2016 (5) TMI 92 - AT - Income Tax

Reopening of assessment - receipt of gifts unexplained - Held that - it is clear that information was received by the Assessing Officer from the Deputy Commissioner of Income-tax CC-V Ludhiana dated March 5 2007 which did not reveal any fact of escapement of any income. It refers only the decision of the hon ble Punjab and Haryana High Court in the case of Lall Chand Kalra (1981 (1) TMI 275 - PUNJAB & HARYANA HIGH COURT ). This did not say that the assessee received any bogus gift. The reasons did not satisfy the requirements of section 147 of the Income-tax Act. There is no reference to any document or statement except reference to the judgment of the High Court. The same could not be regarded as a material or evidence that prima facie showed or established nexus or link which disclosed escapement of income in the case of the assessee. There is nothing in the reasons recorded to show any tangible material had come into possession of the Assessing Officer subsequent to the issue of intimation. A valid reopening of assessment has to be based only on tangible material to justify the conclusion that there is escapement of income. The Assessing Officer recorded wrong facts in the reasons as mentioned above and thus has not applied his mind before forming belief of escapement of income. The information dated March 5 2007 was not a pointer and did not indicate the escapement of income. The Assessing Officer did not examine the information which was nothing and did not speak of escapement of income before recording his own satisfaction of escaped income initiating the reassessment proceedings. Thus the Assessing Officer acted only on the basis of suspicion and the same could not be said that it was based on belief that income charged to tax has escaped assessment. - Decided in favour of assessee

Issues Involved:
1. Reopening of assessment under section 148 of the Income-tax Act, 1961.
2. Addition of Rs. 21 lakhs, Rs. 46 lakhs, and Rs. 12 lakhs received from donors as undisclosed income.

Issue-wise Detailed Analysis:

1. Reopening of Assessment under Section 148:

The assessees challenged the reopening of their assessments under section 148 of the Income-tax Act, 1961. The main contention was that the Assessing Officer (AO) recorded incorrect facts and did not apply his independent mind before forming the belief that income had escaped assessment. The AO issued a notice under section 148 based on information received from the Deputy Commissioner of Income-tax, Central Circle, Ludhiana, which indicated that the assessees had received gifts from donors who were not blood relatives and there was no specific occasion for the gifts. The AO believed that the gifts were actually the assessees' own undisclosed income introduced in the guise of gifts.

During the appellate proceedings, the Commissioner of Income-tax (Appeals) [CIT(A)] upheld the AO's decision, stating that there was reliable information to believe that income had escaped assessment. However, the Tribunal found that the AO had recorded wrong facts in the reasons for reopening the assessment, such as incorrect dates and amounts of income declared by the assessees. Additionally, the Tribunal noted that the information from the Deputy Commissioner did not provide tangible material indicating that the gifts were bogus or that there was any escapement of income.

The Tribunal referred to several judicial precedents, including the decisions of the Gujarat High Court in Jagat Jayantilal Parikh v. Deputy CIT [2013] 355 ITR 400 (Guj) and the Delhi High Court in CIT v. Orient Craft Ltd. [2013] 354 ITR 536 (Delhi), which emphasized that a valid reopening of assessment must be based on tangible material and the AO must form an independent belief that income has escaped assessment. The Tribunal concluded that the AO acted on suspicion rather than on a belief based on tangible material, and therefore, the reopening of the assessment was invalid.

2. Addition of Rs. 21 Lakhs, Rs. 46 Lakhs, and Rs. 12 Lakhs as Undisclosed Income:

The AO added the amounts received as gifts from donors to the assessees' income, treating them as undisclosed income under section 69A of the Income-tax Act. The assessees argued that the gifts were genuine and supported by affidavits and confirmations from the donors. The CIT(A) upheld the AO's decision, stating that the series of gifts indicated that they were not voluntary and were not received on any specific occasion.

The Tribunal, however, found that the AO and the CIT(A) did not have sufficient material to conclude that the gifts were undisclosed income. The Tribunal noted that the donors had confirmed the gifts and provided their income tax returns and cash flow statements. Moreover, the AO of the donors did not draw any adverse inference regarding the gifts during the assessment of the donors. The Tribunal referred to the decision of the Punjab and Haryana High Court in Lall Chand Kalra v. CIT [1981] 22 CTR (P&H) 135, which dealt with the creditworthiness of the donor, but did not address the issue of reopening of assessment.

The Tribunal concluded that there was no tangible material to justify the addition of the gifts as undisclosed income and that the reopening of the assessment was based on incorrect facts and suspicion. Therefore, the Tribunal quashed the reopening of the assessment and deleted the additions made by the AO.

Conclusion:

The Tribunal allowed the appeals of the assessees, quashing the reopening of the assessments under section 147/148 of the Income-tax Act and deleting the additions made on account of the gifts received from the donors. The Tribunal emphasized that the reopening of assessment must be based on tangible material and an independent belief of the AO that income has escaped assessment, which was not present in this case.

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