2021 (6) TMI 929 - AT - Income Tax

Validity of Reopening of assessment u/s 147 - eligibility to claim exemption u/s 10(26BBB) - notice u/s 148 issued after expiry of four years from the end of the assessment year - HELD THAT - It is apparent that action u/s 147 was solely for the purpose of enhancing the disallowance of claim of exemption u/s 10(26BBB) already made in the original assessment u/s 143(3) of the Income tax Act, 1961, which in our view, is impermissible and not in accordance with spirit of section 147 of the Act. The reasons recorded fail to satisfy the dual jurisdictional requirements as per law. We find to difficult to concur with reasoning given by the Ld. CIT (A) while upholding the validity of notice u/s 148 which is not in consonance with established legal principles as discussed above. In view of the above discussion, we are of considered view that notice u/s 148 dated 22/01/2015 is vitiated on dual count of change of opinion as well as first proviso to section 147 of the Income Tax Act, 1961 and same is hereby quashed. Resultantly, the re-assessment order passed u/s 143(3)/147 and addition made therein also gets annulled.

Summary

Issues Involved:
1. Eligibility for exemption under Section 10(26BBB) of the Income Tax Act, 1961.
2. Validity of reassessment proceedings under Section 147 of the Income Tax Act, 1961.
3. Levy of interest under Sections 234A/B/C and 234D.
4. Initiation of penalty proceedings under Section 271(1)(c).

Detailed Analysis:

1. Eligibility for Exemption under Section 10(26BBB):
The primary issue was whether the appellant corporation was set up by a central, state, or provincial act for the welfare and economic upliftment of ex-servicemen, as required under Section 10(26BBB) of the Income Tax Act, 1961. The appellant argued that it was established by the Government of Uttarakhand for the welfare and economic upliftment of ex-servicemen, fulfilling the conditions prescribed in Section 10(26BBB). However, the CIT (A) and the Assessing Officer held that the appellant did not meet the criteria, leading to the disallowance of the exemption claim.

2. Validity of Reassessment Proceedings under Section 147:
The reassessment proceedings were initiated after four years from the end of the assessment year, based on the claim that the appellant did not fulfill the pre-condition for exemption under Section 10(26BBB). The appellant contended that the issue of exemption was already examined in detail during the original assessment under Section 143(3), where partial disallowance was made. The appellant argued that the reassessment was a mere change of opinion without any fresh tangible material, thus barred by limitation under the proviso to Section 147.

3. Levy of Interest under Sections 234A/B/C and 234D:
The appellant challenged the levy of interest under Sections 234A/B/C and 234D as erroneous and deserving deletion.

4. Initiation of Penalty Proceedings under Section 271(1)(c):
The appellant argued that the initiation of penalty proceedings under Section 271(1)(c) was bad in law, as there was no willful concealment of income or furnishing of inaccurate particulars.

Judgment:

Validity of Reassessment Proceedings:
The Tribunal first addressed the issue of jurisdiction under Section 147. It was noted that reassessment proceedings under Section 147 are extraordinary and require satisfaction of pre-requisite conditions. The Tribunal cited the Supreme Court's decision in CIT vs. Kelvinator India Ltd. (320 ITR 561) to emphasize that reassessment cannot be initiated merely to correct an error in the original assessment and is not in the nature of a review. The Tribunal found that the original assessment under Section 143(3) had extensively dealt with the issue of exemption under Section 10(26BBB), and there was no fresh tangible material to justify reassessment. The Tribunal also noted the absence of any failure on the part of the appellant to disclose true and full particulars, as required by the first proviso to Section 147. Therefore, the reassessment proceedings were quashed as they were based on a change of opinion and failed to meet the jurisdictional requirements.

Outcome on Other Grounds:
Since the reassessment proceedings were quashed, the Tribunal did not find it necessary to adjudicate on the merits of the exemption claim under Section 10(26BBB) (Ground Nos. 1 to 3) as they had become academic in nature. Ground No. 6 regarding the initiation of penalty proceedings was dismissed as premature.

Final Result:
The appeal of the assessee was allowed, and the reassessment order passed under Sections 143(3)/147 was annulled. The order was pronounced on 31/05/2021.