Dheeraj Yadav vs ITO – Reopening of Assessment Based on Incorrect Facts for AY 2011-12

Case Summary: Dheeraj Yadav vs ITO – AY 2011-12

This article delves into the case between Dheeraj Yadav and the Income Tax Officer (ITO), Ward-46(5), New Delhi. The case, registered under ITA No. 6701/DEL/2019, pertains to the assessment year 2011-12 and was decided on January 1, 2021 by the Income Tax Appellate Tribunal (ITAT), Delhi.

Background and Reason for Filing the Case

Dheeraj Yadav, a resident of Gurgaon, Haryana, was the subject of reassessment proceedings initiated by the Income Tax Department under Section 147/148 of the Income Tax Act, 1961. The reopening of the assessment was based on the information that Yadav had deposited a cash amount of Rs. 11,07,160 in his ICICI Bank account and had earned a commission of Rs. 2,533 from Karvat Healthcare Services Pvt. Ltd. during the assessment year 2011-12. The income in question had allegedly not been declared by Yadav, and no return of income had been filed for that year.

The Assessing Officer (AO) thus proceeded to frame a reassessment, which resulted in an ex-parte order under Section 147/144 of the Income Tax Act. The AO made an addition of Rs. 11,07,160 under Section 69A of the Income Tax Act, treating the amount as unexplained money. An additional minor amount of Rs. 756 was also added as interest earned, bringing the total income assessed to Rs. 11,07,916. Yadav challenged this order before the Commissioner of Income Tax (Appeals) [CIT(A)], but his appeal was dismissed.

Why the Case Was Filed

The case was filed by Dheeraj Yadav to contest the validity of the reopening of his assessment and the subsequent addition made by the AO. Yadav argued that the reopening was based on incorrect facts, lacked proper verification, and was conducted without applying the necessary due diligence.

Proceedings Before the ITAT

The appeal was heard by a bench comprising Shri Bhavnesh Saini, Judicial Member, and Shri Anil Chaturvedi, Accountant Member, through video conferencing due to the ongoing pandemic restrictions.

Appellant’s Position

Yadav, represented by his counsel, Shri Shantanu Jain, Advocate, argued that the reasons recorded for reopening the assessment were factually incorrect. He pointed out that the cash deposits in his ICICI Bank account totaled Rs. 11,49,750, not Rs. 11,07,160 as cited by the AO. Furthermore, the AO had mentioned a commission payment of Rs. 2,533 in the reasons for reopening, yet no addition was made on this account in the final assessment order. This, Yadav argued, demonstrated a complete lack of application of mind by the AO.

Yadav’s counsel cited previous judgments where reopening of assessments based on such flawed premises had been quashed, including the Delhi Tribunal’s decision in the case of Shri Abrar Ahmad Qasimi vs ITO, where it was held that mere cash deposits in a bank account do not automatically constitute taxable income.

Respondent’s Position

The Revenue, represented by Shri Prakash Dubey, Senior DR, defended the AO’s actions, asserting that the reopening was justified given the information about the cash deposits and commission payments. The Revenue argued that these facts provided sufficient grounds to believe that income had escaped assessment, warranting the reopening of the case.

ITAT’s Analysis and Decision

The ITAT scrutinized the facts of the case, particularly the reasons recorded for the reopening of the assessment. The Tribunal noted that the AO had recorded incorrect facts, specifically understating the amount of cash deposits in the ICICI Bank account and mentioning a commission payment that was never added to the income in the assessment order.

Incorrect Facts and Non-Application of Mind

The ITAT found that the AO had not conducted the necessary verification before reopening the assessment. The incorrect statement of the cash deposit amount and the unsubstantiated mention of the commission payment demonstrated that the AO had not applied his mind independently. This lack of due diligence invalidated the basis for reopening the assessment.

The Tribunal emphasized that the reopening of an assessment under Section 147/148 must be based on concrete and verified information. In this case, the AO’s reliance on incorrect data and failure to properly verify the facts before initiating reassessment proceedings led the ITAT to conclude that the reopening was unjustified.

Relevance of Judicial Precedents

The ITAT referred to several judgments to support its decision, including the Delhi High Court’s rulings in Pr. CIT vs G & G Pharma India Ltd. and Pr. CIT vs RMG Polyvinyl, where reopening of assessments based on vague and unverified information was quashed. The Tribunal also cited the ITAT’s earlier decision in the case of Abrar Ahmad Qasimi, reinforcing that mere cash deposits in a bank account cannot be automatically treated as taxable income without further investigation.

Conclusion and Final Judgment

The ITAT ruled in favor of the appellant, Dheeraj Yadav, and quashed the reopening of the assessment for the assessment year 2011-12. The Tribunal found that the AO had acted on incorrect facts and without proper verification, which rendered the entire reopening process invalid. Consequently, all additions made in the reassessment were deleted.

The final judgment was pronounced on January 1, 2021, with the ITAT allowing the appeal of Dheeraj Yadav and setting aside the orders of the lower authorities.

Implications of the Decision

This case underscores the importance of accurate fact-finding and verification in tax proceedings, particularly when reopening assessments. The ITAT’s decision highlights the judiciary’s role in safeguarding taxpayers’ rights against arbitrary and unfounded reassessment actions by the tax authorities.

For taxpayers, this judgment serves as a reminder that they have recourse to challenge reopening of assessments based on incorrect or unverified information. It also emphasizes the need for tax authorities to exercise due diligence and ensure that all actions are grounded in verified facts.

Takeaways

The ITAT’s decision in the case of Dheeraj Yadav vs ITO reaffirms the necessity for tax authorities to apply their minds independently and base their actions on accurate and verified information. This ruling is a critical precedent for taxpayers facing similar issues, ensuring that their rights are protected in the face of arbitrary tax proceedings.

The case also highlights the importance of judicial oversight in maintaining fairness and legality in the tax assessment and reassessment processes, thereby fostering trust in the tax administration system.

Dheeraj Yadav vs ITO – Reopening of Assessment Based on Incorrect Facts for AY 2011-12