2018 (4) TMI 20 - AT - Income Tax

Reopening of assessment - Addition of gift of property received U/s 68 - non disposal of assessee s objection - Held that - The AO having not disposed of the assessee s objections to the reasons recorded, by passing a separate speaking order before proceedings with the assessment the assessee has been illegally debarred from exercising a legally enforceable right which would have become available to him. For this reason, the assessment order is null and void and it is quashed as such. - Decided in favour of assessee.

Summary

Issues:
1. Addition of gift of property under Section 68 of IT Act 1961.
2. Validity of notice issued under Section 148 of IT Act.
3. Compliance with legal requirements for reopening of assessment.
4. Disposal of objections against reasons recorded by Assessing Officer.

Analysis:

1. Addition of gift of property under Section 68 of IT Act 1961:
The Assessing Officer (AO) made an addition of ?3,00,000 as a gift of property received under Section 68 of the IT Act for the assessment year 2003-04. The AO found discrepancies in the source of the funds and lack of details regarding the gift in the assessee's return. The AO contended that the sum should be taxed as income due to the lack of disclosure of essential details regarding the alleged gift, leading to escapement of income.

2. Validity of notice issued under Section 148 of IT Act:
The assessee raised objections against the reasons recorded by the AO for issuing the notice under Section 148 of the IT Act. The objections were not disposed of by the AO before passing the assessment order. The contention was based on the Supreme Court decision in 'GKN Driveshafts (India) Ltd. vs. ITO', emphasizing the necessity for the AO to furnish reasons and dispose of objections by passing a speaking order before proceeding with the assessment.

3. Compliance with legal requirements for reopening of assessment:
The additional grounds raised by the assessee challenged the legality of the proceedings initiated under Section 147 of the IT Act, emphasizing that the reasons recorded were vague and did not meet the requirement of 'reason to believe'. The grounds highlighted the necessity for clear and unambiguous reasons, stating that reopening of assessment without proper application of mind is invalid.

4. Disposal of objections against reasons recorded by Assessing Officer:
The CIT(A) observed that the failure of the AO to dispose of objections against the reasons recorded was an irregularity, not an illegality. However, referencing legal precedents such as 'GKN Driveshafts' and 'General Motors India P. Ltd. vs. DCIT', it was established that the AO is mandated to decide objections to the notice under Section 148 separately before proceeding with the assessment. Failure to do so renders the assessment order null and void.

In conclusion, the appellate tribunal allowed the appeal, quashing the assessment order as the AO failed to dispose of the assessee's objections before proceeding with the assessment. The judgment emphasized the importance of complying with legal procedures and providing a fair opportunity to the assessee to challenge the reasons for reopening assessments.