2012 (9) TMI 963 - AT - Income Tax

Reopening of the assessment proceedings - Error in allowing the assessee s claim of exemption u/s 10(23C)(iiiab) - Held that - In the instant case as mentioned earlier in the assessment framed u/s 143(3) the issue of 10(23C)(iiiab) had been gone into and the AO only initiated the reassessment proceedings because he had taken a divergent view on the allowability of exemption. Since the issue was discussed in regular assessment proceedings and the AO did not stumble upon any evidence/material which was not placed before him the initiation cannot be sustained - Decided in favour of assessee.

Summary

Issues Involved:
1. Reopening of assessment proceedings under Section 147.
2. Issuance of notice under Section 148.
3. Claim of exemption under Section 10(23C)(iiiab).

Detailed Analysis:

1. Reopening of Assessment Proceedings Under Section 147:
The primary issue revolves around whether the Assessing Officer (AO) was justified in reopening the assessment proceedings for the Assessment Year 2003-04. The original assessment was completed under Section 143(3) on 28.02.2006, confirming the returned income as NIL and allowing the exemption under Section 10(23C)(iiiab). The case was reopened via a notice under Section 148 dated 19.03.2010, based on the AO's belief that income had escaped assessment due to the institution not being wholly or substantially financed by the Government.

The CIT(A) quashed the reopening, stating that the notice under Section 148 was barred by the four-year limitation period specified in the first proviso to Section 147. The CIT(A) emphasized that the reopening was based on a change of opinion rather than new tangible material, which is not permissible under the law. The CIT(A) noted that the original assessment had already considered the institution as substantially financed by the Government, and there was no failure on the part of the assessee to disclose material facts fully and truly.

2. Issuance of Notice Under Section 148:
The notice under Section 148 was issued beyond four years but within six years, which is permissible only if there has been a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The CIT(A) found that there was no such failure by the assessee, as all material facts were disclosed during the original assessment. The reopening was based on the AO's change of opinion regarding the institution's financing, which had already been addressed in the original assessment. Therefore, the notice under Section 148 was deemed invalid.

3. Claim of Exemption Under Section 10(23C)(iiiab):
The AO questioned the assessee's claim of exemption under Section 10(23C)(iiiab), arguing that the institution was not wholly or substantially financed by the Government. The CIT(A) and the Tribunal found that the original assessment had already concluded that the institution was substantially financed by the Government, with more than Rs. 8 crores out of Rs. 8.6 crores of expenses being financed by the UGC. The reopening was not based on any fresh facts or material but was merely a change in the AO's opinion, which is not a valid ground for reassessment.

Conclusion:
The Tribunal upheld the CIT(A)'s decision, concluding that the reopening of the assessment was incorrect and barred by the limitation period. The reassessment proceedings were quashed as they were based on a change of opinion without any new tangible material. Consequently, the notice under Section 148 and the subsequent assessment order were declared void. The appeal filed by the Department was dismissed.