2017 (5) TMI 76 - AT - Income Tax

Reopening of assessment - penalty u/s 271(1)(c) of the Income Tax Act, 1961 - unexplained investment in mutual funds and unexplained investment in purchase of office space - the stand of the assessee was that no material exhibiting escapement of income in the hands of the assessee was obtained by the AO to form a belief that income has escaped assessment in her hand - Held that - The asset was in the name of the assessee. Had the case of the assessee s husband been reopened, he could have an explanation that asset does not stand in his name and his wife has source of such investment. Therefore, it was necessary for the AO to verify the details of the assessee. As far as addition of ₹ 3,47,391/- is concerned, the assessee has shown it as opening cash balance. She has submitted that she was a graduate taking tuition and she has savings from many years - Held that - the AO ought to have not doubted total capital balance. He should have given a credit of her past savings. Considering these aspects, we are of the view that at the most a sum of ₹ 1,47,391/- could be treated as unexplained opening capital balance and a benefit of ₹ 2,00,000/- representing small savings in the past out of non-taxable income could be estimated. The ground raised by the assessee is partly allowed. Penalty on alleged concealed income of ₹ 3,47,391/- - Held that - According to the assessee she was not having income exhibiting taxable limit in the past, but she has made small savings. When she filed the return for this year, she computed it as an opening capital balance - the explanation of assessee does not appear to be false - penalty deleted. Appeal allowed - decided partly in favor of appellant.

Summary

Issues:
Reopening of assessment under section 143(2) of the Income Tax Act, 1961
Addition of unexplained opening capital balance
Confirmation of penalty imposed on alleged concealed income

Reopening of Assessment:
The case involved challenges to the reopening of assessment under section 143(2) of the Income Tax Act, 1961. The Assessing Officer (AO) had issued a notice under section 148 based on the husband's disclosure of investments made in the name of the assessee. The assessee contended that the assessment should have been reopened in the husband's name, not hers, as the investments were disclosed by him. The AO had not made any addition on account of the investments in mutual funds and office space, instead adding unexplained opening capital balance. The Tribunal held that the AO was justified in reopening the assessment in the assessee's name, as the assets were in her name, and her husband's disclosure provided reasonable cause for the AO to believe income had escaped assessment. The Tribunal dismissed the appeal challenging the reopening.

Addition of Unexplained Opening Capital Balance:
Regarding the addition of unexplained opening capital balance, the assessee claimed it as her savings from tuition fees and gifts. The Tribunal noted that the assessee failed to provide evidence of tuition fee receipts or payments through account payee cheques, raising doubts about the claimed savings. However, considering the possibility of past savings and gifts received, the Tribunal allowed a partial adjustment, treating a portion of the balance as unexplained and estimating a benefit from past savings. The Tribunal partly allowed the appeal on this ground.

Confirmation of Penalty:
The assessee contested the penalty imposed on the alleged concealed income. The Tribunal observed that the assessee had disclosed the capital balance and explained it as savings, which was not accepted by the AO. The Tribunal found that the assessee's explanation was not false, and she failed to provide demonstrative evidence to support her claim. Consequently, the Tribunal concluded that the penalty was not justified and deleted it. The appeal against the penalty imposition was allowed.

In conclusion, the Tribunal partly allowed the appeal related to the addition of unexplained opening capital balance, allowed the appeal against the penalty imposition, and dismissed the appeal challenging the reopening of assessment.