9911796707
TMI Blog2025 (3) TMI 597X X X X Extracts X X X X X X X X Extracts X X X X ..... independent application of mind to form reason warrant holding a belief that income chargeable to tax has escaped assessment. Just because a letter has been received from the DCIT(E) the AO cannot reopen the assessment even if original assessment was u/s. 143(1) of the Act. Thus, reasons recorded by the AO to justify reopening the assessment u/s. 147 fails and, therefore, the very assumption of jurisdiction to reassess the assessee falls. AY 2011-12 - AO did not satisfy the requisite requirement of law to validly reopen the assessment and therefore, it is held to be bad in law. As held above, the AO had taken the information of Special Audit of donor, M/s CBV and that too for AY 2013-14 as gospel truth and has reopened the assessment based on borrowed satisfaction, without independently applying his mind to the information and forming his own view, which is found absent in this case. According to us, the information given by the DCIT(E) can at best trigger "reason to suspect" and not "reason to believe" escapement of income and that, in the absence of any tangible material or enquiry as discussed in appeal of AY 2010-11, we have no other alternative but to hold that the reopeni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Home Affairs under the Foreign Contributions Regulation Act, 2010 vide Registration No.075 820 253 dated 31.10.2002. 4. From the objects of the Trust, it is noted that, it primarily exists for the purpose of serving under privileged children in the area of education, physic, cognitive, economic and social through sponsorship. The assessee was involved in various charitable activities, more particularly Child Development Programs for the welfare of children as per the Objects of the Trust. The relevant objects for which the Trust was registered are noted to be as follows - a) To promote the interest and overall welfare of socially, educationally and economically downtrodden people of India b) To evolve and implement educational, cultural, economic and health-oriented programs for the underprivileged and weaker sections of the Society including women, youth, handicapped, working children drug addicts, urban and rural poor to enhance their social, cultural and economic wellbeing. c) To create environmental awareness and educate and motivate the general public to work for the environmental equilibrium such as social forestry, tree planting, waste land management etc. d) To p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dmitting NIL income and the same was processed u/s.143(1) on 02.02.2012. The Gross Receipts of the assessee Trust (as per the Income and Expenditure Account) for the A.Y. 2010-11 is Rs. 1,04,33,790/- The same consists of "Foreign Contributions - Grant of Caruna Bala Vikas" of Rs. 1,00,18,456/-, and Local account and Bank interest. The major claim of expenditure of the assessee trust was towards child development centres under 3 projects and child survival programme under 1 project. Out of the foreign contribution of Rs. 1,00,18,456/-, the assessee has applied a sum of Rs. 90,66,711/- towards the above said projects, which are claimed as charitable activity. The amount applied exceeds 90% of the foreign receipts. But, as per the information received from the DCIT (Exemptions), contribution of Rs. 1,00,15,671/- has been received from M/s. Caruna Bala Vikas to carry out religious activities and also has been spent for religious activities. Thus, the assessee trust, M/s. The Gate of Hope of Charitable Trust, being a Charitable trust, has carried out religious activities involving an expenditure of Rs. 1,00,15,671/-, amounting to 99% of its Gross Receipts. Hence, application to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e allowed to be drawn on the basis of reasons not recorded. It is for the AO to disclose and open his mind through the reasons recorded by him. He has to speak through the reasons. "Their Lordships added that "The reasons recorded should be self-explanatory and should not keep the assessee guessing for reasons. Reasons provide link between conclusion and the evidence....". Therefore, the reasons are to be examined only as they were recorded by the AO before the issue of the notice. 8. Moreover, the Parliament has given power to AO to reopen the assessment, if the condition precedent as discussed above are satisfied, and not otherwise. It should be kept in mind that the concept of assessment is governed by the time-barring rule and the assessee acquires a right as to the finality of proceedings. Queitus of the completed assessment is the Fundamental Rule and exception to this rule is Reopening of assessment by AO under section 147 or exercise of Revisional jurisdiction by CIT under section 263 of the Act. Therefore, the Parliament in its wisdom has provided safeguards for exercise of the reopening of assessment jurisdiction to AO; and revisional jurisdiction of CIT by providing con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... collect material which would make him belief that there is in fact an escapement of income. And on satisfaction of such an event, then proceed to reopen the assessment and not before that event, because reason to believe is the jurisdiction requirement u/s 147 of the Act, and not the reason to suspect escapement of income. This subtle distinction should be borne in mind while adjudicating the legal issue raised by assessee. 10. It is also to be kept in mind that, the reason to believe escapement of income should be that of AO, and not that of any other authority, because then it will be against one of the basic feature of the Constitution of India i.e., the Rule of Law, wherein the Parliament has empowered this reopening jurisdiction only to that of Assessing Officer and that is why if the reason to believe escapement of income is not that of AO, the assumption of jurisdiction to re-open, is vitiated; and resultantly bad in law, because assumption of jurisdiction to reopen will be on the basis of borrowed satisfaction. 