2012 (12) TMI 901 - HC - Income Tax

Validity of notice u/s 148 - Gift - Re-assessment u/s 147 - Without a reasonable cause - Merely on the directions of another officer Jurisdiction of officer - ACIT issued notice on the basis of some information received from the ADIT (Inv) about bogus gift Held that - If the assessee fails to urge the question of territorial jurisdiction, he cannot call it into question later. The reason is apparently founded on public policy, not to allow questions of territorial jurisdiction to be urged and destabilize entire proceedings, once they proceed on merits There was nothing on the record for the AO to assume that the information about the gifts in question being bogus, was believable, or reasonably credible to warrant reopening of assessment. The entire reassessment proceedings initiation was premised on a vague suspicion. Reasons to believe as emphasized by the court are reasonable inferences based on objective information, verified in a prima facie manner. In favour of assessee

Summary

Issues Involved:
1. Validity of the notice under Section 148 of the Income Tax Act.
2. Jurisdiction of the Assessing Officer.
3. Genuineness and creditworthiness of the gift transaction under Section 68 of the Income Tax Act.

Detailed Analysis:

1. Validity of the Notice under Section 148:

The appellant contended that the reassessment under Section 147 was without reasonable cause and merely on the directions of another officer. The appellant relied on Supreme Court rulings in *Chhugamal Rajpal v. S.P. Chaliha* and *CIT v. Atul Jain/Smt. Vinita Jain*, emphasizing that the Assessing Officer (AO) must verify the correctness of the information received and record satisfaction that a case has been made for issuing a notice under Section 148. The appellant also cited *CIT v. Kelvinator of India Ltd.*, where it was held that the AO must have 'tangible material' to show that income has escaped assessment. The court found that the AO had merely recorded information received from another officer without further inquiries, which did not satisfy the requirement of "reasons to believe."

2. Jurisdiction of the Assessing Officer:

The appellant argued that the notice served by ACIT, Circle 30(1), New Delhi was without jurisdiction as ACIT, Circle 28 had the jurisdiction. The appellant contended that the provisions of Section 124(3) were inapplicable as the challenge was to the issuance of a valid notice under Section 148, not to the jurisdiction of the ACIT, Circle 28(1). The court noted that the appellant had filed returns before the concerned officer and had not raised the jurisdiction issue earlier. The court referred to Sections 124(3)-(5) of the Act, which provide a challenge procedure for jurisdiction and found that the appellant's right to question the jurisdiction was lost after the period of 30 days from the notice.

3. Genuineness and Creditworthiness of the Gift Transaction:

The appellant contended that the addition of Rs. 31,74,914/- under Section 68 was incorrect as substantial evidence was provided to prove the identity, creditworthiness, and genuineness of the gifts received. The appellant relied on *CIT v. Lovely Exports P. Ltd.*, arguing that the assessee had proved the identity of the donor, the genuineness of the transaction, and the donor's financial strength. The Revenue contended that the genuineness and creditworthiness of the transaction could not be traced despite evidence of the donor being wealthy. The court found that the AO did not verify the information received and acted mechanically, which did not satisfy the requirement of "reasons to believe."

Conclusion:

The court held that the reassessment proceedings were initiated based on vague suspicion without objective verification, making the notice under Section 148 invalid. The court also found that the appellant's challenge to the jurisdiction was untimely and that the AO had not substantiated the suspicion of the gift being bogus. Thus, the questions of law were answered in favor of the assessee, and the appeal was allowed.