2020 (7) TMI 252 - HC - Income Tax

Revision u/s 263 - Reopening of assessment u/s 147 dropped - exemption u/s 11 - non recording any reasons by recording its own reasons for the first time in its order presuming the reasons on which the AO would have passed an order - HELD THAT - From perusal of the proceeding, it is evident that the assessee was called upon to furnish certain details as well as documents on 28.10.2004 and 06.01.2005, which were supplied by the assessee on 18.02.2005. The Deputy Director, Income Tax (Exemptions) on 23.02.2005 confirmed that the assessee s consolidation of accounts was done at Mumbai and assessment was completed. After examining the submissions, made by the assessee, the proceeding under Section 147 of the Act were dropped. Director of Income Tax (Exemptions) in its order has found that the assessee for the Assessment year 1997-98 had disclosed an opening balance as corpus fund. The finding recorded by the Director of Income Tax (Exemptions) that the proceedings were dropped without proper enquiry and appreciation, cannot be sustained as from perusal of the record, it is evident that an enquiry was conducted and confirmation was sought from Deputy Director, Income Tax (Exemptions), Mumbai who confirmed that consolidation was done at Mumbai and assessment was completed and exemption under Section 11 of the Act was granted. The fact that assessee was sending accounts to Mumbai is recorded in the order under Section 263 passed by the Director of Income Tax (Exemptions), Mumbai. Accounts were being submitted along with ISKON, Mumbai. The Director of Income Tax (Exemptions) has not found anything wrong in the accounts for the Assessment year 1997-98. It is pertinent to mention here that view taken by the assessing officer is one of the two plausible views and therefore, in view of law laid down in the case of MALABAR INDUSTRIAL CO. LTD 2000 (2) TMI 10 - SUPREME COURT the proceeding under Section 263 of the Act cannot be upheld. The tribunal has therefore, rightly set aside the proceeding under Section 263 of the Act initiated against the assessee.

Summary

Issues:
1. Validity of dropping reopened assessments without recording reasons
2. Validity of order under Section 263 of the Income Tax Act, 1961
3. Assessment of income for the year 1997-98
4. Interpretation of corpus fund and its taxability

Issue 1: Validity of dropping reopened assessments without recording reasons
The appeal raised concerns regarding the correctness of the Tribunal's decision in dropping the reopened assessments without the Assessing Officer recording any reasons. The Tribunal had presumed the reasons on which the Assessing Officer would have based their decision. The primary contention was whether this action was justifiable under the law.

Issue 2: Validity of order under Section 263 of the Income Tax Act, 1961
The Director of Income Tax (Exemptions) initiated proceedings under Section 263 of the Act, questioning the order dated 15.03.2005, which dropped the proceedings under Section 147 for the Assessment year 1997-98. The Director found the order erroneous and prejudicial to revenue. The Tribunal later quashed the Section 263 order, leading to a dispute over the validity and reasoning behind the Director's decision.

Issue 3: Assessment of income for the year 1997-98
The case involved an assessee registered under Section 12A of the Act who failed to file a return despite income disclosures. The Assessing Officer initiated proceedings under Section 147, which were later dropped. The Director of Income Tax (Exemptions) intervened, leading to a series of assessments and appeals. The crux of this issue was whether the Assessing Officer's decision regarding the income assessment for the year 1997-98 was valid and in compliance with the law.

Issue 4: Interpretation of corpus fund and its taxability
A significant aspect of the case revolved around the interpretation of the corpus fund and its taxability. The assessee argued that the corpus fund was not taxable, citing relevant provisions and previous decisions. This issue required a detailed analysis of the nature of the corpus fund, its treatment under the Income Tax Act, and its impact on the overall assessment process.

In conclusion, the High Court analyzed each issue comprehensively, considering legal precedents, factual findings, and the interpretations of relevant provisions. The judgment primarily focused on the correctness of the Assessing Officer's actions, the validity of the Director's orders, and the taxability of the corpus fund. Ultimately, the Court dismissed the appeal, ruling in favor of the assessee based on the legal principles and factual assessments presented during the proceedings.