Bharati Vidyapeeth v. Asstt. CIT

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The Tax Publishers2012 TaxPub(DT) 2160 (Pune-Trib) : (2012) 048 (II) ITCL 0213 : (2012) 146 TTJ 0238 : (2012) 070 DTR 0375 Income Tax Act, 1971 --Reassessment--Reasons to believeNon-existing reasons--The return filed for the assessment year 1999-2000 under consideration under section 139 was processed under section 143(l)(a) at nil income. The assessing officer initiated reopening proceedings on the following 4 reasons : The first one is that the assessee had filed only the income and expenditure account and the balance sheet with the return and no schedules to the balance sheet were submitted. The second reason is that the assessee had earned rent of Rs. 9,78,10,785. The object of the assessee is to run educational institutions and not to give properties on rent. The rental income is to be taxed as income from house property/business income separately. The assessee had shown receipts of Rs. 26,51,778 on sale of books and Rs. 43,83,154 on account of income from printing press. These receipts are out of the purview of the objects of the trust and are taxable as business income. The assessee had shown in the balance sheet 20 per cent profit from BS Bank and 20 per cent, from BG Bhandar amounting to Rs. 17,34,764. This receipt is taken to the corpus of the trust and it should have been credited to the income and expenditure account. The assessing officer accordingly framed assessment under section 147 r/w section 143(3). The assessee questioned the validity of the reassessment before the Commissioner (Appeals), but could not succeed. Held: Tribunal concurs with the contention of the AR that there was no reason to believe on the part of the assessing officer during the year that some taxable income had escaped assessment. Principle of res judicata is not applicable in the cases of Incoem Tax Act but consistency in approach on a similar issue under similar facts is required to be maintained by the Revenue. The issue raised in questioning the validity of initiation of reopening and assessment made in furtherance thereto, is decided in favour of the assessee. These grounds are thus allowed. Consequently, it is held that notice issued under section 148 was not valid and the assessment made in furtherance thereto is null and void. Considering the overall approach of the assessing officer in drawing the aforenoted reasons to believe to initiate reopening proceedings in question, this Tribunal does not find justification for the same. In the preceding paras, this Tribunal has already dealt with each of the reasons to believe, noted by the assessing officer for the reopening. Besides, it is also an established proposition of law that the assessing officer is supposed to draw reasons to believe to invoke the reopening proceedings under section 147 on the basis of prevailing facts and circumstances which come to his notice at the time of recording of the reasons. Of course as per the amended provision under section 147 w.e.f. 1st April, 1989, the assessing officer is empowered to make addition on other heads to which he comes across during the reassessment proceedings, without issuing fresh reasons to believe and initiating fresh proceedings separately but only after providing opportunity of being heard to the assessee on those new issues of escaped assessment. Thus, the assessing officer is empowered to make additions on those new heads also along with the additions made on the heads which remained the subject-matter of reasons to believe for initiation of reassessment proceedings under section 147, but when initiation of reopening based upon the reasons to believe recorded by the assessing officer is questioned it is inevitable to examine validity of existence of each of those reasons as on the date when it was recorded. To examine the validity of the existence of reason, it is to be seen that the reason must be of an honest and prudent person based upon reasonable grounds and should not be based upon mere suspicion, gossip or rumour. Sufficiency of reasons follows validity of existence of the reasons. So far as sufficiency of reasons is concerned, Tribunal fully agrees with the contention of learned Departmental Representative that we are not supposed to examine the same as even a prima facie belief as of a prudent person under the circumstances of a case regarding escapement of assessable income is sufficient to initiate reopening proceedings in the present case, the alleged escapement of assessment of income suspected by the assessing officer in the reasons recorded is accepted as no escapement of income was noticed by the Department in assessment years 2000-01 and 2003-04 in scrutiny assessments. In fact, the same assessing officer has completed the assessment for assessment year 2003-04 and no similar addition has been made. This fact clearly indicates that the reasons recorded by the assessing officer are not based on proper