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Facts
The assessee's original assessment for AY 2010-11 was completed accepting the returned income. Subsequently, the assessment was reopened beyond four years on the ground of capital introduction of Rs.22,30,982/- for which no source was provided. The assessee claimed these were gifts from his mother and mother-in-law, but the Assessing Officer added it as unexplained capital.
Held
The Tribunal held that the reopening of assessment beyond four years was not valid as it was based on a change of opinion. The details of gifts were already available during the original assessment proceedings, and no new material was brought on record to indicate failure on the part of the assessee to disclose facts.
Key Issues
Whether reopening of assessment beyond four years based on change of opinion, without new material indicating failure to disclose, is valid.
Sections Cited
143(3), 147, 68, 148, 142(1)
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Income Tax Appellate Tribunal, ‘D’ BENCH: CHENNAI
Before: SHRI SS VISWANETHRA RAVI & SHRI JAGADISH
आदेश / O R D E R
PER JAGADISH, A.M : Aforesaid appeal filed by the assessee for Assessment Year (AY) 2010-11 arises out of the order of Learned Commissioner of Income Tax (Appeals)-10, Chennai [hereinafter “CIT(A)”] dated 22.10.2018 in the matter of assessment framed by Ld. Assessing Officer [AO] u/s. 143(3) r.w.s 147 of the Income-tax Act, 1961 (hereinafter “the Act”) dated 30.12.2016.
The assessee has filed concise grounds of appeal as under:
1. “1. For that the Commissioner of Income Tax (Appeals) failed to appreciate that the order of the Assessing Officer is without jurisdiction, contrary to law, facts and circumstances of the case and at any rate is opposed to the principles of equity, natural justice and fair play.
2. For that the Commissioner of Income Tax (Appeals) failed to appreciate that the reopening of assessment and the consequent reassessment order are bad in law.
3. For that that the Commissioner of Income Tax (Appeals) failed to appreciate that the addition made u/s.68 is untenable and erroneous in the facts and circumstances of the case.
4. For that the Commissioner of Income Tax (Appeals) failed to appreciate that the provisions of section 68 cannot be invoked in the facts and circumstances of the case.
5. For that the Commissioner of Income Tax (Appeals) failed to appreciate that the appellant had proved the identity of the parties, genuineness of the transactions and creditworthiness of the parties.
6. For that the Commissioner of Income Tax (Appeals) failed to appreciate that the Assessing Officer had not properly appreciated the documentary evidences filed by the appellant, in support of his claim.
7. For that the Commissioner of Income Tax (Appeals) failed to appreciate that the source for the increase in capital is the gifts received by the appellant from his mother and mother-in-law.
8. For that the Commissioner of Income Tax (Appeals) failed to appreciate that the Assessing Officer did not bring out any material on record to state that the increase in capital is an unexplained cash credit u/s.68.-
9. For that the Commissioner of Income Tax (Appeals) failed to appreciate that the case was reopened based on the instructions of the Audit party, but the Respondent has suppressed the Audit party's decision to drop the proceedings.
10. For that the Commissioner of Income Tax (Appeals) erred in relying on judgments which are not applicable in the facts and circumstances of the case.
For these grounds and such other grounds that may be urged before or during the hearing of the appeal it is most humbly prayed that this respected authority may be pleased to (a) Delete the addition made under u/s.68. (b) Pass such other orders as this respected authority may deem fit.”
The assessee is the proprietor of M/s. Hawa Exims, engaged in the business of selling mobile phones, etc. The assessee filed his return of income for the Assessment Year 2011-12 on 23.03.2012, declaring a total income of Rs. 4,05,390/-. The case was selected for scrutiny under CASS to examine the cash deposits made by the assessee, and the assessment was completed u/s. 143(3) of the Act accepting the returned income. Subsequently, the assessment was reopened on the ground that the assessee had introduced Rs.22,30,982/- as capital, for which no source or supporting evidence was available on record for A.Y. 2010-11. In response, the assessee explained that the source of capital was gifts of Rs. 15,00,000/- each received from his mother and mother-in-law. However, the Assessing Officer did not accept the explanation and added Rs. 22,30,982/- as unexplained capital. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A). The Ld. CIT(A), after obtaining a remand report from the Assessing Officer, confirmed the addition. The assessee had also challenged the validity of the reopening on legal grounds such as reopening beyond four years and change of opinion, but those contentions were rejected. The Ld. CIT(A) further held that reopening based on an audit objection was valid, relying on the decisions of the Hon’ble Madras High Court in M.A. Murugappan v. CIT [198 ITR 626 (Mad)], Smt. Indira Devi v. CIT [210 ITR 537 (Mad)], and M.A.
