2011 (8) TMI 1353 - AT - Income Tax

Summary

Issues Involved:
1. Reopening of assessment by issuance of notice u/s 148.
2. Denial of benefit u/s 11 & 12 of the I.T. Act.

Summary:

1. Reopening of Assessment by Issuance of Notice u/s 148:
The first common issue in all the assessment years relates to the reopening of assessment by issuance of notice u/s 148 of the Income-tax Act. The assessee filed its return of income on 31.10.2005, declaring total income nil, which was accepted u/s 143(1) on 25.07.2006. The Assessing Officer received an order dated 31.12.2009 from the Director of Income-tax (Exemption) [DIT(E)], Delhi, cancelling the registration granted to the assessee u/s 12A w.e.f. assessment year 2005-06, on the grounds that the assessee was engaged in commercial ventures and not charitable activities as defined u/s 2(15). Based on this order, the Assessing Officer issued a notice u/s 148 on 25.01.2010, believing that income chargeable to tax had escaped assessment.

The assessee objected to the reopening, arguing that the order of DIT(E) was under appeal before ITAT and that the Assessing Officer should not have reopened the assessment until the appeal was decided. The CIT(A) upheld the reopening, stating that the cancellation of registration u/s 12A was sufficient information for the Assessing Officer to form an opinion that income chargeable to tax had escaped assessment.

2. Denial of Benefit u/s 11 & 12 of the I.T. Act:
The substantial grounds of appeal also relate to the denial of benefit u/s 11 & 12 of the I.T. Act. The assessee contended that the Tribunal had restored the registration granted u/s 12A, and therefore, the information possessed by the Assessing Officer enabling him to form the belief that income chargeable to tax had escaped would extinguish. The Tribunal's order dated 08.07.2011 set aside the order of DIT(E), stating that the DIT(E) was not competent to cancel the registration u/s 12A before 01.06.2010.

The Tribunal concluded that since the order of DIT(E) was set aside, there was no information available to the Assessing Officer to form the belief that income chargeable to tax had escaped assessment. The reopening of assessment was, therefore, not sustainable. Consequently, the reassessment orders were quashed, and the appeals of the assessee were allowed.

Conclusion:
The Tribunal allowed the appeals of the assessee, quashing the reassessment orders on the grounds that the reopening of assessment was not sustainable due to the setting aside of the DIT(E)'s order cancelling the registration u/s 12A. The Tribunal did not address the merits of the additions, as the primary issue of reopening was resolved in favor of the assessee.