2014 (1) TMI 1088 - HC - Income Tax

Validity of Section 148 Notices Upheld for Reassessment

M/s. Rohilkhand Educational Charitable Trust Versus Chief Commissioner of Income Tax & Others

The court upheld the validity of notices issued under Section 148 for reassessment under Section 147, finding that the Assessing Officer had sufficient ... Validity of reopening of assessment u/s 147 - Held that:- The list of voluntary contributors/donors towards corpus was not enclosed along with the return nor submitted during the assessment proceedings u/s 143(3) - The assessee has not filed declaration issued by the voluntary contributors/donors, who contributed/ donated the amount directly to the corpus - The assessee has failed to comply with the provisions of Sub section (d) of Section 11(1) - On examination of records available with the Department for A.Y.2004-05, it is observed that the assessee has prepared two balance sheets for this period under consideration. The first balance sheet was finalized as provisional on 26/04/2004 which tallied at ₹ 6,40,89,311.16/- and the other finalized on 30/10/2004 which is tallied at ₹ 5,68,33,136.38/- The A.O. has relevant material in his possession to form the belief that certain income chargeable to tax has escaped assessment for the assessment years 2002-03, 2003-04, 2004-05, 2005-06 and 2006-07 - The A.O. was having material to form the belief in good faith that there was failure on the part of the assessee to disclose fully and truly the material facts necessary for his assessment - The assessee has reason to believe that there is escapement of income - The necessary conditions for invoking the provisions of Sections 147 and 148, stand satisfied in the facts and circumstances of the case - The AO had valid reasons for issuing notice and the AO was directed to complete the assessment within six months time - Decided against assessee. Issues Involved:1. Validity of notices under Section 148 of the Income Tax Act, 1961 for reassessment under Section 147.2. Bar of limitation for issuing notice under Section 148 for AY 2003-04.3. Sufficiency and adequacy of material for 'reason to believe' for reassessment.4. Alleged non-disclosure of donations and expenses.5. Credibility of the statement made by a complainant.6. Jurisdiction of the Assessing Officer (A.O.) to issue the impugned notices.Issue-wise Detailed Analysis:1. Validity of Notices under Section 148 of the Income Tax Act, 1961:The petitioner challenged the notices issued under Section 148 for reassessment under Section 147 on common grounds. The court noted that the A.O. had recorded satisfaction for 'reason to believe' based on information received, indicating that certain donations and expenditures were not genuine and had escaped assessment. The court found that the A.O. had relevant and credible material to form the belief that income chargeable to tax had escaped assessment. The sufficiency or correctness of the material is not to be considered at this stage. The court held that the necessary conditions for invoking the provisions of Sections 147 and 148 were satisfied.2. Bar of Limitation for Issuing Notice under Section 148 for AY 2003-04:The petitioner contended that the notice for AY 2003-04 was barred by limitation as it was issued after four years from the end of the assessment year. The court found that the notice was issued after obtaining approval from the competent authority. The court concluded that the A.O. had material available to form the belief that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. Therefore, the additional ground of limitation did not merit consideration.3. Sufficiency and Adequacy of Material for 'Reason to Believe':The petitioner argued that no fresh material was brought to the A.O.'s knowledge to give rise to 'reason to believe' that income had escaped assessment. The court observed that the A.O. had recorded satisfaction based on information received, including a complaint and a statement under Section 131 of the Act, alleging that the donations and expenditures were not genuine. The court held that the sufficiency or correctness of the material is not to be considered at this stage, and the A.O. had relevant material to form the belief in good faith.4. Alleged Non-disclosure of Donations and Expenses:The petitioner claimed that there was no requirement under any law to declare the names of donors of the corpus in the balance sheet. The court noted that the A.O. found discrepancies in the donations and expenditures disclosed by the petitioner. The A.O. observed that the petitioner had not fully and truly disclosed the donations for the corpus and expenses, and had claimed inflated and fictitious expenditures. The court held that the A.O. had relevant material to form the belief that income chargeable to tax had escaped assessment.5. Credibility of the Statement Made by a Complainant:The petitioner contended that the statement of a complainant, a non-credible person, could not be the basis for invoking the provisions of Section 148. The court noted that the A.O. had recorded satisfaction based on the statement of the complainant, who alleged that the trust was debiting various expenditures that were not genuine and showing capitation fees as donations. The court held that the A.O. had relevant material to form the belief that income chargeable to tax had escaped assessment.6. Jurisdiction of the Assessing Officer (A.O.) to Issue the Impugned Notices:The petitioner argued that the impugned notices were based on a change of opinion and were issued merely to conduct a roving inquiry. The court found that the A.O. had relevant and credible material to form the requisite reason to believe that income had escaped assessment. The court held that the A.O. had jurisdiction to issue the impugned notices, as the material had a rational connection and relevant bearing on the formation of belief for issuing valid notices for reassessment.Conclusion:The court dismissed all the writ petitions, holding that the impugned notices were validly issued by the A.O. The A.O. had relevant and credible material to form the requisite reason to believe that the income of the assessee had escaped assessment. The court directed that the A.O. shall be at liberty to serve reassessment orders on the assessee if such orders have been made, and allowed the A.O. to complete reassessment proceedings within six months if reassessment orders have not been made.