Chidambaram v. CIT [216 ITR 517 (Mad)]. On merits, the Ld. CIT(A) held that the assessee failed to establish the genuineness of the gifts and the nexus between the source and the application of funds.
Before us, the Ld. Authorized Representative (Ld. AR) has submitted that during the original assessment proceedings u/s. 143(3) of the Act, the assessee had already furnished details of the gifts received from his mother-in-law on 22.11.2012 along with a copy of the gift deed. The Ld. AR further submitted that the assessee’s accounts were duly audited, and Form 3CEB was furnished. Hence, the reopening of assessment amounts to a mere change of opinion.
The Ld. AR relied upon various case laws that reopening u/s 148 of the Act is not permissible merely by change of opinion. The Ld. AR also contended that the reopening was based solely on an audit objection, which was subsequently dropped by the internal audit party, and therefore the reopening was invalid.
The Ld. Senior Standing Counsel, Shri Prabhu Mukunth Arunkumar, (Ld. Sr. D.R), submits that the view taken by the A.O to reopen the assessment is an independent view, and not based on report of the audit party. He drew our attention to the assessment order and submits that the A.O clearly mentioned that the reassessment was reopened to examine source for the increase in capital to the tune of Rs. 22,30,982/- for which no sources nor evidence were furnished by the assessee. He further submits that the assessee evidently failed to disclose fully and truly the relevant material facts in the original return of income. Further, he argued that the assessee had not adduced any evidence to establish the objections raised before the A.O in respect of reopening of assessment, which were raised for the first time before this Tribunal.
He refers to Page No.39 of the Paper Book and submits that the case was selected for scrutiny primarily on the basis of cash deposits, and not for the introduction to the capital account. Further, he refers to Page No.40 of the Paper Book, where the A.O. asked the assessee to explain the source of cash deposits made during the year under consideration. The explanation provided by the assessee was that these cash deposits were made from sales proceeds in M/s. Hawa Exims, and not from capital introduction. He argued that a plea of gifts received from his relatives does not constitute the capital introduction.
He vehemently argued that the assessee did not furnish true and full disclosure in the original return of income. The Ld. Sr. D.R, also supported the orders of the lower authorities and submitted that increase in capital was not examined during 143(3) of the Act proceeding, therefore the A.O has reopened assessment after duly recording the reason and following due procedure. The Ld. Sr. D.R on merit argued that source of capital introduced was stated to be cash gifts from mother and mother-in-law, the source of which was not explained to the satisfaction of A.O, therefore it was held to be non genuine and addition was made u/s 68 of the Act.
We have heard the rival submissions and perused the materials available on record. The assessment in this case was completed u/s. 143(3) of the Act on 13/03/2013 accepting the returned income. The assessment was reopened beyond 4 years from the end of assessment year after recording the reason that the assessee had introduced Rs.22,30,982/- as capital in his statement, but there is no sources for increasing the capital and no evidence available on the record. The Ld. AR drew our attention to the computation and audit report in Form 3CB filed along with return of income in which capital introduction was shown. The Ld. AR also drew our attention to the notices issued u/s 142(1) of the Act on 18.09.2012 and reply submitted on 10.10.2012, 22.11.2012 and 26.12.2012 during original assessment where details of gifts received from the assessee’s mother, Smt. Hawa Beevi, of Rs 15 Lakh and mother-in-law, Smt. Mohammed Meera Nachi, of Rs 15 Lakh along with gift deeds were submitted. The A.O after examining these documents has accepted the return of income in the order passed u/s 143(3) of the Act. Therefore all the details of source of capital were already available in the record and A.O has not brought out any new material or recorded the reason that the escapement was by reason of failure on the part of assessee, while reopening of assessment beyond 4 years. Therefore, in our view it is a case of change of opinion and as held by Hon'ble Supreme Court in the case of CIT v. Kelvinator of India Ltd. [(2010) 320 ITR 561 (SC) is bad in law. The Division Bench of Hon’ble Madras High Court in the case of Sterlite Industries (India) Ltd. v. Asst. CIT [2009] 178 Taxman 409/[2008] 305 ITR 339 (Mad.), has also held that when a notice u/s. 148 of the Act, is without jurisdiction, especially in cases beyond four years, where there is no failure on the part of the assessee, to fully and truly disclose all material facts, the proceedings deserves to be quashed simplicitor. Accordingly, the reopening of assessment is quashed, and the consequential addition stands deleted.
In the result, the appeal filed by the assessee is allowed.
Order pronounced on 09th day of October, 2025 at Chennai.