2011 (6) TMI 1028 - AT - Income Tax

Summary

Issues Involved:
1. Reopening of assessment under section 147 of the Income Tax Act, 1961.
2. Validity of reasons for reopening the assessment.
3. Compliance with procedural requirements for reopening.
4. Tangibility of material for forming "reason to believe."

Detailed Analysis:

1. Reopening of Assessment under Section 147:
The primary issue in this case is whether the reopening of the assessment under section 147 of the Income Tax Act, 1961, for the assessment year 2010-11 was valid. The assessee, a public charitable trust, contested the reopening on the grounds that no tangible material was available to the Assessing Officer (AO) to justify the reassessment.

2. Validity of Reasons for Reopening the Assessment:
The reasons for reopening the assessment, as recorded by the AO, included:
- The assessee earned capital gains on the sale of quoted shares and invested in prohibited modes of investment, leading to an escape of income amounting to Rs. 267.5 Crores.
- The assessee claimed an exemption under section 10(33) amounting to Rs. 96,16,26,397/- which was not in order.
- The assessee claimed a deduction under section 11(1)(a) amounting to Rs. 54,56,784/- which was not in order.

The assessee argued that these reasons did not constitute new or tangible material and were merely a review of the return and annexures already filed.

3. Compliance with Procedural Requirements for Reopening:
The procedural compliance for reopening the assessment involved the issuance of a notice under section 148 and the subsequent provision of reasons for reopening to the assessee. The AO issued the notice and provided the reasons during the course of the reassessment proceedings. The assessee contended that the reasons were not provided in a timely manner, but the CIT(A) found that the reasons were supplied within a reasonable time, thus dismissing this ground of appeal.

4. Tangibility of Material for Forming "Reason to Believe":
The Tribunal emphasized that the term "reason to believe" should be based on tangible material and not merely on suspicion or a review of existing documents. The Tribunal cited the judgment of the Hon'ble Delhi High Court in CIT vs Orient Craft Ltd., which clarified that the "reason to believe" must be based on some new or tangible material. The Tribunal also referred to the Hon'ble Supreme Court's decision in Rajesh Jhaveri Stock Brokers, which reiterated that the AO must have a "reason to believe" based on tangible material for reopening assessments.

The Tribunal concluded that in the present case, the AO initiated reassessment proceedings based solely on the return and annexures filed by the assessee, without any new or tangible material. This did not satisfy the jurisdictional condition of "reason to believe" as required under section 147 of the Act.

Conclusion:
The Tribunal held that the reassessment proceedings initiated by the AO under section 147 were invalid due to the lack of new or tangible material. Consequently, the jurisdictional condition of "reason to believe" was not met. The Tribunal allowed the appeal by the assessee on this ground, rendering all other grounds academic and infructuous. The appeal by the Revenue was dismissed.