SMT. PREMA MUKESH JHALANI ,MUMBAI vs. ITO WARD 3(2) , THANE

15 Pankaj C. Jain 4,015 176-178 16 Rajkumar Jain 7,100 179- 181 17 Ramna Swami 8,100 182-184 18 Ruchi Jain 3,133 185-196 19 Indra Kumar Jain 5,141 197-207 20 Gulabi Devi Kumhar 4,162 208-210

5. The aforementioned table delineates the complete sequence of events relating to the transfer of shares, effected as gift in favour of the assessee.

6. Further the shares were gifted by the donor to the appellant on 09/04/2009 itself, as per the letters of the donors as referred above. Now, the provisions of section 56(2)(vii)(c) of the I. T. Act, 1961 were introduced for the first time w.e.f., 01.10.2009 i.e. FY 2009-10 (AY 2010-1 1) and the shares were already gifted in the name of the appellant by the donors prior to that. Thus, the provision of section 56(2)(vii)(c) of the I. T. Act, 1961 is not applicable to the Appellant so far, the above-mentioned gifts are concerned. It is only because the gift deed was executed on stamp paper on 18.09.2010 at the request of the company the Ld. AO has initiated re- assessment for AY 2011-12. However, the Ld. AO has himself stated in his order that the gift deed was made on 30.04.2009 [Ref. pg. 10 of AO]. However, nowhere has the Ld. AO mentioned that the gift deed was not made on 30.04.2009 or that the gift deed was invalid, etc. It is in this background the appellant has challenged the action of the Ld. AO in making an addition u/s 56(2)(vii)(c) in the hands of the Assessee for AY 201 1-12.

7. In this regard, the Assessee submits as under: LEGAL SUBMISSIONS: ON THE VALIDITY OF RE-ASSESSMENT:

1. 1. The reasons provided to appellant are undated and therefore it is not possible to verify whether the reasons were recorded on or before 28/03/2018 i.e., prior to issuance of notice u/s 148 of the I. T. Act, 196L Reliance is placed on the decision of Charanjiv Lal Aggarwal vs. ITO [201 7] 88 taxmann.com 845 (Amritsar - Trib.).

2. The reassessment order is liable to be quashed as it is founded on incorrect facts and reflects a manifest non-application of mind. The reasons cited rely solely on uncorroborated and unconfronted information, without any independent verification or inquiry. Furthermore, the assumption that the entire amount of Rs.100 per share (comprising Rs. 10 face value and Rs. 90 share premium paid by the donors) constitutes taxable income in the hands of the appellant is in gross contravention of Section 56(2)(vii)(c) of the Income Tax Act. Such an interpretation is legally untenable. Accordingly, the reassessment, being based on flawed reasoning and erroneous factual premises, is unsustainable in law and deserves to be quashed. ONMERITS: 3. Admittedly, the shares are transferred by delivery vide gift deed dated 30.04.2009 i.e. in AY 2010-11, that is FY 2009-10. So far as the donor and donee are concerned the transaction of gift is completed and such mode of transfer of shares has also been recognised in law as held by the Hon'ble Supreme Court and various other Courts [Ref. Vasudev Ramchandra Shelat v/s Pranlal Jayanand Thakkar - (1975) 45 CC 43 (SC)/1975 AIR 1728 SC, CIT v/s M. Ramaswamy - (1985) 151ITR 122 (Mad), et. al.]. Therefore, so far as the donor and donee are concerned the gift is complete.

4. However, apart from merely raising doubts, the Ld. AO has not conducted independent enquiry to rebut the submission of the appellant and therefore the addition made by the AO deserves to be deleted since the same is based only on surmise and nothing more.

5. Further, the Ld. AO has nowhere stated that the gift deeds are bogus or invalid in law. He has also not denied the fact that the actual transfer of shares took place during AY 2010-11. Therefore, the taxability, if at all arises then the same could have been taxed only in AY 2010-11. Therefore, Ld. A.O. is not correct in simply rejecting the claim of the appellant and thereafter making an addition in her hands for AY 2011-12. Without prejudice to the above if the stand of the Ld. AO is accepted that the shares were transferred in the name of the appellant on 18.09.2010, even then as per the doctrine of relating back the same would be seen as transferred from 30.04.2009 i.e., in AY 2010-11.

7. The Ld. A.O. is not empowered to make addition merely on mere presumptions and surmises, without making any independent enquiry. Such an addition based on presumptions or assumptions is unsustainable [Ref: Dhirajlal Girdharilal v/s CIT - (1954) 26 ITR 736 (SC), Dhakeshwari Cotton Mills v/s CIT- (1954) 26 ITR 775 (SC), Lal Chand Bhagat Ambika v/s CIT- (1959) 37ITR 288 (SC)} 8. The appellant further humbly submits that in any case, section 56(2)(vii)(c) envisages taxing the fair market value of the movable property received without consideration. Firstly, natural love and affection is a valid consideration as held in numerous judgements. Secondly, without undertaking the exercise of computing the fair market value, the Ld. A.O. cannot proceed ahead for making addition in the hands of the appellant. Therefore, the invocation of section 56 is invalid and the addition made by him deserves to be deleted.

