2012 (4) TMI 817 - AT - Income Tax

Summary

Issues Involved:
1. Legality of proceedings initiated u/s 147 and issuance of notices u/s 148.
2. Validity of additions made by the A.O. u/s 68 regarding gifts received by the assessees.
3. Jurisdiction of the A.O. to issue notices u/s 148 beyond the period of four years.

Summary:

1. Legality of proceedings initiated u/s 147 and issuance of notices u/s 148:
The assessees challenged the A.O.'s action of initiating proceedings u/s 147 and issuing notices u/s 148. The Tribunal examined whether the A.O. had legally assumed jurisdiction u/s 147. The A.O. issued notices based on information from the Addl. DIT (Inv.) regarding gifts received by the assessees from NRIs and long-term capital gains from share transactions. The Tribunal noted that the A.O. must have "reason to believe" that income had escaped assessment, which should be reflected in the recorded reasons. The Tribunal found that the A.O.'s reasons only indicated an intention to verify the genuineness of the gifts and capital gains, without a positive indication that income had escaped assessment. Citing precedents, the Tribunal held that the A.O.'s reasons did not meet the requirement of forming a belief that income had escaped assessment. Consequently, the Tribunal quashed the notices issued u/s 148.

2. Validity of additions made by the A.O. u/s 68 regarding gifts received by the assessees:
The A.O. made additions u/s 68, rejecting the explanations of the assessees regarding the gifts received from NRIs. The Tribunal observed that the A.O. had not made any additions related to the share transactions, focusing solely on the gifts. The Tribunal reiterated that the A.O.'s reasons for reopening the assessments were insufficient to establish a belief that income had escaped assessment. Therefore, the Tribunal quashed the assessment orders based on the invalid notices u/s 148.

3. Jurisdiction of the A.O. to issue notices u/s 148 beyond the period of four years:
In two cases, the A.O. initiated proceedings u/s 147 beyond the period of four years from the end of the respective assessment years, with additions of Rs. 80,000 and Rs. 50,000. As per sec. 149(1)(b), the A.O. can issue notices u/s 148 beyond four years only if the alleged escaped income exceeds Rs. 1 lakh. The Tribunal held that the notices in these cases were also bad in law due to the jurisdictional issue. Consequently, the Tribunal cancelled the assessment orders in these cases as well.

Conclusion:
The Tribunal allowed all the appeals, quashing the notices issued u/s 148 and cancelling the assessment orders passed by the A.O. The Tribunal emphasized the necessity for the A.O. to have a valid "reason to believe" that income had escaped assessment, which was absent in the recorded reasons. The Tribunal also highlighted the jurisdictional limits for issuing notices beyond four years.