Hon'ble Aditya Nath Mittal, J.
1. This Income Tax Appeal under Section 260-A of the Income Tax Act, 1961 (for short, the Act) arises out of judgment and order dated 20.6.2002 passed by the Income Tax Appellate Tribunal, Agra Bench, Agra in ITA No. 8157/Del/1992 for the assessment year 1988-89. The appeal was admitted on 19.7.2007, on the following substantial questions of law:-
"(1) Whether on the facts and in the circumstances of the case the Tribunal is legally justified in holding that there has been no failure on the part of the assessee to disclose fully and truly all material facts in respect of income of minor children for the purpose of assessment for the year under consideration.
(2)Whether on the facts and in the circumstances of the case the Tribunal is legally justified in holding that since the reasons recorded for reopening of the assessment do not stand legal scrutiny and the initiation of proceedings u/s 147 (1)/148 of the I.T. Act was bad in law addition made in pursuance thereto were legally sustainable."
2. The assessee is a partner in M/s Chandra Timber Traders of Chandra Timber Group. The search and seizure operations were conducted on 19.1.1989 at the business and residential premises of the firm and the partners of the group. A notice under Section 148 of the Act was issued to the assessee, in pursuance to which the assessee filed a return showing his income at Rs. 26,153/-. The A.O found that the returns of income filed in the name of the assessee's children for the assessment year 1988-89 showing income of interest and other income of Swati Bansal, Abhai Bansal and Master Ansu Bansal earning profits through M/s Param Puri Trading Co. Delhi; M/s Harien Dev Trading Co. Delhi and M/s Moti Lal & Co., Delhi was assessee's own money. The minors were not competent to contract. They could not perform any other services for consideration of these profits except through their guardian. The explanation given, that the minors had filed their income returns with details of capital account, interest and the profit and loss account and balance sheet, was not accepted. He also found that the assessments of minors had been completed under Section 143 (1) of the Act without scrutiny. Accordingly, the income offered for taxation of Rs.59,787/- in the hands of minors was added to the income of the assessee.
3. The AO also made additions of Rs. 50,000/- as unexplained deposit in saving bank account of Punjab National Bank, Agra, which was stated to be deposit out of loans taken by the assessee and directed charge of interest.
4. In appeal the CIT (A) upheld the validity of notice under Section 148 of the Act as the return was not filed. He, however, deleted the additions of Rs. 50, 000/- on account of unexplained cash credits.
5. The Tribunal held that the power to reopen computed assessment and to reassess the income under Section 147 of the Act is on the satisfaction of the AO that the income chargeable to tax had escaped assessment. The power is to be exercised to satisfy the statutory conditions for initiation of proceedings. The AO must have reason to believe that the income had escaped assessment and secondly he must have reason to believe that such escapement had occurred by reason of either omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for assessment for that year. Section 148 casts obligation on the AO to issue notice before making assessment or reassessment. Sub section (2) provides that before issuing any notice the AO has to record his reasons for doing so.
6. The Tribunal found that in the present case the reasons recorded are based on the additions made in the proceedings under Section 134 (5) of the Act in respect of six number of unexplained investments. The notice under Section 148 was issued on 8.11.1988 whereas the assessment in respect of minor children of the assessee were completed before that date. The orders of the assessment of these children were filed with the paper book. The assessee had thus disclosed all material facts in respect of investment/interest income of his minor children. Even otherwise, the department did not place any material to conclude that the interest income of the minors do not below to them. The income of the minors and interest arising out of the investment made from such business income was not assessable in the hands of the assessee and that there was no failure on the part of the assessee to disclose fully and truly all material facts.
7. The Tribunal thereafter found that the additional grounds namely the loans taken of Rs. 1, 05, 000/- in the bank account of the assessee could not be considered for reopening the assessment for the assessment year 1988-89, as the AO in respect of the assessment year 1989-90 had discussed these deposits. In the assessment year 1988-89 no addition as regards to the credit of Rs. 1, 05, 000/- was made by the AO. The additional grounds taken in appeal also did not have any substance inasmuch as the remedy against the order passed by the AO in giving effect to the CIT (A)'s order for assessment year 1989-90 was available before CIT (A).
8. Shri Govind Krishna, learned counsel appearing for the revenue submits that the Tribunal failed to appreciate that proceedings under Section 147 (a)/148 were validly initiated. The assessee had failed to disclose all material and relevant facts in respect of his income in assessment year 1988-89.
9. We have perused the orders passed by the AO and CIT (A) and the reasoning given by the Tribunal in setting aside these orders. The Tribunal did not commit any error of law in explaining the powers of the AO for reopening the assessment. These powers were available to the AO only when he had reason to believe on the material available before him that part of the assessee's income had escaped assessment by reason of his failure to make full and true disclosure of material facts. The Tribunal found that the minor children of the assessee had filed their returns, before the notice under Section 148 was issued and thus the assessee had placed all material on record including the income of the minor children.
10. So far as the additional grounds taken in the Tribunal is concerned, the Tribunal did not commit any error in holding that these additions were in respect of assessment year 1989-90, in respect of which the remedy was available to the venue to file appeal against the assessment order of the assessment year 1989-90.
11. On the aforesaid discussion, we do not find that the Tribunal committed any error in law in allowing the appeal. The AO did not have any material on which he could have recorded his satisfaction that any part of the income of the assessee had escaped assessment to initiate proceedings under Section 147 (a)/148 of the Act.
12. The questions of law raised are thus decided in favour of the respondent-assessee and against the revenue.
13. The Income Tax Appeal is dismissed.
Dt.04.10.2012 RKP/