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Issues Involved:
1. Validity of notice issued under section 148 of the Income Tax Act, 1961. 2. Taxability of donations received by the trust before the date of registration under section 12A(a). Detailed Analysis: Validity of Notice Issued under Section 148: The assessee, a charitable trust, challenged the notice issued under section 148 of the IT Act, 1961, questioning the jurisdiction of the Assessing Officer (AO). The trust argued that the AO had no new material or information justifying the issuance of the notice, and the AO's action was based on a change of opinion. The trust had disclosed all necessary facts in its return of income, including the receipt of donations towards the corpus fund and the application of these funds for charitable purposes. The tribunal examined the reasons recorded by the AO for issuing the notice under section 148. The reasons included the assertion that the donations were received without specific directions and that the registration under section 12A(a) was granted with effect from 14th August 1997, making donations received before this date taxable. The tribunal found no material or information contradicting the trust's assertion regarding the corpus donations. The AO's action was based on presumption rather than concrete evidence. The tribunal highlighted the distinction between regular assessment under section 143(3) and reassessment under section 147. The powers under section 147 are restricted to taxing income that has escaped assessment, and the AO must have a bona fide belief based on relevant material that income has escaped assessment. The tribunal emphasized that "reasons to believe" cannot be substituted with "reasons to suspect," and the belief must be based on cogent material. In this case, the tribunal found that the AO had no material to show that the donations were without specific directions. The AO's presumption was not supported by any evidence or findings from previous assessments. Therefore, the first part of the reasons recorded by the AO was deemed irrelevant. Taxability of Donations Received Before Registration: The second part of the AO's reasons was that donations received before the date of registration (14th August 1997) were liable to tax. The tribunal examined the provisions of section 12A, which deals with the granting of registration to trusts. The proviso to section 12A(a) states that if the CIT grants registration without condoning the delay, the registration takes effect from the first day of the financial year in which the application is made. In this case, the application was made in the financial year 1997-98, making the registration effective from 1st April 1997. Therefore, the donations received by the trust after 1st April 1997, and before 14th August 1997, would also be exempt from taxation under sections 11 and 12. The tribunal concluded that the second reason recorded by the AO for issuing the notice under section 148 was also legally unsustainable. Conclusion: The tribunal found that both reasons assigned by the AO for invoking section 147 were in defiance of legal provisions and could not withstand judicial scrutiny. Consequently, the notice under section 148 was deemed invalid, and all proceedings flowing from it were quashed. The tribunal accepted the legal ground raised by the assessee and set aside the assessment order. Given this finding, the tribunal did not address the other grounds on merits. Outcome: The appeal of the assessee was allowed.
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