2014 (1) TMI 1403 - AT - Income Tax

Applicability of section 69A - Held that - The assessee filed before the AO the declaration of gifts, the bank statements of donors and also their source for giving the gifts - The initial onus is discharged by the assessee by proving the identity of the donors and source of fund - Now the burden shifts on to the AO to prove as to whether the donors have creditworthiness or not - The assessee cannot be called upon to prove the source - The AO has not made any efforts to point out ingenuity of the gift and capacity of the parties Without verifying as to whether the party had retained such earning and whether he has received a sum of Rs. 1,00,000/- one day prior to the gift through cheque, the AO cannot assume that he would not have received a sum of Rs. 1,00,000/- and could not have given the gift - Without examining the parties in the current assessment proceedings, the AO cannot arrive at conclusions - This would amount to violation of natural justice The issue has been restored for fresh adjudication.

Summary

Issues Involved:
1. Reopening of assessment under section 147 of the Income Tax Act.
2. Addition of Rs. 3,00,000/- as income under section 69A of the Income Tax Act.
3. Validity of the assessment proceedings and adherence to principles of natural justice.

Issue-wise Detailed Analysis:

1. Reopening of Assessment under Section 147:
The assessee's appeal challenges the reopening of the assessment for A.Y. 2003-04. The original return was filed on 04.12.2003, showing gifts of Rs. 3,00,000/-. The assessment was reopened based on information from the ACIT (OSD)-1, Central Range-7, Mumbai, indicating that the gifts were not genuine and were instead income that had escaped assessment. The AO issued a notice under section 148 on 25.03.2010, which was served on 29.03.2010. The assessee argued that the reopening was invalid as there was no new material on record to justify it. The CIT(A) upheld the reopening, noting that it was based on specific information from the assessment of the assessee's husband, which provided sufficient grounds for the AO to believe that income had escaped assessment.

2. Addition of Rs. 3,00,000/- as Income under Section 69A:
The AO added Rs. 3,00,000/- to the assessee's income under section 69A, concluding that the gifts were not genuine. The AO's investigation revealed that the donors had limited means and questionable capacity to make such gifts. The bank statements showed that the donors deposited cheques of Rs. 1,00,000/- each just before transferring the same amount to the assessee. The CIT(A) confirmed the AO's decision, stating that the assessee failed to prove the donors' capacity and the genuineness of the transactions. The Tribunal noted that the assessee had provided declarations of gifts and bank statements, which shifted the burden to the Revenue to disprove the donors' capacity. The Tribunal found that the AO had not conducted further inquiries to verify the donors' financial capacity and had not provided the assessee with the statement of one of the donors, which was a basis for reopening the assessment.

3. Validity of the Assessment Proceedings and Adherence to Principles of Natural Justice:
The assessee contended that the AO did not follow the principles of natural justice by not confronting her with the information received from another AO or providing the statement of Shri Ripen J. Mamaniya. The CIT(A) observed that the reasons for reopening were provided during the assessment proceedings, and the assessee did not object at that stage. The Tribunal highlighted that the AO's failure to provide the statement and conduct further inquiries violated natural justice. The Tribunal directed the CIT(A) to re-examine whether the money received by the assessee was recorded in the books of account, as section 69A applies only to unrecorded money. The Tribunal also noted that the AO did not invoke section 68, which addresses unexplained cash credits and requires proving the identity, genuineness, and creditworthiness of the donors.

Conclusion:
The Tribunal set aside the matter to the CIT(A) for re-examination, particularly to verify if the money was recorded in the books of account and to ensure adherence to the principles of natural justice. The appeal was treated as partly allowed.