming to Ground Nos. 2 & 2.1 of the assessee’s appeal where the assessee has challenged the sustenance of addition of Rs 20.04 lacs.

11. In this regard, the ld AR submitted that the AO during the course of assessment proceedings observed that there is a deposit of Rs.20,94,900/- in Standard Chartered Bank account of assessee in the year under consideration. The assessee vide letter dt. 29.08.2016 & 05.09.2016 explained that he was appointed as Power of Attorney (POA) holder by Sh. Girdharil Lal to look after his property situated at Jodla Power House, Sikar Road, Jaipur. On such property the assessee constructed 3 flats 16A, 16B & 16. The entire sale consideration on sale of these flats amounting to Rs.25 lacs was received by him and profit on sales of such flat was declared in the return of income. The cash deposit in the bank account was out of sale proceeds of these flats.

12. It was submitted that the AO, however, held that assessee has admitted that expenses on construction of flats were incurred out of sale consideration received from sale of one flat. This means that major portion of sale consideration was utilized by the assessee in construction of flats and there was no availability of cash with him to deposit in bank account as claimed by him. Further assessee has also invested Rs.20 lacs in the name of his wife Smt. Sarita Sharma for purchase of property from Sh. Nawal Kishore Pareek and the source of such investment has not been explained. This means source of investment was also out of sale consideration of above flats. Thus, against receipt of Rs.25 lacs, assessee has invested Rs.25 lacs in another property, deposited cash in bank account at Rs.20,94,900/- and has also spent money on construction of flats. All these facts disprove the contention of assessee that source of deposit was sale amount of flats. Thus, cash deposit of Rs.20,94,900/- in the saving bank account is treated as unexplained and deposited out of undisclosed income.

13. It was further submitted that on appeal, the Ld. CIT(A) held that assessee has declared profit of Rs.2 lacs on sale of above flats for Rs.25 lacs. Since the assessee himself has declared profit on sale of these flats as his income, therefore, there cannot be any dispute about the fact that the property mentioned in the power of attorney on 12.02.2008 was purchased by him. In other words, the assessee has to explain the source of investment of Rs.23 lacs (Rs.25 lacs- Rs.2 lacs) in purchase of plot along with construction and the construction work done after purchase of plot. Further the assessee has invested Rs.20 lacs for purchase of property in the name of his wife. Therefore, the contention of assessee that consideration of sale proceeds of Rs.25 lacs was used for making cash deposit without explaining the source of investment of Rs.23 lacs in purchase & construction of flats and investment in property in the name of wife of Rs.20 lacs cannot be accepted. All the three flats were sold within the period of 6 months, therefore, it cannot be accepted that the sale proceeds of one flat was utilized for construction of another flat. Thus, the source of cash of Rs.20,94,900/- deposited by the assessee in his bank account remains unexplained. Against the said findings, the assessee is in appeal before the Tribunal.

14. It was further submitted that the entire cash deposit in the bank account is out of the earlier withdrawals as is evident from the following date wise statement of cash withdrawal and cash deposit. (Amount in Rs.)

