Monday, July 11, 2016

Cash deposits in bank can't be held as undisclosed income without verifying source of deposits


1) The assessee was found to be maintaining a savings bank account in which it had made cash deposits. He did not file any return of income.
2) To verify the source of the said cash deposit, an inquiry letter was written to the assessee by the AO. However, as there was no response to the inquiry letter, the AO formed the belief that income of the assessee had escaped assessment.
3) The AO completed assessment by making additions on account of undisclosed cash deposit in the bank account of the assessee and also addition on account of undisclosed interest income. The CIT(A) confirmed addition. Aggrieved-assessee filed the instant appeal.
The Tribunal held in favour of assessee as under:

1) Since in the instant case, no proceeding was pending before the ITO when he issued the letter of inquiry, such letter of inquiry is not valid in the eye of law. It does not require any cognizance to be taken of and that being so, no response to the enquiry letter could not be said to constitute material before the AO which could lead him to form any belief of escapement of income.
2) Mere fact that the deposits had been made in the bank account does not indicate that these deposits constitute income which has escaped assessment. Thus, it was a mere suspicion of the AO that prompted him to initiate assessment proceedings, which is neither countenanced, nor sustainable in law.
3) The AO proceeded 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. That being so, the reasons recorded to initiate assessment proceedings under section 147 and all proceedings pursuant thereto, culminating in the impugned order, were cancelled. - [2016] 71 108 (Amritsar - Trib.)

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