2020 (6) TMI 407 - AT - Income Tax

Tribunal Quashes Re-Opening of Tax Proceedings; Insufficient Evidence Found for Undisclosed Income Additions.

Shri Manoj Kumar Dhupelia, Smt. Rupal Dhupelia Versus Dy. Commissioner of Income Tax, Central Circle-III, Kolkata

Shri Manoj Kumar Dhupelia, Smt. Rupal Dhupelia Versus Dy. Commissioner of Income Tax, Central Circle-III, Kolkata - [2021] 87 ITR (Trib) 528 (ITAT [Kolk]) Issues Involved1. Validity of re-opening proceedings under sections 147 and 148 of the Income Tax Act, 1961.2. Addition of undisclosed income from bank accounts as per section 69 of the Income Tax Act, 1961.Detailed AnalysisIssue 1: Validity of Re-opening Proceedings under Sections 147 and 148The primary issue revolves around the validity of the re-opening proceedings initiated by the Assessing Officer (AO) under sections 147 and 148 of the Income Tax Act, 1961. The assessees challenged the correctness of the re-opening proceedings, arguing that the AO's belief of income escapement was not based on relevant material but rather on mere suspicion.The tribunal referred to several landmark judgments to establish the legal proposition that the belief of income escapement must be based on relevant information and not on vague or indefinite material. Notably, the tribunal cited 'Calcutta Discount Co. Ltd. Vs. Income Tax Officer (1961) 41 ITR 191 (SC)' and 'Income Tax Officer vs. Lakmani Mewal Das, (1976) 103 ITR 437 (SC)', emphasizing that there must be a direct nexus or live link between the material and the belief of escapement.The tribunal observed that the AO's reasons for re-opening were based on the alleged trust deeds of two trusts, which were not part of the records at the threshold stage. The tribunal highlighted that no such evidence or material was produced even after five years since the tribunal's direction to produce the assessment records. Consequently, the tribunal concluded that the AO had not proceeded as per law while initiating the re-opening proceedings, rendering the re-opening unsustainable in law.Issue 2: Addition of Undisclosed Income from Bank Accounts as per Section 69The second issue pertains to the addition of undisclosed income from bank accounts under section 69 of the Income Tax Act, 1961. The assessees denied any connection with the trusts or the bank accounts in question. They argued that the Revenue failed to discharge its onus to prove that the assessees were beneficiaries of the trusts or had made any investments in the LGT Bank.The tribunal noted that the AO's re-opening reasons did not specify how much of the assessees' taxable income had escaped assessment due to their failure to disclose material facts fully and truly. The tribunal also observed that the Revenue's reliance on the alleged trust deeds was misplaced as these deeds were not part of the records.Furthermore, the tribunal referred to the legal principle that in the case of discretionary trusts, the beneficiary has no more than a hope that the discretion would be exercised in their favor. Citing 'Commissioner of Wealth Tax vs. Estate of Late HMM Vikramsinhji' and 'Commissioner of Income Tax vs. Kamalini Khatau (1994) 209 ITR 101 (SC)', the tribunal held that the income left to discretion could not be assessed in the taxpayer's hands.The tribunal concluded that the addition of the trust's balance in the assessees' hands was not justified as there was no cogent material indicating that the assessees had a right to receive the alleged 1/5th share in the trust's assets. Consequently, the tribunal quashed the re-opening proceedings and the impugned additions.ConclusionThe tribunal allowed the appeals, quashing the re-opening proceedings under sections 147 and 148 and setting aside the additions of undisclosed income from bank accounts under section 69. The tribunal's decision was based on the lack of relevant material to support the AO's belief of income escapement and the absence of any cogent evidence indicating the assessees' right to receive the alleged shares in the trust's assets.