2016 (4) TMI 299 - AT - Income Tax

Reopening of assessment - reasons recorded - Held that - From the above analysis of the relevant provisions, it is evident that section 148 envisages issuance of a notice where income has escaped assessment. This notice, as is clear from the above analysis of the relevant provisions, need must be on the AO s reason to believe escapement of income from assessment. Now, since the mandate of the first proviso to section 147 is that in a case of expiry of four years from end of the relevant assessment where assessment, has been made u/s 143(3), it has to be the failure of full and true disclosure by the assessee, of all material facts necessary for the assessment, which has led to escapement of income from assessment, the assessee obviously, requires to be made aware of the fact of such non-disclosure on his part. The contention of the department in this regard does not validate the reopening of the completed assessment of the present assessee. This is so, since the express requirement of the proviso to section 147 of the Act is the specific mention of the AO in the reasons recorded, as to the failure on the part of the assessee. In the present case, there is not even a whisper of an allegation by the AO in the reasons recorded that escapement of income had occurred by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment. - Decided in favour of assessee.

Issues Involved:
1. Legality of notice issued under Section 148 and reassessment orders.
2. Denial of exemption under Section 11 of the Income Tax Act.
3. Enquiry regarding exemption under Section 11 after registration under Section 12A.
4. Invocation of provisions of Section 13(1)(c) of the Income Tax Act.
5. Violation of provisions of Section 13 of the Income Tax Act.
6. Assessment of income as business income instead of under Sections 11 to 13.
7. Taxability of the whole income versus the amount covered under Section 13(1)(c).
8. Denial of depreciation on computer software.
9. Disallowance of expenses claimed and assessment of income at a high figure.
10. Incorrect interpretation of evidence and materials on record.
11. Wrongful charging of interest under Sections 234A, 234B, 234C, and 234D.

Detailed Analysis:

1. Legality of Notice Issued Under Section 148 and Reassessment Orders:
The primary contention was that the notice under Section 148 was issued beyond the permissible period of four years from the end of the assessment year, violating the proviso to Section 147. The assessee argued that there was no allegation of failure to disclose material facts fully and truly, which is a prerequisite for such action. The Tribunal agreed, citing case laws like "Dulichand Singhania vs. ACIT" and "Mahavir Spg. Mills Ltd. vs. CIT," emphasizing that the absence of specific allegations in the recorded reasons invalidates the notice and reassessment.

2. Denial of Exemption Under Section 11 of the Income Tax Act:
The assessee challenged the denial of exemption under Section 11 by the Assessing Officer (AO), which was upheld by the CIT(A). The Tribunal found that once registration under Section 12A is granted, it is not open for the AO to question the exemption under Section 11, citing settled legal positions.

3. Enquiry Regarding Exemption Under Section 11 After Registration Under Section 12A:
The Tribunal reiterated that the AO cannot make any enquiry regarding the exemption under Section 11 once registration under Section 12A is granted, aligning with the legal precedent that the registration itself implies compliance with conditions for exemption.

4. Invocation of Provisions of Section 13(1)(c) of the Income Tax Act:
The CIT(A) affirmed the AO's action of invoking Section 13(1)(c), alleging that the purchase of software from Washington Software Ltd. was bogus and the amount reached the assessee trust or its trustees. The Tribunal found no evidence supporting this allegation, thus ruling the invocation of Section 13(1)(c) as erroneous.

5. Violation of Provisions of Section 13 of the Income Tax Act:
The Tribunal held that the CIT(A) erred in upholding the AO's contention that the assessee violated Section 13 provisions, as there was no substantial evidence to prove the violation.

6. Assessment of Income as Business Income Instead of Under Sections 11 to 13:
The Tribunal found that the CIT(A) wrongly upheld the AO's decision to assess the income as business income instead of under Sections 11 to 13. The Tribunal ruled that the income should be assessed under the relevant sections providing exemptions for charitable trusts.

7. Taxability of the Whole Income Versus the Amount Covered Under Section 13(1)(c):
The Tribunal noted that even if there was a violation under Section 13(1)(c), only the specific amount covered under this section should be taxed, not the entire income. The AO and CIT(A) erred in taxing the whole income.

8. Denial of Depreciation on Computer Software:
The Tribunal found that the depreciation on computer software was wrongly denied. The CIT(A)'s decision to uphold this denial was incorrect, as the software was part of the assessee's assets.

9. Disallowance of Expenses Claimed and Assessment of Income at a High Figure:
The Tribunal ruled that the expenses claimed by the assessee were wrongly disallowed, and the income was assessed at an excessively high figure without proper justification.

10. Incorrect Interpretation of Evidence and Materials on Record:
The Tribunal concluded that the evidence and materials on record were not properly construed or judiciously interpreted by the AO and CIT(A), leading to uncalled-for additions and disallowances.

11. Wrongful Charging of Interest Under Sections 234A, 234B, 234C, and 234D:
The Tribunal found that the interest under Sections 234A, 234B, 234C, and 234D was wrongly and illegally charged, and the calculations were incorrect.

Conclusion:
The Tribunal quashed the notice issued under Section 148 and all proceedings pursuant thereto, rendering nothing further for adjudication. Consequently, all appeals were allowed, and the respective stay applications were dismissed as infructuous.

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