2018 (10) TMI 1609 - HC - Income Tax

Reopening of assessment u/s 147 - unexplained investment - Held that - It is recorded that the appellant was unable to explain the source of income from which these investments have been made by furnishing her bank statements, and which finding has even not been challenged before us. The only so called explanation given was that since her husband had expired in the year 2011, the records were not available with her to explain the source of these investments. This excuse of the appellant was not believed by the authorities below, and therefore, on merits also they proceeded to make the additions. In fact, if the appellant would have produced the material to show from what source these investments were made, she would have probably succeeded in the proceedings. However, she failed to do so as recorded by the authorities below. This being the case, and since the ITAT in her son s case accepted the submission that these investments should not be brought to tax in his hands as he was the second holder and they could have been brought to tax, if any, in the hands of the first holder, namely, the appellant, we find that the A.O., in view of these observations of the ITAT, clearly had reason to believe that the income of the appellant with reference to these three investments had escaped assessment.

Summary

Issues Involved:

1. Validity of the proceedings initiated under Section 147 of the Income Tax Act, 1961.
2. Whether the Assessing Officer had "reason to believe" that the income had escaped assessment.
3. The justification for reopening the assessment based on the observations of the ITAT in the case of the appellant's son.
4. The appellant's failure to disclose exempt income and the source of investments in mutual funds.
5. The application of the Supreme Court's decision in ACIT Vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd.
6. The relevance of the Bombay High Court decision in CIT Vs. Smt. Maniben Valji Shah.

Detailed Analysis:

1. Validity of the proceedings initiated under Section 147 of the Income Tax Act, 1961:

The appellant challenged the reopening of the assessment under Section 147 of the Income Tax Act, 1961, arguing that there was no "reason to believe" that income had escaped assessment. The ITAT upheld the Assessing Officer's (A.O.) decision to reopen the assessment, based on the observations made in the case of the appellant's son, Mr. S. Ganesh.

2. Whether the Assessing Officer had "reason to believe" that the income had escaped assessment:

The appellant contended that the reasons recorded by the A.O. did not provide any basis or material to suggest that the appellant's income had escaped assessment. The A.O. relied on the ITAT's observations in the case of Mr. S. Ganesh, where it was noted that the investments in mutual funds should be assessed in the hands of the appellant, who was the first holder.

3. The justification for reopening the assessment based on the observations of the ITAT in the case of the appellant's son:

The ITAT had observed that the investments in Birla Mutual Fund and Standard Chartered Mutual Funds should be assessed in the hands of the appellant, as she was the first holder. This observation formed the basis for the A.O.'s belief that the appellant's income had escaped assessment, leading to the issuance of a notice under Section 148.

4. The appellant's failure to disclose exempt income and the source of investments in mutual funds:

The appellant did not file a return of income under Section 139(1) and failed to disclose her exempt income from dividends. During the assessment proceedings, the appellant was unable to provide evidence regarding the source of investments in mutual funds amounting to ?1,43,50,000/-. The A.O. concluded that the reopening of the assessment was justified, as the appellant had not declared her income as required.

5. The application of the Supreme Court's decision in ACIT Vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd.:

The respondent argued that the Supreme Court's decision in ACIT Vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. supported the A.O.'s action. The Court held that "reason to believe" means cause or justification, and the A.O. need not have finally ascertained the fact of escapement. The A.O. only needed to satisfy himself that there was reason to believe that income had escaped assessment.

6. The relevance of the Bombay High Court decision in CIT Vs. Smt. Maniben Valji Shah:

The appellant relied on the decision in CIT Vs. Smt. Maniben Valji Shah, where the Court held that the A.O. had no basis to reasonably entertain the belief that income had escaped assessment. However, the Court found this reliance to be misconceived, as the facts of the present case were different. The appellant had not explained the source of her investments and had not disclosed her exempt income, giving the A.O. reason to believe that income had escaped assessment.

Conclusion:

The Court found that the A.O. had "reason to believe" that the appellant's income had escaped assessment, based on the ITAT's observations and the appellant's failure to disclose her exempt income and the source of her investments. The reopening of the assessment was upheld, and the appeal was dismissed. The Court held that the findings of the A.O., CIT(A), and ITAT did not suffer from any perversity or error apparent on the face of the record, and no substantial question of law arose.