2010 (3) TMI 891 - AT - Income Tax

Summary

Issues Involved:
1. Validity of reassessment proceedings under section 147.
2. Addition under section 68 regarding the redemption value of SBI Resurgent India Bond.
3. Disallowance of various expenses claimed under the head 'Income from other sources.'

Issue-wise Detailed Analysis:

1. Validity of Reassessment Proceedings under Section 147:
The primary issue was whether the reassessment proceedings initiated under section 147 were valid. The assessee contended that the Assessing Officer (AO) did not provide the reasons for reopening the assessment despite repeated requests, which is against the procedure laid down by the Hon'ble Supreme Court in the case of GKN Driveshafts (India) Ltd. v. ITO [2003] 259 ITR 19. The AO argued that the reasons were recorded in the order sheet, which was part of the assessment order. The Tribunal found that the AO failed to furnish the reasons for reopening the assessment to the assessee, violating the Supreme Court's directive. Consequently, the Tribunal set aside the reassessment proceedings and directed the AO to follow the procedure laid down by the Supreme Court before proceeding with the assessment.

2. Addition under Section 68 Regarding SBI Resurgent India Bond:
The second issue was the addition of Rs. 6,69,626 (for Kakali Panja) and Rs. 3,34,813 (for Bhabesh Chandra Panja) under section 68, which pertained to the redemption value of SBI Resurgent India Bond received as a gift from an NRI friend. The AO did not accept the gift, citing reasons such as the lack of relationship between the assessee and the donor, and the improbability of such a large gift from a mere acquaintance. The assessee provided extensive documentation to prove the genuineness of the gift, including the bond certificate, the donor's declaration, and the redemption advice from SBI. Despite this, the CIT(A) upheld the AO's addition, questioning the genuineness of the transaction and the creditworthiness of the donor. The Tribunal, however, did not adjudicate this issue due to the remand order on the first issue.

3. Disallowance of Various Expenses Claimed under 'Income from Other Sources':
The third issue involved the disallowance of various expenses claimed under 'Income from other sources.' The AO disallowed a significant portion of the expenses, arguing that they were not incidental to earning such income. The assessee contended that these expenses were necessary for earning income from multiple sources, including business and other investments. The CIT(A) upheld the AO's disallowance. However, this issue was also not adjudicated by the Tribunal due to the remand order on the first issue.

Separate Judgments:
There was a difference of opinion between the Judicial Member (JM) and the Accountant Member (AM) regarding whether the case should be remanded back to the AO. The JM, following the Supreme Court's decision in GKN Driveshafts (India) Ltd., remanded the matter back to the AO. The AM disagreed, arguing that the case should be decided on merit by the Tribunal. The Third Member (Vice-President) concurred with the JM, leading to the majority view that the matter should be remanded back to the AO to follow the procedure laid down by the Supreme Court.

Conclusion:
In accordance with the majority view, the appeals of both the assessees were partly allowed for statistical purposes, and the matter was remanded back to the AO to follow the procedure laid down by the Supreme Court in GKN Driveshafts (India) Ltd. before proceeding with the reassessment.