Date Cash Withdrawal Cash Deposit Cash Balance Available

04.04.2008 4,00,000/- - 4,00,000/-

11.04.2008 2,00,000/- - 6,00,000/-

09.06.2008 - 4,500/- 5,95,500/-

10.06.2008 2,000/- - 5,97,500/-

11.06.2008 - 5,000/- 5,92,500/-

12.06.2008 - 5,000/- 5,87,500/-

13.06.2008 - 20,000/- 5,67,500/-

14.06.2008 32,250/- - 5,99,750/-

16.06.2008 - 20,000/- 5,79,750/-

17.06.2008 - 10,000/- 5,69,750/-

19.06.2008 - 10,000/- 5,59,750/-

20.06.2008 20,000/- - 5,79,750/-

23.06.2008 - 3,000/- 5,76,750/-

24.06.2008 2,500/- 7,000/- 5,72,250/-

25.06.2008 2,000/- 5,000/- 5,69,250/-

26.06.2008 4,450/- - 5,73,700/-

27.06.2008 10,000/- - 5,83,700/-

28.06.2008 5,000/- 7,000/- 5,81,700/-

02.07.2008 7,81,500/- - 13,63,200/-

04.07.2008 50,000/- 10,000/- 14,03,200/-

05.07.2008 - 10,000/- 13,93,200/-

07.07.2008 - 3,000/- 13,90,200/-

08.07.2008 10,000/- - 14,00,200/-

10.07.2008 4,000/- - 14,04,200/-

15.07.2008 2,000/- 30,000/- 13,76,200/-

17.07.2008 5,000/- - 13,81,200/-

18.07.2008 - 10,000/- 13,71,200/-

19.07.2008 5,000/- - 13,76,200/-

22.07.2008 5,000/- 10,000/- 13,71,200/-

23.07.2008 10,000/- - 13,81,200/-

24.07.2008 - 4,100/- 13,77,100/-

25.07.2008 - 28,000/- 13,49,100/-

26.07.2008 - 10,000/- 13,39,100/-

28.07.2008 10,000/- 5,000/- 13,44,100/-

29.07.2008 70,000/- 10,000/- 14,04,100/-

30.07.2008 - 37,000/- 13,67,100/-

31.07.2008 - 20,000/- 13,47,100/-

01.08.2008 - 6,000/- 13,41,100/-

05.08.2008 4,000/- 10,000/- 13,35,100/-

06.08.2008 - 12,000/- 13,23,100/-

07.08.2008 6,200/- 3,000/- 13,26,300/-

08.08.2008 55,000/- - 13,81,300/-

11.08.2008 - 10,000/- 13,71,300/-

12.08.2008 15,000/- 8,500/- 13,77,800/-

13.08.2008 - 17,000/- 13,60,800/-

14.08.2008 5,000/- 10,000/- 13,55,800/-

19.08.2008 40,000/- - 13,95,800/-

20.08.2008 - 20,000/- 13,75,800/-

30.08.2008 - 6,000/- 13,69,800/-

02.09.2008 3,000/- 10,000/- 13,62,800/-

03.09.2008 5,250/- - 13,68,050/-

06.09.2008 - 20,000/- 13,48,050/-

08.09.2008 - 13,000/- 13,35,050/-

09.09.2008 4,000/- - 13,39,050/-

11.09.2008 - 10,000/- 13,29,050/-

12.09.2008 3,750/- 33,000/- 12,99,800/-

15.09.2008 - 14,000/- 12,85,800/-

16.09.2008 10,844/- - 12,96,644/-

19.09.2008 - 45,000/- 12,51,644/-

22.09.2008 1,23,350/- - 13,74,994/-

27.09.2008 1,000/- - 13,75,994/-

08.10.2008 5,000/- - 13,80,994/-

10.10.2008 12,700/- - 13,93,694/-

11.10.2008 3,950/- - 13,97,644/-

13.10.2008 17,000/- - 14,14,644/-

25.10.2008 - 20,000/- 13,94,644/-

27.10.2008 12,500/- - 14,07,144/-

31.10.2008 - 40,000/- 13,67,144/-

01.11.2008 - 10,000/- 13,57,144/-

03.11.2008 - 10,000/- 13,47,144/-

04.11.2008 - 10,000/- 13,37,144/-

05.11.2008 3,000/- 25,000/- 13,15,144/-

14.11.2008 - 20,000/- 12,95,144/-

19.11.2008 5,000/- - 13,00,144/-

26.11.2008 - 35,000/- 12,65,144/-

28.11.2008 - 9,800/- 12,55,344/-

10.12.2008 5,000/- - 12,60,344/-

12.12.2008 4,300/- - 12,64,644/-

16.12.2008 3,500/- - 12,68,144/-

18.12.2008 5,600/- - 12,73,744/-

24.12.2008 4,100/- - 12,77,844/-

30.12.2008 - 20,000/- 12,57,844/-

05.01.2009 9,985/- 1,00,000/- 11,67,829/-

06.01.2009 - 10,000/- 11,57,829/-

10.02.2009 15,000/- - 11,72,829/-

11.02.2009 - 8,90,000/- 2,82,829/-

13.02.2009 1,000/- - 2,83,829/-

16.02.2009 10,000/- - 2,93,829/-

04.03.2009 5,200/- - 2,99,029/-

07.03.2009 - 50,000/- 2,49,029/-

13.03.2009 - 1,85,000/- 64,029/-

17.03.2009 - 49,000/- 15,029/-

20.03.2009 - 80,000/- (64,971/-)

26.03.2009 10,000/- - 10,000/-

Total 20,39,929/- 20,94,900/-

From the above table it can be noted that source of entire cash deposit is out of the cash withdrawal except that on 20.03.2009 there is a deposit of Rs.64,971/- without corresponding withdrawal from the bank account. This deposit is also covered by income of Rs.1,88,750/- declared in the return of income. Hence, the deposit in bank account is covered by the withdrawal made from the bank account.

15. It was further submitted that the assessee has purchased a Plot No.16, Sikar Road, Jaipur having constructed area of 1,000 sq. ft. as per registered POA dt. 12.02.2008. On the said plot he made further construction and sold the 3 flats constructed on it for which amount is received as under:-

Flat No. Date of receipt Cash received Cheque received Total amount PB

16A 02.04.2008 25,000/- 6,00,000/- 6,25,000/- 22-27

16B 28.06.2008 3,30,000/- 8,00,000/- 11,30,000/- 29-36

16 01.10.2008 1,15,000/- 6,30,000/- 7,45,000/- 37-45

The amount deposited in the bank account is immediately withdrawn and thus, the assessee has sufficient cash balance to utilise part amount in construction and realise back the same as is evident from the bank statement. Further the payment made for purchase of plot in the name of wife for Rs.25 lacs on 23.10.2008 is by cheque which cleared from the bank account of assessee between 04.10.2008 to 12.02.2009 out of cash deposit from earlier withdrawals and cheque received by the assessee. Thus, the source of deposit in the bank account is fully explained. Hence, the addition made by AO and confirmed by Ld. CIT(A) by treating the entire cash deposit in the bank account by ignoring the withdrawals from the said bank account is unjustified and uncalled for.

16. Per contra, the ld DR submitted that the statement furnished by the ld A/R regarding cash deposits and cash withdrawals was not available during the course of assessment and appellate proceedings and in any case, the same is not a complete reconciliation statement wherein the complete picture can be seen in terms of overall cash and cheque deposits and withdrawals in respect of assessee’s business transaction and transaction of purchase and sale of property and in absence of the same, the contention advanced by the ld AR that cash deposits is out of earlier withdrawals cannot be accepted. It was further submitted that the explanation of the assessee before the lower authorities that the source of cash deposits is out of sale proceeds from sale of flats has also been rightly rejected. The ld DR accordingly supported the findings of the lower authorities.

17. We have heard the rival contentions and perused the material available on record. The limited issue under consideration relates to source of cash deposits of Rs 20,94,900/- made in the assessee’s bank account during the financial year 2008-09 relevant to assessment year 2009-10. During the course of assessment proceedings, the assessee was asked to explain the source of such cash deposits. In its first response dated 29.08.2016, the assessee has submitted “that cash deposits of Rs 20,94,900/- with standard chartered Bank out of all consideration of sales of above properties as well as pertains to business in the name of M/s Jeetu Gift Centre.” Both the AO as well as ld CIT(A) have rejected the explanation of the assessee that the source of such deposits is out of sale proceeds of the properties so sold by the assessee. We have gone through the findings of the lower authorities and contention advanced by the assessee and don’t find any infirmity in the findings so recorded by both the lower authorities. However, the explanation of the assessee that source of such cash deposits is also arising out of his business transactions has not been disputed by the Revenue. Therefore, in absence of any thing contrary brought on record by the Revenue, where the assessee’s source of income is from sale of property and also from the retail business in name of M/s Jeetu Gift Centre and the fact that the sale consideration of the property so sold and profit so declared by the assessee has not been disputed by the Revenue, it would be reasonable to hold that source of cash deposits is from the asssessee’s business run in name and style of M/s Jeetu Gift Centre. In fact, the AO has also recorded a finding that the assessee has reported a low turnover in retail gift business which is not disputed by the assessee. Therefore, giving credit of turnover of Rs 86,935/- as offered by the assessee u/s 44AF (of Income Tax Act, 1961), remaining cash deposit of Rs. 20,07,965/- is treated as turnover of the assessee from his retail gift business and which should accordingly suffer taxation @ 5% of turnover u/s 44AF (of Income Tax Act, 1961). Further, the contention advanced by the ld AR that cash deposits is out of earlier withdrawals cannot be accepted in absence of complete reconciliation statement pertaining to business and property transactions undertaken by the assessee during the year. In the result, the ground of appeal is partly allowed.

In the result, appeal of the assessee is partly allowed in light of aforesaid directions.

Order pronounced in the open Court on 16/09/2020.

