2021 (4) TMI 23 - HC - Income Tax

Reopening of assessment u/s 147 - reference to the Settlement Commission already made - exemption claimed under Section 11 in return of income for the Assessment Year under consideration, it amounts to escapement of income within the meaning of clause (c) of Explanation 2 to Section 147 - HELD THAT - As assessment order passed in respect of petitioner's trust for the Assessment Year 2013-14 is already under reference to the Settlement Commission in terms of Section 245F(2) of the Act, which has been allowed to be proceeded with under Section 245D of the Act. Further, proceedings of the Settlement Commission have already been stayed vide order of the Hon'ble Supreme Court indicated herein- above. Furthermore, it is undisputed that the order passed under Section 12AA of the Act is already under challenge before this Court - Once the aforesaid proceedings are already pending consideration of this Court, it does not appear to reason as to why the fresh re-asseement notice was required to be issued at this stage. The matter requires consideration for which the opposite parties are granted four weeks' time to file detailed counter affidavit.

Issues:
1. Validity of notice for re-assessment under Section 148 of the Income Tax Act, 1961 for Assessment Year 2013-14.
2. Applicability of Section 245F(2) of the Income Tax Act, 1961 in the context of pending Settlement Commission proceedings.
3. Impact of cancellation of petitioner's society registration under Section 12AA of the Act on re-assessment proceedings.
4. Consideration of the necessity of issuing a fresh re-assessment notice while other related proceedings are pending before the court.

Issue 1: Validity of re-assessment notice
The petitioner challenged the notice for re-assessment dated 22.1.2021 under Section 148 of the Income Tax Act, 1961 for the Assessment Year 2013-14. The petitioner contended that the notice was invalid due to ongoing legal proceedings related to the same matter. The respondent argued that the notice was valid as the petitioner's Trust registration had been cancelled under Section 12AA of the Act, leading to an alleged escapement of income. The Court noted the pending Settlement Commission proceedings and the challenge to the cancellation order, questioning the necessity of the re-assessment notice at this stage. The Court stayed the re-assessment notice pending further consideration.

Issue 2: Application of Section 245F(2) in Settlement Commission proceedings
The petitioner argued that the re-assessment notice was not permissible under Section 245F(2) of the Income Tax Act, 1961, as proceedings before the Settlement Commission were ongoing. The respondent justified the notice based on the cancellation of Trust registration and alleged income escapement. The Court observed that the Settlement Commission proceedings were stayed by the Supreme Court and the cancellation order was under challenge, raising doubts about the necessity of the re-assessment notice. The Court granted time for filing a detailed counter affidavit to delve deeper into the matter.

Issue 3: Impact of cancellation of society registration
The cancellation of the petitioner's society registration under Section 12AA of the Act was a key point of contention. The respondent argued that this cancellation justified the re-assessment notice due to alleged income escapement. However, the petitioner highlighted the pending challenge to the cancellation order, questioning the validity of the notice. The Court considered the interplay between the cancellation order, ongoing legal challenges, and the re-assessment notice, leading to the stay of the notice for further examination.

Issue 4: Necessity of fresh re-assessment notice
The Court raised concerns regarding the necessity of issuing a fresh re-assessment notice while related proceedings were already pending before the court. The petitioner emphasized the ongoing legal challenges and the stayed Settlement Commission proceedings, questioning the timing and validity of the notice. The Court granted time for the parties to provide detailed submissions and stayed the re-assessment notice dated 22.1.2021 for further review alongside related writ petitions.

Overall, the Court's decision to stay the re-assessment notice was influenced by the complex interplay of ongoing legal challenges, stayed Settlement Commission proceedings, and the cancellation of society registration, raising significant doubts about the necessity and validity of the notice at that juncture. The Court emphasized the need for a detailed examination of the matter before reaching a final decision.

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