TaxTMI 
TaxTMI 
2020 (11) TMI 738
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....n law and void-ab-initio for want of requisite jurisdiction especially, the mandatory requirements to assume jurisdiction u/s 148 of the Act did not exist and have not been complied with and consequently, the re-assessment requires to be cancelled. 2B. The learned CIT [A] ought to have appreciated that there was no reason to believe that the income has escaped assessment on the basis of the reasons recorded for issuance of the notice u/s. 148 of the Act under the facts and in the circumstances of the appellant's case and hence, the impugned order passed ought to have been cancelled. 2C. The learned CT [A] ought to have appreciated the objections of the appellant that the reasons recorded showed that there was only a reason to suspect and not a "reason to believe" that the income has escaped assessment and consequently, the proceedings initiated were opposed to law and hence, the impugned order passed ought to have been cancelled. 2D. Without prejudice to the above, the re-opening of the assessment after 4 years from the end of the assessment year under appeal especially in light of the earlier assessment order passed u/s 143[3] of the Act without any ....
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....appeal may be allowed and justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs. 3. The Brief facts of the case are that the assessee is a charitable trust registered under Section 12AA of the Act dt.10.01.2005 by the CIT, Mangalore. The assessee trust is engaged in the charitable activities of helping the rural poor by forming Self Help Groups (SHG) and providing them with financial and other assistance. The assessee had filed Return of Income on 29/09/2009 declaring NIL income after claiming exemption under Section 11 of the Act and thereafter assessment was completed by the Assessing Officer under Section 143(3) of the Act dt.25.11.2011 accepting the income declared by the assessee. The Assessing Officer issued Notice under Section 148 of the Act on 13.4.2015 to submit the books of accounts and details and the same were furnished from time to time before the Assessing Officer. The Assessing Officer recorded reasons for reopening of assessment and provided the same to the assessee vide letter dt.28.3.2016. The assessee filed objections by letter dt.8.12.2016 objecting to the ....
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....by passing a separate speaking order and thus, it renders the assessment order a nullity; After recording the aforesaid facts, the AO stated that there was a reason to believe that income chargeable to tax has escaped assessment on this score due to violation of the provisions of section 13(1)(c) r.w.s. 13(2)(g) of the 4.1 The Ld. AR submitted that in terms of section 147 of the Act, the assessment can be re-opened if the AO has the reason to believe that income escaped assessment. It was submitted that the phrase employed u/s. 147 of the Act, 'reason to believe' postulates a belief, which is in that income chargeable to tax has escaped assessment. This live link must also be apparent from the reading of the reasons recording. The Ld. AR placed reliance on the ratio of the following decisions: 1) M/s. Calcutta Discount Co. reported in 41 ITR 191[SC] [2] Gangasaran reported in 130 ITR 1 [3] Chuharma( Rajpal reported in 79 ITR 603[SC] [4] Lakhmani Mewat Das reported in 103 ITR 437 (SC) The Ld. AR submitted that the concept of live-link as explained by the Supreme Court in the case of CIT. Vs. Lakhmani Mewat Das reported in 103 ITR 437 wher....
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....y the AO is a mere pretense and cannot be regarded as bonafide reasons inducing a belief that income has escaped assessment. Thus, at best, it was submitted that the reasons mentioned by the AO shows only a belief in the existence of reasons and nothing more. Therefore, it was submitted that there is absolutely no livelink between the reasons stated by the A.O. and the belief held by him that the income of the assessee had escaped assessment and hence, it was submitted that the reopening of the assessment is bad in law. 4.4 The Ld. AR placed reliance on the judgment of the Karnataka High court in the case of CIT Vs Thippa Shetty 322 ITR 525 and the unreported decision of the Karnataka High court in the case of CIT Vs Nagappa in Writ Appeal Number 928 of 1991. It was submitted that the single bench judgment of the Karnataka High Court in the case of A. Nagappa V. ACIT, wherein the reasons of the Assessing Officer, were elaborate, were reproduced, yet the High Court proceeded to quash the notice issued to the assessee under section 148 of the Act. According to the Ld. AR this Order was the subject matter of challenge at the instance of Revenue in W.A. No. 928/ 1991 before the Divi....
