2017 (10) TMI 1097 - AT - Income Tax

Validity of reopening under section 147 - reasons to believe - Bogus gifts received - Held that - In the assessment proceedings of M/s Ashok Mahindru & Sons, which is the material relied upon by the Assessing Officer in his reasons recorded , there is no reference or whisper about the donor in the case of the assessee, i.e., Shri Rajiv Gupta or there is any mention about the assessee. Hence we are of the considered opinion that in the present case there is no rational and intelligible nexus between the said material as referred by the Assessing Officer in the reasons recorded for the formation of reason to believe for income escaping assessment. It appears that reopening has been done simply as a pretence to make further enquiry about the genuineness of the gift and such pretence for making roving and fishing enquiry cannot clothe the Assessing Officer with the jurisdiction to reopen assessment in terms of section 147. Thus, we hold that there is no live-link nexus between the material referred to by the Assessing Officer and the formation of his belief that simply because gift has been received from an un-related person, it automatically becomes bogus or non-genuine. Hence, we are of the opinion that the reasons as recorded by the Assessing Officer cannot be reckoned as reason to believe that the gift received by the assessee is an income chargeable to tax which has escaped assessment. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reopening under section 147 of the Income Tax Act, 1961.
2. Legitimacy of the addition of ?25,00,000/- as income from undisclosed sources.
3. Legitimacy of the addition of ?3,70,126/- as income from undisclosed sources.
4. Disallowance of interest amounting to ?35,64,692/-.

Detailed Analysis:

1. Validity of Reopening under Section 147:
The primary issue revolves around whether the reopening of the assessment under section 147 was justified. The assessee challenged the validity of the reopening, arguing that the "reasons" recorded by the Assessing Officer (AO) lacked a tangible basis and were based on incorrect assumptions. The AO's decision to reopen was primarily based on observations made during the assessment of M/s Ashok Mahindru & Sons for the assessment year 2001-02, where gifts received by family members were deemed non-genuine. However, the Tribunal noted that the donor in the assessee's case, Shri Rajiv Gupta, was not mentioned in the assessment order of M/s Ashok Mahindru & Sons. Therefore, the Tribunal concluded that the "reason to believe" was based on suspicion rather than concrete material, rendering the reopening invalid.

2. Legitimacy of the Addition of ?25,00,000/-:
The assessee contested the addition of ?25,00,000/- received as a gift from Mr. Rajeev Gupta, arguing that the CIT (A) ignored the evidence provided. The Tribunal's decision to quash the assessment under section 147 rendered this issue academic. As the reassessment proceedings were invalidated, the addition of ?25,00,000/- was also dismissed as infructuous.

3. Legitimacy of the Addition of ?3,70,126/-:
Similar to the previous issue, the assessee disputed the addition of ?3,70,126/- received as a gift from Mrs. Sonia Wadhawan. The Tribunal's invalidation of the reassessment proceedings under section 147 meant that this issue too became academic and was dismissed as infructuous.

4. Disallowance of Interest Amounting to ?35,64,692/-:
The assessee argued against the disallowance of interest paid against exempt income, stating that no fresh investments were made during the relevant period. The Tribunal's decision to quash the reassessment proceedings under section 147 resulted in this issue also becoming academic and was dismissed as infructuous.

Conclusion:
The Tribunal quashed the reassessment proceedings initiated under section 147, deeming them invalid due to the lack of tangible material and the reliance on incorrect assumptions. Consequently, all issues raised on merits were dismissed as academic. The appeal of the assessee was allowed, and the reassessment order was declared bad in law.