No reopening of case on the basis of non-existent and factually incorrect basis/reasons

By | December 3, 2015

Facts of the Case :-

As per the reasons recorded by the AO, The Assessement was re opened :-

“The assessee trust was created on 4th Feb., 2000. For the relevant period the assessee has not filed any IT return. Moreover no returns for the asst. yrs. 2002-03 and 2003-04 have been filed.”

Held

The AO himself has admitted in the assessment orders that the returns for all the three years under consideration were filed by the assessee. Not only this, even the learned CIT(A) has affirmed this fact.

For argument sake, if the reasons recorded for reopening reproduced by the AO in the assessment orders and by the learned CIT(A) are ignored, even then the reasons recorded on 29th Jan., 2008 by the AO for reopening of the assessments for the year under consideration, are invalid because the AO proceeded for reopening of the assessments on non-existent and factually incorrect basis and has not applied his mind and did not verify the assessment records/returns of income submitted by the assessee prior to recording of reasons.

Thus the AO had taken an irrelevant fact into consideration and reopened the assessments on the basis of suspicion. Furthermore, the AO proceeded for reopening of the assessment on non-existent and factually incorrect basis/reasons and has not applied his mind and did not verify the assessment records/returns filed by the assessee prior to recording of the reasons, therefore, reopening of the assessments for asst. yrs. 2001-02, 2002-03 and 2003-04 is invalid and liable to be set aside/quashed.

IN THE ITAT CHANDIGARH BENCH ‘SMC’

Baba Kartar Singh Dukki Educational Trust

v.

Income-tax Officer

H.L. KARWA, VICE-PRESIDENT

IT APPEAL NOS. 444 TO 446 (CHD.) OF 2014
[ASSESSMENT YEARS 2001-02 TO 2003-04]

MAY  29, 2015

Tej Mohan Singh for the Appellant. Manjit Singh for the Respondent.

ORDER

1. These three appeals by the assessee are directed against the consolidated order of CIT(A)-II, Ludhiana dt. 31st Jan., 2014 relating to asst. yrs. 2001-02 to 2003-04. In all material aspects, the facts are similar. These appeals, therefore, have been heard together and are being disposed of by this common order for the sake of convenience.

2. The common grounds of appeals are as under:

“1. That the learned CIT(A)-II has grossly erred in law in holding that proceedings under s. 148 had been validly initiated.
2. That while upholding initiation of proceedings under s. 148 the learned CIT(A) did not appreciate that no income could be said to have escaped assessment by rejection of claim of registration under s. 12AA of the IT Act, 1961.
3. That the learned CIT(A) has further erred in holding notice as issued under s. 148 to be valid without appreciating that it was mandated to be issued in the status of AOP and not trust.
4. That the learned CIT(A) has further erred in allowing eligibility of claim under s. 10(23C)(iiiad) when the appellant trust was conceived and formed for the sole purpose of dissemination of education.”

3. It is observed that these appeals were filed late by 27 days. The assessee submitted three separate applications for condonation of delay of 27 days in filing the appeals. In support of the reasons for late filing of the appeals, the assessee submitted three separate affidavits of Shri Nachhatar Singh who is managing the affairs of Baba Kartar Singh Dukki Educational Trust since its formation as Secretary of the trust. It is stated that at the relevant time he was 76 years old and on account of various health issues as are usually associated with the growing age was experiencing regular knee and back problems. The consolidated order passed by CIT(A)-II, Ludhiana was received well within time but the same could not be handed over to the counsel at Ludhiana for the abovestated reasons. Further, the assessee has little knowledge that the order as received by him was required to be further challenged before the Tribunal by way of filing three separate appeals. It is also stated that delay in filing the appeals before the Tribunal was not deliberate or on account of mala fides. The assessee has not derived any benefit by resorting to delay. However, the delay in filing the appeals has occurred due to the abovestated reasons which were beyond the control of the assessee. There is no material on record to controvert the abovestated submissions of the assessee. I am fully satisfied with the explanation tendered for the delay as reasonable and acceptable. At the same time I may observe here that it is also well settled law that the jurisdiction to condone the delay should be exercised liberally. The matter relating to condonation of delay should be judged broadly and not in a pedantic manner. Considering the reasons submitted by the assessee for the delay in filing the appeals and also the settled legal position, I hold that delay of 27 days in filing three appeals deserves to be condoned, and hence, the delay is condoned.

