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TMI Blog2014 (6) TMI 444X X X X Extracts X X X X X X X X Extracts X X X X ..... neral charges which could not be recovered from various members due to various reasons; (ii) amounts relating to valan account and (iii) general charges and valan account balance of members prior to 1996-97 which could not be recovered - The statement has not been controverted while disposing of the objections when the AO passed his order - the initiation of reassessment proceedings is unsustainable. The assessee had fully and truly disclosed all material facts regarding the reduction of ₹ 25,44,889/- from the income from investments and deposits as set out in Schedule K to the Income and Expenditure Account read with Statement enclosed with the computation of income - the initiation of re-assessment proceedings on this ground also was based merely on a “change of opinion”. The income of the assessee is exempted u/s 11 of the Act – assessee is not carrying on any business - section 40(a)(ia) has no application and the notice issued on the basis was wholly misconceived - it was only out of abundant caution that the assessee used to get its books of accounts audited u/s 44AB of the Act and that this practice was being followed since the last 15 years – Decided in favour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed in exercise of the powers granted under section 2(5A) of the Income Tax Act, 1922. The Stock Exchange, Mumbai was registered with the Director of Income Tax (Exemption) under section 12A(a) vide No.TR-28663 dated 30th July 1993 with effect from 1st April 1989. The income of the Petitioner was exempted from tax under section 10(23)(iv) of the Act upto Assessment Year 1989-90. Thereafter, the income of the Petitioner is exempted under section 11 of the Act as the objects of the Exchange are charitable. On 8th August, 2005 the Stock Exchange, Mumbai was incorporated as the Bombay Stock Exchange Ltd. (the Petitioner) and it took over all the assets and liabilities of the Stock Exchange, Mumbai under the scheme of Corporatisation and demutualisation as approved by SEBI on 19th August, 2005. (b) The Petitioner filed its return of income for the Assessment Year 2005-06 on 30th October 2005 declaring its total income at Rs.Nil. The return of income was accompanied by the audited balance-sheet, profit and loss account and schedules forming part of the audited accounts as well as a statutory Audit Report under section 44AB of the Act. In Note 4 to Schedule O of the audited profit and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f) (I) In reply thereto, the Petitioner by its letter dated 13th March 2009 gave a complete reply to the said Notice setting out its reasons why the question of passing a rectification order did not arise. With reference to the expenses of Rs.1.2 crores being inadmissible under section 40(a)(ia) of the Act, the Petitioner stated as under :- Since the Stock Exchange, Mumbai is an entity established in accordance with law and its objects fall within the definition of the term charitable purpose , its income is exempt u/s 11 of the Income Tax Act, 1961 since last several years. In case of assessees having charitable objects, provisions of sections 11, 12 and 13 of the Act are applicable and not provisions of section 28 to 44DA as they are applicable to person having business income. The provisions of section 40(a)(ia) are applicable only in respect of expenses claimed as deduction under the head Profits and gains of business or profession (coming within the purview of section 28 to 44DA). Thus, it is submitted that provisions of section 40(a) of the Income Tax Act, 1961 are not applicable to BSE. It may be noted that only as a caution, BSE used to get its books of accounts a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 147 of the Act for Assessment Year 2005-06. Respondent No.1, on 24th November 2011, served a copy of the said reasons which principally set out four reasons/grounds on which he proposed to initiate re-assessment proceedings. On the basis of the said four reasons/grounds Respondent No.1 stated that he had reason to believe that the income of the Petitioner had escaped assessment for A.Y. 2005-06 and that the cause of escapement of income was due to the failure on the part of the Petitioner to make a full and true disclosure of the material facts. 5. It is pertinent to note that Respondent No.1 has not set out in the reasons which fact or other material was not disclosed by the Petitioner that led to income escaping assessment. In fact, on going through the reasons, we find that Respondent No.1 has come to the conclusion/belief that income had escaped assessment on the basis of the material already before him and no new tangible material has been relied upon by Respondent No.1 to come the said conclusion/belief. This is clear from the use of the words on perusal of the records it is noticed........ , further perusal of statement 2 enclosed with the computation of income shows.. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 143(3) of the Act. Thereafter, Respondent No.1 issued the impugned notice dated 28th February, 2011 under section 148 of the Act which was after the expiry of four years from the end of the relevant assessment year. In such a scenario, the first proviso to section 147 of the Act was attracted and no action for initiation of re-assessment proceedings could be initiated unless the income chargeable to tax had escaped assessment by reason of the failure on the part of the Petitioner to disclose fully and truly all material facts. Mr Dastoor, the learned senior counsel appearing on behalf of the Petitioner, submitted that apart from making a bald assertion that there was a failure on the part of the Petitioner to disclose fully and truly all material facts necessary for its assessment, no details whatsoever were given with reference to the same. He therefore submitted that the initiation of re-assessment proceedings for the Assessment Year 2005-06 were bad-in-law and accordingly prayed for quashing the impugned notice. On the other hand, Mr Gupta, the learned senior counsel appearing on behalf of the Respondents, submitted that the reasons for initiating reassessment proceedings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erial available on record. He must disclose in the reasons as to which fact or material was not disclosed by the assessee fully and truly necessary for assessment of that assessment year, so as to establish the vital link between the reasons and evidence. That vital link is the safeguard against arbitrary reopening of the concluded assessment. The reasons recorded by the Assessing Officer cannot be supplemented by filing an affidavit or making an oral submission, otherwise, the reasons which were lacking in the material particulars would get supplemented, by the time the matter reaches the court on the strength of the affidavit or oral submissions advanced. (emphasis supplied) 10. In the present case, admittedly there are no details given by the Assessing Officer (Respondent No.1) as to which fact or material was not disclosed by the Petitioner that led to it's income escaping assessment. There is merely a bald assertion in the reasons that there was a failure on the part of the Petitioner to disclose fully and truly all material facts without giving any details thereof. This being the case, the impugned notice is bad in law and on this ground alone the Petitioner is ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded by the Act. Thus income of the Petitioner had escaped the assessment in view of clause (c)(iv) of Explanation 2 to the proviso to section 147 of the Act. 12. (A). Ground (I) set out above is with reference to a provision made for the sum of Rs.150.78 lacs in relation to doubtful accounts. As rightly submitted by Mr. Dastoor, this issue is covered by a Division Bench judgment of this Court dated 27th March, 2012 passed in Writ Petition No.2467 of 2011 in the case of Bombay Stock Exchange Ltd. v/s Deputy Director of Income Tax (Exemption)-1(2) and others. With reference to this very Petitioner, the Respondents therein had sought to re-open the assessment under section 148 of the Act for the Assessment Year 2004-05. The facts before the Division Bench in Writ Petition No.2467 of 2011 were almost identical to the facts in the present case, save and except the difference in the figures claimed. Paragraph 3 of the said judgment sets out the facts which reads as under:- 3. The Petitioner filed its return of income for Assessment Year 2004-05 on 30th October 2004. An order of assessment was passed on 28th November 2006 under section 143(3). The reopening of the assessment under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out objects under section 11(1)(a) shows that this amount includes a provision for doubtful accounts amounting to Rs.1.60 crores. That being the position, it is impossible to even postulate that there was a failure on the part of the assessee to fully and truly disclose material facts necessary for the assessment for that Assessment Year. In the reply which was filed by the assessee before the Assessing Officer on 3rd November 2011 objecting to the reopening of the assessment, it was stated that during the course of the discussions before the Assessing Officer, the assessee had explained that the provision for doubtful accounts consisted of three items viz. (i) general charges which could not be recovered from various members; (ii) amounts relating to Valan account and (iii) general charges and Valan account balance of members prior to 1996-97 which could not be recovered. This statement has not been controverted while disposing of the objections when the Assessing Officer passed an order thereon on 30th November 2011. (C) The facts in the present case are identical except as far as the figures are concerned. In the present case also, in the return of income filed by the