LEGAL REFERENCES

Section 9 Section 12 Section 2 Section 4 Section 25 Section 151 Section 11 Section 147 Section 148 Section 20 Section 23 Section 151(1) Section 44AD Section 44AF Section 16A

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Questions

There is no question

Where AO did try to make the preliminary enquiry from the assessee and having failed in his efforts to solicit assessee's response reopens assessment, there is no fault if AO forms a prima facie belief that cash deposited represents the income which has escaped assessment.

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Held

Reasons have been duly recorded by the AO on 03.03.2016 and thereafter, the proposal for seeking sanction was moved by the AO through JCIT and the approval was finally granted by the Pr CIT on 17.03.2016 and therefore, it is not a case where the approval for reopening the assessment has been accorded by the ld Pr CIT even prior to recording of reasons by the AO. (para 8) AO did try to make such primary enquiry and has tried to reach out to the assessee and has issued a letter dated 27.01.2016 seeking details of filing of return of income and the income so disclosed therein. However, for reasons best known to the assessee, the latter had chosen to ignore and not even responded to such enquiry and letter issued by the AO. In such a scenario, the assessee cannot now come and plead that the AO must make atleast some primary enquiry before coming to believe that income has escaped assessment. At the time of issuance of notice, what is required is that the AO should be in possession of tangible information and material which in the present case is cash deposit in the bank account and it is not the case of the assessee that the bank account doesn't belong to it or the fact that he is not aware of the cash so deposited in the said bank account. Where the assessee is not disputing the bank account and cash transactions so reflected in such bank account, there is thus
no dispute that such information qualify as tangible piece of information duly substantiated. In terms of establishing nexus between such tangible information and formation of belief that the same represent the income which has escaped assessment, the AO did try to make the preliminary enquiry from the assessee and having failed in his efforts to solicit assessee's response and the fact that the assessee is not a regular tax filer and has thus no past tax history, there is no fault where the AO forms a prima facie belief that cash so deposited represents the income which has escaped assessment. There may be
a situation where after issuance of notice u/s 148 (of Income Tax Act, 1961), the assessee decide to respond and explain the source of such cash deposit and the explanation so offered by the assessee may or may not find favour
with the AO fully or there could be a scenario where only part of the cash deposit is finally assessed to tax, the same cannot preclude the AO in exercising his jurisdiction u/s 147 (of Income Tax Act, 1961) as all that is required at the time of recording of the reasons is that the formation of a prima facie view that the income has escaped assessment. Issuance of notice u/s 148 (of Income Tax Act, 1961) and the consequent assessment order u/s 147 (of Income Tax Act, 1961) is upheld and the
ground of appeal is thus dismissed.

This is an appeal filed by the assessee against the order of ld.
CIT(A), Ajmer dated 09.01.2019 wherein the assessee has taken the
following grounds of appeal:-
 “1. Under the facts &amp; circumstances of the case, the notice issued
u/s 148 (of Income Tax Act, 1961) and the consequent order passed u/s 147 (of Income Tax Act, 1961) is illegal &amp; bad in
law.
 2. The ld. CIT(A) has erred on facts and in law in confirming the
addition of Rs.20,04,900/- by treating the cash deposit in the bank
account as unexplained.

2.1 The Ld. CIT(A) has further erred on facts and in law in
confirming the addition by:-
 (i) not accepting the contention of assessee that part of the deposit
in the bank account is out of the cash amount received on sale of 3
flats for Rs.25 lacs.
 (ii) not allowing the credit of withdrawal made in cash from the
same bank account which is a source of deposit in the bank account.
 (iii) making various incorrect observations while confirming the
addition.”

2. Regarding Ground No. 1, the ld AR submitted that the assessee is
engaged in the business of retail trading of gift items in the name &amp;
style M/s Jeetu Gift Centre. The AO issued notice u/s 148 (of Income Tax Act, 1961) dated
22.03.2016 for the following reasons:-
 “As per information available on record, it is gathered that the assessee
deposited in case of Rs.20,94,000/- during FY 2008-09.
On verification of record it is found that as per AST no return of income
was filed for the AY 2009-10. In absence of the return of income, cash
deposit could not be verified. Thus the assessee has failed to disclose
fully and truly all material facts necessary for his assessment.
 Therefore, I have reason to believe that the income liable to tax has
escaped assessment of Rs.20,94,900/- within the meaning and purview
of section 147 (of Income Tax Act, 1961) and it is a fit case to issue notice u/s
148 (of Income Tax Act, 1961).”

3. It was submitted that in response to notice u/s 148 (of Income Tax Act, 1961), assessee filed
his return of income on 29.08.2016 declaring profit of Rs.4,347/- u/s

44AF (of Income Tax Act, 1961) and profit of Rs.2 lacs u/s 44AD (of Income Tax Act, 1961). Before the Ld. CIT(A) assessee
challenged the validity of notice issued u/s 148 (of Income Tax Act, 1961) stating that at the time
of approval from Pr. CIT, no reasons has been recorded by the AO. The
Pr. CIT has given the approval without seeing the reasons recorded by
AO. Further the Pr. CIT has given common approval in 33 cases and in
the list there is no mark against the name of assessee. The Ld. CIT(A),
however, upheld the reopening by holding that the assessment was
reopened after obtaining approval of the competent authority u/s 151 (of Income Tax Act, 1961).
The AO had specific information that there was cash deposit of
Rs.20,94,900/- in the bank account maintained by the appellant for
which no satisfactory explanation was available looking to the fact that
no return of income was filed by the assessee. Therefore, AO had
sufficient material in his possession to form the belief that income
chargeable to tax had escaped assessment.

4. Further, our reference was drawn to the provisions of section
151(1) (of Income Tax Act, 1961) which read as under:-
 “No notice shall be issued under section 148 (of Income Tax Act, 1961) by an Assessing
Officer, after the expiry of a period of four years from the end of
the relevant assessment year, unless the Principal Chief
Commissioner or Chief Commissioner or Principal Commissioner
or Commissioner is satisfied, on the reasons recorded by the
Assessing Officer, that it is a fit case for the issue of such notice.”