4. Vide common ground Nos. 1 and 2 of the appeals, the assessee has challenged the validity of reopening of the assessments under s. 147/148 of the IT Act, 1961 (in short ‘the Act’). Briefly the facts of the case are that the assessee trust was founded by Late Shri Jagpal Singh S/o Shri Kartar Singh Dukki, a great patriot, freedom fighter and educationist to the core to perpetuate and carry forward and fulfil his ideals of eradicating illiteracy. To achieve this laudable objective and dissemination of education a Government Senior Secondary School at Village Latala (where late Shri Kartar Singh Dukki was born and brought up) was got named after Baba Kartar Singh Dukki with simultaneous formation of the assessee trust on 4th Feb., 2000 by Shri Jagpal Singh by donating Rs. 15 lakhs vide cheque drawn on his savings bank Account No. 012406 with Union Bank of India, Latala as corpus which was converted into fixed deposits for 10 years with the stipulation that quarterly interest as accrued thereon would be credited to the aforesaid bank account No. 11060 as per Resolution dt. 17th March, 2000 to be utilized to achieve the objects as per cl. (5) of the trust deed and to be an aid to the aforesaid school for giving stipends, scholarships, distributions of uniforms, providing other facilities like generator, coolers, gym and for improving literacy. To augment the income of the trust, settler of the trust Shri Jagpal Singh Dukki donated another sum of Rs. 10 lakhs to the corpus of the trust on 26th Dec., 2003 by issue of a cheque drawn of his savings bank account with Union Bank of India bearing No. 302 which was again got converted into fixed deposit for. five years with the same stipulation of quarterly interest to be credited to the current account of the trust to be utilized as above and was so utilized. The accounts of the trust were being regularly audited from inception of its formation on 4th Feb., 2000 and returns of income along with audit report as prescribed as per r. 17B in Form No. 10B from the asst yr. 2000-01 were being filed declaring income at ‘nil’ by claiming exemption under s. 10(23C)(iia)/l0(23C)(iiiad) of the Act being an educational institution. The assessee filed an application under s. 12A/12AA of the Act for registration as a charitable trust which was not followed up with the issue of registration remaining in a state of flux. Finally, another application dt. 31st May, 2007 under s. 12AA for grant of registration was filed before, the CIT, who vide his order dt. 30th Nov., 2007 rejected the application of the assessee. The assessee preferred an appeal against the aforesaid order of learned CIT before the Tribunal, Chandigarh Benches, Chandigarh on 1st June, 2011 in ITA No. 609/Chd/2011, and the Tribunal vide its order dt. 20th Sept., 2011 observed that the impugned order was passed in hasty manner without affording adequate opportunity of being heard to the assessee. Also that no report of the AO and the Jt. CIT, Range-II, Ludhiana is confronted. Therefore, the order of the learned CIT was set aside by the Tribunal and matter was remanded to him with the direction to decide the same afresh. In compliance to the order of the Tribunal passed in ITA 509/Chd/2011, the learned CIT-I, Ludhiana passed a fresh order on 27th Dec., 2011 under s. 12AA of the Act The learned .CIT was not satisfied with the objects and genuineness of the activities of the assessee Trust. He, therefore, refused to grant the registration to the assessee Trust within the meaning of s. 12AA of the Act. The assessee challenged the order dt. 27th Dec., 2011 passed by learned CIT-I, Ludhiana before the Tribunal, Chandigarh Benches ‘A’ Chandigarh in ITA No. 40/Chd/2012 and the Tribunal vide its order dt. 27th June ,2012, directed the learned CIT to grant registration to the assessee Trust under s. 12AA of the Act, observing as under:

“13 Now coming to the facts of the present case, the assessee trust was running a school at Latala. The trust was formed on 4th Feb., 2000 and was filing its returns/pf. income from asst. yr, 2000-01 along with audited accounts. The assessee had earlier filed application for registration of trust, which was not followed up and hence rejected. The assessee filed the present application under s. 12A of the Act on 31st May, 2007. The CIT had condoned the delay for filing the application for registration and registration was to be allowed prospectively from asst. yr. 2012-13, to which the learned Authorised Representative for the assessee agreed. However, the same was rejected on invocation of s. 13(l)(ii) of the Act and life-long membership of the trustees and assessee being both society and trust.

