2016 (4) TMI 311 - HC - Income Tax

Reopening of assessment - non filing of Form No.10 resolution on or before the time allowed under section 139 of the Act as per section 11(2)(a)- Held that - In view of the clear language of sub-sections (2) and (3) of section 11 of the Act, sub-section (3) of section 11 of the Act would be applicable only in case certain funds have been set apart or accumulated in terms of the provisions of clauses (a) and (b) of sub-section (2) of section 11 of the Act. In the absence of any funds having been set apart under rule 17 of the Income Tax Rules, 1962 by filing Form No.10 in assessment years 2002-03, 2003-04, 2004-05 and 2006-07, such amount cannot be considered to be the deemed income of the petitioner after the lapse of a period of five years thereof in the assessment years under consideration. In the aforesaid premises, in the opinion of this court, on the reasons recorded by the Assessing Officer, he could not have formed the belief that income chargeable to tax has escaped assessment in the assessment years under consideration. The assumption of jurisdiction by the Assessing Officer under section 147 of the Act by issuing the impugned notices under section 148 is, therefore, without any authority of law. Consequently, the impugned notices cannot be sustained. Insofar as assessment year 2008-09 is concerned, there is an additional factor which renders the impugned notice unsustainable. As pointed out by the learned counsel for the petitioner, for assessment year 2002-03, the petitioner had filed computation showing surplus of ₹ 95,917 only and for this it had filed Form No.10. Evidently, therefore, the Assessing Officer has not properly verified the facts from the record of assessment. This court in Sagar Enterprises v. Assistant Commissioner ( 2001 (12) TMI 18 - GUJARAT High Court ) has held that when the officer concerned has taken into consideration an irrelevant fact, it cannot be said with certainty as to which factor would have weighed with him for the purpose of arriving at the belief that income chargeable to tax has escaped assessment and to what extent the decision is vitiated. The Assessing Officer, having taken into consideration facts which are contrary to the record for the purpose of forming the belief that income chargeable to tax has escaped assessment, for this reason also it cannot be said that he could have formed the belief that income chargeable to tax has escaped assessment so as to assume jurisdiction under section 147 of the Act. - Decided in favour of assessee

Summary

Issues Involved:
1. Validity of notices issued under Section 148 of the Income Tax Act, 1961 for reopening assessments.
2. Compliance with the requirements of Section 11(2) and Section 11(3) of the Income Tax Act, 1961.
3. Accuracy of the Assessing Officer's reasons for reopening the assessments.

Issue-wise Detailed Analysis:

1. Validity of Notices Issued Under Section 148:
The petitioner challenged the notices issued under Section 148 of the Income Tax Act, 1961, which sought to reopen assessments for the years 2008-09, 2009-10, 2010-11, and 2011-12. The court noted that the Assessing Officer had issued these notices based on the belief that the petitioner had not utilized the accumulated funds within the stipulated five-year period, making them taxable in the sixth year. However, the court found a contradiction in the Assessing Officer's reasoning, as it was also stated that the petitioner had not filed Form No.10 within the time allowed under Section 139 of the Act. This contradiction indicated that the necessary conditions for invoking Section 11(3) were not met, rendering the reopening of assessments invalid.

2. Compliance with Section 11(2) and Section 11(3):
The court examined the requirements under Section 11(2) and Section 11(3) of the Income Tax Act. Section 11(2) requires a trust to file Form No.10 and specify the purpose and period of accumulation of income. The court observed that the Assessing Officer's reasons for reopening the assessments were based on the premise that the petitioner had not complied with these requirements. Since the petitioner had not filed Form No.10 as required, the amounts could not be deemed accumulated under Section 11(2). Consequently, the provisions of Section 11(3), which tax unutilized accumulated funds after five years, were not applicable. The court concluded that without compliance with Section 11(2), the invocation of Section 11(3) was not justified.

3. Accuracy of the Assessing Officer's Reasons:
The court scrutinized the reasons recorded by the Assessing Officer for reopening the assessments. It found that the Assessing Officer had not properly verified the records, as evidenced by the incorrect assertion that Form No.10 had not been filed by the petitioner for the relevant assessment years. This factual inaccuracy undermined the validity of the reasons for reopening the assessments. The court cited the decision in Sagar Enterprises v. Assistant Commissioner, which established that consideration of irrelevant or incorrect facts by the Assessing Officer vitiates the formation of belief that income has escaped assessment. Therefore, the court held that the Assessing Officer's reasons were factually incorrect and could not justify the reopening of assessments.

Conclusion:
The court concluded that the Assessing Officer's assumption of jurisdiction under Section 147 of the Income Tax Act, based on the impugned notices under Section 148, was without authority of law. The notices were quashed and set aside, and the petitions were allowed with no order as to costs. The court emphasized that compliance with the procedural requirements of Section 11(2) is a condition precedent for invoking Section 11(3) and taxing unutilized accumulated funds.