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M/s. Muniwar Abad Charitable Trust Versus Asst. CIT, Exemption -2 (1) Mumbai

2017 (9) TMI 477 - ITAT MUMBAI

Reopening of assessment - change of opinion - entitled to benefit of the provisions of section 11 - Held that:- The assessee had renewed certain earlier fixed deposit and same had no connection with the compensation received on sale of plot of land. After considering the above submissions of the assessee and after deliberating upon the documents furnished by it, the AO had passed scrutiny assessment. He had formed an informed opinion that it was entitled to benefit of the provisions of section 1 .....

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impugned transaction. - Considering the peculiar facts and circumstances of the case, we are of the opinion that there was no failure on part of the assessee to disclose fully and truly the material facts, so, the reassessment proceedings, initiated by the AO in its case under appeal, are not valid. Reversing the order of the FAA, we decide the first effective ground of appeal in favour of the assessee. Reassessment proceedings were invalid, so, we are not deciding the other issues raised by .....

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urns of income returned incomes, assessed incomes, etc. , can be summarized as under :- A. Y. ROI filed on Returned Income Assessment dt. Assessed Income 2004-05 30/11/2006 NIL 27/12/2011 Rs7. 80 Crores 2005-06 28/12/2007 NIL 27/12/2011 ₹ 11. 62 crores ITA/784/Mum/2015-AY. 2004-05: 2. First effective ground of appeal(G. s OA-4) is about reopening the assessment u/s. 147 of the Act after a lapse of 4 years from the end of assessment year. Assessee, a Charitable-Trust, filed its ROI on 31/10 .....

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at regard and challenged the reopening. As per the AO objections raised by the assessee were rejected by him, vide order, dt. 15/12/2011. During the reassessment proceedings, the AO observed that the assessee had sold a plot of land, that it had received sale consideration of ₹ 7. 80 crores, that it had failed to invest the sale consideration of the immovable property as per the provisions of section 11(5) of the Act. He held that it was not entitled to get benefit of accumulation as per t .....

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al facts. It relied upon certain case laws and also challenged the quantum of addition. After considering the submission of the assessee and the re-assessment order of the AO, the FAA upheld the reopening of the assessment and held held that various essential and material facts regarding the nature and mode of capital assets held by the trust and sold out during the year were not fully disclosed, that the AO had also not verified and examined the mode and nature of acquisition of capital assets .....

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that the claim of fixed deposits, classified and recorded in the balance sheet under the head cash and bank balances was incomplete disclosure, that it was misleading accounting, that there was no full and true disclosure by the assessee on the issue of sale and acquisition and subsequent compliance or condition in the context of capital assets. He referred to the cases of Girilal & Co. (300ITR); Chandrika Education Trust (224ITR);Vardhman Spng & general Mills Ltd. ; South India Corpora .....

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f ₹ 7. 80 crores vide agreement for sale, dated 26/11/2002 read with development agreement dated 30/12/ 2003, that the AO was informed about the investment made by it in bank fixed deposits, that it had mentioned the fact that entire sale consideration was invested in another the capital asset i. e. the bank fixed deposit, that details of sale consideration and fixed deposits made for exemption from capital gains were enclosed along with the computation of income for the year under conside .....

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y the assessee the AO had passed the order u/s. 143 (3)of the Act, that there was no failure on part of the assessee to disclose the material facts, that assessee had agreed for assignment of the development rights in the part property at Mumbai to VDL subject to the sanction of the Charity Commissioner, that after getting the sanction on 17/03/2003 it entered into a development agreement on 24/12/2003, that out of ₹ 7. 80 crores the sum of ₹ 2 crores was received during the previous .....

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that after considering all these facts the AO had computed the income of the assessee at rupees nil and had allowed the benefits of section 11 (1A) of the Act. He further argued that the reasons for reopening showed total non-application of mind by the AO, that same reasons were given for a consolidated block of two years, the reasons were based on erroneous inferences drawn from the facts already disclose during the original assessment, that the objections to reopening were rejected by way of .....

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y (362 ITR 362), Aroni Commercials (362 ITR 403), Dena Bank (76 taxmann. com 279), ICICI Home Finance Co. Ltd. (210 Taxman 67). He further argued that investment in fixed deposit was sufficient to claim exemption u/s. 11(1A) of the Act, that no income liable to tax had escaped assessment. He referred to case of Hindustan Welfare Trusts (206 ITR 138) and East India Charitable Trusts(206 ITR 152). 4. 1. The Departmental Representative (DR) argued that some of the FDs were invested for short period .....