14. Applying the principles laid down by the Hon’ble Punjab & Haryana High Court in CIT v. Surya Educational & Charitable Trust [2013] 355 ITR 280  we find that the CIT while granting registration under s.12AA of the Act is to look into the objects of the trust and whether the trust is carrying on the said objects of the trust. The objects of the present assessee trust were in the line of education and the assessee was running both school and college. Once a trust is engaged in the activities of providing education by way of setting up school and college, which is one of the recognized object of charitable activity and/no evidence having being brought on record, that the said activities of the trust were not genuine, the said trust is entitled to registration under s. 12AA of the Act. The satisfaction of conditions of ss. 11 to 13 of the Act is to be gone into by AO, while determining the income of trust at the time of assessment and not to be gone into by CIT, while granting registration under s. 12AA of the Act. The next objection of the CIT is that the assessee is both trust and society is recognized system and once it is registered as trust, provision of election are not applicable to trusts. The next objection of the CIT that trustee and their successor were lifelong member and hence activities of trust being not genuine are not correct, as the rule against perpetuity is not applicable in case of public charitable trust, as per s. 18 of Transfer of Property Act. In view thereof, we find no merit in the order of CIT and direct the CIT to grant registration under s. 12AA of the Act. The grounds of appeal raised by the assessee are allowed.”

5. The Revenue challenged the order of the Tribunal dt. 27th June, 2012 by way of appeal before the Hon’ble Punjab & Haryana High Court in IT Appeal No. 2 of 2013, and the Hon’ble High Court vide its order dt. 8th Oct., 2013 in CIT v. Baba Kartar Singh Dukki Educational Trust [2014] 221 Taxman 493 affirmed the order of the Tribunal in granting registration under s. 12AA of the Act to the assessee trust and the appeal filed by the Revenue was dismissed.

6. The assessee filed the return of income for all the assessment years under consideration declaring income at Rs. ‘nil’ after claiming exemption under s. 10(23C)(iiiab) of the IT Act, 1961 and the returns were processed under s. 143(1) of the Act. Subsequently, the assessments were reopened under s. 147 and notices under s. 148 were issued since the assessee was not granted registration under s. 12AA of the Act by the learned CIT-I, Ludhiana vide his order dt. 30th Nov., 2007. The registration was refused mainly for the following reasons:

“. . . .that the trust came into existence on 4th Feb., 2000 and application for registration was filed on 31st May, 2007. The assessee has submitted that the delay in filing of application under s. 12A was unavailability of counsel of the trust. This cannot be held as sufficient reason for delay in filing application for registration under s. 12A(a) of the IT Act, 1961. Hence, the request for condoning the delay in filing the application under s. 12A is rejected.

As per the report of the AO and the Jt. CIT, Range-II, Ludhiana.-II, Ludhiana, the trust has not performed any charitable activities during the asst. yrs. 2004-05 to 2006-07. Moreover, the final accounts submitted for the asst. yrs. 2004-05 to 2006-07 reveals that a meagre amount has been utilized for distribution of prizes and uniform, which does not tantamount to either educational or charitable purpose. The assessee is a regular assessee and is claiming its income exempt under s. 10(23C)(iiab) of the IT Act, 1961 for asst. yrs. 2001-02 to 2006-07. The trust is not entitled for such exemption as the provisions of this section are not applicable to it. It is neither a university nor educational institution existing solely for educational purpose and wholly or substantially financed by the Government. The conduct of the assessee is thus not in accordance with the provisions of law.

Keeping in view the above facts and circumstances of the case, a letter No. 3385, dt. 6th Nov., 2007 was issued to the Trust for hearing on 15th Nov., 2007 at 4.30 PM but nobody attended the office. Again a letter was issued to the Trust for hearing on 26th Nov., 2007 at 4.30 PM, which was served on 22nd Nov., 2007. In response to this letter also, nobody attended the office nor filed any written reply in support of its application for registration.

In view of the above facts and circumstances of the case, registration under s. 12AA of the IT Act, 1961 is hereby rejected.”

