2023 (11) TMI 507 - HC - Income Tax

Trust's petition against reassessment under Section 147 dismissed for misusing foreign contributions exceeding INR 50 lakh

Enviornics Trust Versus The Dept. Commissioner Of Income Tax

Delhi HC dismissed the petition challenging reassessment proceedings under Section 147. The court held that the AO had sufficient material including trust ... Validity of Reopening of assessment u/s 147 - expiry of limitation in relation to the issuance of the Impugned Notice - “sufficiency of reasons” or “correctness of reason” - Mandation of AO having requisite material / information to arrive at a subjective satisfaction that there was an escapement of income - whether the AO could have initiated reassessment proceedings pursuant to Section 149(1) ?- HELD THAT:- Undoubtedly, the same clarifies that ‘deposits in bank accounts’ form a part of the ‘assets’ of the Petitioner, and accordingly, in the considered opinion of this Court, the arguments advanced by the Petitioner qua the expiry of limitation in relation to the issuance of the Impugned Notice cannot be sustained as the income escaped assessment extends to a sum of INR 2,23,95,787 i.e., higher that the minimum threshold of INR 50,00,000 enshrined under Section 149 - Accordingly, the limitation vis-à-vis the initiation of reassessment proceedings in the case herein would resultantly extend to 10 (ten) years in light of the fact that the AO had in its possession inter alia books of accounts evidencing voluntary deposits in bank accounts extending to more than INR 50,00,000. Accordingly, following Acorus Unitech Wireless Pvt. Ltd. [2014 (3) TMI 154 - DELHI HIGH COURT] this Court is satisfied that the AO based its opinion on tangible and concrete information in the form of the Petitioner’s Trust Deed; and statement of Managing Trustee that certain identified foreign contributions received by the Petitioner were utilized for a purpose divergent to its object as disclosed in the Trust Deed, and accordingly, the wrongful application of the exemption availed under Section 11 / Section 12 of the IT Act in relation to such funds would undoubtedly result in the AO forming the subjective satisfaction that the wrong availed exemption vis-à-vis foreign contributions escaped income for the purpose of assessment under the IT Act. Lastly, it is a well settled position of law that an individual seeking to invoke the equitable jurisdiction of a High Court must approach this Court displaying bona fides. However, in the present case, the Petitioner has unquestionably suppressed material facts in relation to the cancellation of its registration under Section 12A, 12AA and 12AB of the IT Act. As decided in Supreme Court in Prestige Lights Ltd. [2007 (8) TMI 446 - SUPREME COURT] it is well settled that a prerogative remedy is not a matter of course. In exercising extraordinary power, therefore, a writ court will indeed bear in mind the conduct of the party who is invoking such jurisdiction. If the applicant does not disclose full facts or suppresses relevant materials or is otherwise guilty of misleading the court, the court may dismiss the action without adjudicating the matter. Petitioner has failed to make out a case warranting the interference of this Court under Article 226 of the Constitution of India. ISSUES PRESENTED AND CONSIDERED 1. Whether reassessment proceedings could be validly initiated under Section 149(1) of the Income Tax Act where alleged escapement of income exceeded the statutory threshold, thereby extending the limitation period to ten years. 2. Whether the Assessing Officer possessed tangible, concrete and new information sufficient to form the requisite subjective satisfaction for issuing notices under Section 148/147 (and the precursor show-cause under Section 148A(b)), such that judicial intervention in writ jurisdiction was inappropriate. 3. Whether suppression of material facts before the Court (specifically cancellation of registrations under Sections 12A/12AA/12AB) warranted dismissal of the writ petition on equitable grounds. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Scope of limitation under Section 149(1): Legal framework - Legal framework: Section 149(1) prescribes limitation for reassessment; explanation to Section 149 treats deposits in bank accounts as assets. Reassessment period is three years ordinarily, and ten years where escaped income exceeds the threshold and is represented as an asset or in books or linked to expenditure, as per statutory amendment applicable to the relevant period. - Precedent Treatment: The Court applied the statutory explanation and legislative scheme as interpreted in existing authorities that limit judicial interference on limitation questions where the legislative criteria are met. - Interpretation and reasoning: The Court found that alleged escaped income (INR 2,23,95,787) exceeded the statutory threshold (INR 50,00,000) and that the AO possessed books evidencing voluntary bank deposits representing such sums. Given the explanation treating bank deposits as assets, the ten-year limitation was held to be attracted. - Ratio vs. Obiter: Ratio - where escaped income exceeds the statutory threshold and is represented as an asset (including bank deposits), reassessment can be initiated within ten years. Obiter - none specific beyond statutory interpretation. - Conclusion: The initiation of reassessment within ten years under Section 149(1) was permissible; the limitation objection failed. Issue 2 - Sufficiency of material to form subjective satisfaction for reassessment (Section 148/147 and Section 148A(b)): Legal framework - Legal framework: For issuance of notice under Section 148 (preceded by show-cause under Section 148A(b)), the AO must have information leading to a subjective satisfaction of escapement of income. Judicial review of such subjective satisfaction is limited to whether it is based on tangible, concrete and new information; courts should not test the sufficiency or correctness of reasons. - Precedent Treatment: The Court adhered to the established principle constraining writ review of Section 147/148 notices to examination of whether the subjective satisfaction rests on tangible and new material, without reappraising merits or correctness of the AO's conclusion. - Interpretation and reasoning: The AO relied on the trust deed and the statement of the managing trustee indicating that certain foreign contributions were utilized for purposes divergent from the trust's declared objects, and other documentary material seized during a survey. The Court treated these as tangible, concrete and new information capable of supporting the AO's subjective satisfaction that exemption under Sections 11/12 was wrongly availed, resulting in escapement of income. - Ratio vs. Obiter: Ratio - where the AO's recorded satisfaction is founded on tangible documentary material and testimonial statements indicating diversion of funds from declared charitable objects, a writ court will not ordinarily interfere with the notice under Section 147/148. Obiter - emphasis that the court's role is not to test correctness of the AO's factual inferences. - Conclusion: The AO had requisite material to form subjective satisfaction; the impugned show-cause and reassessment notice survived writ scrutiny on this ground. Issue 3 - Suppression of material facts and exercise of equitable jurisdiction: Legal framework - Legal framework: Exercise of extraordinary writ jurisdiction requires candid disclosure of material facts; suppression or misleading of the court may lead to dismissal of the petition without adjudication on merits. - Precedent Treatment: The Court applied the well-settled equitable principle that non-disclosure or suppression of material facts by a petitioner is ground for refusing discretionary relief in writ jurisdiction. - Interpretation and reasoning: The petitioner failed to disclose cancellation of its registrations under Sections 12A/12AA/12AB for specified assessment years. The Court held that, on that basis alone, the petition could have been dismissed for lack of bona fides. Nonetheless, the Court proceeded to decide the substantive issues in the interest of justice. - Ratio vs. Obiter: Ratio - suppression of material facts regarding tax/registration status undermines entitlement to equitable relief and may justify dismissal. Obiter - the Court's discretionary choice to proceed despite suppression was exercised in the interest of justice, not as a precedent to relax disclosure duties. - Conclusion: Suppression constituted a fatal disciplinary infirmity that could have warranted dismissal; however, the Court addressed the merits and found no grounds for interference with the reassessment notice. Cross-References and Consolidated Conclusion - Cross-reference: Issue 1 and Issue 2 are interlinked - the statutory threshold for limitation (Issue 1) was satisfied by the same documentary evidence that supported the AO's subjective satisfaction (Issue 2). - Consolidated conclusion: The reassessment notice was validly initiated within the ten-year limitation applicable where escaped income (including bank deposits treated as assets) exceeds the statutory threshold, and the AO had tangible and concrete information to form the requisite subjective satisfaction under Section 148/147. Additionally, the petitioner's suppression of material facts regarding cancellation of charitable registrations undermined its equitable claim, though the Court reached the same outcome on substantive grounds.