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Issues: (i) Whether the reassessment was invalid for want of notice under section 143(2) of the Income-tax Act, 1961, and whether section 292BB or section 144 could cure the defect; (ii) Whether the addition made on account of gifts received during the year was sustainable, including the effect of valid VDIS declarations, creditworthiness of the donors, genuineness of the gifts, and the applicability of Circular No. 754.
Issue (i): Whether the reassessment was invalid for want of notice under section 143(2) of the Income-tax Act, 1961, and whether section 292BB or section 144 could cure the defect.
Analysis: The return filed in response to notice under section 148 was treated as a return for reassessment purposes. Once the assessee had filed such return and the Assessing Officer chose to vary it, compliance with section 143(2) was mandatory. The absence of notice under section 143(2) was not a mere procedural lapse. The plea that the assessment was framed under section 144 did not assist the Revenue, because the case did not fall within clause (b) of section 144(1) and, on the admitted facts, clause (c) was attracted, which still required a valid notice under section 143(2). The time available for completing the reassessment was also held to be sufficient, so the omission could not be justified on the ground of paucity of time. Section 292BB was held inapplicable to the year under appeal.
Conclusion: The reassessment was held to be invalid and void ab initio for non-issue of notice under section 143(2), and the Revenue's challenge failed on this issue.
Issue (ii): Whether the addition made on account of gifts received during the year was sustainable, including the effect of valid VDIS declarations, creditworthiness of the donors, genuineness of the gifts, and the applicability of Circular No. 754.
Analysis: The donor ladies had subsisting certificates issued by the competent authority under the VDIS and the Assessing Officer could not go behind those certificates to hold that the declarations were invalid. The Court held that the answer given in Circular No. 754 was applicable on the facts, and the declared amounts, having been credited in the donors' bank accounts and then gifted through banking channels, could not be treated as unexplained merely because the Revenue doubted the donors' wider family means or background. The identity of the donors was not in dispute, the credits were supported by affidavits and statements, and the transaction was found genuine. Since the donors' declared sums supported the gifts, the addition could not be sustained.
Conclusion: The deletion of the addition relating to the gifts was upheld, and the Revenue's challenge failed on this issue as well.
Final Conclusion: The Department's appeals were rejected in entirety. The reassessment was annulled for want of mandatory notice, and independently, the addition on account of gifts was found unsustainable on merits.
Ratio Decidendi: Where a return has been filed in response to reassessment proceedings, issuance of notice under section 143(2) is a mandatory condition for a valid assessment, and a subordinate authority cannot disregard a valid subsisting VDIS certificate to treat the covered amount as unexplained in the hands of the recipient when the declared amount supports the impugned credit and the transaction is proved genuine.
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