7. Notices under ss. 143(2) and 142(1) of the Act along with detailed questionnaire were issued to the assessee. In response to the notices, the assessee submitted the requisite information. During the course of assessment proceedings, the AO asked the assessee as to why the status of the assessee should not be treated as AOP as registration has not been granted by the learned CIT, Ludhiana. The AO observed that during assessment years under consideration, the assessee has earned substantial income from FDRs against which, as per income and expenditure account the assessee has debited expenses under various heads thereby showing net income of Rs. 73,996, Rs. 91,565 and Rs. 16,724 for asst. yrs. 2001-02, 2002-03 and 2003-04 respectively. According to AO, the income of the Trust was not exempt under s. 10(23C)(iiiab) of the Act, he, therefore, observed that the income of the assessee is taxable in the status of AOP, which fact was brought to the notice of the assessee during the course of assessment proceedings. The AO further observed that as far as the claim of the expenses against the income from FDRs is concerned, none of these are relatable to the income derived under the head ‘Income from other sources’. The AO held that the expenses claimed by the assessee were not admissible under s. 57 of the Act. He, therefore, disallowed the expenditure claimed by the assessee against the income of FDR interest and the total income of the assessee under the head ‘Income from other sources’ was assessed to tax. The AO assessed the income at Rs. 1,63,541, Rs. 1,18,125 and Rs. 1,57,500 for the asst. yrs. 2001-02, 2002-03 and 2003-04 respectively.

8. Aggrieved by the reassessment orders passed by the AO, the assessee preferred three separate appeals before the learned CIT(A)-II, Ludhiana, who vide his consolidated order dt. 31st Jan., 2014 dismissed the appeals of the assessee for all the three assessment years under consideration.

9. Aggrieved by the order of learned CIT(A)-II, Ludhiana, assessee has preferred these three appeals for the asst. yrs. 2001-02, 2002-03 and 2003-04 before the Tribunal.

10. Vide common ground Nos. 1 and 2 of the appeals, the assessee has challenged the validity of reopening of the assessments framed under s. 147/148 of the Act.

11. At the very outset, Shri Tej Mohan Singh, learned counsel for the assessee submitted that the sole basis for issue of notice(s) under s. 148 is “income having escaped assessment for not having filed the return of income for the asst. yr. 2001-02 to 2003-04”; whereas claim for deduction under s. 10(23C)(iiiab) or rejection of application under s. 12A by the learned CIT was much later (application having been filed on 24th May, 2007) was only a narrative or a passing reference having no rational connection or relevant bearing on the formation of the belief. According to the learned counsel for the assessee, rational connection postulates that there must be direct nexus or live link between material coming to the notice of the AO and the formation of belief that there has been escapement of the income of the assessee from assessment in the particular year. Reliance was placed on the decision of Hon’ble Kolkata High Court in the case of Berger Paints India Ltd. v. Asstt. CIT [2004] 266 ITR 462 . He also submitted it is well settled law that it is not any and every material, however vague and indefinite or distant, or remote and far fetched which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment. Shri Tej Mohan Singh, learned counsel for the assessee further submitted that as per reasons recorded by the AO, the assessee trust had opening balance of Rs. 15,59,245 and since no returns have been filed for the preceding years, prima facie there were reasons to belief that a part of the donations exceeding Rs. 1 lac had been received by the assessee trust during the asst. yrs. 2001-02, 2002- 03 and 2003-04 which is/was per se unfounded and incorrect as the returns of income for all these three years had been fileld on 26th Dec., 2003 in Form No. 3A. Acknowledgements and relevant documentary evidence are available in assessee’s paper book at pp. 114 and 115. Shri Tej Mohan Singh submitted that initiation of proceedings under s. 147/148 on a non-existent ground cannot be sustained. Reliance was placed on the decision of the Hon’ble Gujarat High Court in the case of Sagar Enterprises v. Asstt. CIT [2002] 257 ITR 335 .

12. Shri Tej Mohan Singh, learned counsel for the assessee vehemently argued that as per the reasons recorded for the reopening of the assessment dt. 29th Jan., 2008 for all the three years referred to the opening balance of the trust funds at Rs. 15,92,245 leading to the formation of belief that a part of the above donations exceeding Rs. 1 lac, being the income as per s. 2(24)(iia) has escaped assessment, whereas the returns of income already stood filed show that no donation exceeding Rs. 1 lac having been escaped assessment, which establishes clearly that the very basis of forming belief had no rational connection or relevant bearing on the formation of the belief. Shri Tej Mohan Singh further submitted that it is well settled law that if the very basis and origin of initiation goes to the ground, reopening cannot be sustained or the very basis is found to be incorrect or did not have any rational nexus between the reasons and the belief. Shri Tej Mohan Singh also relied on the decision of Hon’ble jurisdictional High Court in the case of CIT v. Smt. Paramjit Kaur [2009] 311 ITR 38  (Punj. & Har.), wherein the Hon’ble High Court has held that reassessment proceedings cannot be sustained on AO’s failure to examine information before recording satisfaction of escaped income.

