Reassessment Validated Due to Assessee’s Late Explanation for Cash Deposits During Demonetization: High Court Ruling
INCOME TAX: The High Court upheld the validity of a reopening notice issued to the assessee concerning unexplained cash deposits made by three medical representatives in the assessee’s bank account during the demonetization period. The Court noted these individuals were not employed by the assessee at the time of the deposits or had only recently joined, and the explanations subsequently provided by the assessee appeared to be after-thoughts.
Osstem Implant India (P.) Ltd. v. Deputy Commissioner of Income-tax
M.S. Sonak and Jitendra Shantilal Jain, JJ.
WRIT PETITION NO.2730 OF 2022
MARCH 17, 2025
The case revolves around Section 68, in conjunction with sections 147 and 148, of the Income-tax Act, 1961, and pertains to the assessment year 2017-18. The Assessing Officer initiated a reopening notice based on unexplained cash deposits attributed to three medical representatives, with no clear identification or employment status at the indicated times. The Court highlighted that while the assessee was asked to provide explanations, the details submitted were vague, and the belated clarifications seemed to lack credibility. The fact that demonetization had led to a surge in cash deposits also factored into the decision, affirming the legitimacy of the reopening notice.
FACTS
- The assessee’s income was previously assessed under Section 142(3).
- A reopening notice was issued citing cash deposits by three medical representatives who were not clearly linked to the assessee’s employment status at the time of deposits.
- The assessee contested the reopening, asserting that the prior assessment had been finalized after thorough queries and clarifications.
HELD
- The reopening of the assessment was deemed valid, occurring within four years from the end of the relevant assessment year. The quality of information provided by the assessee was insufficient, particularly concerning the cash deposits made by the medical representatives.
- For instance, one representative, referred to as “A,” allegedly made cash deposits amounting to Rs. 9.60 lakhs between November 9, 2016, and December 30, 2016, despite being officially appointed only on February 10, 2017. The assessee later claimed this was an error, asserting the correct appointment date was February 10, 2016.
- The court expressed skepticism about these late defenses, concluding that prima facie, income seemed to have escaped assessment. The reassessment proceedings would allow the assessee to explain discrepancies further.
- The Court affirmed that while the explanations provided were insufficient and after the fact, it could not interfere in the jurisdictional validity of the reopening assessment. The reassessing authority would have the discretion to evaluate the adequacy of the new explanations.
- It was noted that this case did not align with the precedents mentioned by the assessee, which were based on different legal principles regarding changes in opinion.
ORDER
M. S. Sonak J.: After hearing arguments from both parties:
- This petition pertains to the assessment year 2017-18.
- The petitioner challenges the reopening notice issued on March 30, 2021, under Section 148 of the Income Tax Act, which was within the four-year limit.
- Noteworthy cash deposits by Mr. Ajay Pratap Singh, Mr. Rahul Mahajan, and Mr. Kumar Jayendra totaling Rs. 9,16,000, Rs. 1,15,000, and Rs. 11,00,000 respectively were highlighted.
- The petitioner’s counsel insisted that the earlier assessment was thorough and should not be reopened, referencing multiple legal decisions.
- The Court found the details provided by the petitioner were insufficient to dismiss the reopening notice.
- The discrepancies cannot be ignored, especially considering the urgency to deposit cash during demonetization.
CONCLUSION
The petition is dismissed, maintaining that all parties retain their contentions, and the comments in this ruling should not influence the reassessing authorities.