Pune ITAT annuls Rs.61.63 lakh reassessment triggered only by generic INSIGHT portal input

Background and case outline

The Pune Bench of the ITAT in Gulamahemad Hamidulla Khan Vs ITO (ITAT Pune Bench) examined the validity of a reassessment initiated under Section 147 based solely on generic information generated through the Department’s INSIGHT Portal. The dispute related to Assessment Year 2016-17, where the assessee, a small scrap trader, had originally filed his return declaring business income of Rs.3,90,190.

Later, the Assessing Officer (AO) reopened the assessment on the footing that the assessee had allegedly deposited Rs.61,63,170 in cash with M/s. Shri Renuka Mata Multi State Urban Co-operative Credit Society Ltd., and subsequently withdrawn the same from another branch. This information was stated to stem from a search u/s 132 on the said society on 26.05.2017, where it was allegedly detected that the society was being used to route unaccounted funds.

The reassessment was completed under Section 147 read with Section 144B, and the AO brought to tax the entire cash deposit of Rs.61,63,170 as unexplained income. The assessee carried the matter in appeal, challenging both the reopening as well as the addition on merits. The ITAT eventually set aside the reassessment itself and, in any event, held that the addition could not stand on merits.

Factual matrix: INSIGHT portal trigger and reassessment

Original return and subsequent reopening

  • The assessee, Gulamahemad Hamidulla Khan, an individual engaged in small-scale scrap business, filed his return of income for AY 2016-17 on 12.08.2017 declaring income of Rs.3,90,190 under the head “income from business”.
  • Thereafter, the AO issued notice under Section 148 for AY 2016-17, purportedly in accordance with the framework of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) and the CBDT Notifications No.20 dated 31.03.2021 and No.38 dated 27.04.2021 extending limitation for issuance of Section 148 notices.
  • The reason stated for reopening was that, based on data available on the INSIGHT Portal and information transmitted by the office of the ACIT, Central Circle 4(4), Mumbai, the assessee had deposited cash of Rs.61,63,170 with M/s. Shri Renuka Mata Multi State Urban Co-operative Credit Society Ltd. during AY 2016-17, in a context where the society had allegedly facilitated laundering of unaccounted money.

Nature of information relied upon by the AO

The notice under Section 148A(b) and the order under Section 148A(d) clearly recorded that:

  • A search and seizure action u/s 132 was carried out in the case of M/s. Shri Renuka Mata Multi State Urban Co-operative Credit Society Ltd. on 26.05.2017.
  • During that search, it was reportedly noticed that the society was used as a channel for laundering unaccounted income of various persons.
  • The INSIGHT Portal flagged that the assessee was “one of them” who had deposited cash aggregating to Rs.61,63,170 in the said society and had later withdrawn the amount from another branch.
  • The AO noted that the returned income of Rs.3,90,190 did not justify such deposits, and therefore, in his view, the source of the cash deposits remained unexplained.

However, neither the reasons recorded nor any of the documents furnished by the Department revealed:

  • Any account number in the name of the assessee with the said society.
  • Any branch name where deposits or withdrawals allegedly took place.
  • Any dates of deposits or withdrawals.
  • Any copy of a passbook, bank statement or ledger evidencing the alleged transactions.

The entire foundation of the reopening rested on a bare assertion from the INSIGHT Portal stating that a cash deposit of Rs.61,63,170 was made by the assessee and later withdrawn.

Assessee’s stand before the authorities

Categorical denial of account and deposits

During assessment as well as appellate proceedings, the assessee consistently asserted that:

  • He had never opened or operated any account with M/s. Shri Renuka Mata Multi State Urban Co-operative Credit Society Ltd.
  • He had not deposited the alleged sum of Rs.61,63,170 with the society at any point.
  • He was a small scrap dealer, visiting neighbourhoods and residential areas for collection of scrap, and his scale of operations did not involve any such large-scale cash transactions.