12(a) Shri Tej Mohan Singh also submitted that before the lower authorities, the assessee had submitted that there was a typographical error and the exemption was actually allowable under s. 10(23C)(iiiad) instead of s. 10(23C)(iiiab) of the Act to the assessee. He further submitted that proceedings initiated under s. 147/148 of the Act are void ab initio since there could be no reasons to believe that there has been any escapement of income in as much as there is none. Disallowance of exemption under s. 10(23C)(iiiad) [wrongly typed as 10(23C)(iiiab)] or declining to allow registration under s. 12AA without ascribing any reasons, particularly when the Tribunal had allowed registration under s. 12AA and has been upheld by the Hon’ble jurisdictional High Court, may not be inferred escapement of the income.

13. In view of the above, Shri Tej Mohan Singh, learned counsel for the assessee submitted that the reassessment orders passed by the AO and confirmed by the learned CIT(A) are liable to be quashed. Accordingly, it was submitted that the reassessment orders may be quashed being invalid.

14. Shri Manjit Singh, learned Departmental Representative, on the other hand, submitted that the grounds taken by the assessee before Tribunal have been appropriately adjudicated by the learned CIT(A) by relying upon various case laws. He further submitted that as the returns filed by the assessee were processed under s. 143(1) of the Act only, these cases were rightly subjected to reassessment proceedings as per the ratio laid down by the Hon’ble apex Court in the case of Asstt. CITv. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 500 . Shrimanjit Singh, learned Departmental Representative also relied on the decision of Hon’ble apex Court in the case of Raymond Woollen Mills Ltd. v. ITO [1999] 236 ITR 34, wherein the Hon’ble Supreme Court held that, “Information obtained by the Department from subsequent assessment proceedings is valid for reopening of the assessment”. In view of the above, learned Departmental representative submitted that the reopening of the assessments was valid and therefore, common ground Nos. 1 and 2 of the appeals may be rejected.

15. I have carefully considered the rival submissions and have also perused the materials available on record. Sec. 147 of the Act reads as under :

“147. If the AO has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of ss. 148 to 153, assess or reassess such income and also my 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 ss. 148 to 153 referred to as the relevant assessment year):”

16. From the above provisions, it is clear that the power of the AO under s. 147 is to be exercised subject to the provisions of s. 148. under s. 148(1), the AO is required to serve on the assessee a notice before making assessment, reassessment or computation under s. 147. Sec. 148(2), however, provides that before issuing any notice under s. 148(1), the AO has to record his reasons for doing so. The reasons to be recorded by the AO under s. 148(2) must relate to his belief under s. 147 that any income chargeable to tax has escaped assessment for any assessment year. Thus, the reason for the belief of the AO that any income chargeable to tax has escaped assessment in any assessment year must exist and must be recorded before any notice under s. 148(1) is issued to the assessee and before making any assessment, reassessment or computation under s. 147. It is well settled law that the reasons referred to must show application of mind by the AO. In my considered opinion, recording of the reasons is the foundation of initiation of proceedings under s. 148, therefore, would not be affected by the provisions of s. 292B of the Act. In the instant case, it is crystal clear that the AO proceeded for reopening of the assessment for non- existent and factually incorrect reasons and has not applied his mind and did not verify the assessment records/returns of income submitted by the assessee prior to recording of the reasons. For all the three years, AO reopened the assessments for the following reasons (similar reasons for asst. yrs. 2002-03 and 2003-04) as recorded under s. 148(2) of the Act:

“The assessee trust was created on 4th Feb., 2000. For the relevant period the assessee has not filed any IT return. Moreover no returns for the asst. yrs. 2002-03 and 2003-04 have been filed.

The perusal of IT return filed for asst. yr. 2004-05 further reveals that the assessee had shown opening balance of trust funds at Rs. 15,92,245.

As no returns have been filed for years preceding to asst. yr. 2004-05, prima facie I have reasons to believe that a part of above donation/trust fund exceeding Rs. 1 lakh have been received by the assessee during asst. yr. 2001-02. The same is income of the assessee as per s. 2(24)(iia) of IT Act, 1961 which has escaped assessment.

