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2020 (6) TMI 407 - AT - Income TaxReopening of assessment u/s 147 - undisclosed income from bank accounts addition(s) - Assessee was one of the beneficiaries of M/s Ambrunova Trust and made investment in LGT Bank - proportionate share of benefit - HELD THAT - There is no material evidence coming from the departmental side that the corresponding twin trusts deeds have formed part of records which could even remotely indicate that these assessees are beneficial owners of the trusts assets to the extent of 1/5th share each as on 31.12.2001 we quote Mukesh Kumar Gupta vs. Commissioner of Income Tax 2013 (4) TMI 444 - ALLAHABAD HIGH COURT that such a re-opening initiated beyond a period of four years from the end of the relevant assessment year is not sustainable in absence of the specified amount of taxable income having escaped assessment being recorded in reopening reasons There is further no quarrel that sec. 5(1)(a-c) defines total taxable income in case of a resident that the income which is received or deem to be received in India, accrued or arise or is deem to accrue or arise in India and accrues or arises to him outside India during such year. We reiterate that learned lower authorities have assessed these two assessees qua the overseas trust s balance amount to the extent of 1/5th share each u/s 5(1)(c) only. The clinching aspect of the trust deeds nowhere forming part of records that there is no cogent material indicating the assessees as having 1/5th share each in the trusts assets. And also as to whether the trust deeds herein pin-point the trusts as discretionary or specific ones and whether the balance amount therein was to devolve upon them in a vested or contingent manner. We note that once the Assessing Officer has himself not suggested that the impugned sums have been in fact accrued or arisen to them, thus that the department s impugned action adding the trust s balance in these two taxpayers hands does not deserve to be concurred with. The Assessing Officer s re-opening reasons nowhere allege that these assessees had any right to receive the alleged 1/5th shares as well. We wish to make it clear that our foregoing detailed discussion sufficiently proves in absence any material on record, these two assessees did not have right to receive the alleged 1/5th share each in the trust s balance. We observe in view of the foregoing detailed discussion that both the lower authorities have erred in law and on facts in initiating sec. 148 /147 proceedings against these two assessee - Decided in favour of assessee.
Issues Involved
1. Validity of re-opening proceedings under sections 147 and 148 of the Income Tax Act, 1961. 2. Addition of undisclosed income from bank accounts as per section 69 of the Income Tax Act, 1961. Detailed Analysis Issue 1: Validity of Re-opening Proceedings under Sections 147 and 148 The primary issue revolves around the validity of the re-opening proceedings initiated by the Assessing Officer (AO) under sections 147 and 148 of the Income Tax Act, 1961. The assessees challenged the correctness of the re-opening proceedings, arguing that the AO's belief of income escapement was not based on relevant material but rather on mere suspicion. The tribunal referred to several landmark judgments to establish the legal proposition that the belief of income escapement must be based on relevant information and not on vague or indefinite material. Notably, the tribunal cited "Calcutta Discount Co. Ltd. Vs. Income Tax Officer (1961) 41 ITR 191 (SC)" and "Income Tax Officer vs. Lakmani Mewal Das, (1976) 103 ITR 437 (SC)", emphasizing that there must be a direct nexus or live link between the material and the belief of escapement. The tribunal observed that the AO's reasons for re-opening were based on the alleged trust deeds of two trusts, which were not part of the records at the threshold stage. The tribunal highlighted that no such evidence or material was produced even after five years since the tribunal's direction to produce the assessment records. Consequently, the tribunal concluded that the AO had not proceeded as per law while initiating the re-opening proceedings, rendering the re-opening unsustainable in law. Issue 2: Addition of Undisclosed Income from Bank Accounts as per Section 69 The second issue pertains to the addition of undisclosed income from bank accounts under section 69 of the Income Tax Act, 1961. The assessees denied any connection with the trusts or the bank accounts in question. They argued that the Revenue failed to discharge its onus to prove that the assessees were beneficiaries of the trusts or had made any investments in the LGT Bank. The tribunal noted that the AO's re-opening reasons did not specify how much of the assessees' taxable income had escaped assessment due to their failure to disclose material facts fully and truly. The tribunal also observed that the Revenue's reliance on the alleged trust deeds was misplaced as these deeds were not part of the records. Furthermore, the tribunal referred to the legal principle that in the case of discretionary trusts, the beneficiary has no more than a hope that the discretion would be exercised in their favor. Citing "Commissioner of Wealth Tax vs. Estate of Late HMM Vikramsinhji" and "Commissioner of Income Tax vs. Kamalini Khatau (1994) 209 ITR 101 (SC)", the tribunal held that the income left to discretion could not be assessed in the taxpayer's hands. The tribunal concluded that the addition of the trust's balance in the assessees' hands was not justified as there was no cogent material indicating that the assessees had a right to receive the alleged 1/5th share in the trust's assets. Consequently, the tribunal quashed the re-opening proceedings and the impugned additions. Conclusion The tribunal allowed the appeals, quashing the re-opening proceedings under sections 147 and 148 and setting aside the additions of undisclosed income from bank accounts under section 69. The tribunal's decision was based on the lack of relevant material to support the AO's belief of income escapement and the absence of any cogent evidence indicating the assessees' right to receive the alleged shares in the trust's assets.
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