2023 (3) TMI 419 - HC - Income Tax

Reopening of assessment u/s 147 - carry forward of deficit which issue was pending before the Apex Court when the case was reopened and secondly wrong claim of exemption under section 11(1)(a) - HELD THAT - We find merit in the Petition. It would be appropriate to mention about the case of CIT v/s. Institute of Banking Personnel Selection (IBPS) 2003 (7) TMI 52 - BOMBAY HIGH COURT which held that income derived from the trust property has also got to be computed on commercial principles and if the commercial principles are applied then the adjustment of expenses incurred by the Trust for charitable and religious purposes in the earlier years against income earned by the Trust in the subsequent year will have to be regarded as application of income of the Trust for charitable and religious purposes in the subsequent year in which adjustment has been made having regard to the benevolent provisions contained in section 11 of the Act and that such adjustment will have to be excluded from the income of the Trust under section 11(1)(a) of the Act. It is further well settled in the case of Director of Income-tax (Exem) v/s. MIDC 2013 (3) TMI 654 - BOMBAY HIGH COURT where this Court had allowed the assessee s claim to carry forward the deficit relying on the decision of this Court in the matter of CIT v/s. Institute of Banking 2003 (7) TMI 52 - BOMBAY HIGH COURT In the present case the AO had recorded in the assessment order u/s 143 (3)that the petitioner was registered with the Director of Income- Tax exemption Mumbai under section 12A of the Act and that during the year the Petitioner had claimed exemption u/s 11 of the Act. The reasons recorded in the letter dated 30th April 2015 evince that the AO has come to the conclusion that income has escaped assessment on the perusal of the records . There is no question of any failure to disclose any material fact necessary for assessment as held in the case of Income-tax Officer vs. Lakhmani Mewal Das 1976 (3) TMI 1 - SUPREME COURT AO s the reason to believe must be based on some new tangible material which was not available at the time of passing the original Assessment Order as held in the case of Lalitha Chem Industries (P) Ltd. 2013 (11) TMI 1494 - BOMBAY HIGH COURT Petitioner had rightly claimed carry forward and set off of deficit. Consequently the impugned order rejecting the objections deserve to be set aside. Appeal of assessee allowed.

Summary

Issues Involved:
1. Validity of notice under section 148 of the Income Tax Act for reopening assessment for AY 2008-09.
2. Legality of the reassessment proceedings and rejection of objections by the Petitioner.
3. Entitlement of the Petitioner to carry forward and set off the deficit in subsequent years.
4. Alleged failure of the Petitioner to make full and true disclosure of relevant material facts.

Detailed Analysis:

1. Validity of Notice under Section 148:
The Petitioner challenged the notice dated 20th March 2015 under section 148 of the Act, which proposed to reopen the assessment for AY 2008-09. The Petitioner contended that the notice was ex-facie illegal and contrary to the provisions of the Act. The original assessment was completed under section 143(3) on 28th December 2010, accepting the Petitioner's returned income.

2. Legality of Reassessment Proceedings:
The Petitioner argued that the reassessment proceedings were initiated without any fresh and tangible material, merely based on a change of opinion, which is not permissible under section 147 of the Act. The Petitioner cited the case of CIT v/s. Institute of Banking Personnel Selection (IBPS) to support that the carry forward and set off of the deficit should be considered in the year of set off, not the year of deficit. The Petitioner also contended that there was no failure to disclose any material fact necessary for the assessment.

3. Entitlement to Carry Forward and Set Off Deficit:
The Petitioner claimed a deficit of Rs. 13,92,05,087/- to be carried forward to subsequent years, which was initially accepted in the original assessment. The Petitioner relied on the judgment in CIT v/s. Institute of Banking Personnel Selection (IBPS), which allowed the carry forward and set off of the current year's deficit with the subsequent year's income tax. The Petitioner argued that this principle was consistently followed in previous years and should apply to the current case.

4. Alleged Failure to Make Full and True Disclosure:
The Respondents argued that the reassessment was justified due to the Petitioner's failure to make full and true disclosure of relevant material facts. They cited the discovery of certain facts during the assessment proceedings for AY 2012-13, where the Petitioner's claim of deficit carry forward was disallowed. The Respondents relied on various judicial pronouncements to support their position that reassessment is permissible even if the information is obtained after proper investigation from the materials on record.

Conclusion:
The Court found merit in the Petitioner's arguments. It referred to the case of CIT v/s. Institute of Banking Personnel Selection (IBPS) and other relevant judgments, concluding that the Petitioner was entitled to carry forward and set off the deficit. The Court noted that the reasons recorded for reopening the assessment were based on a mere perusal of records, indicating a change of opinion rather than new tangible material. The Court held that there was no failure to disclose any material fact necessary for the assessment, and the reassessment notice was a case of change of opinion.

Judgment:
The impugned notice dated 20th March 2015 and the impugned order dated 2nd November 2015 were quashed and set aside. The Court allowed the Petition with no order as to costs.