I have therefore reasons to believe that the assessee’ s income of more than Rs. 1 lakh has escaped assessment. Thus proceedings are initiated under s. 147 of IT Act, 1961 by issuing notice under s. 148.

(Sd/-)

(Rajesh Patwal)

ITO, Ward-11(1), Ludhiana.”

17. On a perusal of the above reasons, it is clear that the sole basis for issue of notices under s. 148 is “income having escaped assessment for not having filed the returns of income for the asst. yrs. 2001-02 to 2003- 04”, whereas claim of deduction under s. 10(23C)(iiiab) or rejection of application under s. 12AA by the learned CIT was much later (application having been filed on 24th May, 2007) was only a narrative or passing reference having no rational connection or relevant bearing on the formation of the belief. From the facts narrated hereinabove, it is clear that the application dt. 24th May, 2007 filed by the assessee for grant of registration under s. 12AA of the Act was rejected by the learned CIT-I. Ludhiana without granting an opportunity of being heard to the assessee and the said order was set aside by the Tribunal in ITA No. 609/Chd/2011 vide its order dt. 20th Sept., 2011 observing that the impugned order was passed in hasty manner without affording adequate opportunity of being heard to the assessee. The Tribunal directed the learned CIT to decide the matter afresh in accordance with law. The order passed by the learned CIT-I, Ludhiana dt. 30th Nov., 2007 was not a final order but an ex parte order which was passed without considering merits of the case. However, in second time when the matter came up before the Tribunal in ITA No. 40/Chd/2012, the Tribunal has categorically held that “the assessee trust is engaged in the activities of providing education by way of setting up school and college which is one of the recognized object of charitable activity and no evidence having being brought on record, that the said activities of the trust were not genuine, the said Trust is entitled to registration under s. 12AA of the Act.” The above order stands confirmed by the Hon’ble jurisdictional High Court in IT Appeal No. 2 of 2013 vide its order dt. 8th Oct., 2013. Further, the reasons as recorded by the AO reveal that the assessee Trust had opening balance of Rs. 15,59,245 and since no returns had been filed for the preceding years, the AO presumed that there were reasons to believe that a part of the above donation exceeding Rs. 1 lac had been received by the assessee trust during the asst. yrs. 2001-02, 2002-03 and 2003-04, which is per se unfounded and incorrect as the returns of income for all these three years had been filed on 26th Dec., 2003 in Form No. 3A. This fact is clearly borne out from the assessment orders for asst. yrs. 2001-02 to 2003-04 as are being reproduced hereunder:

‘Asst. yr. 2001-02

“Return declaring income of Rs. nil, after claiming exemption of Rs. 73,996 under s. 10(23C)(iiiab) of the IT Act, 1961, filed and processed under s. 143(1) of the IT Act, 1961. Subsequently the case was reopened under s. 147 and issue of notice under s. 148 since the assessee was not granted registration under s. 12AA(1)(b)(ii) of the IT Act, 1961 by the CIT- I, Ludhiana vide order dt 30th Nov., 2007.”

Asst. yr. 2002-03

“Return declaring income of Rs. nil, after claiming exemption of Rs. 91,565 under s. l0(23C)(iiiab) of the IT Act, 1961, filed and was processed under s,143(l) of the IT Act, 1961. Subsequently the case was reopened under s. 147 and issue of notice under s. 148 since the assessee was not granted registration under s. 12AA(1)(b)(ii) of the IT Act, 1961”. . .

Asst. yr. 2003-04

“Return declaring income of Rs. nil, after claiming exemption of Rs. 16,724 under s. 10(23C)(iiiab) of the IT Act, 1961 filed and was processed under s. 143(1) of the Act, 1961. Subsequently the case was reopened under s.147 and issue of notice under s. 148 since the assessee was not granted registration under s.12AA(1)(b)(ii) of the IT Act, 1961”. . .’

