2023 (12) TMI 815 - HC - Income Tax

Reopening of assessment u/s 147 - notice after your years expiry - rejection of exemption u/s 11 - HELD THAT - We would agree with Petitioner on the aspect of commercial activities alleged by the AO that AO has presupposed that assessee is indulged in commercial activity. Just because assessee has been earning a regular income from letting out its auditorium does not mean Petitioner was indulging in commercial activities. Mr. Agrawal submitted that the Income Tax Department initiated proceedings u/s 12AA(3) of the Act to withdraw the exemption granted to Petitioner u/s 11 of the Act which proceedings have been quashed and set aside. Thus in view of the proviso to Section 147 of the Act, which squarely applies to the case at hand, re-opening of the assessment is permissible only if there was failure to disclose fully and truly material facts. Reason to believe itself indicates that amount of Rs. 2,84,19,039/- which the AO claims to have escaped assessment has been obtained from the return of income filed by Petitioner. Return of income, copy whereof is annexed to the Petition, itself indicates that income from hall charge, other charges recovered from auditorium users and compensation received for use of premises. Therefore, by no stretch of imagination being a failure to truly and fully disclose. When Petitioner s case is they are not carrying out any commercial activity, Petitioner cannot be accused of not disclosing that they were carrying out commercial activity.

Summary

Issues involved:
The issues involved in the judgment are related to the re-opening of assessment under Section 147 of the Income Tax Act, 1961 for Assessment Year 2007-08 based on the belief that the income of the petitioner had escaped assessment due to alleged commercial activities.

Details of the Judgment:

Issue 1: Re-opening of Assessment under Section 147
The petitioner, a charitable institution registered under the Bombay Public Trust Act, 1950 and Section 12AA of the Income Tax Act, 1961, received a notice under Section 148 of the Act for Assessment Year 2007-08, stating that the Assessing Officer had reason to believe that the income had escaped assessment. The reasons for re-opening mentioned alleged commercial activities based on receipts from hall charges, other charges, and compensation received. The petitioner filed objections which were disposed of, leading to a writ petition challenging the re-opening.

Issue 2: Failure to Disclose Material Facts
The petitioner argued that the re-opening notice issued after four years of the assessment was barred under Section 147 unless there was a failure to disclose material facts. The petitioner contended that the reasons for re-opening did not indicate any failure to disclose as the mentioned material was from the filed return of income. The petitioner emphasized that even if the Department sought to withdraw exemption under Section 11, it could not be done under Section 147.

Issue 3: Alleged Commercial Activities
The respondent argued that the petitioner's regular income from letting out its auditorium indicated commercial activities, justifying the re-opening under Section 147. However, the court disagreed and held that earning regular income did not necessarily imply engaging in commercial activities. The court noted that the Income Tax Department's attempt to withdraw exemption under Section 11 had been quashed, further supporting the petitioner's stance.

Conclusion:
The court held that the re-opening of assessment was impermissible under Section 147 as there was no failure to disclose material facts by the petitioner. The court found that the reasons for re-opening were based on information already disclosed in the return of income, and the petitioner could not be accused of not disclosing commercial activities when they claimed otherwise. Consequently, the relief sought in the petition was granted, and the writ petition was disposed of in favor of the petitioner.