9. It is therefore submitted that the Ld. A.O. has erred in initiating the reassessment and making addition in the hands of the appellant u/s 56(2)(vii)(c) of the Act for AY 2011-12.” 4. On the contrary, Ld. DR relied upon the orders passed by the Revenue Authorities.

5. We have heard the counsels for both the parties, perused the material placed on record and the orders passed by the revenue authorities.

6. From the records, we noticed that the case of the assessee was reopened on the reasons that the assessee had received gifts of equity shares of M/s. Krishnaping Alloys Private Limited from 20 different persons i.e donors and the list of such donors is as under :

7. However, the AO while passing the assessment order treated the gifts as ‘income from other sources’ and made additions in the hands of Assessee U/S 56(2)(vii)(c) of the Act.

As per the information, the assessee has made the following payments in USD. ASSF-17276 USD Inland Transportation fee - 1200 USD Since these payments were declared as illicit payments by the UNO under whose program the export of goods were made, therefore, the amount to the extent mentioned above has not been included in the profit declared by the assessee on the export of goods to Iraq as the remittance received against the export made to the Iraq were received less to that extent. Accordingly, the profit returned by the assessee from his export business from Iraq has been under assessed to the tune of Rs. 17276+1200=18476 USD/Rs. 56.15, i.e., Rs. 10,37,427 (in Indian currency) has been under assessed for the assessment year 2004-05 as the final payments were received by the assessee during the period relevant to the assessment year 2004-05. In view of the above, I have, therefore, reasons to believe that on account of the assessee's failure to disclose true and full particulars of his income in the return of income lied, income to the extent of Rs. 10,37,427 chargeable to tax has escaped assessment within the meaning of section 147 of the Income- tax Act, 1961 for the assessment year 2004-05. Issue notice under section 148 of the Income-tax Act, 1961. Notice under section 148 has been issued with the prior approval of the Additional Commissioner of Income-tax, Range- IV, Amritsar. From the above reasons recorded, we find that these reasons are undated, which itself prove that the Assessing Officer has not applied his mind. Secondly, nothing appears in the reasons recorded suggesting that the Assessing Officer had made any positive enquiry before coming to the conclusion that the income chargeable to tax has escaped assessment. The Assessing Officer has reopened the case on the basis of borrowed satisfaction, which is not permissible under the law.

The Income-tax Appellate Tribunal, Amritsar Bench, in the case of Mohd. Yousuf Wani (supra) under similar facts and circumstances has held the assessment order bad in law. For the sake of convenience, the relevant findings of the aforesaid order of the Tribunal are reproduced below: "7. We have considered the rival submissions and have also gone through the material available on record. In the instant case, the Assessing Officer initiated the proceedings under section 147/148 of the Act by recording the following reasons: 'Office of the Income-tax Officer, Ward 3, Srinagar. 1 Name of the assessee Shri Md. Yousuf Wani 2 Address of the assessee Shopian, Kashmir 3 Status Individual 4 Assessment year 2004-05 Reasons for initiation of proceeding under section 148 of the Income-tax Act, 1961 In this case information was received from J&K Vigilance Organization during August through the office of the Additional Commissioner of Income-tax, Srinagar Range, Srinagar. The information was titled as under: "Information in the case of Shri Mohd. Yousuf Wani, Forest Contractor, s/o Shri. Mohd. Ramzan Wani, r/o Shopian presently at Raj Bagh, Srinagar and reflection of the unaccounted assets of Shri Mohd. Yousuf Wani." The information supplied by the Vigilance Organisation was constituted of two pages (in letter form) photo of fourteen (14) cash certificates/fixed deposits in the name of Shri Mohd. Yousuf Wani and its other family members. After analysing the entire information it was noticed that the assessee has purchased the following cash certificates/FDRs from J&K Bank, Pulwama on the dates shown each and proceedings under the Income- tax Act as mentioned below were initiated in respect of the relevant assessment year:

