2024 (6) TMI 1302 - HC - Income Tax

Validity of reopening of assessment - notice u/s 148 for re-opening on the basis that the excess funds do not form part of approved refund and hence is not exempt from taxation - as per the order passed under Rule 3 of Part B of Schedule IV of the Act dated 31.3.2014, the approval of the fund was only withdrawn with effect from the date of passing of the said order i.e. 31.3.2014. HELD THAT - Considering Rule 3 of Part B of Schedule IV of the Act, the Tribunal has taken note of order dated 31.3.2014 passed by the Commissioner for withdrawal of approval to hold that there was no question of any withdrawal of approval in absence of communication in writing by the Commissioner to the respondent-assessee. Tribunal has held that such withdrawal of approval shall take effect from the date on which such order has been passed. Therefore, presumption on which the notice was issued that the fund stands withdrawn is not tenable as the withdrawal of approval as per clause 6(a) of the Trust Deed from 10.4.2014 would not be applicable in the facts of this case. The tribunal has therefore, rightly held that on the date of notice dated 24.3.2014 for reopening of assessment, there was excess fund of Rs. 4.12 crores and the approval was granted under Rule 2 of Part B of Schedule IV of the Act as per clause 6 (a) of the Trust Deed was in operation. In view of the finding arrived at by the Tribunal coupled with Sub Rule 3, Rule 2 Part B of Schedule IV of the Act and in absence of any communication of withdrawal of approval by the Commissioner at the time of issuance of notice dated 24.3.2014 for reopening under Section 148 of the Act, the Tribunal was justified to set aside the notice for reopening of assessment and consequently reassessment order was also rightly set aside.

Summary

Issues:
1. Correctness of notice under Section 148 of the Income Tax Act, 1961.
2. Interpretation of approval withdrawal date for a superannuation fund.
3. Validity of reassessment based on incorrect factual assumptions.

Analysis:
1. The appeal before the Gujarat High Court involved the correctness of a notice issued under Section 148 of the Income Tax Act, 1961. The Assessing Officer had re-opened the assessment for the years 2007-08 to 2010-2011 based on the belief that certain funds were not part of an approved refund, thus not exempt from taxation. The Tribunal found that the notice was issued on an incorrect presumption of facts and quashed the notice and consequential assessment order.

2. The respondent-assessee Trust was registered under the Bombay Public Trust Act, 1950, and was granted approval of a Superannuation Fund under the Income Tax Act. The Assessing Officer's notice for re-opening the assessment was based on the belief that the fund was not approved. However, the Tribunal noted that the approval withdrawal order dated 31.3.2014 did not specify the date from which withdrawal would take effect. As per Rule 2 of Part B of Schedule IV, withdrawal of approval only takes effect from the date of the order, not retrospectively. The Tribunal held that the approval of the fund had not been withdrawn at the time of issuing the notice for re-opening the assessment.

3. The High Court considered the arguments presented by both parties regarding the withdrawal of approval and the factual basis for the reassessment. The Court noted that the withdrawal of approval must be communicated in writing to the trustee, and in the absence of such communication, the approval remains in effect. Relying on Rule 3 of Part B of Schedule IV, the Court agreed with the Tribunal's decision to set aside the notice for reassessment and the consequent reassessment order. The Court found no legal infirmity in the Tribunal's decision and dismissed the appeal.

This detailed analysis of the judgment highlights the key issues addressed by the Gujarat High Court regarding the correctness of the notice under the Income Tax Act, the interpretation of approval withdrawal for a superannuation fund, and the validity of reassessment based on incorrect factual assumptions.