2015 (12) TMI 985 - HC - Income Tax

Invalid assessment under Income Tax Act due to change of opinion without new material. Orders set aside in favor of Assessee.

The High Court held that the reopening of the assessment under Sections 147/148 of the Income Tax Act was unjustified as it was based on a change of ... Reopening the assessment originally framed under Section 143 (3) - genuineness of the gifts and to scrutinize the corresponding entries in their books of account in their respective countries - Held that:- Below the office note, list of 16 donors has been set out. The office note states that in order to verify the genuineness of the gifts and to scrutinize the corresponding entries in their books of account in their respective countries, a detailed letter has been sent to the FTD Branch of the CBDT. It is, in that context, stated that “if anything achieve received from the FTD (Foreign Tax Division) Branch the assessment shall be reopened”. In other words, the reopening of the assessment was made contingent upon some material being received from the FTD. It is not denied by the Revenue that till date no such adverse material qua the Assessee has been received from the FTD. In the absence of any material, as anticipated by the AO in the office note, it is difficult to appreciate on what basis the AO could form the “reasons to believe”, that for the AY in question any income has escaped assessment. What seems to have been overlooked by the CIT (A) as well as the ITAT is that the original assessment was framed after detailed questionnaires were sent to the Assessee and replies furnished by him thereto giving the details of all the donors as well as their affidavits. These were examined by the AO. The mere fact that the AO may not have mentioned in the assessment order that the above exercise was undertaken need not mean that he did not pay attention to the materials before him. There was no warrant for the ITAT to have drawn such presumption. In fact the affidavits of the donors coupled with the confirmation letters of the Bank, as noted hereinabove, were materials touching upon the aspects of genuineness of the identity of the donors. Unless there was material which controverted the said documents produced by the Assessee in the form of the report of the FTD, it could not be said that there was any adverse material which could justify the formation of ‘reasons of believe’ within the meaning of Section 147/148 of the Act for reopening the assessment. - Decided in favour of assessee. Issues Involved:1. Reopening of assessment under Section 147/148 of the Income Tax Act, 1961.2. Validity of the addition of foreign gifts as concealed income.Issue-Wise Detailed Analysis:1. Reopening of Assessment under Section 147/148 of the Income Tax Act, 1961:The primary issue addressed in the judgment is whether the Income Tax Appellate Tribunal (ITAT) was correct in law and on facts in upholding the action of the Assessing Officer (AO) in reopening the assessment originally framed under Section 143(3) of the Income Tax Act, 1961.The Assessee had initially filed his return for the Assessment Year (AY) 1994-95 on 14th November 1994, declaring an income of Rs. 3,36,970. The return was scrutinized, and specific queries were raised by the AO regarding the foreign donors of gifts disclosed by the Assessee. The Assessee provided detailed replies and affidavits from the donors, which were accepted by the AO, and the assessment was completed at an income of Rs. 3,34,841 on 6th February 1997.Subsequently, on 9th February 2001, the AO reopened the assessment based on a valuation report from the Departmental Valuation Officer (DVO) and the need to verify foreign gifts amounting to Rs. 6,75,000. The Assessee contended that the original return should be treated as his response to the notice. The AO concluded that the Assessee failed to establish the genuineness of the NRI gifts and treated the amount as concealed income in the reassessment order dated 29th March 2001.The Commissioner of Income Tax (Appeals) [CIT (A)] upheld the AO's decision, stating that the issue of NRI gifts was not properly examined initially and that the AO's 'reasons to believe' were neither irrational nor malafide. The ITAT also upheld the reopening, noting that the AO had made a reference to the Foreign Tax Division (FTD) of the Central Board of Direct Taxes (CBDT) for inquiries about the donors.However, the High Court found that the reopening was contingent upon receiving adverse material from the FTD, which was never received. The original assessment was completed after detailed scrutiny, and there was no new material to justify reopening. The Court emphasized that a change of opinion does not warrant reopening under Section 147 of the Act. The Court cited precedents, including CIT v. Multiplex Trading & Industrial Co. Ltd. and Oriental Insurance Company v. CIT, to support its conclusion that the reopening was unjustified.2. Validity of the Addition of Foreign Gifts as Concealed Income:The AO had added the foreign gifts amounting to Rs. 5,65,000 as concealed income, questioning the genuineness of the NRI gifts and the Assessee's relationship with the donors. The CIT (A) and ITAT upheld this addition.The High Court, however, noted that the Assessee had provided detailed information and affidavits from the donors during the original assessment, which were accepted by the AO. There was no new adverse material to challenge the genuineness of the gifts. The Court held that the reopening of the assessment was based on a change of opinion without any new tangible material, making the addition of foreign gifts as concealed income invalid.Conclusion:The High Court concluded that the reopening of the assessment under Sections 147/148 of the Income Tax Act was unjustified, as it was based on a change of opinion without any new material. The Court set aside the orders of the ITAT, CIT (A), and AO, and allowed the appeal in favor of the Assessee, with no order as to costs.