Sl. No Date Type Amount (Rs.) 1. 19.08.2003 Purchase of FDR / CC No. 5,00,000 (0870833) 2. 17.11.2003 Interest on FDR / CCR 6832 5,06,832 As per records the assessee has not filed his return of income for the said assessment year and as such I have reason to believe that the income of Rs. 5,06,832 has escaped assessment for the assessment year under reference. Accordingly notice under section 148 of the Income-tax Act, 1961 is being issued in this case. Sd/- Income-tax Officer Ward 3, Srinagar.' 7.1 At the first instance, we may point out that the so-called reasons recorded by the Assessing Officer are mere information received from the J & K Vigilance Organisation during August through the office of the Additional Commissioner of Income-tax, Srinagar Range, Srinagar. We may also point out that the so-called reasons recorded by the Assessing Officer are undated, which means that the Assessing has not applied his mind while recording the reasons. In the so-called reasons recorded, the Assessing Officer has also mentioned that "as per records the assessee has not filed his return of income for the assessment year and as such I have reason to believe that the income of Rs. 5,06,832 has escaped assessment for the assessment year under reference". The above observation noted by the Assessing Officer is wrong and contrary to the records. From the assessment order dated December 29, 2006 passed under section 143(3) of the Act, it is clear that the original return in this case was filed by the assessee on November 1, 2004 declaring income of Rs. 1,44,800 and agricultural income of Rs. 1,95,000. Subsequently, the notice under section 148 of the Act was issued to the assessee. In response to that, the assessee submitted that the return already filed on November 1, 2004 be treated as filed in response to notice under section 148 of the Act. In our view, the Assessing Officer has casually recorded the reasons. In fact, he has not cared to see the return of income of the assessee, which was filed well within time for the year under consideration. This fact alone shows non-application of mind by the Assessing Officer. We also find that the Assessing Officer even did not examine the assessee under section 131 or 133(6) of the Act to ascertain the truth with regard to the contents of the letter sent by the Vigilance Department. It is also worthwhile to mention here that the perusal of the assessment order will reveal that the Assessing Officer has not made any addition in the reassessment order pertaining to the FDRs mentioned in the so-called reasons recorded but he has travelled to other issues. This fact alone shows that the so-called reasons recorded by the Assessing Officer were made without application of mind by the Assessing Officer. In our considered view, reliance placed by the Assessing Officer on the letter of Vigilance Department was not sufficient to make a belief that the income of the assessee escaped assessment. In the present case, the reasons for formation of belief was only the information received from the Vigilance Organisation. In our opinion, the so-called reasons recorded by the Assessing Officer could not be held the reasons for proceedings under section 147/148 of the Act, since it was only an information and was not at all discernible as to whether the Assessing Officer has applied his mind to the information and independently arrived at a belief, on the basis of material which he had before him, the income of the assessee had escaped assessment. While taking such a view, we are fortified by the ratio laid down in the judgment of the hon'ble Delhi High Court in the case of CIT v. SFIL Stock Broking Ltd. [2010] 325 ITR 285 (Delhi) wherein it has been held as under (page 289): 'After having heard the counsel for the parties, we are inclined to agree with the submissions made by the respondent/assessee. We find that the Supreme Court in Asst. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 500 (SC) made it absolutely clear that before an Assessing Officer issues a notice under section 148, thereby reopening the assessment under section 147 of the said Act, he must have formed a belief that income had escaped assessment and that there must be some basis for forming such a belief. The Supreme Court made it clear that the basis of such belief could be discerned from the material on record which was available with the Assessing Officer. However, the Supreme Court in Rajesh Jhaveri [2007] 291 ITR 500 did not say that it was not necessary for the Assessing Officer to form a "belief" and that the mere fact that there was some material on record was sufficient. In the present case, we find that the first sentence of the so- called reasons recorded by the Assessing Officer is mere information received from the Deputy Director of Income-tax (Investigation). The second sentence is a direction given by the very same Deputy Director of Income-tax (Investigation) to issue a notice under section 148 and the third sentence again comprises of a direction given by the Additional Commissioner of Income-tax to initiate proceedings under section 148 in respect of cases pertaining to the relevant ward. These three sentences are followed by the following sentence, which is the concluding portion of the so-called reasons : "Thus, I have sufficient information in my possession to issue notice under section 148 in the case of M/s. SFIL Stock Broking Ltd. on the basis of reasons recorded as above." From the above, it is clear that the Assessing Officer referred to the information and the two directions as "reasons" on the basis of which he was proceeding to issue notice under section 148. We are afraid that these cannot be the reasons for proceeding under section 147/ 148 of the said Act. The first part is only an information and the second and third parts of the beginning paragraph of the so-called reasons are mere directions. From the so-called reasons, it is not at all discernible as to whether the Assessing Officer had applied his mind to the information and independently arrived at a belief that, on the basis of the material which he had before him, income had escaped assessment. Consequently, we find that the Tribunal has arrived at the correct conclusion on the facts. The law is well-settled. There is no substantial question of law which arises for our consideration. The appeal is dismissed.'

From the above, it is clear that the Hon'ble Delhi High Court has also considered the decision of the Hon'ble Supreme Court rendered in the case of Asst. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 500 (SC) and after considering the decision of the Hon'ble Supreme Court in the case of Rajesh Jhaveri (supra) the Delhi High Court concluded that the Assessing Officer has not applied his mind to the information and independently arrived at a belief that on the basis of the material which he had before him, income had escaped assessment. In the instant case also, it is crystal clear that the Assessing Office has not applied his mind and also not independently arrived at a belief that on the basis of the material he had before him, income has escaped assessment, and therefore, we allow ground Nos. 1 to 4 of the appeal and quash the reassessment order."

8. In view of the above discussions and legal precedents, we quash the assessment order passed by the Assessing Officer, as void ab initio and therefore, ground No. 3 of the appeal is allowed.

Order pronounced in the open court on 16.06.2025.