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furnishing of details were mentioned in the return of income would not tantamount to full and complete disclosure facts, that for reopening a completed assessment what was to be seen was the escapement of income, that an action u/s. 147 of the Act was possible despite complete disclosure of material facts, that the AO could form reason to believe that income had escaped assessment by examining the very documents, that reassessment can be initiated if taxable income has escaped taxation due to ov .....

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ard the rival submissions and perused the material before us. As the assessee had challenged the validity of re-opening, so, we would like to deal with the said issue. First of all we would like to refer to the reasons recorded by the AO for reopening the assessment and same read as under: In this case the assessee has filed its return of income for AY 2004-05 on 31. 10. 2004 disclosing total income at Rs. NIL. The assessment was completed u/s. 143(3) of the Act on 30. 11. 2006 assessing the tot .....

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edit Bank Limited (DCBL). Examination of the Fixed Deposit account reveals that the entire amount is not invested in the said Bank as detailed below: A. Y. 2001-02 2002-03 2003-04 2004-05 2005-06 Fixed Deposit with DCBL 62, 00, 000/- 1, 18, 24, 504/- 8, 34, 25, 000/- 23, 08, 30, 474/- 22, 10, 67, 627/- Increase - 56, 24, 504/- 7, 16, 00, 496/- 14, 74, 05, 475/- (-)97, 62, 848/- Further examination reveals that during financial year relevant to AY 2004-05, the assessee trust has invested an amoun .....

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was ₹ 2210. 68Iakh. Thus, there is a difference of ₹ 5, 97, 35, 3731- which is remained to be invested in FD therefore the assessee trust is not entitled for the exemption. Further, amount invested in FD were for the short period of 90-180 days under short term deposit. After maturity, many FOR has not been reinvested and some FOR's has also been withdrawn as premature closing. The deposit for the period of not less than 3 years kept with SBI or any subsidiary Bank or any Nationa .....

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g another capital asset being property to be so held then capital gain arising from the transfer shall be deemed to have been applied to charitable/religious purposes. Since the net consideration have not been utilized by the assessee for another capital asset being property, therefore, exemption claimed by the assessee is not correct. In view of the above, assessee is not entitled for exemption on the sale consideration of Bandivili (Mumbai)/Yerawada (Pune )[for 05-06] property. However in the .....

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- (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed. ] In view of the forgoing I have reason to believe that the income of the assessee has escaped the assessment for A. Y. 2004-05. The assessee has failed to provide the information in the return such as period of investment in FD and other details. Therefore the cause of escapement of income within the meaning of section 147 of Income Tax Act, 1961, is· failure on the part of the assess .....

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ture of an exception to the general principle that an assessment order once made would be final. The effect of reopening is to partly vacate or set aside the original order of assessent and to substitute it. No doubt, escapement of income includes both non-assessment/underassessment, but it is mandated by the provisions of the Act that reasons to believe must necessarily show, indicate and communi -cate why and for what grounds/cause any income has escaped assessment. Reasons recorded must be ge .....

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y will be considered as invalid since they do not meet the statutory prerequisites. The policy of law is that there should be finality in all legal proceedings. Thus, stale or irrelevant issues should not and cannot be a ground to reactivate closed and concluded proceedings. Formation of rational belief that income chargeable to tax had escaped assessment is a condition precedent for validly initiating reassessment proceed - ings. In short, the validity of the reassessment proceed -ings has to b .....

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o issuance of notice and the AO is bound to dispose of the objections by passing a speaking order. Explanation 1 to section 147 lays down that mere production of the books of account or other evidence from which the AO could, with due diligence, have discovered certain facts would not amount to disclosure within the meaning of the provision. Explanation 2 to section 147 enumerates the cases where it would be presumed that income chargeable to tax has escaped assessment. As per the Hon ble Courts .....

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ngs and there can be omission and failure on the part of the assessee during the course of the assessment proceedings. (376 ITR 131). 5. 3. It is the duty of the AO to make an enquiry and if he did not make an enquiry, it is a case of oversight and it could not be said that the income chargeable to tax had escaped assessment by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts. Hon ble Allahabad High Court, in the case of Chokani Brother .....

