2012 (3) TMI 260 - HC - Income Tax

An assessment sought to be reopened by a notice as per Section 148 - on examination of the assessee s financial statements AO stated that the activities carried on by the assessee do not cover any public charity but are commercial activities for which the Petitioner is not entitled to an exemption under Section 10(23B) - the assessment is sought to be reopened beyond a period of four years - assessee contented that he had filed its return of income upto 2011-12 after receiving approval from the Khadi and Village Industries Commission for claiming exemption under Section 10(23B) - during the course of the assessment proceedings under Section 143(3),the Petitioner had responded to the queries of the AO by its replies - Held that - The primary requirement, which is of a jurisdictional nature, for reopening of an assessment beyond a period of four years has not been fulfilled - no basis in the submission to the effect that there was a failure on the part of the assessee to disclose material facts fully and truly - The AO has manifestly failed to consider the grounds of objection submitted by the assessee - the reopening of the assessment is based purely on a change of opinion by the Assessing Officer and cannot be permitted in law - to allow the petition by setting aside the notice issued under Section 148

Summary

Issues Involved:
1. Reopening of assessment under Section 148 of the Income Tax Act, 1961.
2. Entitlement to exemption under Section 10(23B) of the Income Tax Act, 1961.
3. Alleged failure to disclose material facts fully and truly.

Issue-wise Detailed Analysis:

1. Reopening of Assessment under Section 148 of the Income Tax Act, 1961:
The assessment for the year 2004-05 was sought to be reopened by a notice dated 21 March 2011. The Assessing Officer (AO) issued this notice based on the examination of the Income and Expenditure Account and Balance Sheet for the years ending 31 March 2004 and 31 March 2005. The AO cited several reasons for reopening, including the institution running for profit, not incurring expenditure for approved objects, and not raising the standard of living of women in villages. The petitioner objected, arguing that all material facts were disclosed during the original assessment and that the reopening was based on a change of opinion rather than new evidence. The court found that the AO's reasons for reopening were based on material already disclosed by the petitioner, and there was no failure to disclose fully and truly all material facts. Consequently, the reopening of the assessment was deemed to be based on a change of opinion, which is not permissible under law.

2. Entitlement to Exemption under Section 10(23B) of the Income Tax Act, 1961:
The petitioner, registered under the Societies Registration Act, 1860, and the Bombay Public Trust Act, 1950, was granted an exemption under Section 10(23B) from the assessment year 1975-76 onwards. The AO questioned the petitioner's entitlement to this exemption, alleging that the institution was running for profit and not solely for the development of khadi and village industries. The petitioner countered by stating that it had received approval from the Khadi and Village Industries Commission (KVIC) and had been granted exemptions in previous assessments. The court noted that the petitioner continued to have KVIC's approval, which had not been revoked. The court emphasized that the primary requirement for the exemption is that the institution must exist solely for the development of khadi and village industries, which the petitioner fulfilled. The court concluded that the AO's reasons for denying the exemption were not relevant to the conditions prescribed under Section 10(23B).

3. Alleged Failure to Disclose Material Facts Fully and Truly:
The AO alleged that the petitioner failed to disclose material facts necessary for assessment, such as expenditure on educational activities, medical aid, and raising the standard of living of women in villages. The petitioner argued that all relevant details were disclosed during the original assessment, including the balance sheet, income and expenditure statements, and responses to the AO's queries. The court found that the AO's inferences were based entirely on material already disclosed by the petitioner. The court held that there was no failure on the part of the petitioner to disclose material facts fully and truly. The court also noted that the AO had ignored the detailed objections filed by the petitioner against the reopening of the assessment. The court concluded that the reopening of the assessment was based on a change of opinion, which is not permissible under law.

Conclusion:
The court allowed the petition, quashing and setting aside the notice dated 21 March 2011 issued under Section 148 of the Income Tax Act, 1961. The court ruled that the reopening of the assessment was based on a change of opinion and not on any failure to disclose material facts fully and truly. The court made the rule absolute and ordered no costs.