2020 (11) TMI 738 - AT - Income Tax

Reopening of assessment u/s 147 - assessment after 4 years - reason to suspect OR reason to believe - violation of the provisions of section 13(1)(c) r.w.s. 13(2)(g) - A.O. has not disposed off the objections filed by the appellant by passing a separate speaking order - HELD THAT - In the present case, the original assessment for the assessment year 2009-10 was completed u/s. 143(3) of the I.T. Act on 25/11/2011 and notice for re-opening of assessment was issued to the assessee on 13/04/2015. As per the provisions of section 147 of the I.T. Act if in any assessment year and if after expiry of four years from the end of the relevant assessment year, action sought to be taken u/s. 147 of the I.T. Act, such action can be only in cases where income chargeable to tax has escaped assessment in such assessment year by reason of failure on the part of the assessee to disclose truly and fully all material facts necessary for his assessment in such assessment year. It is seen from the reasons recorded for re-opening of assessment that it does not show that there was escapement of income due to failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment of income of the assessee for the assessment year 2009-10. Under the circumstances, the conditions stipulated under first proviso to section 147 are not satisfied and therefore, on the aforesaid ground alone, the impugned notice deserves to be quashed and set aside. Reopening of assessment which is already concluded under Section 143(3) of the Act of the assessment cannot be reopened without any allegation by the Assessing Officer that there was non-disclosure of true and correct facts by the assessee while framing the original assessment. Hence, we are inclined to annul the assessment. - Decided in favour of assessee. Assessment of trust - Exemption u/s 11 - method of computation of the income and application followed by the A.O., excluding the loans recovered by the appellant from Self Help Groups SHG that was regarded as income - Repayment of debt incurred for purposes of trust/loans advanced by educational trusts to students for higher studies - Whether amounts to application of income - HELD THAT - The assessee s case on hand is squarely covered by theCBDT Circular No.100 Dt.24.01.1973. Accordingly, the assessee's claim that extending loan to Self Help Groups (SHGs) is in application of income and direct the Assessing Officer to grant the benefit as claimed by the assessee in this ground. The assessee's appeal is allowed.

Issues Involved:
1. Validity of the reassessment proceedings.
2. Alleged diversion of trust funds.
3. Method of computation of income and application by the Assessing Officer (AO).
4. Levy of interest under Section 234-B of the Act.

Issue-wise Detailed Analysis:

1. Validity of the reassessment proceedings:
The tribunal examined whether the reassessment proceedings initiated by the AO were valid. The assessee contended that the reassessment was bad in law for several reasons, including lack of requisite jurisdiction under Section 148, absence of "reason to believe" that income had escaped assessment, and failure to obtain previous sanction under Section 151. The tribunal emphasized that the validity of the assumption of jurisdiction under Section 147 must be tested by the reasons recorded under Section 148(2). It was found that the AO's reasons for reopening the assessment were based on a mere change of opinion and lacked tangible material evidence. The tribunal noted that the original assessment was completed under Section 143(3), and the reopening was initiated after four years without any allegation that the assessee failed to disclose material facts fully and truly. Consequently, the tribunal annulled the reassessment.

2. Alleged diversion of trust funds:
The AO alleged that the trust had diverted funds by advancing ?2.5 Crores to Shri Pushparaj Jain, which was then advanced to the trustee, Shri M.N. Rajendra Kumar. The AO concluded that this transaction violated Section 13(1)(c) read with Section 13(2)(g) of the Act, making the income taxable at the maximum marginal rate. The assessee argued that these transactions were separate and unconnected, and there was no material evidence to support the AO's belief. The tribunal found that the AO's belief was based on mere suspicion without any direct evidence. Therefore, the tribunal held that the reopening of the assessment on this ground was invalid.

3. Method of computation of income and application by the AO:
The assessee challenged the AO's method of computing income and application by excluding loans advanced to Self Help Groups (SHGs) and treating recovered loans as income. The tribunal referred to CBDT Circular No. 100 dated 24/01/1973, which states that loans advanced for charitable purposes should be considered as application of income, and their recovery should be treated as income. The tribunal noted that the assessee's activities were in line with the trust's objectives and the CBDT circular. Therefore, the tribunal directed the AO to grant the benefit as claimed by the assessee, recognizing the loans advanced to SHGs as application of income.

4. Levy of interest under Section 234-B of the Act:
The assessee denied liability to be charged interest under Section 234-B, arguing that the levy was unjustified under the facts and circumstances of the case. Since the tribunal annulled the reassessment and directed the AO to grant the benefit of application of income as claimed by the assessee, the issue of interest under Section 234-B became academic and was not further addressed.

Conclusion:
The tribunal annulled the reassessment proceedings for the assessment year 2009-10, holding that the reopening was based on a mere change of opinion without tangible material evidence. The tribunal also directed the AO to recognize the loans advanced to SHGs as application of income for the assessment year 2014-15, in line with the CBDT circular. Both appeals of the assessee were allowed.

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