2012 (9) TMI 392 - AT - Income Tax

Validity of reopening of assessment u/s 148 assessee change of opinion period of limitation - reassessment of AY 2002-03 taken by issuing of notice u/s.148 on 30.3.2009 Held that - CIT(A) has upheld the assessment having been passed on 31.12.2009 which ought to have been on the basis of facts could only be passed up to 31.3.2007. It is another matter that if on merits the issue to be considered u/s.148 would lean in favour of the assessee insofar as the cash flow on the basis of gifts were explained for by the Assessing Officer for three cash gifts of Rs.25,000 each only. He ought not to have disallowed the whole of the amount of Rs.1,50,000 forming part of the cash flow. Other amounts are less than by Rs.25,000 which confirmation were not called for. Similarly Rs.7 lakhs was advanced to the Managing Director cannot be taxed in the hands of the assessee as unexplained amount in the cash flow. Both these issues therefore could not have been issue for income having escaped for issue of notice u/s.148. As no other additions have been made and there is no whisper for the purported information available to the Assessing Officer we are of the considered view that the issue of notice u/s.148 is invalid and therefore, the consequent assessment u/s.143(3)/147 made by the Assessing Officer also becomes invalid and liable to be quashed Decided in favor of assessee

Summary

Issues:
1. Treatment of unsecured loan obtained from Classic Builders as unexplained cash credit under section 68 of the Income Tax Act, 1961.
2. Treatment of gift received from relatives as unexplained cash credit under section 68 of the Income Tax Act, 1961.
3. Reopening of the case under section 147 of the Act and legality of the same.
4. Dismissal of grounds of appeal regarding the assessment order being barred by limitation.

Analysis:
1. The appellant contested the treatment of an unsecured loan obtained from Classic Builders as unexplained cash credit under section 68 of the Income Tax Act, 1961. The Assessing Officer did not accept the returned income as correct and made additions under section 68. The appellant argued that the notice issued under section 148 was beyond the permissible time limit and lacked merit as the additions made were not linked to the purported escapement of income. The Tribunal held that the Assessing Officer's jurisdiction to subject income to tax based on a reason to believe does not extend to unrelated income discovered during proceedings. Explanation 3 clarified that assessments can be made on other issues discovered subsequently, but conditions of section 147 must be met. The Tribunal found the notice invalid and quashed the assessment.

2. The dispute regarding the treatment of a gift received from relatives as unexplained cash credit under section 68 was also addressed. The appellant argued that the Assessing Officer's disallowances were not supported by findings and the gifts were explained through cash flow. The Tribunal agreed that the disallowances were unjustified, especially regarding the gift amount forming part of the cash flow. The Tribunal ruled that the gift and advance received did not constitute income escaping assessment, and the notice issued under section 148 was invalid. Consequently, the assessment under section 143(3)/147 was quashed.

3. The appellant challenged the reopening of the case under section 147, alleging improper appreciation of provisions and illegalities in the reopening. The Tribunal examined the jurisdiction of the Assessing Officer under section 148 and emphasized the necessity to fulfill conditions set out in section 147. The Tribunal found the notice issued beyond the statutory time limit and lacking merit, leading to the quashing of the assessment.

4. Lastly, the dismissal of grounds of appeal regarding the assessment order being barred by limitation was addressed. The Tribunal considered the Assessing Officer's failure to provide essential information and the appellant's arguments regarding the time limit for issuing notices under section 148. The Tribunal concluded that the notice issued was invalid due to exceeding the time limit and lack of merit, resulting in the quashing of the assessment.