Reassessment Beyond Reopening Grounds: Karnataka High Court Precedent Upholds Cash Deposit Addition Despite Car Purchase Inquiry
Background and Context
A significant ruling from the Bengaluru Bench of the Income Tax Appellate Tribunal has addressed a question that frequently arises in reassessment proceedings: can an Assessing Officer make an addition on a ground entirely different from the one that triggered reopening, particularly when no addition is ultimately made on the original reopening issue? The ITAT's decision in Sunil Kumar Vs ITO (ITAT Bangalore), ITA No. 1428/Bang/2026, pronounced on 21 September 2026 for Assessment Year 2020-21, provides a clear and jurisdictionally authoritative answer for Karnataka-based matters.
Facts of the Case
The assessee was an individual engaged in the business of hire purchase financing. He filed his original return of income on 10 January 2021, declaring total taxable income of ₹10,60,060. Under the presumptive taxation scheme, he reported gross turnover of ₹30,38,590 and offered income of ₹11,15,095 under Section 44AD of the Income Tax Act, 1961.
The Trigger for Reopening
The Assessing Officer received information through the e-Verification Scheme, 2021 framed under Section 135A of the Act. This information indicated that during Assessment Year 2020-21, the assessee had:
- Purchased a motor vehicle worth ₹15,88,000 from Jubilant Autoworks Pvt. Ltd., reported under
Section 206CL - Earned interest income of ₹6,28,340, reported under
Section 194A - Together, these aggregated to ₹22,16,340
Preliminary inquiries were conducted by the Assessing Officer through notices issued under Section 133(6) on 29 November 2022, 21 December 2022, and 23 January 2023. In response dated 24 March 2023, the assessee explained that the interest income had been offered under "Profits and gains of business or profession" as part of his hire purchase financing activity. While the Assessing Officer prima facie accepted this explanation in respect of the interest income — given that TDS had been claimed against it — no supporting documentation was provided for the vehicle purchase. The assessee merely stated that TCS had been claimed in the return, without producing a purchase invoice, ledger account, bank statement, or any corroborating evidence.
Concluding that the source of investment in the vehicle remained unexplained and that income to that extent had escaped assessment, the Assessing Officer issued notice under Section 148 on 29 March 2024, relying upon clause (d) of the first proviso to Section 148A read with clause (i) of Explanation 1 to Section 148.
The Reassessment Proceedings
In response to the Section 148 notice, the assessee filed a return on 30 April 2024 reiterating the earlier declared income. Subsequently, on 30 July 2024, he submitted the car purchase invoice and an ICICI Bank car loan statement. The Assessing Officer issued a notice under Section 133(6) to Jubilant Autoworks Pvt. Ltd. to verify the transaction independently.
On examining the documents, the Assessing Officer accepted the assessee's explanation regarding the vehicle purchase. No addition was made on the original reopening ground.
However, during the course of the reassessment proceedings, the Assessing Officer examined the assessee's Form 26AS data and observed that cash deposits of ₹32,87,500 had been made in savings bank account No. 6857 with ICICI Bank. Notices were issued calling upon the assessee to explain the source of these deposits, but no response or supporting evidence was furnished.
Consequently, the Assessing Officer made an addition of ₹32,87,500 under Section 69A of the Act, treating the cash deposits as unexplained money. The reassessment order under Section 147 read with Section 144B was passed on 6 January 2025, computing total income at ₹43,47,560.