2023 (3) TMI 606 - AT - Income Tax

Validity of reopening of assessment - Reopening made beyond four years - nexus between the information received by the Assessing Officer and the escapement of income - information regarding premature surrender of L.I.C Policy - HELD THAT - The Tribunal in assessee s husband s case 2023 (3) TMI 265 - ITAT AHMEDABAD AO needed to conduct some more inquiry, determine the quantum of income which the assessee had been returning in the past years, and whether considering his life style and other factors he could have reasonably accumulated the amount to the extent of Rs.10 lakhs for making investment in LIC premium. He ought to have sought explanation from the assessee of the source of investment, and if his inquiries and investigation would have not satisfied him only in such circumstances, the AO could have formed belief of escapement of income on account of source investment in LIC premium remaining unexplained. I am therefore in complete agreement with the contention of the ld.counsel for the assessee that the information in the possession of the AO could not have lead to belief of escapement of income so as to assume valid jurisdiction to reopening the case of the assessee under section 147 of the Act. CIT(A) has proceeded on the exactly wrong premise as that on which the AO had proceeded that the source of investments is to be co-related or explained through income earned during the year, that is why, the ld.CIT(A) has noted that the AO had verified the returned income and the amount of investment and had rightly come to the conclusion that the assessee had no sufficient source of making such investment. Jurisdiction assumed under section 147 to be invalid, the assessment order passed, as a consequence is not sustainable in the eyes of law and without jurisdiction. Therefore, the same is directed to be set aside.Appeal of the assessee is allowed.

Summary

Issues Involved:
The appeal challenges the order passed by the Ld. CIT(Appeals)-7, Ahmedabad for A.Y. 2011-12 regarding the validity of reopening of assessment and the addition of Rs. 10,00,000.

Issue No. I: Validity of Reopening of Assessment
In this case, the assessee's appeal contests the reopening of assessment under Section 147 of the Income Tax Act, 1961. The Assessing Officer reopened the case due to non-disclosure of a single premium payment of Rs. 10,00,000 for an L.I.C Pension Policy. The assessee argued that the reasons for reopening were not specific, as they did not mention income exceeding Rs. 1,00,000 escaping assessment, as required by law. Citing judicial pronouncements, the assessee contended that the reopening was illegal due to insufficient reasons. The Tribunal in a similar case found that the information available was inadequate to establish income escapement, leading to the assessment being deemed invalid.

Issue No. II: Addition of Rs. 10,00,000
The second issue pertains to the addition of Rs. 10,00,000 to the assessee's income. The assessee explained that the premium payment was made from various sources including agricultural income, supported by a cash flow statement. The assessee argued that the addition was unjustified, and requested its deletion based on the available facts.

In the hearing, the Ld. D.R. supported the assessment order and the CIT(A)'s decision. However, after reviewing all relevant material, the Tribunal found that the reasons for reopening the assessment lacked a connection between the information received and income escapement. Referring to a previous case involving the assessee's husband, the Tribunal concluded that the assessment was flawed as there was no evidence of income evasion. The Tribunal emphasized the need for further inquiry by the Assessing Officer to establish a valid basis for reopening the assessment. Consequently, the Tribunal set aside the assessment order, ruling it as unsustainable in law due to lack of jurisdiction. As a result, the addition of Rs. 10,00,000 to the assessee's income was also deemed unsustainable, leading to the allowance of the assessee's appeal.