appreciation of the facts of the case and are on presumptions and surmises only. When the same assessing officer accepts similar claims of the assessee in the assessment year 2003-04, it clearly establishes that reopening has been made on the issues which do not justify the reopening of the case. It is also an admitted fact that the assessing officer had made reassessment keeping in mind the later development that registration under section 12A granted to the assessee was cancelled during the course of reassessment proceedings which was later on restored by the Tribunal vide its order dated 19-9-2008 in ITA No. 1793/Pn/2008 (supra). There is no prohibition in section 11 of the Act that a charitable trust cannot give its properties on rent. The requirement is that the trust is doing activity to fulfil its aims and objects for which it has been granted registration under section 12A. It also remained the case of the assessee that such rental income was already shown by it in its income and expenditure account and it was not a case of escapement of income. Section 11(4A) itself states that a charitable trust can have a business income and such income is exempt if it is applied for charity and is incidental to the object of the trust. Thus, earning income from sale of books and printing press mean for providing study materials to the students can be treated as incidental to the objects of the trust. Similarly, getting 20 per cent profits from Bharati Sahskari Bank and Bharati Grahak Bhandar as a donation to the corpus of the assessee was not required to be included in the income and expenditure account. Under these circumstances, Tribunal concurs with the contention of the learned Authorised Representative that there was no reason to believe on the part of the assessing officer during the year that some taxable income has escaped assessment, thus the assessing officer was not justified in invoking the provisions of section 147 to initiate reopening proceedings in the present case. In consequence, the initiation of reopening proceedings is not valid and assessment made under section 147 r/w section 143(3) in furtherance thereto is also not valid. Principle of res judicata is not applicable in the cases of Incoem Tax Act but consistency in approach on a similar issue under similar facts is required to be maintained by the Revenue. The issue raised in questioning the validity of initiation of reopening and' assessment made in furtherance thereto is decided in favour of the assessee. These grounds are thus allowed. Consequently, it is held that notice issued under section 148 was not valid and the assessment made in furtherance thereto is null and void. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2012 TaxPub(DT) 2160 (Pune-Trib) : (2012) 048 (II) ITCL 0213 : (2012) 146 TTJ 0238 : (2012) 070 DTR 0375

Income Tax Act, 1971

--Reassessment--Reasons to believeNon-existing reasons--The return filed for the assessment year 1999-2000 under consideration under section 139 was processed under section 143(l)(a) at nil income. The assessing officer initiated reopening proceedings on the following 4 reasons : The first one is that the assessee had filed only the income and expenditure account and the balance sheet with the return and no schedules to the balance sheet were submitted. The second reason is that the assessee had earned rent of Rs. 9,78,10,785. The object of the assessee is to run educational institutions and not to give properties on rent. The rental income is to be taxed as income from house property/business income separately. The assessee had shown receipts of Rs. 26,51,778 on sale of books and Rs. 43,83,154 on account of income from printing press. These receipts are out of the purview of the objects of the trust and are taxable as business income. The assessee had shown in the balance sheet 20 per cent profit from BS Bank and 20 per cent, from BG Bhandar amounting to Rs. 17,34,764. This receipt is taken to the corpus of the trust and it should have been credited to the income and expenditure account. The assessing officer accordingly framed assessment under section 147 r/w section 143(3). The assessee questioned the validity of the reassessment before the Commissioner (Appeals), but could not succeed. Held: Tribunal concurs with the contention of the AR that there was no reason to believe on the part of the assessing officer during the year that some taxable income had escaped assessment. Principle of res judicata is not applicable in the cases of Incoem Tax Act but consistency in approach on a similar issue under similar facts is required to be maintained by the Revenue. The issue raised in questioning the validity of initiation of reopening and assessment made in furtherance thereto, is decided in favour of the assessee. These grounds are thus allowed. Consequently, it is held that notice issued under section 148 was not valid and the assessment made in furtherance thereto is null and void.

