2018 (3) TMI 463 - AT - Income Tax

Invalid assessment reopening based on change of opinion without fresh material; CIT vs. Hindustan Zinc Ltd. precedent cited.

The tribunal found the reopening of the assessment invalid as it was deemed to be solely based on a change of opinion without fresh material, citing the ... Validity of reopening u/s 147/148 - exemption/deduction claimed u/s 11 allowed by AO - Held that:- The assessee trust is running an Educational Institutions and the objects and activities of the assessee trust were accepted as charitable in nature while granted registration u/s 12AA of the Act vide order dated 04.11.2004. For the year under consideration the assessee filed return of income on 15.10.2010 and declared nil income after claiming the benefit of Section 11 of the Act. The Assessing Officer while completed the assessment u/s 143(3) vide order dated 18.03.2013 has accepted the return income When the Assessing Officer has reopened the assessment by forming the believe an re-appreciation of material already available on record as well as in view of the decision of Hon’ble Jurisdictional High Court in case of CIT vs. Hindustan Zinc (2016 (6) TMI 1045 - RAJASTHAN HIGH COURT), we hold that reopening is not valid as the AO had no jurisdiction to invoke the provision of Section 148 of the Act. We may point out that the provisions of Section 148 cannot be used for reviewing the decision taken by the AO u/s 143(3) of the Act. There is a demarcation and separation of jurisdiction even for revision for an order suffering from error and therefore the remedy for such erroneous order is provided u/s 263 of the Act. Hence, the reopening of the assessment is set aside - Decided in favour of assessee. Issues Involved:1. Validity of reopening assessment under Section 147/148 of the Income Tax Act, 1961.2. Non-communication of reasons recorded under Section 148(2) of the Income Tax Act, 1961.3. Disallowance of exemption claimed under Section 11 of the Income Tax Act, 1961.4. Issuance of notice of demand under Section 156 of the Income Tax Act, 1961 for the wrong assessment year.Detailed Analysis:1. Validity of Reopening Assessment under Section 147/148 of the Income Tax Act, 1961:The assessee, a trust running educational institutions, contested the reopening of its assessment for the year 2010-11. Initially, the assessment was completed under Section 143(3) of the Act, accepting the income declared and the exemption claimed under Section 11. The reopening was initiated by the Assessing Officer (AO) on 16/03/2015, based on the belief that the surplus income should be taxed. The assessee argued that no new material had surfaced post the original assessment and that the reopening was based solely on a change of opinion, which is impermissible under the law. The tribunal referred to the case of CIT vs. Hindustan Zinc Ltd., emphasizing that the AO must have fresh, tangible material to justify reopening an assessment. The tribunal found that the AO's action was merely a reappreciation of already existing records, thus constituting a change of opinion. Consequently, the reopening was deemed invalid.2. Non-communication of Reasons Recorded under Section 148(2) of the Income Tax Act, 1961:The assessee claimed that the reasons for reopening the assessment were not communicated, thereby denying them the opportunity to file objections. The tribunal noted that the AO must record and communicate the reasons for reopening to ensure transparency and allow the assessee to contest the grounds for reassessment. The tribunal did not find specific details in the judgment about whether the reasons were eventually communicated, but it emphasized the importance of this procedural requirement.3. Disallowance of Exemption Claimed under Section 11 of the Income Tax Act, 1961:The AO disallowed the exemption of Rs. 12,34,179/- claimed under Section 11, arguing that the income was not applied towards charitable activities as required. The assessee countered that the total expenditure on charitable activities exceeded the receipts, and the surplus was a result of proper application of funds. The tribunal noted that during the original assessment, the AO had already scrutinized the details and accepted the expenditure as charitable. Since there was no new material to suggest otherwise, the tribunal held that the exemption disallowance was unjustified and reaffirmed the assessee's claim under Section 11.4. Issuance of Notice of Demand under Section 156 of the Income Tax Act, 1961 for the Wrong Assessment Year:The assessee pointed out that the notice of demand was issued for the assessment year 2013-14 instead of 2010-11. The tribunal acknowledged this clerical error but did not delve into its implications, as the primary focus was on the validity of the reopening of the assessment. Given that the reopening itself was invalidated, the notice of demand for any year became moot.Conclusion:The tribunal concluded that the reopening of the assessment was invalid as it was based on a mere change of opinion without any fresh material. Consequently, the other grounds raised by the assessee became infructuous. The appeal was allowed, and the order for reopening the assessment was set aside. The judgment emphasized the necessity for the AO to have tangible material for reopening an assessment and the importance of adhering to procedural requirements under the Income Tax Act.