5. It was submitted that in the present case, the AO recorded the
reasons on the order sheet on 18.03.2016 and thereafter issued notice
u/s 148 (of Income Tax Act, 1961) on 22.03.2016. However, before recording of the reasons, the
Ld. PCIT has accorded the approval u/s 151 (of Income Tax Act, 1961) for issue of notice u/s 148 (of Income Tax Act, 1961)
in 33 cases for AY 2009-10 on 17.03.2016 as is evident from the
communication made from the office of PCIT to the JCIT. Thus, the
PCIT has given the approval prior to the reasons recorded by the AO for
reopening the assessment. Thus, when no reasons were recorded by
AO before the approval, question of satisfaction by PCIT does not arise.
Further, the PCIT has given common approval in 33 cases and in the list
there is no mark against the name of assessee. Thus, the notice issued
u/s 148 (of Income Tax Act, 1961) is illegal and bad in law and the same be quashed.

6. It was further submitted that the AO solely on the basis of
information that there is cash deposit in the bank account of the
assessee has presumed that income has escaped assessment as return
of income is not filed by the assessee. Only on presumption, notice u/s
148 (of Income Tax Act, 1961) cannot be issued as the primary condition for reopening is that AO
should have reasons to believe that income has escaped assessment.
For arriving at reason to believe, the AO must make at least some
primary enquiry at his end to come to believe that income has escaped
assessment. No such enquiry is made by the AO before issuance of
notice u/s 148 (of Income Tax Act, 1961). Hence, the reopening is bad in law. In this connection
reliance was placed on the following decisions:-
 • Vinod Commodities Ltd. Vs. ACIT (2019) 182 DTR 49 (Jodh)
 • Sh. Mahavir Parsad Vs. ITO (ITA No.924/Del/2015 dt.
09.10.2017)

7. Per contra, the ld DR submitted that the contention of the ld AR that
the approval for reopening the assessment has been accorded by the ld
Pr CIT even prior to recording of reasons by the AO is factually incorrect
and is not borne out of the records. It was submitted that there cannot
be a situation where the approval is accorded by a higher authority
even prior to the AO recording the reasons and initiating the proposal
for seeking such approval. In the instant case, the reasons were
recorded by the AO on 03.03.2016 as apparent from the “Form for
recording the reasons for initiating the proceedings under section 148 (of Income Tax Act, 1961)
and for obtaining the approval from the Pr. CIT-II, Jaipur”, thereafter,
the proposal for seeking approval along with relevant records were to
the ld Pr CIT- II Jaipur through Joint Commissioner of Income Tax,
Range – 4 Jaipur on 08.03.2016. The Joint Commissioner of Income
Tax, Range – 4 Jaipur accorded her approval on 11.03.2016 and the
matter was thereafter sent on 17.03.2016 for approval of ld Pr CIT- II
Jaipur who accorded his approval on 17.03.2016 and on receipt of such
approval, entry in the order sheet was made by the AO on 18.03.2016
and notice u/s 148 (of Income Tax Act, 1961) was issued by the assessee on 22.03.2016. It was
accordingly submitted that entry in the order sheet dated 18.03.2016
cannot be read and understood as the date of recording of the reasons
as the reasons were recorded earlier on 03.03.2016 as borne out of the
records and thereafter, on receiving the approval, the notice was issued
to the assessee. It was accordingly submitted that the contention of
the ld AR that the approval for reopening the assessment has been
accorded by the ld Pr CIT even prior to recording of reasons by the AO
is factually incorrect and is not borne out of the records and thus, needs
to be rejected. It was further submitted that the AO prior to recording
of the reasons have tried to carry out preliminary enquiry and a letter
dated 27.01.2016 was issued to the assessee to furnish the return of
income along with computation of income, however, there were no
compliance on part of the assessee. In such a scenario, where the AO
is in possession of tangible information that there are cash deposits in
the bank account of the assessee and the latter is not willing to come
forward to explain the source of such deposit, the AO is clearly having a
reason to believe that the income of the assessee has escaped
assessment. It was accordingly submitted that there was no
presumption on part of the AO while issuing the notice, rather he has
the tangible information and the basis to form a prima facie belief that
the income has escaped assessment and thus, there is no infirmity in
issuance of notice u/s 148 (of Income Tax Act, 1961) and the consequent assessment order
passed u/s 147 (of Income Tax Act, 1961) and the ground of appeal so taken by the
assessee should therefore be dismissed.
 8. We have heard the rival contentions and purused the material
available on record. Firstly, on perusal of records and the sequence of
events right from recording of the reasons by the AO on 03.03.2016 to
according of approval by the JCIT on 11.03.2016 to according of
approval by Pr CIT on 17.03.2016 to entry in the order sheet on
18.03.2016 to the final issuance of notice u/s 148 (of Income Tax Act, 1961) on 22.03.2016, we
find that the reasons have been duly recorded by the AO on 03.03.2016
and thereafter, the proposal for seeking sanction was moved by the AO
through JCIT and the approval was finally granted by the Pr CIT on
17.03.2016 and therefore, it is not a case where the approval for
reopening the assessment has been accorded by the ld Pr CIT even
prior to recording of reasons by the AO and accordingly, the contention
so advanced by the ld AR in this regard cannot be accepted as the
same is not borne out of records.
 9. Now, coming to other contention advanced by the ld AR that only
on presumption, notice u/s 148 (of Income Tax Act, 1961) should not be issued and the AO should
have carried out certain primary enquiry at his end to come to believe
that income has escaped assessment, we find that the AO did try to
make such primary enquiry and has tried to reach out to the assessee
and has issued a letter dated 27.01.2016 seeking details of filing of
return of income and the income so disclosed therein. However, for
reasons best known to the assessee, the latter had chosen to ignore
and not even responded to such enquiry and letter issued by the AO.
In such a scenario, the assessee cannot now come and plead that the
AO must make atleast some primary enquiry before coming to believe
that income has escaped assessment. In the present case, the AO had
the tangible material in form of information that the assessee had
deposited cash amounting to Rs 20,94,900/- in his bank account during
the financial year 2008-09 and basis such information in his possession,
the AO tried to make preliminary enquiry directly from the assessee and
the latter having failed to respond to such enquiries and in absence of
past tax history of the assessee, we find that the AO has rightly
exercised his jurisdiction u/s 147 (of Income Tax Act, 1961) and issued notice u/s 148 (of Income Tax Act, 1961).
At the time of issuance of notice, what is required is that the AO should
be in possession of tangible information and material which in the
present case is cash deposit in the bank account and it is not the case
of the assessee that the bank account doesn’t belong to it or the fact
that he is not aware of the cash so deposited in the said bank account.
Where the assessee is not disputing the bank account and cash
transactions so reflected in such bank account, there is thus no dispute
that such information qualify as tangible piece of information duly
substantiated. In terms of establishing nexus between such tangible
information and formation of belief that the same represent the income
which has escaped assessment, the AO did try to make the preliminary
enquiry from the assessee and having failed in his efforts to solicit
assessee’s response and the fact that the assessee is not a regular tax
filer and has thus no past tax history, we donot see any fault where the
AO forms a prima facie belief that cash so deposited represents the
income which has escaped assessment. There may be a situation
where after issuance of notice u/s 148 (of Income Tax Act, 1961), the assessee decide to respond
and explain the source of such cash deposit and the explanation so
offered by the assessee may or may not find favour with the AO fully or
there could be a scenario where only part of the cash deposit is finally
assessed to tax, the same cannot preclude the AO in exercising his
jurisdiction u/s 147 (of Income Tax Act, 1961) as all that is required at the time of recording of the
reasons is that the formation of a prima facie view that the income has
escaped assessment. We have also gone through the decisions cited at
the Bar and find that there are distinguishable on facts and hence,
doesn’t support the case of the assessee. We accordingly upheld the
issuance of notice u/s 148 (of Income Tax Act, 1961) and the consequent assessment order u/s
147 (of Income Tax Act, 1961) and the ground of appeal is thus dismissed. 
10. Now, coming to Ground Nos. 2 &amp; 2.1 of the assessee’s appeal
where the assessee has challenged the sustenance of addition of
Rs 20.04 lacs.
 11. In this regard, the ld AR submitted that the AO during the course
of assessment proceedings observed that there is a deposit of
Rs.20,94,900/- in Standard Chartered Bank account of assessee in the
year under consideration. The assessee vide letter dt. 29.08.2016 &amp;
05.09.2016 explained that he was appointed as Power of Attorney
(POA) holder by Sh. Girdharil Lal to look after his property situated at
Jodla Power House, Sikar Road, Jaipur. On such property the assessee
constructed 3 flats 16A, 16B &amp; 16. The entire sale consideration on sale
of these flats amounting to Rs.25 lacs was received by him and profit
on sales of such flat was declared in the return of income. The cash
deposit in the bank account was out of sale proceeds of these flats.
 12. It was submitted that the AO, however, held that assessee has
admitted that expenses on construction of flats were incurred out of
sale consideration received from sale of one flat. This means that major
portion of sale consideration was utilized by the assessee in
construction of flats and there was no availability of cash with him to
deposit in bank account as claimed by him. Further assessee has also
invested Rs.20 lacs in the name of his wife Smt. Sarita Sharma for
purchase of property from Sh. Nawal Kishore Pareek and the source of
such investment has not been explained. This means source of
investment was also out of sale consideration of above flats. Thus,
against receipt of Rs.25 lacs, assessee has invested Rs.25 lacs in
another property, deposited cash in bank account at Rs.20,94,900/- and
has also spent money on construction of flats. All these facts disprove
the contention of assessee that source of deposit was sale amount of
flats. Thus, cash deposit of Rs.20,94,900/- in the saving bank account is
treated as unexplained and deposited out of undisclosed income.

