2019 (4) TMI 291 - HC - Income Tax

Reopening of assessment u/s 147 - breach of section 11(3)(d) - eligibility of reason to believe - misuse or abuse of funds by the trustees of the trust - violation of section 11(2) read with section 11(3)(d) of the Act as payment was made to CIMS Hospital Pvt. Ltd. for Linac machine - HELD THAT - There is a general allegation of breach of sections 11 to 13, without stating as to why such violation is alleged. Thus, AO seeks to disallow for violation of section 11(3)(d) and section 11(2). As discussed hereinabove, considering the reasons recorded by the Assessing Officer for reopening the assessment, there was no material with him on the basis of which he could have formed the belief that on account of donation of ₹ 3,00,00,000/- to CIMS Hospital Pvt. Ltd., the petitioner had violated the provisions of section 11(3)(d) of the Act. Insofar as violation of section 11(2) is concerned, such violation has been alleged only as a consequence of violation of the provisions of section 11(3)(d) of the Act. Therefore, on the reasons recorded, the Assessing Officer could not have formed the belief that income chargeable to tax has escaped assessment. from the reasons recorded it is evident that the Assessing Officer has consciously decided that there was violation of section 11(3)(d) of the Act, and since on the reasons recorded, the Assessing Officer could not have formed the belief that income chargeable to tax has escaped assessment, the impugned notice under section 148 of the Act lacks validity and cannot be sustained. - Decided in favour of assessee

Summary

Issues Involved:
1. Validity of reopening the assessment under Section 148 of the Income Tax Act, 1961.
2. Alleged violation of Sections 11(2) and 11(3)(d) of the Income Tax Act, 1961.
3. Entitlement to exemptions under Sections 11 and 12 of the Income Tax Act, 1961.

Detailed Analysis:

1. Validity of Reopening the Assessment under Section 148 of the Income Tax Act, 1961:
- Petitioner's Argument: The petitioner challenged the notice dated 17.05.2018 issued under Section 148 of the Income Tax Act, 1961, seeking to reopen the assessment for the assessment year 2016-17. The petitioner argued that the reasons for reopening lacked validity as there were no allegations of misuse or abuse of funds, and the funds were accumulated as per the provisions of the Act.
- Respondent's Argument: The respondent contended that the Assessing Officer had sufficient material to form the belief that income chargeable to tax had escaped assessment. The respondent argued that the activities of the petitioner were not charitable in nature, and the accumulated funds were used for private purposes, violating Sections 11 to 13 of the Act.
- Court's Finding: The court found that the specific ground for reopening the assessment was the alleged breach of Section 11(3)(d) of the Act. The court held that the Assessing Officer could not have formed the belief that income chargeable to tax had escaped assessment based on the reasons recorded.

2. Alleged Violation of Sections 11(2) and 11(3)(d) of the Income Tax Act, 1961:
- Petitioner's Argument: The petitioner argued that the payment made to CIMS Hospital Pvt. Ltd. for a Linac machine did not violate Section 11(3)(d) of the Act, as CIMS Hospital Pvt. Ltd. is neither an institution registered under Section 12AA nor covered under the sub-clauses of clause (23C) of Section 10 of the Act.
- Respondent's Argument: The respondent argued that the payment to CIMS Hospital Pvt. Ltd. was in contravention of Section 11(3)(d) of the Act, as the hospital is not registered under Section 12AA or covered under the relevant sub-clauses of Section 10(23C). Therefore, the petitioner was not entitled to exemptions under Sections 11 and 12 of the Act.
- Court's Finding: The court observed that Section 11(3)(d) of the Act would not be attracted in respect of any amount paid to CIMS Hospital Pvt. Ltd., as it does not fall within the ambit of the relevant provisions. The court held that the reasons recorded by the Assessing Officer for reopening the assessment lacked validity.

3. Entitlement to Exemptions under Sections 11 and 12 of the Income Tax Act, 1961:
- Petitioner's Argument: The petitioner argued that the accumulated funds were used for charitable purposes, and there was no violation of Section 11(2) of the Act. Therefore, the petitioner was entitled to exemptions under Sections 11 and 12 of the Act.
- Respondent's Argument: The respondent argued that the petitioner was not engaged in any charitable activities and the accumulated funds were used for private purposes. Therefore, the petitioner was not eligible for exemptions under Sections 11 and 12 of the Act.
- Court's Finding: The court found that the allegation of violation of Section 11(2) was a consequence of the alleged violation of Section 11(3)(d). Since the court held that there was no violation of Section 11(3)(d), the petitioner was entitled to exemptions under Sections 11 and 12 of the Act.

Conclusion:
The court quashed and set aside the impugned notice dated 17.05.2018 issued under Section 148 of the Income Tax Act, 1961, seeking to reopen the assessment for the assessment year 2016-17. The court ruled in favor of the petitioner, holding that the reasons recorded for reopening the assessment lacked validity and that the petitioner was entitled to exemptions under Sections 11 and 12 of the Act. The rule was made absolute with no order as to costs.