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....ted that re-opening of the assessment after the expiry of 4 years from the end of the assessment year is opposed to law especially, since, there was an assessment order passed u/s.143[3] of the Act earlier. It was submitted that in terms of the proviso to section 147 of the Act, it has been laid down that no action shall be taken under this Section after the expiry of 4 years from the end of the relevant assessment year the income chargeable to tax has escaped assessment for the failure of the assessee to file returns of income or to disclose fully and truly all material facts necessary for his assessment for that assessment year. It was submitted that the period of 4 years from the end of the assessment year under appeal expired on 31/03/ 2014 and the AO issued a notice u/s. 148 of the Act, on 13/04/ 2015, which is after the period specified under the proviso to section 147 of the Act. 4.7 With the aforesaid background, the Ld. AR submitted that there is no allegation in the reasons recorded that the assessee has failed to disclose fully and trully all material facts necessary for the assessment year. Thus, according to the AO, the proviso to section 147 of the Act, bars re-ope....
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....view of the above, the Ld. AR submitted that the re-opening of the assessment is bad in taw judging the same on the basis of the reasons as recorded and in the absence of any allegation that the assessee had not fully and truly disclosed all material particulars for making the assessment and hence, the re-opening of the assessment requires to be cancelled. 4.9 The Ld. AR submitted that for testing the validity of reopening of the assessment, the reasons recorded alone has to be looked into. The Ld. AR submitted that the reasons recorded have to be viewed as they are and they cannot be supported by reference to any extraneous materials. The reason recorded must either stand or fall on the reasons as recorded alone and nothing else. Reliance is placed on the decisions of Jamanalal Kabra reported in 69 ITR 461 (All.), Equitable investment Vs. CIT reported in 174 ITR 714 (Cal) and N.D. Bhat VS. IBM reported in 216 ITR 811 (Bom). In the case of Hindustan Lever Limited V.R.B. Wadkar vs. Assistant Commissioner of Income Tax, 268 ITR 332, the Bombay High Court in its decision at page 338 it has been held that: "It is needless to mention that the reasons are required to be read ....
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....ds of the statute are 'reason to believe' and not 'reason to suspect'. The reopening of the assessment after the lapse of many years is a serious matter. The Act no doubt, contemplates the reopening of the assessment if grounds is fit for believing that income of the assessee has escaped assessment. The underlying reason for that is that instances of concealed income or other income escaping assessment in a large number of cases come to the notice of the income - tax authorities after the assessment has been completed. The provisions of the Act in this respect depart from the normal rule that there should be, subject to right of appeal and revision, final its about orders made in judicial and quasi-judicial proceedings. lt is, therefore, essential that before such action is token the requirements of law should be satisfied". 4.9.2 The Ld. AR submitted that the Assessing Officer had not obtained the previous sanction for issue of notice u/s. 148 of the Act after the expiry of 4 years from the end of the relevant assessment year has to be issued after the satisfaction of the Pr. Chief Commissioner or Chief Commissioner or Pr. Commissioner or Commissioner on the reasons rec....
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....t passed a separate speaking order disposing of the objections taken by the assessee, the assessment order is to be cancelled. 5. On the other hand, the learned Departmental Representative submitted that there was no full and true disclosure by the assessee in its original Return of Income. It cannot be said that it is mere routine in such circumstances. The Assessing Officer is justified in reopening the assessment on the issue of payment of Rs. 2.5 Crores to Shri Pushparaj Jain was not raised in the original assessment. The books of accounts have been maintained in such a way that the fact of amount of Rs. 2.5 Crores paid to Shri Pushparaj Jain could not come to the notice of Assessing Officer during the assessment proceedings. It was only because of the fact that the assessment in the case of Shri Pushparaj Jain was also with the same Assessing Officer and issue of diversion of funds came to the notice of Assessing Officer. Therefore, it is not correct to state that no new information has came to the possession of the Assessing Officer. Further the assessee has maintained its accounts in such a fashion that the fact of diverting the funds of the trust would never come to the ....
