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I-T - When AO fails to explain how remittance from abroad is treated as income then re assessment proceedings can be quashed for insufficient reasons : ITAT

 

By TIOL News Service

NEW DELHI, AUG 11, 2018: THE ISSUE IS - Whether when reasons set out by the AO for issuing notice of re-assessment suggests only that remittances is received but does not suggest how remittance is assessee's income then re-assessment proceedings should be quashed on ground of incomplete reasons. YES IS THE VERDICT.

Facts of the case

The assessee is an Individual who had gone abroad in 1985 and, became a non-resident Indian and as such did not file any return of income for the year under consideration. For relevant AY, a notice u/s 148 was issued by AO on the ground that information was received from ED that assessee had received certain remittances in his bank account from overseas. In response to notice, assessee filed return of income. During assessment proceedings, the assessee was directed to explain the source of remittances. In response, assessee filed reply. However, the AO did not accept the claim made by the assessee. The AO noted that assessee had not brought credible evidence to suggest that he had the capacity to make remittances of the magnitude that he had, out of funds lying abroad or through loans taken/granted. He held that the receipts of Foreign Exchange by assessee were his unexplained investment as assessee had not offered proper evidence regarding his creditworthiness. The addition was made u/s 69 of the Act. On appeal, CIT(A) upheld the order of AO.

Tribunal held that,

++ the reasons recorded for issuance of notice, reveals that remittances has been received by the assessee but it has not been stated that on what basis, it has been assumed that, such remittances received by the assessee represented the income of the assessee. There is no material in the possession of the AO which could enable the AO to have reason to believe that sum of Rs. 38,33,506/- represented the income of the assessee. Therefore, the assumption of jurisdiction and upholding thereof is not sustainable in the eyes of law. The case of Bir Bahadur Singh Sijwali vs. ITO is squarely covered in favour of the assessee, wherein the Tribunal has held that " at the stage of initiation of reassessment proceedings, .. the material must indicate income escaping assessment rather than desirability of further probe in the matter which may or may not lead to income escaping the assessment." Following this precedent it was held that the reasons set out by the AO were not sufficient reasons for reopening the assessment proceedings. The assessment proceedings were quashed. As the reassessment itself is quashed, all other issues on merits of the additions, in the assessment proceedings, were rendered academic and infructuous.

(See 2018-TIOL-1267-ITAT-DEL)


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