2022 (4) TMI 974 - HC - Income Tax

Reopening of assessment u/s 147 - accumulation of income under Section 11(2) - unlawful claim of accumulation/deemed application of income and hence, there has been an escapement of income - HELD THAT - Petitioner received a show cause notice dated 9th November 2018 specifically calling upon petitioner as to why petitioner s explanation should not be rejected. In the show cause notice, it is mentioned that the details on record show that the Trust has been accumulating continuously as per provisions of Section 11(2) of the Act and it is also noticed that the accumulated amount is not utilised for the purposes specified of accumulation. It is also stated in the show cause notice that from the audit report filed in Form 10B it is seen that an amount of ₹ 70,00,000/- has been accumulated as per Explanation 2 to Section 11(1) of the Act and there is no accumulation under Section 11(2) of the Act. Instead of filing Form 9A, the Trust had filed Form 10 with no specific purposes as required mandatorily. Petitioner was called upon to show cause why the application be not denied since necessary requirements have not been fulfilled. Petitioner replied to the show cause notice vide its Chartered Accountants letter dated 14th November 2018 and showed cause as to why petitioner s claim to accumulation should be allowed. Petitioner explained that while mentioning in Form 10B, it was inadvertently mentioned against 11(1) and also in the return as the same software generates all three form, viz., 10B, 10 and ITR-7. This explanation was accepted and no further query was raised and the accumulation under Section 11 of the Act of ₹ 70,00,000/- was factored in while computing the income. Therefore, it is quite clear that this issue was under active consideration during the assessment proceedings. Infact in the affidavit in reply at paragraph 6.13 respondents admit the fact that the amount of ₹ 70,00,000/- was inadvertently shown as deemed application of income and after a show cause notice was issued and an explanation was received, the Income Tax Officer accepted the claim of accumulation of ₹ 70,00,000/- under Section 11(2) of the Act and finalised the assessment under Section 143(3) of the Act on 5th December 2018. As regards the allegation in the reasons recorded that it is not ascertainable whether the amount is accumulation of income under Section 11(2) or deemed application of income as per clause (2) of Explanation to Section 11(1) of the Act, at paragraph 6.17 of the affidavit in reply, respondents have accepted that there is an error in the reasons recorded. Respondents have stated in the affidavit in reply that therefore, the question in reason recorded that it is not ascertainable whether the amount of ₹ 70,00,000/- is accumulation of income u/s 11(2) or deemed application of income as per clause (2) of Explanation to section 11(1) of the Act as shown in return of income does not arise . In the circumstances, it is quite clear that the entire reopening is based on change of opinion. Consequently, the mere formation of another view in the course of assessment proceedings for subsequent years would not justify the Revenue in reopening the assessment for Assessment Year 2016-2017. Therefore, in the present case, there was no tangible material, no new information and no fresh material which came before the Revenue in the course of assessment of subsequent years which can justify the reopening of the Assessment Year 2016-2017 - Decided in favour of assessee.

Summary

Issues:
1. Reopening of assessment based on change of opinion.
2. Allegations of accumulation of income under different sections.
3. Compliance with statutory requirements during assessment proceedings.

Analysis:
1. The petitioner, a charitable Trust, filed its income tax return for Assessment Year 2016-2017, declaring total income and claiming accumulation for charitable purposes. Subsequently, an assessment order was passed, and the petitioner received a notice under Section 148 of the Income Tax Act for reopening. The court noted that the proposed reopening was based on a change of opinion, which is impermissible in law. The reasons for reopening focused on the accumulation of a specific amount, which had already been addressed during the assessment proceedings. The court found that all relevant material was considered during the initial assessment, and no new information justified the reopening for the said assessment year.

2. The Assessing Officer alleged that the petitioner had not disclosed accurate information during scrutiny proceedings and had unlawfully claimed accumulation of income. However, the petitioner had provided necessary details and explanations during the assessment process. The court observed that the issue of accumulation under different sections of the Income Tax Act was thoroughly examined during the assessment proceedings, and the petitioner's explanations were accepted. The court emphasized that the mere formation of a different view in subsequent years does not warrant reopening an assessment if no new material or information is presented.

3. The court referred to a previous judgment highlighting that reopening an assessment based on material already considered during regular assessment proceedings amounts to a change of opinion. In this case, the court found that there was no tangible material or fresh information presented during subsequent assessment years that justified reopening the assessment for the relevant year. Consequently, the court allowed the petition, quashing the notice for reopening and the subsequent order, as the reopening was deemed to be solely based on a change of opinion without any new material justifying the action.

This detailed analysis of the judgment highlights the key issues of the case, including the legality of reopening assessments based on a change of opinion, compliance with statutory requirements, and the importance of considering all relevant material during assessment proceedings.