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2011 (1) TMI 1048 - HC - Income TaxReopening of assessment - registration u/s 12AA - Revenue Audit Party has observed that in the case of the assessee, no trust deed has been executed and registered setting out its objectives, the property of the assessee is also not held under assessee-Trust - Held that - It is an undisputed position the petitioner has been registered under section 12AA by the CIT, Gandhinagar vide order dated 22.9.2004 - it appears that the belief that income chargeable to tax escaped assessment is that of the Revenue Audit Party and not of the AO - it is not permissible for the AO to go behind the registration obtained by the assessee under section 12AA - CIT v. Kelvinator of India Ltd. 2010 (1) TMI 11 - SUPREME COURT OF INDIA , has held that one needs to give a schematic interpretation to the words reason to believe failing which section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of mere change of opinion , which cannot be per se reason to reopen - Decided in favor of the assessee
Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961. 2. Entitlement of the petitioner to exemptions under Sections 11 and 12 of the Income Tax Act. 3. Legitimacy of reopening the assessment based on audit objections. 4. Applicability and implications of Section 12AA registration. Detailed Analysis: 1. Validity of the Notice Issued Under Section 148 of the Income Tax Act, 1961: The petitioner challenged the notice dated 29.3.2010 issued by the respondent under Section 148 of the Income Tax Act, 1961, reopening the assessment for the assessment year 2006-07. The petitioner argued that the reopening was based on a mere change of opinion without any tangible material indicating that any income had escaped assessment. The court observed that the reasons for reopening the assessment were based solely on the observations of the revenue audit party, which is not a valid ground for reopening under Section 147 of the Act. The court held that the reopening of assessment based on a mere change of opinion, particularly that of the revenue audit party and not the Assessing Officer, is invalid. 2. Entitlement of the Petitioner to Exemptions Under Sections 11 and 12 of the Income Tax Act: The petitioner, registered under Section 12AA of the Income Tax Act as an institution carrying out charitable activities, claimed deductions amounting to Rs. 77,40,212/- under Sections 11 and 12 of the Act. The Assessing Officer had initially allowed these deductions in the assessment order dated 31.7.2008. The court emphasized that once the Commissioner of Income Tax grants registration under Section 12AA, it is not open for the Assessing Officer to take a contradictory stand and deny the exemptions. The court referred to previous judgments, including Hiralal Bhagwati v. CIT and Ahmedabad Urban Development Authority, which established that registration under Section 12AA signifies satisfaction about the genuineness of the activities and objects of the trust or institution. 3. Legitimacy of Reopening the Assessment Based on Audit Objections: The court scrutinized the reasons recorded for reopening the assessment and found that the Assessing Officer had not formed an independent opinion but had acted on the revenue audit party's objections. The court highlighted that the belief that income chargeable to tax had escaped assessment must be that of the Assessing Officer and not the audit party. The court concluded that the condition precedent for exercising powers under Section 147, namely, the Assessing Officer's reason to believe that income had escaped assessment, was not fulfilled in this case. 4. Applicability and Implications of Section 12AA Registration: The court reiterated that registration under Section 12AA is not an empty formality and signifies that the trust or institution is genuinely carrying out charitable activities. The court cited the Supreme Court's decision in Asstt. CIT v. Surat City Gymkhana, which held that once registration under Section 12AA is granted, the Assessing Officer cannot probe further into the objects of the trust. The court also referred to the legislative scheme, which indicates that granting registration under Section 12AA denotes fulfillment of the conditions laid down in Section 12A. Therefore, the Assessing Officer cannot ignore the certificate of registration while framing the assessment order. Conclusion: The court concluded that the reopening of the assessment was based on a mere change of opinion, influenced by the revenue audit party's observations, and not by any independent belief of the Assessing Officer. The court held that such reopening is invalid and quashed the impugned notice dated 29.03.2010 issued under Section 148 of the Income Tax Act. The petition was allowed, and the rule was made absolute with no order as to costs.
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