13. It was further submitted that on appeal, the Ld. CIT(A) held that
assessee has declared profit of Rs.2 lacs on sale of above flats for Rs.25
lacs. Since the assessee himself has declared profit on sale of these
flats as his income, therefore, there cannot be any dispute about the
fact that the property mentioned in the power of attorney on
12.02.2008 was purchased by him. In other words, the assessee has to
explain the source of investment of Rs.23 lacs (Rs.25 lacs- Rs.2 lacs) in
purchase of plot along with construction and the construction work
done after purchase of plot. Further the assessee has invested Rs.20
lacs for purchase of property in the name of his wife. Therefore, the
contention of assessee that consideration of sale proceeds of Rs.25 lacs
was used for making cash deposit without explaining the source of
investment of Rs.23 lacs in purchase &amp; construction of flats and
investment in property in the name of wife of Rs.20 lacs cannot be
accepted. All the three flats were sold within the period of 6 months,
therefore, it cannot be accepted that the sale proceeds of one flat was
utilized for construction of another flat. Thus, the source of cash of
Rs.20,94,900/- deposited by the assessee in his bank account remains
unexplained. Against the said findings, the assessee is in appeal before
the Tribunal.

14. It was further submitted that the entire cash deposit in the bank
account is out of the earlier withdrawals as is evident from the following
date wise statement of cash withdrawal and cash deposit.
(Amount in Rs.)
 Date Cash Withdrawal Cash Deposit Cash Balance Available
 04.04.2008 4,00,000/- - 4,00,000/-
 11.04.2008 2,00,000/- - 6,00,000/-
 09.06.2008 - 4,500/- 5,95,500/-
 10.06.2008 2,000/- - 5,97,500/-
 11.06.2008 - 5,000/- 5,92,500/-
 12.06.2008 - 5,000/- 5,87,500/-
 13.06.2008 - 20,000/- 5,67,500/-

14.06.2008 32,250/- - 5,99,750/-
 16.06.2008 - 20,000/- 5,79,750/-
 17.06.2008 - 10,000/- 5,69,750/-
 19.06.2008 - 10,000/- 5,59,750/-
 20.06.2008 20,000/- - 5,79,750/-
 23.06.2008 - 3,000/- 5,76,750/-
 24.06.2008 2,500/- 7,000/- 5,72,250/-
 25.06.2008 2,000/- 5,000/- 5,69,250/-
 26.06.2008 4,450/- - 5,73,700/-
 27.06.2008 10,000/- - 5,83,700/-
 28.06.2008 5,000/- 7,000/- 5,81,700/-
 02.07.2008 7,81,500/- - 13,63,200/-
 04.07.2008 50,000/- 10,000/- 14,03,200/-
 05.07.2008 - 10,000/- 13,93,200/-
 07.07.2008 - 3,000/- 13,90,200/-
 08.07.2008 10,000/- - 14,00,200/-
 10.07.2008 4,000/- - 14,04,200/-
 15.07.2008 2,000/- 30,000/- 13,76,200/-
 17.07.2008 5,000/- - 13,81,200/-
 18.07.2008 - 10,000/- 13,71,200/-
 19.07.2008 5,000/- - 13,76,200/-
 22.07.2008 5,000/- 10,000/- 13,71,200/-
 23.07.2008 10,000/- - 13,81,200/-
 24.07.2008 - 4,100/- 13,77,100/-
 25.07.2008 - 28,000/- 13,49,100/-
 26.07.2008 - 10,000/- 13,39,100/-
 28.07.2008 10,000/- 5,000/- 13,44,100/-
 
