2006 (11) TMI 359 - AT - Income Tax

Summary

Issues Involved:
1. Jurisdiction of the Assessing Officer to reopen the assessment.
2. Inclusion of Rs. 10,00,000 as income in the reassessment.

Detailed Analysis:

1. Jurisdiction of the Assessing Officer to Reopen the Assessment:

The assessee challenged the jurisdiction of the Assessing Officer to reopen the assessment. The CIT(A) upheld the jurisdiction of the Assessing Officer to reopen the assessment. However, the assessee did not press this issue during the hearing before the Tribunal, leading to the rejection of the cross-objection.

2. Inclusion of Rs. 10,00,000 as Income in the Reassessment:

Assessing Officer's Findings:
The Assessing Officer based the reassessment on diaries seized from S.K. Jain, which indicated that the assessee had received Rs. 10,00,000. The assessee, in a statement under section 131, did not deny the receipt but claimed the money was handled by his election agent, Kamal Singh, and was used for election expenses. The Assessing Officer concluded that the money was received personally by the assessee and brought it to tax as income.

CIT(A)'s Decision:
The CIT(A) deleted the addition of Rs. 10,00,000 on several grounds:
- No direct mention of Rs. 10 lakhs in the diary or S.K. Jain's statement.
- The money was used for election expenses, not for personal gain.
- The Assessing Officer selectively relied on parts of the assessee's statement.
- The burden of proving the receipt as income was on the Assessing Officer, which was not met.
- The receipt lacked the characteristics of income, as there was no quid pro quo or personal benefit derived by the assessee.

Department's Appeal:
The Department contended that:
- The diary entry and the assessee's statements reasonably inferred the receipt of Rs. 10 lakhs.
- The CIT(A) erred in criticizing the reliance on the assessee's statement.
- The receipt should be taxable under section 56 as "income from other sources."
- The use of money for election expenses does not negate it being the assessee's income.

Assessee's Defense:
The assessee argued that:
- The receipt was not necessarily income and lacked the common ingredients of income.
- At the relevant time, the assessee was a political worker with no public office, and there was no quid pro quo.
- The money was not used for personal gain or to acquire assets.
- Politics is a service to the community, not a profession or business.
- The burden to prove the receipt as income was on the Assessing Officer, which was not met.
- Section 56(2)(v) regarding gifts from non-relatives applied only from 1-4-2005, and thus, the receipt could not be taxed under this provision for the year in question.

Tribunal's Decision:
The Tribunal upheld the CIT(A)'s decision, concluding that:
- The money was received by Kamal Singh for election expenses, not personally by the assessee.
- The burden to prove the receipt as income was on the Department, which was not met.
- The receipt did not constitute income as it did not result in personal gain or advantage for the assessee.
- A mere saving in expenditure does not constitute income.

Conclusion:
The Tribunal dismissed both the Department's appeal and the assessee's cross-objection, upholding the CIT(A)'s decision to delete the addition of Rs. 10,00,000 from the assessment.