2020 (7) TMI 365 - AT - Income Tax

Validity of the reassessment proceedings - eligible reasons to believe - Unexplained income u/s.68 - HELD THAT - Assessee had turnover of more than ₹ 40 lakhs, but she had not filed the return of income along with the tax audit report. Therefore, the AO was reasonable in believing that there was escapement of income and in issuing the notice u/s 148 of the Act. Contention of the assessee that the CIT(A) had deleted addition for which assessment has been reopened and, therefore, the assessment fails is also not acceptable. AO has made an addition on the very ground on which assessment is reopened, but the said addition has been deleted by the CIT(A). Thus, the decisions cited by the Ld.Counsel for the assessee are not applicable to the case before us. The CIT(A) s acceptance of assessee s contention does not fail the validity of the reassessment proceedings itself. Therefore, the additional grounds of appeal raised by assessee are rejected. Unexplained source of investment - assessee has received funds through banking channels from her brother. Therefore, the identity and genuineness of the transaction is proved. Since the identity and genuineness is proved and the relationship between the donor and donee is also proved, I am convinced that the assessee has been able to explain the sources of investment. The assessee has shown ₹ 1 lakh as her own earnings which is not accepted by the department without any basis find that the assessee being the wife of a Defense Personnel, could not be said to not to have the savings of ₹ 1 Lakh. Therefore, the entire addition of ₹ 13 lakhs is deleted. The grounds of appeal of assessee on this issue are allowed. - Appeal decided partly in favour of assessee.

Summary

Issues:
1. Reopening of assessment u/s 147 of the Income Tax Act.
2. Addition of unexplained income u/s 68 of the IT Act.
3. Source of investments in share transactions.

Reopening of Assessment (Issue 1):
The assessee challenged the initiation of re-assessment proceedings under section 147, contending that it was based on mere suspicion of income escapement. The counsel cited legal precedents to support the challenge. The Departmental Representative (DR) defended the AO's actions, highlighting the substantial turnover of the assessee without a filed return. The Tribunal upheld the AO's decision, citing the absence of a tax audit report and the significant turnover as valid grounds for reopening the assessment. The Tribunal rejected the additional grounds raised by the assessee, emphasizing that the CIT(A) had deleted the initial addition made by the AO, which did not impact the validity of the re-assessment proceedings.

Addition of Unexplained Income (Issue 2):
The CIT(A) had added ?13.00 lakhs as unexplained income under section 68 of the IT Act, sourced from the assessee's brother and her savings. The Tribunal noted the submissions made by the assessee regarding the funds received from her brother for share trading, supported by bank certificates. The CIT(A) questioned the lack of confirmation from the donor and the absence of proof for the assessee's savings. Ultimately, the Tribunal accepted the genuineness of the transaction, considering the banking channels used and the relationship between the donor and donee. Consequently, the entire addition of ?13 lakhs was deleted, and the assessee's appeal on this issue was allowed.

Source of Investments in Share Transactions (Issue 3):
The assessee's source of investment amounting to ?13.00 lakhs in share transactions was disputed by the CIT(A), leading to a partial acceptance of the claim. While the CIT(A) rejected the source of ?1.00 lakh as the assessee's own savings and the remaining ?12.00 lakhs from the brother, the Tribunal found the transaction genuine based on banking evidence. Despite the lack of confirmation from the brother, the Tribunal accepted the transaction's authenticity, noting the unfortunate circumstances surrounding the lack of confirmation. Additionally, the Tribunal acknowledged the assessee's personal earnings of ?1.00 lakh, which was previously disregarded without valid reasoning. Consequently, the entire addition was annulled, and the assessee's appeal was partly allowed.

This comprehensive analysis of the legal judgment delves into the issues of reopening the assessment, addition of unexplained income, and the source of investments in share transactions, providing a detailed overview of the arguments presented and the Tribunal's final decision on each matter.