TMI Blog2008 (3) TMI 726X X X X Extracts X X X X X X X X Extracts X X X X ..... During the course of assessment proceedings for asst. yr. 2003-04 it is gathered that the assessee has received NRI gift of ₹ 4,32,331 on 16th Dec., 2001 from his sister, Smt. Smitaben Patel. A statement of the assessee, Shri Unmesh Indravadan Shah, was recorded on oath on 19th Sept., 2005. In his statement, the assessee has stated that he is having three sisters. He married in the year 1985 and their daughter and son born in the year 1994 and 2000. Smt. Smitaben Patel, the sister of the assessee had never given any gift on these occasions to the assessee. The assessee, in financial year 2002-03, had received his proportionate share of ₹ 11,53,602 from sale of land by M/s Hirachand Zaverchand Co., Sardar Baug, Bardoli, where he is a partner. In view of above, there is reason to believe that the assessee had escaped income of ₹ 4,32,331 and, therefore, the case for asst. yr. 2002-03 is to be reopened under s. 147 of the IT Act, 1961. Issue notice under s. 148 of the Act. 3. Since the AO was not satisfied about the genuineness of the transaction in gift and the creditworthiness of the donor, the AO treated the amount of ₹ 4,32,331 on ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke a marriage or birth in the family which would warrant such a gift. Therefore, the genuineness of the claim of gift is not at all established. The appellant is financially very sound as it is seen that he has received a sum of ₹ 11.53 lakhs from sale of land in the year 2002-03. Therefore, it does not appeal to reason that a financially sound brother would accept a gift from his sister. I am, therefore, of the considered view that the claim of the appellant of having received a gift from his sister has not been established and the AO has rightly treated this amount as unexplained cash credit under s. 68 of the IT Act. The addition is hereby confirmed. The taxpayer is in appeal against these findings of learned CIT(A). The learned Authorised Representative on behalf of the taxpayer invited our attention to reasons recorded by the AO and submitted that the AO had no material before him for his opinion that income of ₹ 4,32,331 has escaped assessment. In para 2 of the reasons, only certain statements of facts have been made regarding recording of statement of the taxpayer besides expressing his opinion that the sister of taxpayer had never given any gift on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal Representative supported the order of the AO and learned CIT(A) apart from relying on the decision of the Hon ble Gujarat High Court in the case of Praful Chunilal Patel vs. M.J. Makwana, Asstt. CIT (1998) 148 CTR (Guj) 62 : (1999) 236 ITR 832 (Guj). 6. We have heard both the parties and gone through the facts of the case. As regards ground No. 1 relating to validity of reopening of the assessment, the AO reopened the assessment under s. 147 r/w s. 148 on the ground that the statement of the taxpayer recorded on 19th Sept., 2005 revealed that the taxpayer has received ₹ 4,32,331 by way of gift from his sister for which no details have been filed. The AO recorded in his reasons certain statement of facts, which in our opinion do not amount to reasons to believe that income corresponding to gift has escaped assessment. Mere statement of facts cannot be a substitute for the reasons that are required to be recorded. The scope and effect of s. 147 as substituted w.e.f. 1st April, 1989, as also ss. 148 to 152 are substantially different from the provisions as they stood prior to such substitution. Under the old provisions of s. 147, separate cls. (a) and (b) laid d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the escapement of income. Apparently, it is an arbitrary exercise of power. Hon ble Supreme Court in Madhya Pradesh Industries Ltd. vs. ITO (1965) 57 ITR 637 (SC) held that a notice under s. 148 cannot be issued merely to make fishing inquiries into the return. The words of the statute are reason to believe and not reason to suspect. The formation of belief must have a rational connection with or relevant bearing on the formation of belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of ITO and the formation of his belief that there has been escapement of income chargeable to tax. ITO vs. Lakhmani Mewal Das 1976 CTR (SC) 220: (1976) 103 ITR 437 (SC). Earlier, in S. Narayanappa vs. CIT (1967) 63 ITR 219 (SC) a three Judge Bench of the Supreme Court speaking through his Lordship Justice J.C. Shah held that the expression reason to believe does not mean a purely subjective satisfaction on the part of the ITO, that the reason must be held in good faith, that it cannot be merely a pretence and that though the Court cannot examine the sufficiency of the reasons for the formation of the req ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions are satisfied does not exist or is not material or relevant to the belief required by the section. 6.4 As regards plea on behalf of the taxpayer that there is no nexus or link or rational connection with the belief that income chargeable to tax had escaped assessment, learned Authorised Representative relied upon the decision of the Tribunal Delhi Bench (Third Member) in the case of Asstt. CIT vs. O.P. Chawla (supra) wherein also notice under s. 148 had been issued after processing of return under s. 143(1)(a) of the Act on the ground that the balance sheet of the assessee revealed that the assessee had received certain amount of gift from a NRI for which no details had been filed. While pointing out the distinction between the expression reason to believe and reason to suspect , Hon ble Tribunal, inter alia, after referring to the decisions in the case of ITO vs. Lakhmani Mewal Das (supra), Ganga Saran Sons (P) Ltd. vs. ITO (1981) 22 CTR (SC) 112 : (1981) 130 ITR 1 (SC), Bawa Abhai Singh vs. Dy. CIT (2001) 168 CTR (Del) 521 : (2002) 253 ITR 83 (Del) concluded in the following terms : 13. In the light of the above discussion, if I look at the reasons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not intended to achieve. It would also permit the AO to accept the return under s. 143(1)(a) in the hope that if he at any time in future wanted to verify and probe into the same he can always rely on s. 147 and s. 148, a situation which would tend to make a mockery of a legal provision which can be invoked only after strictly fulfilling the stringent conditions precedent. 14. In an early case decided by the Madras High Court in The Presidency Talkies Ltd. vs. Addl. ITO (1954) 25 ITR 447 (Mad) it was observed that the object and purpose behind the requirement of recording reasons for reopening the assessment and communicating them to the assessee were to safeguard the interests of the assessee against any hasty action on the part of the ITO under s. 34 or an action without any justification . The Supreme Court while approving the judgment of the Madras High Court on a different point in the case of S. Narayanappa (supra) observed that the reasons recorded must be held in good faith and shall not be a mere pretence. I am inclined to hold that the reasons recorded in the present case by the AO for reopening the assessment are a mere pretence, an excuse to enquire into ..... X X X X Extracts X X X X X X X X Extracts X X X X
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