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ssessment was right and that no income has escaped assessment. Even in cases where the AO has made a mistake or has made an error in assessing the income of an assessee, recourse to section 147 of the Act is not available and the appropriate course would be for the Commissioner to pass an order u/s. 263 of the Act, if he finds that the assessment order is erroneous inasmuch as its is prejudicial to the interest of the Department. (383 ITR 197) 5. 4. As per settled principles of taxation-law, whe .....

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e of Nitish Surendrabhai(387 ITR 99) of Hon ble Gujarat High Court. In that matter the Hon ble Court has held as follow: …. . in the notice for reassessment the reasons started with narration on verification of the case record . (emphasis by us) . . Thus, the conclusions of the Assessing Officer were based on verification of the case record. In other words, there was no material outside the assessment proceedings which enabled the Assessing Officer to conclude that income chargeable to ta .....

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to issue notice for reopening, that too, without any additional material which would suggest that the assessee had made a false declaration or provided inaccurate particulars. We would also like to refer to the case of United Shippers (371 ITR 441). In that matter the AO had passed an assessment order u/s. 143(3). In the course of the assessment proceedings, he called upon the assessee to submit a brief note on the nature of its business. The assessee had categorically disclosed the nature of it .....

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to make it eligible for deduction u/s. 33AC of the Act. Later on, he issued a notice to the assessee u/s. 148 of the Act as he was of the opinion that taxable income had escaped assessment. A writ petition, challenging the reopening was filed by the assessee before the Hon ble High Court. Quashing the re-opening Hon ble Bombay High Court held as under: When an assessment is sought to be reopened after the expiry of four years from the end of the relevant assessment year, the proviso to section .....

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ent. This was so as the entire exercise for reopening of the assessment emanated from a change of opinion. The notice was issued u/s. 148 by the AO after the expiry of a period of four years from the end of the relevant assessment year. The reasons as recorded by the AO, to reopen the assessment, even when they were read in its entirety did not indicate that the assessee had not disclosed fully and truly all the material facts. Therefore, ex facie on this ground alone the notice could be said to .....

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he assessment year 2000-01. Therefore, the AO s attempt to reopen the assessee s assessment on the assessee's own disclosure could in no manner be termed an appropriate exercise of his jurisdiction and authority u/s. 147 so to reopen the assessment beyond the period of four years as this could in no manner be said to be any failure on the part of the assessee to disclose fully and truly all the facts necessary for assessment. Hence, the notice was to be quashed and set aside. 5. 6. When a no .....

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of issuing the notice. 6. After considering the principles governing the reopening, now, we would like to consider the facts of the case under appeal. We find that the AO has not referred to any material, other than what was examined in the initial round of assessment proceedings, for forming his belief that the assessee s income had escaped assessment. The AO s belief was based solely on the basis of material already examined by him during the first round of assessment proceedings. The notice .....

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rvations in that regard are to be supported with solid reasons. 6. 2. We find that the AO has not established the failure of the assessee to disclose truly and fully the material facts necessary for making original assessment. The failure of the assessee is not only to be alleged but has to be demonstrated by positive evidences. The AO has used the terminology used in the section, but has not explained as to how the assessee had failed i. e. which material facts were not disclosed. All the facts .....

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2006 before the AO. As per page 3 of the paper book the note in the computation of income for the year under appeal contained the details about the transaction. The note read as under: We have sold development rights of immovable property being Bandivali Property, Mumbai for an amount of ₹ 7, 80, 00, 000/- vide Agreement for Sale dated 26th November, 2002 read with Development Agreement dated 30th December, 2003. The above property was purchased on 27thJanuary, 1976. We have spent further .....

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f consideration, amounts dates of deposits and amounts invested by the assessee during the year under consideration. Vide its letter, dated 02/08/2006, the assessee had filed detailed note on sale of the property (Pg. 15-16 of the PB), order of the charity commissioner sanctioning the sale of property, dated 17/ 03/ 2003(Pg. 17-38)and a copy of sale agreement with VDL(Pg. 39-83 of the PB). Later on, vide its letter, dated 20/09/2006, the assessee had filed details about names and addresses of th .....

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ssee had renewed certain earlier fixed deposit and same had no connection with the compensation received on sale of plot of land. After considering the above submissions of the assessee and after deliberating upon the documents furnished by it, the AO had passed scrutiny assessment. He had formed an informed opinion that it was entitled to benefit of the provisions of section 11 of the Act and that it had made investment on sale of one kind of assets in other assets within the stipulated time an .....

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