2016 (11) TMI 71 - HC - Income Tax

Validity of reopening of assessment - mere registration of a Board under Section 12AA of the Act does not automatically give status of trust and therefore, the exemption which is meant for trust under Section 11(1)(a) of the Act is not available to the petitioner - Held that - Since this is a case of original non-scrutiny assessment, the concept of change of opinion cannot be applied. Since the return of the assessee is accepted under Section 143(1) of the Act, we feel that there is no question of change of opinion while accepting the return and therefore, in the absence of any formation of opinion, the protest raised by the petitioner is devoid of merits and therefore, cannot be accepted. The statutory provision requiring the petitioner to set apart a particular percentage of income as stated above, whether it is scrupulously observed and whether it is fulfilling the conditions contained in Sections 11 and 12 of the Act or not, are the matters of examination and for that purpose, if the authority looking to the activity of the petitioner Board has come to the conclusion that reopening is necessary, we may deem it proper not to interject the said process. We reiterate that the reasons which are recorded are since forming the belief about escapement of income, we deem it proper not to intercept the process. The aforesaid situation which is prevailing on the record of the case on hand, we deem it proper to refer to and rely upon the decision of the Supreme Court in case of Zauri Estate Development & Investment Company Ltd. (2015 (8) TMI 480 - SUPREME COURT ) and leave it open to the respondent authority to proceed further in response to the notice having been issued. We see no merits in the contentions raised by the learned counsel for the petitioner and therefore, the petition being devoid of merits, the same is dismissed.

Issues Involved:

1. Legality and validity of the notice issued under Section 148 of the Income-Tax Act, 1961.
2. Validity of the order dated 29.11.2010.
3. Whether the petitioner Board is entitled to exemption under Section 11(1)(a) of the Act.
4. Whether the reopening of assessment for the Assessment Year 2007-08 is justified.
5. Application of the concept of "change of opinion" in reassessment.

Detailed Analysis:

1. Legality and Validity of the Notice Issued Under Section 148 of the Income-Tax Act, 1961:

The petitioner challenged the notice issued under Section 148 of the Income-Tax Act, 1961, on 25.5.2010, arguing that the reasons for reopening the assessment were invalid and lacked a rational connection or live link to the formation of belief. The court noted that the reasons provided by the respondent authority included the belief that mere registration under Section 12AA did not automatically confer the status of a trust eligible for exemption under Section 11(1)(a). The petitioner was engaged in business activities, and the income was assessable under Section 11(4). The court found that since the original return was accepted without scrutiny assessment, the concept of "change of opinion" did not apply.

2. Validity of the Order Dated 29.11.2010:

The petitioner contended that the objections raised against the reasons for reopening were not considered properly by the authority, resulting in the order dated 29.11.2010. The court, however, upheld the respondent's action, stating that the reasons for reopening were in consonance with the statutory provisions and warranted examination during reassessment.

3. Entitlement to Exemption Under Section 11(1)(a) of the Act:

The court examined whether the petitioner Board fulfilled the conditions stipulated under Sections 11 and 12 of the Act. It was noted that the petitioner was required to set apart a particular percentage of income for charitable purposes. The court emphasized that mere registration under Section 12AA did not automatically grant exemption under Section 11(1)(a), and the fulfillment of statutory conditions needed to be verified during assessment or reassessment.

4. Justification for Reopening of Assessment for the Assessment Year 2007-08:

The court observed that since the original return was accepted under Section 143(1) without scrutiny, the reopening of assessment did not involve a change of opinion. The court cited the Supreme Court's decision in Deputy Commissioner of Income Tax V/s. Zuari Estate Development and Investment Company Limited, which supported the view that no opinion was formed during the acceptance of the return under Section 143(1), and thus, the reopening was valid.

5. Application of the Concept of "Change of Opinion" in Reassessment:

The court clarified that the concept of "change of opinion" did not apply in the present case as the original return was processed under Section 143(1) without scrutiny. The court referred to the Supreme Court's decision in Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stock Brokers Private Limited, which established that no assessment was done under Section 143(1), and therefore, the question of change of opinion did not arise.

Conclusion:

The court dismissed the petition, holding that the reopening of assessment was justified and within the jurisdiction of the respondent authority. The court emphasized that the petitioner must fulfill the statutory conditions for exemption under Sections 11 and 12, and the examination of these conditions was necessary during reassessment. The petition was found to be devoid of merits, and the rule was discharged with no order as to costs.

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