2024 (3) TMI 954 - HC - Income Tax

Reopening of assessment u/s 147 - Reason to believe - information received from the Investigation Officer, Kolhapur that Petitioner made some cash deposit by assessee-trust - HELD THAT - It is an admitted fact that Petitioner, a charitable trust registered under Section 12A of the Act, eligible to avail exemption u/s 11 of the Act has deposited the donations received in cash in its bank account and thereby disclosed Nil total income for the relevant AY. Moreover, the accounts of Petitioner are recorded, accounted and audited and hence, undoubtedly, there is no undisclosed cash over and above the deposits in its regular bank accounts which were offered for taxation. Thus, there is no material or fact which has been stated in the reasons for reopening assessment in the present case on which any belief can be founded of the nature contemplated by law. Thus upon perusal of the letter providing the reasons to believe escapement of assessment as well as the order rejecting Petitioner s objections impugned herein, we have no hesitation in holding that there is no live link, which is a sine qua non between the material before the AO in the present case and the belief which he has to form regarding escapement of income. The sanction under Section 151 of the Act granted by the prescribed authority as well as the notice is issued by the Department without any application of mind. Decided in favour of assessee.

Summary

Issues Involved:
The issues involved in this case are the challenge to the notice dated 25th March 2021 issued by the Income Tax Officer under Section 148 of the Income Tax Act, 1961, and the order dated 3rd March 2022 rejecting the objections raised by the Petitioner regarding the reopening of assessment proceedings.

Details of Judgment:

Challenge to Notice and Order:
The Petitioner, a public charitable trust registered under the Bombay Public Trusts Act, 1950 and Section 12A of the Income Tax Act, challenged the notice of reopening assessment for Assessment Year 2014-15. The Department issued the notice based on alleged cash deposits of Rs. 2,76,49,804 during the financial year 2013-14. The Petitioner raised objections, contending that all cash deposits were duly recorded, accounted, and offered for taxation. The Department proceeded to reject the objections and issue the impugned order.

Contentions of Petitioner:
The Petitioner argued that the notice lacked a rational connection between the material and the belief of income escapement. They emphasized that every cash deposit is not income and highlighted that all amounts were offered for taxation. The Petitioner asserted that the notice was a tool for a roving inquiry without proper grounds.

Revenue's Response:
The Revenue countered by stating that the Petitioner's disclosed income was insufficient to cover expenses, leading to a belief of income escapement. They highlighted the cash deposits flagged as 'High Risk' and the difference in disclosed income, forming the basis for reopening assessment.

Court's Analysis:
The Court observed that the reasons provided for reopening assessment lacked a live link between the material and the belief of income escapement. Citing legal precedents, the Court emphasized the necessity of a rational connection between the material and the belief formed by the Assessing Officer. The Court concluded that the notice and order were issued without proper application of mind, setting them aside and allowing the Petition.

Conclusion:
The Court made the rule absolute, setting aside the notice and order challenged by the Petitioner. No costs were awarded in the matter.

Significant Legal Principles:
- The belief of income escapement must be based on reasonable grounds, not mere suspicion.
- A rational connection between material and belief is essential for reopening assessment.
- The sufficiency and relevance of reasons for belief must be upheld in issuing notices under Section 148 of the Act.