ITAT Ahmedabad annuls reassessment founded solely on ACB report and borrowed satisfaction

Background of the dispute

The Ahmedabad Bench of the ITAT, in the case of Krunalkumar Virambhai Desai Vs ITO, set aside a reassessment completed under Section 147 read with Section 144B for A.Y. 2014-15. The core issue was whether the Assessing Officer (AO) could validly reopen an assessment merely on the basis of information received from the Anti-Corruption Bureau (ACB), without undertaking any independent examination or forming his own reasoned belief about escapement of income in the hands of the assessee.

The ACB had initiated proceedings under the Prevention of Corruption Act against Shri Vikrambhai Lilabhai Desai, a Deputy Mamlatdar at Kalol, and six of his family members, including the assessee. Allegations pertained to disproportionate assets. Based on this communication, the Income Tax Department reopened the completed assessment of the assessee for A.Y. 2014-15 on the premise that he held disproportionate assets or unaccounted transactions.

Ultimately, the Tribunal concluded that the reopening was not backed by a proper, independent belief of income escaping assessment. Instead, the AO had simply replicated the ACB’s allegations in a mechanical manner and proceeded to issue notice under Section 148, rendering the reassessment order void ab initio.

Facts leading to reopening

Original return and assessment

  • The assessee, an individual, filed his return of income for A.Y. 2014-15 on 31.10.2014, declaring a total income of Rs. 9,30,410/-.
  • A scrutiny assessment under Section 143(3) was completed on 26.12.2016, determining the same income of Rs. 9,30,410/-.

ACB information and departmental action

Subsequently, the office of the Pr. CCIT, Gujarat, received a letter dated 19.02.2021 from the State ACB. The letter conveyed that:

  • An offence had been registered vide GNR-ACB-PS-Cr No. 02/2021 on 19.01.2021 under Section-12, 13(1)(b) and 13(2) of Prevention of Corruption Act-2018 against Vikrambhai Lilabhai Desai, Deputy Mamlatdar, E-Dhara Centre, Kalol, and six family members.
  • The assessee Krunal Virambhai Desai was one of the family members named in the ACB proceedings for alleged disproportionate assets.

Based on this communication, the AO noted certain figures described as:

  • Net cash deposit in the bank account of the assessee
  • Cash paid for acquisition of property rights
  • A consolidated figure described as “DA Amount” (disproportionate assets)

In the assessment order, it was recorded that the assessee had:

  • Deposited cash of Rs. 30,97,000/- into his bank account; and
  • Paid cash of Rs. 50,00,000/- towards purchase of rights in land bearing Block/Survey No. 245A and 245B at Subsapur, Gandhinagar, under an agreement to purchase.

The AO treated the aggregate of Rs. 80,97,000/- as unexplained and added it to the income of the assessee, finalising the reassessment under Section 147 read with Section 144B on 27.03.2022 at total income of Rs. 90,27,410/-.

Proceedings before CIT(A) and appeal to ITAT

First appeal before NFAC

The assessee challenged the reassessment before the National Faceless Appeal Centre (NFAC), inter alia on the following grounds:

  • Invalid reopening under Section 147/148 as the AO had not formed an independent belief of escapement of income but had merely relied on ACB information.
  • On merits, the assessee claimed that the cash deposits and property payments were fully explained and did not represent undisclosed income.
  • Objection to interest charged under Section 234A, Section 234B, and Section 234C.

The CIT(A) (NFAC) dismissed the appeal and upheld both the reopening and the additions.

Appeal before the ITAT

Aggrieved, the assessee filed a second appeal before the ITAT Ahmedabad. In essence, the grounds of appeal were:

  1. The appellate order was erroneous and prejudicial to the interest of the assessee.
  2. The CIT(A) had wrongly upheld the reopening under Section 147/148.
  3. The addition of Rs. 80,97,000/- as unaccounted income (cash deposits and payments for property rights) was not justified.
  4. The levy of interest under Section 234A, Section 234B, and Section 234C was also disputed.

The assessee further reserved the right to modify or add grounds at the time of hearing.

Assessee’s submissions before the Tribunal

The authorised representative of the assessee advanced the following key contentions: