2012 (10) TMI 326 - HC - Income Tax

Reopening of assessment - undisclosed income of minor child - Held that - Reopening powers are available to the AO only when he had reason to believe on the material available before him that part of the assessee s income had escaped assessment. The Tribunal found that the minor children of the assessee had filed their returns, before the notice u/s 148 was issued and thus the assessee had placed all material on record including the income of the minor children. Unexplained deposit in saving bank account - Held that - The Tribunal did not commit any error in holding that these additions were in respect of assessment year 1989-90, in respect of which the remedy was available to the revenue to file appeal against the assessment order of the assessment year 1989-90 - AO did not have any material on which he could have recorded his satisfaction that any part of the income of the assessee had escaped assessment to initiate proceedings under Section 147/148 - in favour of assessee.

Issues:
1. Validity of notice under Section 148 of the Income Tax Act, 1961.
2. Addition of income of minor children to the assessee's income.
3. Addition of unexplained deposit in the saving bank account.
4. Power of the Assessing Officer to reopen computed assessment under Section 147 of the Act.
5. Consideration of additional grounds for reopening the assessment.

Issue 1: Validity of notice under Section 148:
The appeal questioned the legality of holding that there was no failure on the part of the assessee to disclose all material facts regarding the income of minor children for assessment. The Tribunal emphasized that the power to reopen assessment under Section 147 is based on the AO's belief that income has escaped assessment due to the assessee's failure to disclose material facts. The AO must have reasons to believe in such escapement and record reasons before issuing a notice under Section 148.

Issue 2: Addition of income of minor children:
The AO added the income of minor children to the assessee's income, alleging that the minors were not competent to contract and the profits earned were actually the assessee's. However, the Tribunal found that the minors had filed their returns before the notice under Section 148 was issued, indicating full disclosure of material facts. The Tribunal ruled that the income of minors did not belong to the assessee, and there was no failure to disclose material facts.

Issue 3: Addition of unexplained deposit:
The AO made an addition for an unexplained deposit in the saving bank account, which was later deleted by the CIT (A). The Tribunal did not find any error in the CIT (A)'s decision to delete this addition, as it was related to a different assessment year.

Issue 4: Power of the Assessing Officer to reopen assessment:
The Tribunal clarified that the AO can only reopen assessment if there is a reason to believe that income has escaped assessment due to the assessee's failure to disclose material facts. In this case, the Tribunal concluded that the AO lacked material to initiate proceedings under Section 147 (a)/148 as the minors had disclosed their income before the notice was issued.

Issue 5: Consideration of additional grounds for reopening assessment:
The Tribunal rejected additional grounds related to loans taken by the assessee, stating that these were for a different assessment year, and the remedy was available through an appeal for that year. The Tribunal upheld that the AO did not have sufficient material to believe that any part of the assessee's income had escaped assessment.

In conclusion, the High Court dismissed the Income Tax Appeal, ruling in favor of the respondent-assessee and against the revenue. The Tribunal's decision was upheld, emphasizing the importance of the AO having valid reasons to believe that income had escaped assessment before reopening proceedings under Section 147 (a)/148 of the Act.

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