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....present. The reasons must be self evident, they must speak for themselves. (vi) The tangible material which forms the basis for the belief that income has escaped assessment must be evident from a reading of the reasons. The entire material need not be set out. To put it in other words, something therein, which is critical to the formation of the belief must be referred to. Otherwise, the link would go missing. (vii) The reopening of assessment under Section 147 is a potent power and should not be lightly exercised. It certainly cannot be invoked casually or mechanically. (viii) If the original assessment is processed under Section 143(1) of the Act and not Section 143(3) of the Act, the proviso to Section 147 will not apply. In other words, although the reopening may be after the expiry of four years from the end of the relevant assessment year, yet it would not be necessary for the Assessing Officer to show that there was any failure to disclose fully or truly all the material facts necessary for the assessment. (ix) In order to assume jurisdiction under Section 147 where assessment has been made under sub-section (3) of section 143, two condit....
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....cts which come to light either by discovery or by a fuller probe into the matter and reassess the assessee in detail if circumstances require. (xv) The test of jurisdiction under Section 143 of the Act is not the ultimate result of the inquiry but the test is whether the income tax officer entertained a "bona fide" belief upon the definite information presented before him. Power under this section cannot be exercised on mere rumours or suspicions. (xvi) The concept of "change of opinion" has been treated as a built in test to check abuse. If there is tangible material showing escapement of income, the same would be sufficient for reopening the assessment. (xvii) It is not necessary that the Income Tax Officer should hold a quasi judicial inquiry before acting under Section 147. It is enough if he on the information received believes in good faith that the assesee's profits have escaped assessment or have been assessed at a low rate. However, nothing would preclude the Income Tax Officer from conducting any formal inquiry under Section 133(6) of the Act before proceeding for reassessment under Section 147 of the Act. (xviii) The "full and true....
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.... has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year)." 6.3 Considering the above, the Apex Court in the case of Kelvinator of India Ltd. (320 ITR 561) (SC) observed and held in para 4 as under :- "4. On going through the changes, quoted above, made to Section 147 of the Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, re-opening could be done under above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act [with effect from 1st April, 1989], they are given a go-by and only one condition has remained, viz., that wh....
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....settled and its omission from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended section 147 to reintroduce the expression 'has reason to believe' in place of the words 'for reasons to be recorded by him in writing, is of the opinion'. Other provisions of the new section 147, however, remain the same." For the afore-stated reasons, we see no merit in these civil appeals filed by the Department, hence, dismissed with no order as to costs." 6.4 The reopening of assessment being based on a mere change of opinion, the assumption of jurisdiction on the part of the A.O. lacks validity and the notice u/s 148 of the Act cannot be sustained. 6.5 The Assessing Officer has power to reopen the assessment, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment and the reasons must have a live link with the formation of belief. In the present case, there is no tangible material. The issuance of the impugned notice u/s.148 is nothing but mere change of opinion. In absence of an....
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....the returned income. The trust was granted registration u/s. 12AA of the Act on 10.01.2005 w.e.f. 08-07-2004. Shri M.N. Rajendra Kumar is one of the trustees. During the course of assessment proceedings of the trust for AY 2012-13, it was observed that the trust has shown an amount of Rs. 2,50,00,000 as land advance. It was also observed that in the case of Shri Pushparaj Jain, proprietor of Abish Builders and Developers, assessed by the undersigned as ACIT, Circle-1(1), the amount of Rs. 2,50,00,000 received from the trust has been shown as a liability in the Balance Sheet while an identical amount had also been advanced to Shri M. N. Rajendra Kumar. The copy of Bank Statements of Shri Pushparaj Jain is available with the undersigned. The transactions from the account of Shri Pushparaj Jain are enlisted below : S.No. Date of transaction Name of party Nature of transaction (Receipt/Payment) Amount 1. 10.06.2008 Navodaya Grama Vikas Charitable Trust Receipt Rs. 1,50,00,000 2. 10.06.2008 M.N. Rajendra Kumar Payment Rs. 1,00,00,000 3. 10.11.2008 Navodaya Grama Vikas Charitable Trust Receipt Rs. 50,00,000 4. 10.11.2008 ....