18. In the reason recorded by the AO dt. 29th Jan., 2008 (for all the three assessment years) he has referred to the opening balance of the Trust fund at Rs. 15,92,245 which is the basis of formation of belief that a part of the above donation exceeding Rs. 1 lac, being the income as per s. 2(24)(iia) has escaped assessment; whereas the returns of income already stood filed as stated hereinabove with no donation exceeding Rs. 1 lac having escaped assessment demonstrating clearly that the very basis of forming the belief had no rational connection or relevant bearing on the formation of the belief. In other words, the belief entertained by the AO was not at all bona fide. In fact, the opinion formed is based on wrong and incorrect facts and suspicion. In my opinion, the decision of the Hon’ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers (P.) Ltd. (supra) is not applicable to the facts of the present case. In the said case, it has been held that the reopening of assessment completed originally under s. 143(1) is permissible without there being any new material coming to the possession of the AO if the reasons recorded for reopening of assessment are otherwise valid. In the said case, the reasons recorded for reopening of assessment were not under challenge and the reasons were valid. However, in the instant case, the AO proceeded for reopening of assessment on non-existent and factually incorrect reasons and he did not apply his mind prior to recording of reasons. In the reasons recorded by the AO, it is clearly stated that, “For the asst. yr. 2001-02, the assessee has not filed any income-tax return. Moreover, no returns for the asst. yrs. 2002-03 and 2003-04 have been filed.” On the contrary, the AO himself has admitted in the assessment orders that the returns for all the three years under consideration were filed by the assessee. Not only this, even the learned CIT(A) has affirmed this fact. It is relevant to observe here that the reasons recorded for reopening of the assessments reproduced by the AO in the assessment order and by learned CIT(A) in para 3.1 of the impugned order are not the actual/original reasons recorded by the AO for reopening of the assessments. In fact, these are the findings given by the learned CIT-I, Ludhiana for refusing to grant registration to the assessee trust. It is clear that both the authorities below have wrongly considered the findings given by the learned CIT-I, Ludhiana as reasons recorded for reopening of the assessments. Therefore, on this score alone, the reassessment orders are not sustainable. For argument sake, if the reasons recorded for reopening reproduced by the AO in the assessment orders and by the learned CIT(A) are ignored, even then the reasons recorded on 29th Jan., 2008 by the AO for reopening of the assessments for the year under consideration, are invalid because the AO proceeded for reopening of the assessments on non-existent and factually incorrect basis and has not applied his mind and did not verify the assessment records/returns of income submitted by the assessee prior to recording of reasons. In the case of Sagar Enterprises (supra), the Hon’ble Gujarat High Court held (headnote) as under:

“That it was apparent that the fact of non-filing of the return for the asst. yr. 1991-92 had weighed with the respondent for arriving at the satisfaction about the failure on the part of the assessee and escapement of assessment of income. However, the material on record showed that the return had been filed. In such circumstances, it could not be said with certainty as to which facts would have weighed with the officer concerned and once it was shown that an irrelevant fact had been taken into consideration, to what extent the decision was vitiated would be difficult to say. Moreover, the ITO had stated that the payment which was stated to be undisclosed income relevant for the asst. yr. 1991-92 could have been made during the financial year 1990- 91 relevant to the asst. yr. 1991-92 and hence ‘to cover up that probability, protective addition was made in the asst. yr. 1992-93’. The first appellate authority decided the appeal for the asst. yr. 1992-93 on January, 1996, and the reasons had been recorded thereafter on 18th Aug., 1997. The notice of reassessment was not valid and was liable to be quashed.”

19. In view of the above discussion, I hold that the AO had taken an irrelevant fact into consideration and reopened the assessments on the basis of suspicion. Furthermore, the AO proceeded for reopening of the assessment on non-existent and factually incorrect basis/reasons and has not applied his mind and did not verify the assessment records/returns filed by the assessee prior to recording of the reasons, therefore, reopening of the assessments for asst. yrs. 2001-02, 2002-03 and 2003-04 is invalid and liable to be set aside/quashed. Accordingly, the orders of the authorities below are not sustainable and hence deserve to be quashed. I order accordingly.

20. Ground Nos. 3 and 4 read as under:

“3. That the learned CIT(A) has further erred in holding notice as issued under s. 148 to be valid without appreciating that it was mandated to be issued in the status of AOP and not trust.

4. That the learned CIT(A) has further erred in not allowing eligibility of claim under s. 10(23C)(iiiad) when the appellant trust was conceived and formed for the sole purpose of dissemination of education.”

21. Since I have quashed the assessment orders and also the orders of learned CIT(A) on legal issue, therefore, I do not think it necessary to decide these grounds of appeal because the discussion on these issues will be of academic interest.

22. In the result, all the appeals are allowed.

Category: Uncategorized

Leave a Reply