2023 (10) TMI 844 - AT - Income Tax

Reopening of assessment u/s 147 - Addition u/s 68 - unexplained gifts - HELD THAT - Reasons recorded for reopening of the assessee s case are insufficient, vague, un-corroborative to form a belief that the income had escaped assessment as there was no link between the tangible materials and the formation of belief of the Assessing Officer that the income had escaped assessment. Thus, the reassessment made u/s 143(3) read with section 147 of the Act based on such reasons is bad in law and accordingly, the reassessment is quashed. Unexplained gifts - As observed that in the course of reassessment proceedings the AO recorded statement of both father in law and mother in law who have also confirmed the gifts given to the assessee who is the husband of their only daughter. However, this was disbelieved by the AO as there were some discrepancies in the gift deeds for which the assessee filed affidavits from the donors before the CIT(A) which were totally ignored by him. AO never denied that the father in law and mother in law of the assessee were not in possession of agricultural land of 6.5 acres - since the donors of the gifts are closely related to the assessee being father in law and mother in law and the sources were also explained the gifts cannot be disbelieved. Appeal of assessee allowed.

Summary

Issues Involved:
1. Reopening of assessment under Section 147.
2. Validity of the reassessment proceedings.
3. Addition of Rs. 10 lakhs on account of cash deposit.

Summary:

Reopening of Assessment under Section 147:
The assessee challenged the reopening of the assessment by the Assessing Officer (AO) on the grounds that it was initiated without conducting proper enquiry and was based on AIR Information. The assessee argued that the AO generated "reason to suspect" merely from the AIR Information without examining the business turnover and income declared in the return. The Tribunal observed that the AO issued notice u/s 148 based on AIR Information without any tangible material or proper enquiry. The AO did not scrutinize the return of income or verify the business turnover declared by the assessee. The Tribunal concluded that the reopening was based on borrowed satisfaction and was thus invalid.

Validity of the Reassessment Proceedings:
The Tribunal relied on precedents such as Sheo Nath Singh Vs. AAC and Pr. CIT Vs. RMG Polyvinyl (I) Ltd., which emphasize that the AO must have independent, tangible material to form a reason to believe that income has escaped assessment. The Tribunal noted that the AO acted on AIR Information without further enquiry, making the reasons for reopening insufficient and vague. The Tribunal held that the reassessment proceedings were invalid due to lack of proper enquiry and tangible material.

Addition of Rs. 10 Lakhs on Account of Cash Deposit:
On merits, the Tribunal observed that the AO disbelieved the gifts received by the assessee from his father-in-law and mother-in-law despite their confirmations and affidavits. The AO did not deny the possession of agricultural land by the donors. The Tribunal found that the sources of the gifts were explained and the relationship between the donors and the assessee was genuine. Therefore, the addition of Rs. 10 lakhs was unjustified.

Conclusion:
The Tribunal quashed the reassessment proceedings and allowed the appeal of the assessee, holding that the reopening of the assessment was invalid and the addition of Rs. 10 lakhs was unjustified. The order was pronounced on 16/10/2023.