INCOME TAX ACT, 1961

Section 147, Proviso Section 5(1)(c) Section 69/148

Reassessment - Validity - Recorded reasons nowhere concluded any escaped income -

Assessees were individual. AO recorded reasons for reopening of assessment as follows: 'I have information in my possession that Manoj Dhupelia, is one of the beneficiaries in Ambrunova Trust, the Ambrunova Trust maintained an account with the LGT Bank in Liechtenstein and the balance thereon as on 31-12-2001 was US $ 24,06,604.90. I have also information in my possession that said Manoj Dhupelia is also one of the beneficiaries in Marline Management S.A., another trust. In view of the above, I have the reason to believe that the income of the assessee to the extent of his share as per the relevant trust deeds in the above two trusts having aforementioned balances as on 31-12-2001 has escaped assessment due to failure on the part of the assessee to disclose full and true income for assessment year 2002-03 within the meaning of section 147'. Held: There was no dispute that the AO's re-opening reasons have also nowhere specified as to how much of the assessees' taxable income had escaped assessment. There was no material evidence coming from the departmental side that the corresponding twin trusts deeds have formed part of records which could even remotely indicate that assessees were beneficial owners of the trusts' assets to the extent of 1/5th share each as on 31-12-2001. Such a re-opening initiated beyond a period of four years from the end of the relevant assessment year was not sustainable in absence of the specified amount of taxable income having escaped assessment being reasons recorded for reopening. Lower authorities had assessed these two assessees qua the overseas trust's balance amount to the extent of 1/5th share each under section 5(1)(c) only. The Tribunal took into account the very fact and circumstances; and particularly, the clinching aspect of the trust deeds nowhere forming part of records that there was no cogent material indicating the assessees as having 1/5th share each in the trusts' assets. And also as to whether the trust deeds herein pin-point the trusts as discretionary or specific ones and whether the balance amount therein was to devolve upon them in a vested or contingent manner. Department's impugned action adding the trust's balance in the two taxpayers' hands does not deserve to be concurred with. The AO's re-opening reasons nowhere allege that these assessees had any right to receive the alleged 1/5th shares as well. The amount in question in the nature of assessees' alleged 1/5th share in the trust balance had neither accrued nor arisen so as to be taxed in these two taxpayers' hands. In absence any material on record, these two assesses did not have right to receive the alleged 1/5th share each in the trust's balance. Both the lower authorities had erred in law and on facts in initiating section 148/147 proceedings against both assessees culminating in the impugned addition(s). The impugned proceedings stand therefore quashed.

Applied:Calcutta Discount Co. Ltd. v. ITO (1961) 41 ITR 191 (SC) : 1961 TaxPub(DT) 130 (SC) and ITO v. Lakmani Mewal Das, (1976) 103 ITR 437 (SC) : 1976 TaxPub(DT) 742 (SC). Relied:Sheo Nath Singh v. Asstt. CIT 972 SCR (1) 175 (SC) : 1971 TaxPub(DT) 362 (SC), S. Naarayanappa and others v. CIT (1967) 63 ITR 219 (SC) : 1967 TaxPub(DT) 198 (SC), CIT-II v. Multiplex Trading and Industrial Co. Ltd. (2015) 63 Taxmann.com 170 (Del-HC) : 2015 TaxPub(DT) 3915 (Del-HC), Mukesh Kumar Gupta v. CIT (2014) 363 ITR 300 (All-HC) : 2014 TaxPub(DT) 1577 (All-HC), (2008) 174 Taxman 605 (Guj-HC) : 2010 TaxPub(DT) 198 (Guj-HC), Maharaja Shri Jyotindresinji v. Asstt. CIT (2014) 45 Taxmann.com 552 (SC), CWT v. Estate of Late HMM Vikramsinhji (2014) STPL (Web) 335 (SC) : 2014 TaxPub(DT) 1797 (SC), CIT v. Kamalini Khatau (1994) 209 ITR 101 (SC) : 1994 TaxPub(DT) 1178 (SC), CIT v. Kamalini Khatau (1994) 209 ITR 101 (SC) : 1994 TaxPub(DT) 1178 (SC) and Pushalal Mansinghka (P) Ltd. v. CIT (1964) 66 ITR 159 (SC) : 1967 TaxPub(DT) 367 (SC).

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