2015 (5) TMI 1200 - AT - Income Tax

Reopening of assessment u/s 147 - rejection of claim of registration u/s 12AA - Validity of reasons to believe - HELD THAT - 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 ₹ 15,92,245 which is the basis of formation of belief that a part of the above donation exceeding ₹ 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 ₹ 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. 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. 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. - Decided in favour of assessee

Summary

Issues Involved:
1. Validity of initiation of proceedings under Section 148.
2. Assessment of income escaping due to rejection of registration under Section 12AA.
3. Status of the assessee as AOP versus trust.
4. Eligibility for exemption under Section 10(23C)(iiiad).

Detailed Analysis:

1. Validity of Initiation of Proceedings under Section 148:
The primary issue was whether the proceedings under Section 148 were validly initiated. The assessee argued that the initiation was based on incorrect and non-existent grounds, as the returns for the relevant years had already been filed. The Tribunal found that the reasons recorded by the Assessing Officer (AO) for reopening the assessments were factually incorrect and not based on a rational connection or relevant bearing on the formation of belief. The AO had not verified the assessment records or returns of income submitted by the assessee prior to recording the reasons. The Tribunal held that the reopening of assessments was invalid and quashed the reassessment orders.

2. Assessment of Income Escaping Due to Rejection of Registration under Section 12AA:
The AO had reopened the assessments on the grounds that the assessee trust had not been granted registration under Section 12AA, and thus, its income was taxable. However, the Tribunal noted that the rejection of the application for registration under Section 12AA by the CIT was not final and had been set aside by the Tribunal in a previous order, directing the CIT to grant registration. The Tribunal observed that the reasons recorded for reopening the assessments were based on incorrect facts and suspicion, and thus, the reassessment orders were not sustainable.

3. Status of the Assessee as AOP versus Trust:
The AO had treated the status of the assessee as an Association of Persons (AOP) instead of a trust, leading to the denial of certain exemptions. The Tribunal did not delve deeply into this issue as it had already quashed the reassessment orders on legal grounds. Therefore, the discussion on the status of the assessee was deemed academic and unnecessary.

4. Eligibility for Exemption under Section 10(23C)(iiiad):
The assessee argued that it was eligible for exemption under Section 10(23C)(iiiad) as it was formed for the sole purpose of disseminating education. The Tribunal noted that the rejection of the application for registration under Section 12AA was not a valid ground for reopening the assessments. Since the reassessment orders were quashed, the Tribunal did not find it necessary to decide on the eligibility for exemption under Section 10(23C)(iiiad).

Conclusion:
The Tribunal quashed the reassessment orders for all three assessment years (2001-02, 2002-03, and 2003-04) on the grounds that the AO had reopened the assessments based on non-existent and factually incorrect reasons. The Tribunal held that the reopening of assessments was invalid and set aside the orders of the lower authorities. Consequently, the appeals were allowed in favor of the assessee.