 29.07.2008 70,000/- 10,000/- 14,04,100/-
 30.07.2008 - 37,000/- 13,67,100/-
 31.07.2008 - 20,000/- 13,47,100/-
 01.08.2008 - 6,000/- 13,41,100/-
 05.08.2008 4,000/- 10,000/- 13,35,100/-
 06.08.2008 - 12,000/- 13,23,100/-
 07.08.2008 6,200/- 3,000/- 13,26,300/-
 08.08.2008 55,000/- - 13,81,300/-
 11.08.2008 - 10,000/- 13,71,300/-
 12.08.2008 15,000/- 8,500/- 13,77,800/-
 13.08.2008 - 17,000/- 13,60,800/-
 14.08.2008 5,000/- 10,000/- 13,55,800/-
 19.08.2008 40,000/- - 13,95,800/-
 20.08.2008 - 20,000/- 13,75,800/-
 30.08.2008 - 6,000/- 13,69,800/-
 02.09.2008 3,000/- 10,000/- 13,62,800/-
 03.09.2008 5,250/- - 13,68,050/-
 06.09.2008 - 20,000/- 13,48,050/-
 08.09.2008 - 13,000/- 13,35,050/-
 09.09.2008 4,000/- - 13,39,050/-
 11.09.2008 - 10,000/- 13,29,050/-
 12.09.2008 3,750/- 33,000/- 12,99,800/-
 15.09.2008 - 14,000/- 12,85,800/-
 16.09.2008 10,844/- - 12,96,644/-
 19.09.2008 - 45,000/- 12,51,644/-
 22.09.2008 1,23,350/- - 13,74,994/-
 27.09.2008 1,000/- - 13,75,994/-

08.10.2008 5,000/- - 13,80,994/-
 10.10.2008 12,700/- - 13,93,694/-
 11.10.2008 3,950/- - 13,97,644/-
 13.10.2008 17,000/- - 14,14,644/-
 25.10.2008 - 20,000/- 13,94,644/-
 27.10.2008 12,500/- - 14,07,144/-
 31.10.2008 - 40,000/- 13,67,144/-
 01.11.2008 - 10,000/- 13,57,144/-
 03.11.2008 - 10,000/- 13,47,144/-
 04.11.2008 - 10,000/- 13,37,144/-
 05.11.2008 3,000/- 25,000/- 13,15,144/-
 14.11.2008 - 20,000/- 12,95,144/-
 19.11.2008 5,000/- - 13,00,144/-
 26.11.2008 - 35,000/- 12,65,144/-
 28.11.2008 - 9,800/- 12,55,344/-
 10.12.2008 5,000/- - 12,60,344/-
 12.12.2008 4,300/- - 12,64,644/-
 16.12.2008 3,500/- - 12,68,144/-
 18.12.2008 5,600/- - 12,73,744/-
 24.12.2008 4,100/- - 12,77,844/-
 30.12.2008 - 20,000/- 12,57,844/-
 05.01.2009 9,985/- 1,00,000/- 11,67,829/-
 06.01.2009 - 10,000/- 11,57,829/-
 10.02.2009 15,000/- - 11,72,829/-
 11.02.2009 - 8,90,000/- 2,82,829/-
 13.02.2009 1,000/- - 2,83,829/-
 16.02.2009 10,000/- - 2,93,829/-

 04.03.2009 5,200/- - 2,99,029/-
 07.03.2009 - 50,000/- 2,49,029/-
 13.03.2009 - 1,85,000/- 64,029/-
 17.03.2009 - 49,000/- 15,029/-
 20.03.2009 - 80,000/- (64,971/-)
 26.03.2009 10,000/- - 10,000/-
 Total 20,39,929/- 20,94,900/-

From the above table it can be noted that source of entire cash deposit
is out of the cash withdrawal except that on 20.03.2009 there is a
deposit of Rs.64,971/- without corresponding withdrawal from the bank
account. This deposit is also covered by income of Rs.1,88,750/-
declared in the return of income. Hence, the deposit in bank account is
covered by the withdrawal made from the bank account.

15. It was further submitted that the assessee has purchased a Plot
No.16, Sikar Road, Jaipur having constructed area of 1,000 sq. ft. as
per registered POA dt. 12.02.2008. On the said plot he made further
construction and sold the 3 flats constructed on it for which amount is
received as under:-

Flat No. Date of receipt Cash received Cheque received Total amount PB

16A 02.04.2008 25,000/- 6,00,000/- 6,25,000/- 22-27
 16B 28.06.2008 3,30,000/- 8,00,000/- 11,30,000/- 29-36
 16 01.10.2008 1,15,000/- 6,30,000/- 7,45,000/- 37-45

The amount deposited in the bank account is immediately withdrawn
and thus, the assessee has sufficient cash balance to utilise part
amount in construction and realise back the same as is evident from the
bank statement. Further the payment made for purchase of plot in the
name of wife for Rs.25 lacs on 23.10.2008 is by cheque which cleared
from the bank account of assessee between 04.10.2008 to 12.02.2009
out of cash deposit from earlier withdrawals and cheque received by the
assessee. Thus, the source of deposit in the bank account is fully
explained. Hence, the addition made by AO and confirmed by Ld.
CIT(A) by treating the entire cash deposit in the bank account by
ignoring the withdrawals from the said bank account is unjustified and
uncalled for.

16. Per contra, the ld DR submitted that the statement furnished by
the ld A/R regarding cash deposits and cash withdrawals was not
available during the course of assessment and appellate proceedings
and in any case, the same is not a complete reconciliation statement
wherein the complete picture can be seen in terms of overall cash and
cheque deposits and withdrawals in respect of assessee’s business
transaction and transaction of purchase and sale of property and in
absence of the same, the contention advanced by the ld AR that cash
deposits is out of earlier withdrawals cannot be accepted. It was
further submitted that the explanation of the assessee before the lower
authorities that the source of cash deposits is out of sale proceeds from
sale of flats has also been rightly rejected. The ld DR accordingly
supported the findings of the lower authorities.

