2017 (6) TMI 333 - AT - Income Tax

Reopening of assessment - reasons to believe - proof of omission or failure of the assessee - Held that - It is a necessary prerequisite that ingredients of Sec. 147 of the Act have to be fulfilled for initiating proceedings u/s.147 of the Act. At the stage of issue of notice, there has to be some relevant material on which a reasonable person could have formed a belief of escapement of income. No doubt where the original assessment was completed u/s.143(1) and where an original assessment was not done at all, the condition regarding omission or failure of the assessee and /or condition regarding change of opinion will not apply. The first condition that there should be a reason for believing escapement of income is necessary ingredient. A reading of the reasons reproduced by us above do not indicate how there could have been escapement of income in assessee s hand where the property was settled in favour of the assessee by her husband, income from which was assessable in the hands of her husband. In my opinion, therefore the reasons cited for reopening the assessment had no legs to stand and smack of total non-application of mind. Exconsequenti the reassessments done for the impugned assessment years are set aside.- Decided in favour of assessee.

Issues:
1. Validity of reopening assessments for impugned assessment years based on settlement deed.
2. Interpretation of Section 27(i) of the Income Tax Act.
3. Application of legal principles in assessing income from property transferred to spouse.
4. Compliance with requirements of Section 147 for reopening assessments.

Detailed Analysis:
1. The appellant challenged the reopening of assessments for the impugned years, specifically focusing on grounds three and four related to the jurisdiction for assessment. The appellant argued that the reasons for reopening, based on a settlement deed transferring property to the appellant by her husband, did not establish any income escapement in the appellant's hands. The appellant's representative contended that the income from the property should be assessed in the husband's hands as per Section 27(i) of the Act. Additionally, discrepancies in rental value calculations and lack of adequate basis for reopening were highlighted.

2. The Departmental Representative countered by emphasizing that the rental income from the property was not disclosed by the appellant or her husband, except for one year. Referring to a Supreme Court judgment, the Departmental Representative argued that the reopening of assessments was valid since the original assessments were completed under section 143(1) of the Act.

3. Upon reviewing the contentions and relevant legal provisions, the tribunal analyzed the settlement deed and Section 27(i) of the Act. The tribunal noted that the settlement was a gift from the husband to the appellant out of affection, making the husband the deemed owner of the property for income assessment purposes. The tribunal cited the Supreme Court's interpretation of Section 147, emphasizing the requirement of a valid reason to believe income escapement for reopening assessments. The tribunal concluded that the reasons for reopening lacked merit as the income was assessable in the husband's hands, leading to the reassessments being set aside in favor of the appellant.

4. The tribunal's decision focused on the necessity of fulfilling the conditions under Section 147 for initiating reassessment proceedings. It highlighted the importance of having relevant material to support the belief of income escapement. The tribunal found that the reasons provided for reopening assessments did not demonstrate income escapement in the appellant's hands, indicating a lack of proper application of legal principles. Consequently, the reassessments for the impugned years were overturned, and the appeals of the appellant were allowed based on the jurisdictional issue.

This detailed analysis of the judgment showcases the tribunal's thorough examination of the legal aspects involved in the case, ultimately resulting in a decision in favor of the appellant regarding the validity of reopening assessments.

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