2020 (11) TMI 400 - AT - Income Tax

Reopening of assessment u/s 147 - Exemption u/s 11 and 12 - receipts of the trust as allowable under section 11 and 12 - HELD THAT - Since there is no change in the activities carried on by the assessee and also the assessing officer has accepted the activities carried on by the assessee that it is only improving the quality of the breeds of cow for yielding the milk and assessee is not selling or dealing in milk and revisited the assessment records without any new material to reopen the assessment as well as he reopened the assessment after 4 years without bringing on record any mistake on the part of the assessee to disclose fully and truly, all the information to complete the assessment. AO and Ld CIT(A) has applied certain case laws which are distinguishable on facts to the present case. Revenue has accepted the activities of the assessee are not hit by the amended proviso to section 2 (15) of the Act in the subsequent assessment years and we presume that the then assessing officer in the original assessment passed under section 143 (3) must have verified and formed an opinion on application of amended proviso to section 2(15) - reopening of the assessment was made with the wrong understanding of the facts by assessing officer and reviewing the concluded assessment is bad in law. Reassessment proceedings and reassessment order passed by the assessing officer in the assessee s case is quashed. Accordingly, the grounds arise by the assessee on the reopening of the assessment is accordingly allowed.

Summary

Issues Involved:
1. Reopening of assessment under section 147 of the Income Tax Act.
2. Charitable nature of activities under section 2(15) of the Act.
3. Consistency in the application of tax exemptions under section 11 and 12 of the Act.
4. Procedural compliance and legal precedents in reassessment.

Issue-Wise Analysis:

1. Reopening of Assessment under Section 147:
The assessment was reopened under section 147 based on the reasons recorded on 30.03.2016, and a notice under section 148 was issued on 31.03.2016. The assessee challenged the reopening, arguing it was bad in law as it was based on the same information and documents already submitted during the original assessment completed on 12.10.2011. The reassessment was initiated after four years without any new tangible material, indicating a change of opinion by the assessing officer. The Tribunal found that the reassessment was initiated with a misunderstanding of the facts and without any new material, thus quashing the reassessment proceedings and order.

2. Charitable Nature of Activities under Section 2(15):
The assessing officer observed that the assessee's activities, including upgrading local cattle and selling milk, were in the nature of business and not charitable. However, the assessee argued that its activities were aimed at improving the socio-economic status of farmers and were supported by state government grants, not commercial in nature. The Tribunal noted that the activities were consistent with the trust's objectives and were not intended for profit. The Tribunal relied on the Gujarat High Court's decision in the Sabarmati Ashram Gaushala Trust case, which held that incidental surpluses from charitable activities do not render them commercial.

3. Consistency in Application of Tax Exemptions:
The assessee highlighted that in subsequent assessment years (2010-11 to 2012-13), the assessing officers had allowed deductions under section 11 of the Act, acknowledging the charitable nature of the activities. The Tribunal emphasized the principle of consistency, noting that the activities had not changed, and the exemptions were allowed in subsequent years. The Tribunal presumed that the original assessing officer had verified and formed an opinion on the application of the amended proviso to section 2(15).

4. Procedural Compliance and Legal Precedents:
The Tribunal found no procedural lapses in the reopening process but emphasized the need for cogent material to form an opinion that income had escaped assessment. The Tribunal cited various legal precedents, including CIT v. Kelvinator India Ltd. and PCIT v. Evelon Synthetics (P) Ltd., to support the argument that reassessment based on a change of opinion without new material is not permissible. The Tribunal also addressed the procedural aspect of pronouncing the order beyond 90 days due to the COVID-19 lockdown, referencing the decision in JSW Ltd and other relevant judicial precedents.

Conclusion:
The Tribunal allowed the assessee's appeal, quashing the reassessment proceedings and order, and dismissed the revenue's appeal. The Tribunal upheld the charitable nature of the assessee's activities, emphasizing the principle of consistency and the requirement for new material in reassessment proceedings. The order was pronounced beyond 90 days due to the exceptional circumstances of the COVID-19 lockdown, in line with judicial precedents.