2017 (7) TMI 696 - HC - Income Tax

Reopening of assessment - transfer of business of the assessee and exchange of shares between the companies and trust - reasons to believe - proof of non charitable activities - Held that - The first part of the reasons referring to the complex structure of transfer of business of the assessee and exchange of shares between the companies and trust all happened during the year relevant to the assessment year 2011-12 and has therefore no direct bearing on the assessment year 2009-10 which is sought to be reopened. Whatever be the legality or the effect of such transactions on the assessment of the assessee for the relevant period the same can have no relation to the assessee s tax liability for the assessment year 2009-10. We cannot allow the Assessing Officer to examine this issue. Firstly independently of the assessee s activities of the assessment year 2011-12 the Assessing Officer had examined this question during the original assessment. We have noted the written queries raised by the Assessing Officer and the answers given by the assessee to such questions. This included the applicability of the amended Section 2(15) of the Act. We also noted that the Assessing Officer in the order of assessment did not with the aid of such provisions hold that the activities of the trust are not for charitable purpose. He thus accepted the assessee s stand in this regard. Any attempt now to reexamine this issue would be considered as change of opinion and clearly impermissible even if it is within the period of four years. Assessing Officer has tried to link the assessee s transactions of transferring its micro finance business to a company. This transfer or even valuation of the assessee s tangible and intangible assets would not automatically imply that the activities of the assessee trust were not in the nature of charitable purpose. Substantial portion of the valuation was for tangible assets which may have been acquired by the assessee trust over a period of time. Even though part of the consideration comprised of valuation of intangible assets the same would be of no consequence. - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Examination of the petitioner's activities as charitable or business in nature.
3. Applicability of amended Section 2(15) of the Income Tax Act, 1961.
4. Allegation of sham transactions and siphoning of funds.

Detailed Analysis:

1. Legality of the Notice Issued Under Section 148:
The petitioner challenged the notice dated 24.03.2014 issued by the Assessing Officer under Section 148 of the Income Tax Act, 1961, for reopening the assessment for the year 2009-10. The petitioner argued that the issues raised in the notice pertained to the assessment year 2011-12 and not 2009-10. The court noted that the original assessment was completed under Section 143(1) on 28.11.2011, and the reopening notice was issued within four years from the end of the relevant assessment year. The court examined whether the Assessing Officer had valid reasons to believe that income had escaped assessment.

2. Examination of the Petitioner's Activities:
The petitioner, a charitable trust, had filed its return for the assessment year 2009-10, which was scrutinized by the Assessing Officer. During the original assessment, the Assessing Officer had raised queries regarding the petitioner's activities and their compliance with Section 2(15) of the Act. The petitioner responded, asserting that its activities were charitable in nature, providing relief to poor women, and thus eligible for exemptions under Sections 11 and 12 of the Act. The court found that the Assessing Officer had scrutinized these activities during the original assessment and accepted the petitioner's stand without making any adjustments or disallowances related to the amended definition of "charitable purpose."

3. Applicability of Amended Section 2(15):
The court noted that Section 2(15) was amended with effect from 01.04.2009, redefining "charitable purpose" to exclude activities involving trade, commerce, or business. The Assessing Officer had examined the applicability of this amended definition during the original assessment but did not make any adverse findings against the petitioner. The court emphasized that re-examining this issue in the reassessment proceedings would constitute a change of opinion, which is impermissible even within the four-year period, as established by the Supreme Court in Commissioner of Income Tax vs. Kelvinator of India Ltd.

4. Allegation of Sham Transactions and Siphoning of Funds:
The Assessing Officer alleged that the petitioner had engaged in complex transactions involving the transfer of its microfinance business to a private company, Ananya Finance for Inclusive Growth (AFIG), and routing funds through another trust, Indian Foundation for Inclusive Growth (IFIG). The court found that these transactions occurred during the assessment year 2011-12 and had no direct bearing on the assessment year 2009-10. The court concluded that the Assessing Officer's attempt to link these transactions to the petitioner's activities in 2009-10 was not justified. The court held that the petitioner's activities during the relevant period were scrutinized and accepted as charitable in nature, and any attempt to reexamine this would be a change of opinion.

Conclusion:
The court set aside the impugned notice dated 24.03.2014, allowing the petition. The court held that the Assessing Officer's attempt to reopen the assessment was based on a change of opinion and not justified by new material evidence. The petitioner's activities were scrutinized and accepted as charitable during the original assessment, and the transactions in question pertained to a different assessment year.