17. We have heard the rival contentions and perused the material
available on record. The limited issue under consideration relates to
source of cash deposits of Rs 20,94,900/- made in the assessee’s bank
account during the financial year 2008-09 relevant to assessment year
2009-10. During the course of assessment proceedings, the assessee
was asked to explain the source of such cash deposits. In its first
response dated 29.08.2016, the assessee has submitted “that cash
deposits of Rs 20,94,900/- with standard chartered Bank out of all
consideration of sales of above properties as well as pertains to
business in the name of M/s Jeetu Gift Centre.” Both the AO as well as
ld CIT(A) have rejected the explanation of the assessee that the source
of such deposits is out of sale proceeds of the properties so sold by the
assessee. We have gone through the findings of the lower authorities
and contention advanced by the assessee and don’t find any infirmity in
the findings so recorded by both the lower authorities. However, the
explanation of the assessee that source of such cash deposits is also
arising out of his business transactions has not been disputed by the
Revenue. Therefore, in absence of any thing contrary brought on record
by the Revenue, where the assessee’s source of income is from sale of
property and also from the retail business in name of M/s Jeetu Gift
Centre and the fact that the sale consideration of the property so sold
and profit so declared by the assessee has not been disputed by the
Revenue, it would be reasonable to hold that source of cash deposits is
from the asssessee’s business run in name and style of M/s Jeetu Gift
Centre. In fact, the AO has also recorded a finding that the assessee
has reported a low turnover in retail gift business which is not disputed
by the assessee. Therefore, giving credit of turnover of Rs 86,935/- as
offered by the assessee u/s 44AF (of Income Tax Act, 1961), remaining cash deposit of
Rs. 20,07,965/- is treated as turnover of the assessee from his retail gift
business and which should accordingly suffer taxation @ 5% of
turnover u/s 44AF (of Income Tax Act, 1961). Further, the contention advanced by the
ld AR that cash deposits is out of earlier withdrawals cannot be
accepted in absence of complete reconciliation statement pertaining to
business and property transactions undertaken by the assessee during
the year. In the result, the ground of appeal is partly allowed.

In the result, appeal of the assessee is partly allowed in light of
aforesaid directions.

Order pronounced in the open Court on 16/09/2020.

This is an appeal filed by the assessee against the order of ld.
CIT(A), Ajmer dated 09.01.2019 wherein the assessee has taken the
following grounds of appeal:-
 “1. Under the facts & circumstances of the case, the notice issued
u/s 148 (of Income Tax Act, 1961) and the consequent order passed u/s 147 (of Income Tax Act, 1961) is illegal & bad in
law.
 2. The ld. CIT(A) has erred on facts and in law in confirming the
addition of Rs.20,04,900/- by treating the cash deposit in the bank
account as unexplained.

2. Regarding Ground No. 1, the ld AR submitted that the assessee is
engaged in the business of retail trading of gift items in the name &
style M/s Jeetu Gift Centre. The AO issued notice u/s 148 (of Income Tax Act, 1961) dated
22.03.2016 for the following reasons:-
 “As per information available on record, it is gathered that the assessee
deposited in case of Rs.20,94,000/- during FY 2008-09.
On verification of record it is found that as per AST no return of income
was filed for the AY 2009-10. In absence of the return of income, cash
deposit could not be verified. Thus the assessee has failed to disclose
fully and truly all material facts necessary for his assessment.
 Therefore, I have reason to believe that the income liable to tax has
escaped assessment of Rs.20,94,900/- within the meaning and purview
of section 147 (of Income Tax Act, 1961) and it is a fit case to issue notice u/s
148 (of Income Tax Act, 1961).”

3. It was submitted that in response to notice u/s 148 (of Income Tax Act, 1961), assessee filed
his return of income on 29.08.2016 declaring profit of Rs.4,347/- u/s