Considering the overall approach of the assessing officer in drawing the aforenoted reasons to believe to initiate reopening proceedings in question, this Tribunal does not find justification for the same. In the preceding paras, this Tribunal has already dealt with each of the reasons to believe, noted by the assessing officer for the reopening. Besides, it is also an established proposition of law that the assessing officer is supposed to draw reasons to believe to invoke the reopening proceedings under section 147 on the basis of prevailing facts and circumstances which come to his notice at the time of recording of the reasons. Of course as per the amended provision under section 147 w.e.f. 1st April, 1989, the assessing officer is empowered to make addition on other heads to which he comes across during the reassessment proceedings, without issuing fresh reasons to believe and initiating fresh proceedings separately but only after providing opportunity of being heard to the assessee on those new issues of escaped assessment. Thus, the assessing officer is empowered to make additions on those new heads also along with the additions made on the heads which remained the subject-matter of reasons to believe for initiation of reassessment proceedings under section 147, but when initiation of reopening based upon the reasons to believe recorded by the assessing officer is questioned it is inevitable to examine validity of existence of each of those reasons as on the date when it was recorded. To examine the validity of the existence of reason, it is to be seen that the reason must be of an honest and prudent person based upon reasonable grounds and should not be based upon mere suspicion, gossip or rumour. Sufficiency of reasons follows validity of existence of the reasons. So far as sufficiency of reasons is concerned, Tribunal fully agrees with the contention of learned Departmental Representative that we are not supposed to examine the same as even a prima facie belief as of a prudent person under the circumstances of a case regarding escapement of assessable income is sufficient to initiate reopening proceedings in the present case, the alleged escapement of assessment of income suspected by the assessing officer in the reasons recorded is accepted as no escapement of income was noticed by the Department in assessment years 2000-01 and 2003-04 in scrutiny assessments. In fact, the same assessing officer has completed the assessment for assessment year 2003-04 and no similar addition has been made. This fact clearly indicates that the reasons recorded by the assessing officer are not based on proper appreciation of the facts of the case and are on presumptions and surmises only. When the same assessing officer accepts similar claims of the assessee in the assessment year 2003-04, it clearly establishes that reopening has been made on the issues which do not justify the reopening of the case. It is also an admitted fact that the assessing officer had made reassessment keeping in mind the later development that registration under section 12A granted to the assessee was cancelled during the course of reassessment proceedings which was later on restored by the Tribunal vide its order dated 19-9-2008 in ITA No. 1793/Pn/2008 (supra). There is no prohibition in section 11 of the Act that a charitable trust cannot give its properties on rent. The requirement is that the trust is doing activity to fulfil its aims and objects for which it has been granted registration under section 12A. It also remained the case of the assessee that such rental income was already shown by it in its income and expenditure account and it was not a case of escapement of income. Section 11(4A) itself states that a charitable trust can have a business income and such income is exempt if it is applied for charity and is incidental to the object of the trust. Thus, earning income from sale of books and printing press mean for providing study materials to the students can be treated as incidental to the objects of the trust. Similarly, getting 20 per cent profits from Bharati Sahskari Bank and Bharati Grahak Bhandar as a donation to the corpus of the assessee was not required to be included in the income and expenditure account. Under these circumstances, Tribunal concurs with the contention of the learned Authorised Representative that there was no reason to believe on the part of the assessing officer during the year that some taxable income has escaped assessment, thus the assessing officer was not justified in invoking the provisions of section 147 to initiate reopening proceedings in the present case. In consequence, the initiation of reopening proceedings is not valid and assessment made under section 147 r/w section 143(3) in furtherance thereto is also not valid. Principle of res judicata is not applicable in the cases of Incoem Tax Act but consistency in approach on a similar issue under similar facts is required to be maintained by the Revenue. The issue raised in questioning the validity of initiation of reopening and' assessment made in furtherance thereto is decided in favour of the assessee. These grounds are thus allowed. Consequently, it is held that notice issued under section 148 was not valid and the assessment made in furtherance thereto is null and void.