2016 (12) TMI 1198 - HC - Income Tax

Reopening of assessment - entitlement to exemptions under Section 11 1 - Held that - It appears that according to the Assessing Officer, activities of the assessee cannot be said to be for charitable purpose, as defined in Section 2 (15) of the Act, as by charging fees from the members for effluent treatment, the activities can be said to be commercial activities. However, it is required to be noted that during the scrutiny assessment, the assessee produced all necessary materials asked by the Assessing Officer, more particularly, the list of persons from whom the assessee received donation and contribution from members for effluent treatment and it was only thereafter that the Assessing Officer finalized scrutiny assessment. Thus, it cannot be said that there was any failure on the part of petitioner-assessee in not disclosing true and correct facts necessary for assessment. It is required to be noted that even in the reasons recorded, there is no allegation whatsoever that the assessee has failed to disclose true and correct facts necessary for the assessment. Under the circumstances and considering the decision in case of CIT v. Kelvinator of India Limited 2010 (1) TMI 11 - SUPREME COURT OF INDIA , the impugned Notice under Section 148 of the Act to reopen the assessment for AY 2009-2010, issued beyond four years, cannot be sustained and the same deserves to be quashed and set-aside on the aforesaid ground alone. - Decided in favour of assessee.

Summary

Issues:
1. Validity of Notice under Section 148 of the Income-tax Act, 1961 for reopening assessment for A.Y 2009-2010.
2. Whether the activities of the assessee qualify as charitable activities under Section 2(15) of the Income-tax Act.

Issue 1: Validity of Notice under Section 148:
The petitioner-assessee filed a petition under Article 226 seeking to quash a Notice dated 21st March 2016 issued under Section 148 of the Income-tax Act, 1961, to reopen the assessment for A.Y 2009-2010. The petitioner contended that there was no failure in disclosing true and correct facts during the scrutiny assessment. The Assessing Officer had completed the assessment under Section 143(3) after receiving all necessary information from the petitioner. The petitioner argued that the Notice to reopen the assessment beyond four years was not justified. The court noted that the condition precedent for reopening an assessment beyond four years is the failure of the assessee to disclose true and correct facts. The court relied on the decision of the Supreme Court in CIT vs. Kelvinator of India Limited and held that without this condition being satisfied, the assessment cannot be reopened beyond four years. The court found that since there was no failure on the part of the assessee in disclosing facts, the impugned Notice under Section 148 was not sustainable and quashed it.

Issue 2: Charitable Activities under Section 2(15):
The Assessing Officer sought to reopen the assessment based on the belief that the activities of the assessee, which involved charging fees for services related to effluent treatment, were commercial in nature and did not qualify as charitable activities under Section 2(15) of the Act. However, the court observed that during the scrutiny assessment, the assessee had provided all necessary information, including details of donations and contributions received for effluent treatment. The court noted that the reasons recorded for reopening did not allege any failure on the part of the assessee to disclose true and correct facts. The court, therefore, did not delve into the larger issue of whether the activities of the assessee fell within the definition of charitable activities under Section 2(15). The court held that since the condition precedent for reopening the assessment beyond four years was not met, the impugned Notice and re-assessment proceedings were quashed and set aside without expressing any opinion on the charitable nature of the activities.

In conclusion, the High Court of Gujarat quashed the Notice issued under Section 148 of the Income-tax Act, 1961 for reopening the assessment for A.Y 2009-2010, as the condition of failure to disclose true and correct facts necessary for assessment was not met. The court did not delve into the broader issue of whether the activities of the assessee qualified as charitable under Section 2(15) of the Act, focusing solely on the procedural aspect of the reopening.