2018 (6) TMI 1056 - HC - Income Tax

Validity of reassessment proceedings u/s 148 - addition u/s.68 being the disallowance of claim of gift - Assessment of undisclosed income as a result of search - Held that - In the present case, some of the gifts were held to be genuine. Allowing the Assessing Officer to examine the same issue in the regular assessment and as in the present case, leaving the possibility of coming to conclusion that the gifts were not genuine, would give rise to two conflicting opinions of the authority of the same rank, and as in the present case, at times by the same officer. This is not a classical case where an assessment previously framed without scrutiny is sought to be reopened, nor it is the case where original assessment was after scrutiny, in which, the Assessing Officer had examined certain issues, expressed his opinion which is the subject matter of reopening bringing the principle of change of opinion. There is yet another supplementary reason why the Revenue, in any case, cannot succeed. If the Revenue s proposition is that the assessee had received on-money through sale of land, which was introduced in the assessees accounts through non-genuine gifts, the Revenue having attempted to tax the onmoney receipts, could not have taxed the gifts again with the aid of section 68 of the Act. In the present case, we are prepared to proceed on the basis that the assessee had established the identity of the donor and his or her creditworthiness. When however, large amounts are stated to have been gifted, that too by a person having no blood relation with the assessee, the question of genuineness of the gifts would require closer scrutiny. If the assessee does not point out any special occasion for a lavish gift being received from such a source, the burden to establish the genuineness of the gift cannot be lightly taken to have been discharged - the nature of gift and its genuineness would call for case wise scrutiny and the answer would depend on range of facts and attendant circumstances. No single formula of rigid application can be laid down. We are compelled to make these observations because in rather peculiar and somewhat perplexing set of facts, in our opinion, the Tribunal has made superficial observations and mechanically accepted the genuineness of the gifts. It was not open for the Assessing Officer to examine the question of genuineness of the gifts in regular assessment for which he has resorted to reopening of assessments - We express no conclusive opinion on the question of genuineness of the gifts perse.

Issues Involved:
1. Deletion of addition made under Section 68 of the Income Tax Act.
2. Validity of proceedings under Section 148 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Deletion of Addition Made Under Section 68 of the Income Tax Act:

The primary issue in these appeals was whether the Income Tax Appellate Tribunal was correct in deleting the additions made by the Assessing Officer (AO) under Section 68 of the Income Tax Act, which pertains to unexplained cash credits. The AO had added the amounts received by the assessees as gifts, treating them as non-genuine and thus taxable under Section 68.

In the case of Mukesh M. Sheth for the assessment year 2001-02, the AO initially accepted the return without scrutiny. However, during a subsequent search operation, the AO conducted a block assessment for the period between 01.04.1996 to 12.09.2002. The AO examined the on-money received through the sale of land and whether this undisclosed income was routed into the assessee's bank accounts through non-genuine gifts. The AO concluded that some gifts were genuine while others were not. Despite this, the AO did not tax the non-genuine gifts separately, as the on-money had already been taxed in the hands of the partnership firm where the assessee was a partner.

For the assessment year 2000-01, Mukesh M. Sheth declared a gift of ?50 lakhs from the same NRI, Bipinchandra K. Bhagat. The AO reopened the assessment and taxed this amount under Section 68, holding the gift to be non-genuine. However, the Commissioner of Income Tax (Appeals) and the Tribunal reversed this decision.

Similarly, in the cases of Atul D. Sheth for the assessment years 2000-01 and 2001-02, the AO reopened the assessments and taxed the gifts received from his mother-in-law under Section 68, deeming them non-genuine. Again, the Commissioner of Income Tax (Appeals) and the Tribunal reversed the AO's decision.

The Tribunal observed that the AO had already examined the genuineness of the gifts during the block assessment proceedings. Detailed inquiries were conducted, and the donors confirmed the gifts. Thus, the Tribunal held that it was not permissible for the AO to re-examine the same issue in regular assessment proceedings.

2. Validity of Proceedings Under Section 148 of the Income Tax Act:

The second issue was whether the reassessment proceedings initiated under Section 148 of the Income Tax Act were valid. The AO issued notices under Section 147 for reopening the assessments on the grounds that the gifts received were non-genuine. The assessees contested these proceedings, arguing that the issue had already been examined during block assessment proceedings, and any attempt to re-examine it would amount to a change of opinion.

The Tribunal upheld the assessees' contention, stating that once the genuineness of the gifts was examined in the block assessment proceedings, it could not be re-examined in regular assessment proceedings. The Tribunal emphasized that Section 158BA of the Act clarifies that income assessed in block assessment proceedings should not be included in regular assessments, and vice versa. Therefore, the reassessment proceedings under Section 148 were deemed invalid.

Conclusion:

The High Court agreed with the Tribunal's findings and dismissed the appeals filed by the Revenue. The Court held that it was not open for the AO to re-examine the genuineness of the gifts in regular assessment proceedings after having already scrutinized them during block assessment proceedings. The Court did not express a conclusive opinion on the genuineness of the gifts themselves but emphasized that the AO's attempt to reassess the same issue was impermissible. Consequently, all tax appeals were dismissed.

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