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....the loans recovered and advanced are to be regarded as income and application under the facts and in the circumstances of the appellant's case. 3. Without prejudice to the right to seek waiver with the Hon'ble CCIT/DG, the appellant denies herself liable to be charged to interest u/s.234-B of the Act, which under the facts and in the circumstances of the appellant's case and the levy deserves to be cancelled. 4. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs." 10. The learned Authorised Representative submitted that - 1. Briefly, it is submitted that the appellant is a charitable trust registered 1u/s.12AA with F.No.N-24/12A/CIT/MNG/2004-2005 dated 10/01/2005 by the Commissioner of Income-tax, Mangalore. The appellant trust is engaged in the charitable activities of helping the rural poor by forming Self Help Groups [SHG] and providing them with financial and other assistance. 2. For the....
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....income based on the Income & Expenditure account filed by the appellant. It is submitted that the learned A.O. has started the computation of the income by taking a sum of Rs. 8,06,09,919/- as against the sum of Rs. 11,89,98,824/- adopted by the appellant based on the Receipts and Payments Account resulting in a difference of Rs. 3,83,88,905/- on account of the following items :- Table 1 Sl.No. Nature of receipt Amount Remarks 1 Grants and Subsidies 1,49,56,800/- Discussed in Para 5 of the assessment order. Net of expenses adopted by AO and it does not affect the overall computation. 2 Chaithanya Insurance Fund 2,35,05,605/- No Discussion in the assessment order. However, it appears that the AO has followed the same treatment of adopting the net figure instead of Gross 3 Divident -73,500/- Not taken by the appellant since it is exempt but included by AO. No discussion in the assessment order TOTAL 3,83,88,905/- 3.3 Similarly, the learned A.O. has computed the income applied by the appellant [including capital expenditure] for the year at Rs. 5,96,48,638/- based on certain expenses shown in the ....
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....ferent view taken by the learned A.O. in the present assessment order passed is opposed to law and facts of the appellant's case and the same deserves to be vacated. It is prayed accordingly. 3.6 It is further submitted that the aforesaid treatment given by the appellant to the grant of loans and recovery thereof is based on and support by the views expressed in the Circular No. 100 dated 24/01/1973, issued by the Hon'ble CBDT in which it has been mentioned in para [2] as under :- "2. The Board has decided that repayment of the loan originally taken to full1fil one of the objects of the trust will amount to an application of the income for charitable and religious purposes. As regards the loans advanced for higher studies, if the only object of the trust is to give interest bearing loans for higher studies, it will amount to carrying on of money-lending business. If, however, the objects of the trust is advancement of education and granting of scholarship loans as only one of the activities carried on for the fulfillment of the objectives of the trust, granting of loans, even if interest-bearing, will amount to the application for income for charitable purposes. A....
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....ignoring the contention of the Department based on the said circular". 3.8 Thus, it cannot be said that the loans advanced by the assessee to the Self Help Groups cannot be regarded as application of income. The view taken by the A.O. in the impugned order is in total disregard to the views expressed in the Board Circular, which is binding on the Department and therefore, the computation of the income applied by excluding the loans granted is liable to be vacated. It is prayed accordingly. . 11. On the other hand, the learned Departmental Representative submitted that the Circular is related to providing of higher education and is not relevant for the formation of SHGs as claimed by the assessee. Moreover, the funds received from the bank cannot be treated as an application of income. The assessee is taking money from SCDCC Bank and giving the same as loan to SHGs. This is in the nature of business activity and not an activity of the trust. The claim of the assessee that extending loan to SHGs is an application of income is devoid of merit. The DR submitted that the grant for the training and expenses of the animators the amount received by the assessee is under specifi....
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.... activities through trained people, to educate them in children care responsible parenthood, home science and happy family life. 3. To conduct and run nursery and kindergarten or Primary, Higher Primary, Secondary Schools and Colleges for facilitate children's full growth and to work for their healthy care and to assist poor school going children to have better education and health. 4. To provide guidance regarding wild life, perform inter nation wild life programme with principal ideas and make awareness of the same with the people of rural areas and also to conduct run and assist veterinary hospitals etc. 5. To provide proper knowledge about agriculture, run farm, animal centers etc. and provide profitable employment to the people of rural areas. 6. To make awareness of human rights and other new things in rural areas by providing good leadership, make arrangements for implementation of good ideas for them and to make awareness of strong will power, love, service and patriotism etc. 7. Offering the opportunity to develop personality and avenues for their intelligent participation in Nation building. 8. To guide them to equip t....