2019 (9) TMI 313 - HC - Income Tax

Reopening of assessment u/s 147 - change of opinion - reason to believe - non adherence to mandation of providing assessee an opportunity to put forth his submission - denial of natural justice - HELD THAT - Filing of objections to the reasons for reopening is not an empty formality. If this is so, passing a speaking order on the objections cannot be treated as an empty formality and to be brushed aside as a procedural error. The purpose for passing a speaking order on the objections is to afford an opportunity to the assessee to question the same, in the event the assessee is aggrieved by such an order. Therefore, to state that it would be sufficient for the Assessing Officer to deal with the objections in the assessment order and thereafter, if the assessee is aggrieved, he can file a statutory appeal, is a proposition which would be against the principles of natural justice We are to bear in mind that the procedure carved out in GKN Driveshafts (India) Ltd. 2002 (11) TMI 7 - SUPREME COURT is with a view to provide the assessee an opportunity to put forth his submission. This is in the light of the fact that reopening of a concluded assessment after a period of assessment is a very serious matter. This would be evident from the observations of the Hon'ble Apex Court in Kelvinator of India Ltd. 2010 (1) TMI 11 - SUPREME COURT wherein, it was held that post 1st April, 1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words reason to believe failing which, Section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of mere change of opinion , which cannot be per se reason to reopen. As pointed out that the conceptual difference between the power to review and power to reopen is to be kept in mind; the Assessing Officer has no power to review; he has the power to re-assess, but the re-assessment has to be based on fulfilment of certain pre-condition and if the concept of change of opinion is removed in the garb of reopening the assessment, review would take place. The Hon'ble Supreme Court in GKN Driveshafts (India) Ltd. (supra) had clarified that when a notice under Section 148 of the Act is issued, the proper course of action for the noticee is to file a return and if he so desires, to seek for reasons for issuing such notice. Further, it was held that the Assessing Officer is bound to furnish reasons within a reasonable time, on receipt of the reasons, the noticee is entitled to file objections and the Assessing Officer is bound to dispose of the same by passing a speaking order. We do not agree with the interpretation canvassed before us that assuming objections were not disposed of by a speaking order, it would be only a procedural error. Factual position in the assessee's case as well as the reasons for reopening mentioned in the notice dated 29.03.2005 and we find that there is absolutely no other material available with the assessee except the records which formed part of the assessment file. Therefore, the reopening was a clear case of change of opinion. - Decided in favour of the assessee.

Issues Involved:
1. Whether the amount received by the assessee towards corpus from the employer can be treated as income.
2. Whether there is escapement of income to invoke jurisdiction to reopen under Section 147 of the Income-tax Act, 1961.
3. Whether the Tribunal was right in dismissing the appeal of the revenue as infructuous.
4. Whether the Tribunal was right in dismissing the Department's appeal regarding the CIT(A)'s direction to allow proportionate expenditure against corpus receipt as revenue expenditure.

Issue-wise Detailed Analysis:

1. Treatment of Corpus Fund as Income:
The Tribunal upheld that the amount received by the assessee towards corpus from the employer cannot be treated as income. The assessee received voluntary contributions from companies with a specific direction to invest in shares and securities, using only the income from such investments for its objectives. The contributions were considered capital receipts, not income, as per the decision in CIT vs. Shaw, Wallace & Co. The Assessing Officer’s contention that the corpus fund is taxable under Section 11(1)(d) of the Act was rejected as the assessee did not claim exemption under this section, nor was it required to be registered under Section 12A of the Act.

2. Validity of Reopening under Section 147:
The reopening of assessments under Section 147 was held invalid. The original assessments were completed under Section 143(3) after full disclosure by the assessee. The reasons for reopening, primarily the lack of registration under Section 12A, were found to be based on a change of opinion by the Assessing Officer and not on any new tangible material. The Tribunal emphasized that reassessment cannot be justified on mere change of opinion, as established in CIT vs. Kelvinator of India Ltd.

3. Dismissal of Revenue's Appeal as Infructuous:
The Tribunal dismissed the revenue's appeal as infructuous because the reassessment proceedings were invalidated. Since the reassessment itself was void, there was no need to address the appeal concerning the CIT(A)'s direction on proportionate expenditure against the corpus receipt.

4. Proportionate Expenditure Against Corpus Receipt:
The Tribunal upheld the CIT(A)'s direction to allow proportionate expenditure against the corpus receipt as revenue expenditure. The original assessments treated the corpus as non-taxable, and the expenditure incurred was considered revenue expenditure. The Tribunal found no reason to interfere with this finding, as the reassessment proceedings were invalidated.

Conclusion:
The appeals filed by the Revenue were dismissed, and the substantial questions of law were answered against the Revenue and in favor of the assessee. The reopening of assessments was deemed invalid due to the absence of new tangible material and was based on a change of opinion. Consequently, the original assessments treating the corpus as non-taxable were sustained, and the proportionate expenditure against the corpus receipt was allowed as revenue expenditure.

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