Petit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t above is with reference to an alleged double deduction for the sum of Rs.25,44,889/-. It is an admitted fact that statement - 2 enclosed with the computation of income filed on 30th October, 2005 showed that the Petitioner had claimed application of income under the head 'Settlement of Defaulters Clients Claims' of Rs.341,67,330/-. It is further admitted that Schedule K to the Income and Expenditure Account revealed that the Petitioner had reduced the sum of Rs.25,44,889/-, being the amount transferred to defaulter's account from the income from investments and deposits. Thus the Petitioner had reduced the income to the extent of Rs.25,44,889/-. All this was already disclosed in the return of income filed on 30th October, 2005. It does not stop there. With reference to this very item, the Assessing Officer sought an explanation during the scrutiny assessment proceedings vide his letter dated 17th September 2007, of copy of which was tendered by Mr. Dastoor before us. The same was replied to by the Petitioner vide it s letter dated 4th October 2007. The Assessing Officer, after being satisfied with the explanation and the details given by the Petitioner, passed his ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - 17. Amounts debited to the profit and loss account, being:- (a) .. (b) . (c) . (d) (e) . (f) Amounts inadmissible Rs.12,000,000/- (being under section 40(a); payment to a Contractors under section 194C.) (B). In view of the aforesaid statement, Respondent No.1 was of the view that the sum of Rs.120 lacs was required to be reduced from the income applied to the objects of the Trust. At the outset, it must be stated that it is not the case of Respondent No.1 that any income had escaped assessment by virtue of the fact that any new tangible material was brought to his notice that was not available at the time when either the return of income was filed, or when the scrutiny assessment proceedings were carried out. Admittedly, the Audit Report was filed along with the Petitioner's return of income on 30th October, 2005. It is not even the case of the Respondents that Audit Report was not disclosed. (C). Mr Gupta submitted that the Tax Audit Report filed under section 44AB was not brought to the specific attention of the Assessing Officer and in the light thereof, placed reliance on Explanation 1 to section 147. Explanation 1 to sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s note, the assessee has recorded that the expenditure of the earlier years means expenditure which arose or which accrued in any earlier year and excludes any expenditure of an earlier year for which the liability to pay has crystallized during the year. Similarly, the assessee has clarified that excess/short of provision of an earlier year and income and expenditure crystallized during the year, though shown in the statement, have not been considered as prior period items. The assessee, as the material on record would show, therefore brought to bear the attention of the Assessing officer to this facet while submitting the Tax Audit Report as a part of its return of income. This is not a case where the assessee can be regarded as having merely produced its books of account or other evidence during the course of the assessment proceedings on the basis of which material evidence could have been deduced by the Assessing Officer with the exercise of due diligence. Under section 139 the assessee was under a mandatory obligation to furnish with its return of income the report of audit under section 44AB. The assessee fulfilled the obligation. The disclosures which are made as part of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt caution that the Petitioner used to get its books of accounts audited under section 44AB of the Act and that this practice was being followed since the last 15 years. The same explanation was also given by the Petitioner in its letter dated 25th November, 2011 objecting to the re-opening of assessment for the A.Y. 2005-2006. 15. (A). Ground (IV) set out above is with reference to claiming depreciation on fixed assets amounting to Rs.15,99,78,749/- in addition to allowance of capital expenditure to the tune of Rs.10,64,26,980/-. As rightly submitted by Mr. Dastoor, this issue is also covered by the Division Bench judgment of this Court passed in Writ Petition No.2467 of 2011 (supra). The Division Bench in Writ Petition No.2467 of 2011 held as follows:- 4. As regards the second ground for reopening, the attention of the Court has been drawn to the fact that the assessment of the assessee for Assessment Year 2003-04 was sought to be reopened under section 148 by a notice dated 24th March 2010. The same ground for reopening the assessment for Assessment Year 2003-04 was set out. A Division Bench of this Court, by its judgment dated 19th April 2011 allowed the writ petition f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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