11. The above laid down proposition finds support from the decision of the Hon'ble Supreme Court in the case of ACIT Vs Dhariyal Construction Co. (328 ITR 515) whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16.06.2006 has also not been mentioned. In other words, the contents of the letter dated 16.06.2006 of the Director of Income-tax (Inv.), New Delhi have not been given. The AO has vaguely referred to certain communications that he had received from the DIT(Inv.), New Delhi; the AO did not mention the facts mentioned in the said communication except that from the informations gathered by the DIT (Inv.), New Delhi that the assessee was involved in giving and taking accommodation entries only and represented unsecured money of the assessee company is actually unexplained income of the assessee company or that it has been informed by the Director of Income-tax (Inv.), New Delhi vide letter dated 16.06.2006 that the assessee company was involved in giving and taking bogus entries/transactions during the relevant financial year. The AO did not mention the details of transactions that represented unexplained income of the assessee company. The information on the basis of which the AO has initiated proceedings u/s 147 of the Act are undoubtedly vague and uncertain and cannot be construed to be sufficient and relevant material on the basis of which a reasonable person could have formed a be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Delhi in the case of Signature Hotels (P.) Ltd. (supra) also supports the view we have taken above." 12. Before us the Ld. DR appearing for the Revenue had contended that, in the present case before us, there was no original assessment completed u/s 143(3) of the Act and therefore, according to him, in case of reopening of an intimation u/s 143(1) of the Act, the above discussed stringent condition was not applicable and that there is no requirement for the Revenue to demonstrate that the reasons recorded were based on some tangible material as there is no material available on record due to absence of original assessment. For this, she relied upon the decision of Hon'ble Supreme Court in the case of ACIT v. Rajesh Jhaveri Stock Brokers P. Ltd. (291 ITR 500). Against, such a contention of Ld DR, the assessee's counsel drew our attention to the decision of Hon'ble jurisdictional High Court in the case of TANMAC v. DCIT (78 taxmann.com 155) and contented that formation of "reasons to believe" should be based on some tangible material which comes into the possession or knowledge of the AO for him to come to conclusion that there is escapement of income from assessment. According to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t valid reasons to reopen. The Court thus held that even where assessment is sought to be reopened when only an intimation u/s 143(1) was issued, it shall be open for the assessee to contend that notwithstanding that the argument of "change of opinion" is not available to him, he would challenge the reopening on the ground that there was either no reason to believe or that the alleged reason to believe is not relevant for the formation of the belief that income chargeable to tax has escaped assessment. In the decided case, the Hon'ble High Court noted that, there was no whisper in the reasons recorded, of any tangible material which came to the possession of the Assessing Officer subsequent to the issue of the intimation to exercise of the power conferred under section 147 of the Act, and therefore quashed the notice issued u/s 148 of the Act holding it to be bad in law. 13. From the aforesaid understanding of law governing the issue at hand, we have to examine the reasons already set out above and test whether the condition precedent necessary to usurp the re-opening jurisdiction can be discerned from perusal of the reasons recorded by the AO in the instant case (supra). For doin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich are claimed as charitable activity and that the amount exceeds 90% of the foreign receipts. These observations are again noted to be the contemporaneous facts concerning the assessee, which are discernible from the income-tax return and that they contain nothing adverse against the assessee nor are these observations referring to any material or information which suggests income escaping assessment. 16. In the next para 4, the AO again goes back to the information received from the DCIT(E) which stated that the contribution of Rs. 1,00,15,671/- has been received from M/s.CBV, to carry out religious activities and also has spent for religious activities. And in the next part i.e. Para No.5, the AO concludes that, the assessee Trust being a charitable Trust has carried out religious activities involving the expenditure of Rs. 1,00,15,671/-, amounting to 99% of its gross receipts and hence, he was of the opinion that application to the tune of Rs. 90,71,612/- excluding the claim of depreciation should be disallowed and brought to tax. According to him therefore, there was a reason to belief that income chargeable to tax for AY 2010-11 and after approval from the JCIT/CIT(E), he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as religious activity. We find the reasons recorded to be lacking any tangible material or evidence in this regard whatsoever. Apart from relying on the letter received from DCIT(E) baldly alleging that the assessee had utilized charitable funds for religious purposes, the reasons so recorded does not speak out the relevant tangible material on which the belief was formed that income chargeable to tax had escaped assessment. 19. The language used in the recorded reasons by the AO appears suggest that he is also not aware that, the benefit of exemption under Section 11 is also available to religious trusts. It is necessary to keep in mind that, Section 11 exemptions can be claimed by both Public Charitable as well as Religious Trust; and as per the Constitution of India, all religions are equal in the eyes of law; and income donated/applied for public religious purposes enjoys exemption u/s.11 of the Act. But, only if a Trust was for "the promotion and aiding" of the work of a particular religion, then it may fall under the mischief of Section 13(1)(a) which provides that nothing contained in Section 11 shall operate to exempt "any part of income" from the property held under a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en the assessment even if original assessment was u/s. 143(1) of the Act. 21. For the reasons discussed above, in our considered view, The reasons recorded by AO does not stand the test as laid by plethora of judicial precedence as discussed above which is sine qua non to assume jurisdiction u/s 147 of the Act, therefore, in the light of the aforesaid facts and circumstances of the case as discussed, we find that the reasons recorded by the AO to justify reopening the assessment u/s. 147 fails and, therefore, the very assumption of jurisdiction to reassess the assessee falls. Since the AO failed to validly assume jurisdiction u/s. 147 of the Act, the assumption of jurisdiction by him to re-open the assessment itself is coram non judice and, therefore, all subsequent action is null in the eyes of law and therefore, we quash the reopening and consequent reassessment order framed by him. The assessee therefore, succeeds on this legal issue. The appeal of the assessee for AY 2010-11, is thus allowed. 22. We now take up the appeal of the assessee in ITA No. 2006/Chny/2024 for AY 2011-12. It is noted that, the issue involved in the present appeal is largely similar to that of AY 2010-1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es as against its charitable objects...." 3. Findings of the AO & Basis of forming reason to believe and details of escapement of income It is seen from the Return of Income filed for the AY 2011-12, that the assessee had admitted a gross receipts of Rs. 99,40,812/-, which includes the fund received from M/s. Caruna Bal Vikas. The Statutory Audit had observed that the assessee trust had incurred expenses towards the Religious activities as per the directions of M/s.Caruna Bal Vikas. It is pertinent to mention here that though the trust is registered as a Charitable Trust under Section 12AA of the Act, it had carried out religious activity and incurred the expenditure towards the religious activity. Therefore, the expenses claimed as application of income towards charitable activity has to be disallowed and brought to tax. 4. Applicability of the provisions of section 147/ 151 to the facts of the case: In this case a return of income was filed for the year under consideration but no scrutiny assessment u/s 143(3) of the Act was made. Accordingly, in this case, the only requirement to initiate proceeding u/s 147 is reason to believe which has been recorded above (refer paragr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted "reasons to believe" that income chargeable to tax had escaped assessment. The AO is noted to have simply accepted the aforesaid letter of DCIT(E) of M/s CBV as gospel truth and relying on same, the AO straightaway observed that, the assessee trust had incurred expenses towards the Religious activities as per the directions of M/s. CBV and therefore such expenses was to be disallowed. 24. Thereafter, in Para No.4, the AO is noted to have observed that, there was no scrutiny assessment u/s.143(3) of the Act and therefore, the only requirement of law before re-opening the assessment u/s.147 of the Act was that the AO should have reason to believe escapement of income. And thereafter, in the last para, he states that he has reason to believe that income chargeable to tax for AY 2011-12 has escaped assessment for which he has to take necessary approvals since the reopening of the case is beyond four years from the end of the relevant assessment year. However, the copy produced before us by the Department doesn't show any endorsement/approval of the competent authority. Since, at present, we are not looking into the legality of the reopening for want of approval by the CIT(E) for w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been used for advancement, support or propagation of a particular religion and its tenets. The reasons recorded on this aspect is noted to lack specifics but is vague and general in nature. 27. Moreover, as already noted (supra), the benefit of exemption under Section 11 is also available to both charitable & religious trusts and that only when a Trust is for "the promotion and aiding" of the work of a particular religion, then it may fall under the mischief of Section 13(1)(a) which provides that nothing contained in Section 11 shall operate to exempt "any part of income" from the property held under a Trust for private religious purpose. However, as noted from reading of the reasons recorded by AO, it is noted that there is no whisper/allegation neither in the information nor in the reasons recorded, to link assessee with any particular religious activities. 28. We further note from perusal of Para No.3 of the reasons recorded that the AO has taken note of the contents of the RoI, filed by the assessee for AY 2011-12 and observes that assessee has shown gross receipts of Rs. 99,40,812/- and then notes the observation of Statutory Audit [may be Special Auditin the case of M/s ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