7. Per contra, the ld DR submitted that the contention of the ld AR that
the approval for reopening the assessment has been accorded by the ld
Pr CIT even prior to recording of reasons by the AO is factually incorrect
and is not borne out of the records. It was submitted that there cannot
be a situation where the approval is accorded by a higher authority
even prior to the AO recording the reasons and initiating the proposal
for seeking such approval. In the instant case, the reasons were
recorded by the AO on 03.03.2016 as apparent from the “Form for
recording the reasons for initiating the proceedings under section 148 (of Income Tax Act, 1961)
and for obtaining the approval from the Pr. CIT-II, Jaipur”, thereafter,
the proposal for seeking approval along with relevant records were to
the ld Pr CIT- II Jaipur through Joint Commissioner of Income Tax,
Range – 4 Jaipur on 08.03.2016. The Joint Commissioner of Income
Tax, Range – 4 Jaipur accorded her approval on 11.03.2016 and the
matter was thereafter sent on 17.03.2016 for approval of ld Pr CIT- II
Jaipur who accorded his approval on 17.03.2016 and on receipt of such
approval, entry in the order sheet was made by the AO on 18.03.2016
and notice u/s 148 (of Income Tax Act, 1961) was issued by the assessee on 22.03.2016. It was
accordingly submitted that entry in the order sheet dated 18.03.2016
cannot be read and understood as the date of recording of the reasons
as the reasons were recorded earlier on 03.03.2016 as borne out of the
records and thereafter, on receiving the approval, the notice was issued
to the assessee. It was accordingly submitted that the contention of
the ld AR that the approval for reopening the assessment has been
accorded by the ld Pr CIT even prior to recording of reasons by the AO
is factually incorrect and is not borne out of the records and thus, needs
to be rejected. It was further submitted that the AO prior to recording
of the reasons have tried to carry out preliminary enquiry and a letter
dated 27.01.2016 was issued to the assessee to furnish the return of
income along with computation of income, however, there were no
compliance on part of the assessee. In such a scenario, where the AO
is in possession of tangible information that there are cash deposits in
the bank account of the assessee and the latter is not willing to come
forward to explain the source of such deposit, the AO is clearly having a
reason to believe that the income of the assessee has escaped
assessment. It was accordingly submitted that there was no
presumption on part of the AO while issuing the notice, rather he has
the tangible information and the basis to form a prima facie belief that
the income has escaped assessment and thus, there is no infirmity in
issuance of notice u/s 148 (of Income Tax Act, 1961) and the consequent assessment order
passed u/s 147 (of Income Tax Act, 1961) and the ground of appeal so taken by the
assessee should therefore be dismissed.
 8. We have heard the rival contentions and purused the material
available on record. Firstly, on perusal of records and the sequence of
events right from recording of the reasons by the AO on 03.03.2016 to
according of approval by the JCIT on 11.03.2016 to according of
approval by Pr CIT on 17.03.2016 to entry in the order sheet on
18.03.2016 to the final issuance of notice u/s 148 (of Income Tax Act, 1961) on 22.03.2016, we
find that the reasons have been duly recorded by the AO on 03.03.2016
and thereafter, the proposal for seeking sanction was moved by the AO
through JCIT and the approval was finally granted by the Pr CIT on
17.03.2016 and therefore, it is not a case where the approval for
reopening the assessment has been accorded by the ld Pr CIT even
prior to recording of reasons by the AO and accordingly, the contention
so advanced by the ld AR in this regard cannot be accepted as the
same is not borne out of records.
 9. Now, coming to other contention advanced by the ld AR that only
on presumption, notice u/s 148 (of Income Tax Act, 1961) should not be issued and the AO should
have carried out certain primary enquiry at his end to come to believe
that income has escaped assessment, we find that the AO did try to
make such primary enquiry and has tried to reach out to the assessee
and has issued a letter dated 27.01.2016 seeking details of filing of
return of income and the income so disclosed therein. However, for
reasons best known to the assessee, the latter had chosen to ignore
and not even responded to such enquiry and letter issued by the AO.
In such a scenario, the assessee cannot now come and plead that the
AO must make atleast some primary enquiry before coming to believe
that income has escaped assessment. In the present case, the AO had
the tangible material in form of information that the assessee had
deposited cash amounting to Rs 20,94,900/- in his bank account during
the financial year 2008-09 and basis such information in his possession,
the AO tried to make preliminary enquiry directly from the assessee and
the latter having failed to respond to such enquiries and in absence of
past tax history of the assessee, we find that the AO has rightly
exercised his jurisdiction u/s 147 (of Income Tax Act, 1961) and issued notice u/s 148 (of Income Tax Act, 1961).
At the time of issuance of notice, what is required is that the AO should
be in possession of tangible information and material which in the
present case is cash deposit in the bank account and it is not the case
of the assessee that the bank account doesn’t belong to it or the fact
that he is not aware of the cash so deposited in the said bank account.
Where the assessee is not disputing the bank account and cash
transactions so reflected in such bank account, there is thus no dispute
that such information qualify as tangible piece of information duly
substantiated. In terms of establishing nexus between such tangible
information and formation of belief that the same represent the income
which has escaped assessment, the AO did try to make the preliminary
enquiry from the assessee and having failed in his efforts to solicit
assessee’s response and the fact that the assessee is not a regular tax
filer and has thus no past tax history, we donot see any fault where the
AO forms a prima facie belief that cash so deposited represents the
income which has escaped assessment. There may be a situation
where after issuance of notice u/s 148 (of Income Tax Act, 1961), the assessee decide to respond
and explain the source of such cash deposit and the explanation so
offered by the assessee may or may not find favour with the AO fully or
there could be a scenario where only part of the cash deposit is finally
assessed to tax, the same cannot preclude the AO in exercising his
jurisdiction u/s 147 (of Income Tax Act, 1961) as all that is required at the time of recording of the
reasons is that the formation of a prima facie view that the income has
escaped assessment. We have also gone through the decisions cited at
the Bar and find that there are distinguishable on facts and hence,
doesn’t support the case of the assessee. We accordingly upheld the
issuance of notice u/s 148 (of Income Tax Act, 1961) and the consequent assessment order u/s
147 (of Income Tax Act, 1961) and the ground of appeal is thus dismissed. 
10. Now, coming to Ground Nos. 2 & 2.1 of the assessee’s appeal
where the assessee has challenged the sustenance of addition of
Rs 20.04 lacs.
 11. In this regard, the ld AR submitted that the AO during the course
of assessment proceedings observed that there is a deposit of
Rs.20,94,900/- in Standard Chartered Bank account of assessee in the
year under consideration. The assessee vide letter dt. 29.08.2016 &
05.09.2016 explained that he was appointed as Power of Attorney
(POA) holder by Sh. Girdharil Lal to look after his property situated at
Jodla Power House, Sikar Road, Jaipur. On such property the assessee
constructed 3 flats 16A, 16B & 16. The entire sale consideration on sale
of these flats amounting to Rs.25 lacs was received by him and profit
on sales of such flat was declared in the return of income. The cash
deposit in the bank account was out of sale proceeds of these flats.
 12. It was submitted that the AO, however, held that assessee has
admitted that expenses on construction of flats were incurred out of
sale consideration received from sale of one flat. This means that major
portion of sale consideration was utilized by the assessee in
construction of flats and there was no availability of cash with him to
deposit in bank account as claimed by him. Further assessee has also
invested Rs.20 lacs in the name of his wife Smt. Sarita Sharma for
purchase of property from Sh. Nawal Kishore Pareek and the source of
such investment has not been explained. This means source of
investment was also out of sale consideration of above flats. Thus,
against receipt of Rs.25 lacs, assessee has invested Rs.25 lacs in
another property, deposited cash in bank account at Rs.20,94,900/- and
has also spent money on construction of flats. All these facts disprove
the contention of assessee that source of deposit was sale amount of
flats. Thus, cash deposit of Rs.20,94,900/- in the saving bank account is
treated as unexplained and deposited out of undisclosed income.

13. It was further submitted that on appeal, the Ld. CIT(A) held that
assessee has declared profit of Rs.2 lacs on sale of above flats for Rs.25
lacs. Since the assessee himself has declared profit on sale of these
flats as his income, therefore, there cannot be any dispute about the
fact that the property mentioned in the power of attorney on
12.02.2008 was purchased by him. In other words, the assessee has to
explain the source of investment of Rs.23 lacs (Rs.25 lacs- Rs.2 lacs) in
purchase of plot along with construction and the construction work
done after purchase of plot. Further the assessee has invested Rs.20
lacs for purchase of property in the name of his wife. Therefore, the
contention of assessee that consideration of sale proceeds of Rs.25 lacs
was used for making cash deposit without explaining the source of
investment of Rs.23 lacs in purchase & construction of flats and
investment in property in the name of wife of Rs.20 lacs cannot be
accepted. All the three flats were sold within the period of 6 months,
therefore, it cannot be accepted that the sale proceeds of one flat was
utilized for construction of another flat. Thus, the source of cash of
Rs.20,94,900/- deposited by the assessee in his bank account remains
unexplained. Against the said findings, the assessee is in appeal before
the Tribunal.

Flat No. Date of receipt Cash received Cheque received Total amount PB

In the result, appeal of the assessee is partly allowed in light of
aforesaid directions.

Order pronounced in the open Court on 16/09/2020.

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Section - 147 (of Income Tax Act, 1961), Income escaping assessment

Section - 148 (of Income Tax Act, 1961), Issue of notice where income has escap…

High Court Allows Rectification of Application and Consideration of Assessee’s …

Where AO did try to make the preliminary enquiry from the assessee and having failed in his efforts to solicit assessee's response reopens assessment, there is no fault if AO forms a prima facie belief that cash deposited represents the income which has escaped assessment.