2010 (10) TMI 506 - AT - Income Tax

Applicability of section 292BB - Bogus or genuine gift - unexplained investment - On the basis of report of Investigation Wing, the assessment records of the assessee were examined and it was found that during the year under consideration the assessee had received gifts of Rs. 24 lacs - assessee also sought reasons for reopening of the case as according to assessee s belief the income for the year was properly disclosed in the return filed by her and it was claimed that the initiation of reassessment proceedings was not valid - Reference was made to the fresh notice issued under s. 142(1) dt. 19th Feb., 2009 asking the assessee to file the return with various informations as per questionnaire dt. 3rd Nov., 2008 - it relates to identity of the declarants/creditors is concerned, there is no dispute that all of them had appeared before the Investigation Wing and their statements were recorded - The amount deposited in the bank accounts relating to donor ladies did not change its shape and the money remained in the bank accounts of the respective declarants until it was given as gift to the assessee by way of account payee cheques - So far as it relates to the genuineness of the transaction, it is already observed that money in the bank of the donor ladies was lying since 1997 and it did not change shape till it was given to the assessee - There is no material on record to controvert such evidence - Decided in favour of the assessee

Issues Involved:
1. Validity of reassessment proceedings due to non-issuance of notice under Section 143(2).
2. Validity of assessment under Section 144(1)(b) without issuing notice under Section 143(2).
3. Applicability of Section 292BB.
4. Genuineness and creditworthiness of gifts received by the assessee.
5. Applicability of VDIS declarations to the assessee's case.
6. Opportunity for cross-examination of witnesses.
7. Assessment of unexplained investments under Section 69.

Detailed Analysis:

1. Validity of Reassessment Proceedings due to Non-Issuance of Notice under Section 143(2):
The reassessment proceedings were initiated under Section 147, but the AO failed to issue a notice under Section 143(2), which is mandatory. The CIT(A) held that the absence of this notice rendered the assessment invalid, citing the Supreme Court's decision in CIT vs. Hotel Blue Moon, which mandates the issuance of notice under Section 143(2) for a valid assessment. The Tribunal upheld this view, emphasizing that the notice is a substantive right of the assessee and not merely a procedural formality.

2. Validity of Assessment under Section 144(1)(b) without Issuing Notice under Section 143(2):
The AO argued that the assessment was valid under Section 144(1)(b) due to the assessee's non-compliance with notices under Section 142(1). However, the Tribunal found that the AO did not explicitly frame the assessment under Section 144(1)(b) and that the return filed by the assessee necessitated a notice under Section 143(2). The Tribunal concluded that the AO's failure to issue the notice under Section 143(2) invalidated the assessment.

3. Applicability of Section 292BB:
The AO contended that Section 292BB, which cures defects in the issuance of notices, applied to the case. However, the Tribunal noted that Section 292BB is applicable from the assessment year 2008-09 onwards, while the relevant assessment years were 2001-02 and 2002-03. Therefore, Section 292BB could not be applied retrospectively to validate the assessments.

4. Genuineness and Creditworthiness of Gifts Received by the Assessee:
The AO questioned the genuineness and creditworthiness of the gifts received by the assessee, citing discrepancies in the donors' financial capacities and the lack of an accounting link between the sale proceeds and the gifts. The CIT(A), after examining the evidence, concluded that the gifts were genuine and the donors had the financial capacity to make the gifts. The Tribunal upheld this finding, noting that the gifts were supported by affidavits, bank statements, and other relevant documents.

5. Applicability of VDIS Declarations to the Assessee's Case:
The AO argued that the declarations made under the Voluntary Disclosure of Income Scheme (VDIS) by the donors were not valid, and thus, the gifts could not be considered genuine. The CIT(A) rejected this argument, stating that the VDIS certificates were valid and subsisting, and the AO could not question their validity. The Tribunal agreed, noting that the VDIS declarations were accepted by the CIT and the amounts were lying in the donors' bank accounts since 1997.

6. Opportunity for Cross-Examination of Witnesses:
The assessee requested to cross-examine witnesses whose statements were used against her. The AO denied this request, citing time constraints and the assessee's alleged lack of seriousness. The CIT(A) held that the denial of cross-examination violated the principles of natural justice, and the Tribunal upheld this view, emphasizing the importance of providing the assessee with a fair opportunity to rebut the evidence against her.

7. Assessment of Unexplained Investments under Section 69:
The AO added the gifts received by the assessee as unexplained investments under Section 69. The CIT(A) deleted this addition, concluding that the gifts were genuine and the donors had the financial capacity to make them. The Tribunal upheld this decision, noting that the amounts were declared under VDIS and were lying in the donors' bank accounts for several years before being gifted to the assessee.

Conclusion:
The Tribunal dismissed the appeals filed by the Revenue, upholding the CIT(A)'s findings that the assessments were invalid due to the non-issuance of notice under Section 143(2), the gifts received by the assessee were genuine, and the VDIS declarations were valid and subsisting. The Tribunal also emphasized the importance of providing the assessee with an opportunity to cross-examine witnesses to ensure a fair assessment process.

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