TaxTMI 
TaxTMI 
2020 (11) TMI 738
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.... 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 fresh material is opposed to law and consequently the re-opening of the assessme....
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....e 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 reopening of assessment and filed other details in connection with the assessment proceedings. The Assessing Officer passed order u....
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....ason 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 wherein it was held that the reasons set out by the A.O. to the belief that income has escaped assessment is totally absent in this. The Ld. AR relied on the relevant observations of the Supreme Cour....
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....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 Division Bench of the Karnataka High Court which held as under : "More than the AO's report which the learned judge characterized as evasive and speculative, it is the statement of reasons for the reopening wh....
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....tted 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-opening of the assessment since the conditions permitting the reopening do not exist and the same is not the basis on which the assessment stands reopened. The Ld. AR placed reliance for this proposition on the ratio of the ....
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.... 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 as they were recorded by the Assessing Officer. No substitution or deletion is permissible. No additions can be mode to those reasons. No inference can be allowed to be drawn based on reasons not recorded. It is for the Assessing 0fficer to discl....
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.... 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 recorded by the Assessing Officer. From the reasons communicated to the assessee, there is no mention of the Assessing Officer having obtained the previous sanction of the aforesaid authorities. The Ld. AR submitted that the notice was issued after obtaining n....
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.... 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 notice of the Assessing Officer. Therefore as per the provisions of Section 147 Expln. 1, the income has escaped assessment within the meaning of the section. He drew our attention to the Expln. 1 of Section 147 of the Act and supported the orders of CIT (Appeals). 6. We have heard both the parties and perused....
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....e 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 conditions are required to be satisfied; (i) The Assessing Officer must have reason to believe that the income chargeable to tax has escaped assessment; (ii) Such escapement occurred by reason of failure on the part of the assessee either (a) to make a return of income under section 139 or in response to the notice issued under sub-section (1) of Section 142 or Section 148 o....
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....r 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" disclosure of the material facts would not include that material, which is to be used for testing the veracity of the particulars mentioned in the return. All such facts would be expected to be elicited by the Assessing Officer during the course of the assessment. The disclosure required only reference to those material facts, which if not disclosed, would not allow the Assessing Officer to make the necessary inquiries. (xix) The word "information" in Section ....
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....cerned (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 where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to re- open the assessment. Therefore, post-1st April, 1989, power to re-open is much wider. However, one needs to give a schematic interpretation to the words "reason to believe" failing which, we are afraid, Section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of "mere change of opinion", which cannot be per se reason to re-open. We must ....
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....e 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 any new tangible material available with the A.O., it is not open to the A.O. to change his opinion by issuing the notice of re-assessment. 7. From the reasons recorded it can be said that the original assessment is sought to be reopened in exercise of powers under section 147/148 of the Act on change of opinion by the AO, which is not permissible more particularly when the original assessment is sought to be reopened after a period of four years from the end of the assessment year. In the present case, the origin....
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....e 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 M.N. Rajendra Kumar Payment Rs. 50,00,000 5. 24.11.2008 Navodaya Grama Vikas Charitable Trust Receipt Rs. 50,00,000 6. 24.11.2008 M.N. Rajendra Kumar Payment Rs. 50,00,000 7. 02.01.2009 M.N. Rajendra Kumar Payment Rs. 50,00,000 From the above mentioned transactions, it is clear that Shri Pushpraj Jain is being used as an intermediary by the trust to channel funds to its trustee, Shri M.N. Rajendra Kumar. Therefore, the trust is hit by Section 13(1)(c) r.w.s. 13(2)(g) of the Income Tax Act and it cannot enjoy the benefit of exemption u/s. 11 & 12 for the relevant ....
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....lso 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 year under appeal, the appellant had filed its original return of income on 26/09/2014 reporting NIL income after claiming exemption u/s. 11 of the Act. Copy of the original return of income filed on 26/09/2014 along with the financial statements. 2.1 The case of the appellant was selected for scrutiny and statutorily notices issued by the learned A O. In course of the assessment proceedings, the learned A.O. had called for the details of the activities carried on by the appellant and these same were furnished by the appellant. 2.2 Thereafter, the learned A.O. concluded the assessment by the impugned order passed u/s. 143[3] of the Act, dated 28/12/2016 determining the tota....
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.... 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 Income and Expenditure Account as against the claim of the appellant that the income applied during the year [including capital expenditure] was Rs. 14,06,03,012/- based on the Receipts and Payments account. In other words, the learned A.O. omitted to consider a sum of Rs. 8,09,54,374/- [Rs. 14,06,03,012/- less Rs. 5,96,48,638/-], which comprises of the following items that has been ignored by the learned A.O. in computing the extent of application made by the appellant for the year under appeal by following the method of computation based on the Income and Expenditure account:- 3.4 Table 1 Sl.No. Nature of application Amount Remarks 1 Loans to SGH Members 5,32,29,433/- No discussion in the assessment order on this point. Excluded by the AO perhaps because he took the view that the loans g....
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....usiness. 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. As and when the loan is returned to the trust, it will be treated as income of that year". 3.7 Although the aforesaid Circular has been issued in the context of Student and Scholarship loans, the rationale behind the said view expressed by the Hon'ble CBDT is equally applicable to the loans granted by the appellant to the SHG's. This is because, one of the activities being carried on by the assessee while engaged in the charitable activity of relief of the poor is the granting of loans to SHG's and therefore, the loan granted would be regarded as application of income in terms of Circular No.100 dated 24/01/1973. Infact, the said Circular has also been considered by the Hon'ble jurisdictional High Court in the case of CIT V. CUTCHI MEMON UNION reported in 155 ITR 51 [Kar], wherein the Hon'ble High Court has held that the amounts received out of loans given earlier would ....
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....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 specific direction of the bank and hence cannot be treated as its income. The A.O. has treated the net expenditure as its revenue expenditure. 12. We have heard both the parties and perused the material on record. The learned Authorised Representative relied on the CBDT Circular No.100 Dt.24.01.1973 which read as follows : " 162. Repayment of debt incurred for purposes of trust/loans advanced by educational trusts to students for higher studies - Whether amounts to application of income 1. Section 11 requires 100 per cent of the income of a charitable and religious trust to be applied for religious and charitable purposes to be entitled to the exemption under the said section. Two questions have been considered regarding the application of income : 1. Where a trust incurs a debt for the purposes of the trust, whether the repayment of the debt would amount to an application of the income for the pur....
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....r, 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 themselves for the struggle for life in changing Society. 9. To open Schools, College and Technical Institutions in District, State and inter State level for providing proper training for rural people regaring cooperative Associates, Co-operative Bank etc. and regarding self employment, self unity and help etc. 10. To provide library, T.V., Data etc. to unemployed educated people in rural areas with a view to assist them to take self employment. 11. To strengthen rural youth clubs by giving proper guidance. In this connection, to work hand in hand with State and Central Government Departments. 12. To provide information about the plans of State and Central Government to the concerned persons of the Public. 13. To create training facilities in rural areas for development of Industry and self employment. 14. To enable the awakened and affected youth to come together to bring about development and new environments. 15. To provide security to the assets of Association, Co-operative concern....