Without evaluating escaping revenue AO is unable to evaluate other sources of income

Fact and Issue of the case

Based on AIR information received, the Assessing Officer found that the assessee in the year under consideration had deposited cash amounting to Rs.12,68,500/- in a savings bank account held with HDFC Bank. Based on such information, the Assessing Officer called upon the assessee to furnish necessary information regarding the source of such deposits. As alleged by the Assessing Officer, the assessee did not comply with the query raised. Thus, being of the view that income assessable to tax has escaped assessment, the Assessing Officer reopened the assessment under section 147 of the Income Tax Act, 1961 by issuing a notice under section 148 of the Act. In response to the notice issued under section 148 of the Act the assessee, on 24.03.2017, furnished his return of income declaring income of Rs.3,25,000/-. In course of assessment proceeding, the Assessing Officer called upon the assessee to explain the source of cash deposits in the bank account.

In response, assessee submitted that the cash deposits were made out of income earned from private tuition amounting to Rs.12,43,500/-. On examining the return of income filed by the assessee, the Assessing Officer noticed that against the income earned from tuition, the assessee has shown expenditure of Rs.9,68,500/-. Noticing this fact, the Assessing Officer called upon the assessee to prove the expenditure claimed of Rs.9,68,500/- through supporting evidence. However, as alleged by the Assessing Officer, despite sufficient opportunities being granted to the assessee, he was unable to furnish proper supporting evidences to prove the expenses claimed of Rs.9,68,500/-. Accordingly, he disallowed the expenses of Rs.9,68,500/- by treating it as bogus and added back to the income of the assessee. Though, assessee contested the aforesaid disallowance before learned Commissioner (Appeals), however, he was unsuccessful.

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Observation of the Court

On a reading of the impugned assessment order, it appears, the Assessing Officer apparently has accepted the explanation of the assessee regarding the source of deposits in the bank account, since, he has not made any addition in the assessment order with reference to the cash deposits made in the bank account. However, on examining the return of income he found that against the tuition income the assessee has claimed expenses of Rs.9,68,500/-, the genuineness of which, according to the Assessing Officer, the assessee failed to establish through supporting evidence.

Thus, ultimately while completing the assessment the Assessing Officer treated the expenditure claimed as bogus and disallowed it. This is the only addition made by the Assessing Officer while completing the assessment. From the aforesaid discussion of facts, it is evident that the addition ultimately made by the Assessing Officer while completing the assessment has no connection with the income for escapement of which the Assessing Officer reopened the assessment under section 147 of the Act. Thus, it is patent and obvious, the Assessing Officer reopened the assessment for assessing a particular item of income, whereas, instead of assessing that income he has added another item of income which was not the subject matter of reopening. The ratio laid down in the decisions cited before me by learned Counsel for the assessee makes it clear that the Assessing Officer can add other items of income along with the income for the escapement of which the assessment was reopened. However, without assessing that escaped income the Assessing Officer cannot make assessment of other items of income. Thus, following the settled legal position, I have no hesitation in holding that the addition made by disallowing the expenses claimed is unsustainable. Accordingly, I direct the Assessing Officer to delete the addition.

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