TMI Blog2020 (11) TMI 738X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment that it does not show that there was escapement of income due to failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment of income of the assessee for the assessment year 2009-10. Under the circumstances, the conditions stipulated under first proviso to section 147 are not satisfied and therefore, on the aforesaid ground alone, the impugned notice deserves to be quashed and set aside. Reopening of assessment which is already concluded under Section 143(3) of the Act of the assessment cannot be reopened without any allegation by the Assessing Officer that there was non-disclosure of true and correct facts by the assessee while framing the original assessment. Hence, we are inclined to annul the assessment. - Decided in favour of assessee. Assessment of trust - Exemption u/s 11 - method of computation of the income and application followed by the A.O., excluding the loans recovered by the appellant from Self Help Groups [SHG] that was regarded as income - Repayment of debt incurred for purposes of trust/loans advanced by educational trusts to students for higher studies - Whether amounts to application of income - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cially in light of the earlier assessment order passed u/s 143[3] of the Act without any fresh material is opposed to law and consequently the re-opening of the assessment is liable to be quashed. 2E. Without prejudice to the above, the re-opening of the assessment is also bad in law as no previous sanction u/s 151 of the Act has been obtained by the learned A.O., which is clear from the reasons recorded and consequently, the impugned order passed deserves to be cancelled. 2F. Without prejudice to the above, the impugned order passed u/s 143[3] rws 147 of the Act is bad in law since the learned AO has not disposed off the objections filed by the appellant for reopening the assessment by passing the separate speaking order and consequently, the impugned order passed without disposing off the objections, deserves to be annulled. 3A. The learned CIT [A] is not justified in holding the finding recorded that the land advance of ₹ 2.5 Crores given by the appellant trust to Mr. Pushparaj Jain amounted to diversion of the funds of the Trust for the benefit of the trustees and thus, the said transaction was hit by the provisions of Sec. 13[2] of the Act under the facts and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led objections by letter dt.8.12.2016 objecting to the reopening of assessment and filed other details in connection with the assessment proceedings. The Assessing Officer passed order under Section 143(3) r.w.s. 147 of the Act dt.30.12.2016 determining the total income of the assessee at ₹ 85,29,235 as excess of income over application under Section 11 of the Act by changing the method of computing the income and application excluding the loans advanced by the assessee to SHG and recovery of the loans from SHG that was considered as income. The Assessing Officer has arrived at the belief that income has escaped assessment by virtue of the fact that Shri Pushparaj Jain has received an advance of ₹ 2.50 Crores towards sale of land from the assessee and has also made certain advances to Sri M N Rajendra Kumar, the trustee of the assessee trust. The Assessing Officer was of the opinion that the trust is diverting its funds violating section 13(2) of the Act to specified people mentioned in Sectin 13(3) of the Act without adequate security or compensation resulting in loss of revenue to the trust, improper application of trust funds in investments and the income of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in 103 ITR 437 wherein it was held that the reasons set out by the A.O. to the belief that income has escaped assessment is totally absent in this. The Ld. AR relied on the relevant observations of the Supreme Court in the aforesaid case of Lakhmani Mewal Das (supra) as below: The reasons for the formation of belief must have a rational connection or relevant bearing on the formation of the belief. Formation of belief postulates that there must be a direct nexus or live link between the material coming to the notice of the income tax offices and the formation of his belief that there has been an escapement of income of the assessee from assessment. 4.2 The Ld. AR submitted that testing the aforesaid reasons recorded on the ratio of the judgment of the Supreme Court in the case of Lakhmani Mewat Das [supra], it is seen that there are no objective reasons set-out by the AO for entertaining a bonafide belief that income has escaped assessment. According to the Ld. AR, this is because, the A.O. had arrived at the belief that income had escaped assessment by virtue of the fact that Shri Pushparaj Jain had received an advance for sale of land from the assessee and had also made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the Division Bench of the Karnataka High Court which held as under : More than the AO s report which the learned judge characterized as evasive and speculative, it is the statement of reasons for the reopening which is evasive and speculative. We find no basis therein which could have led the appellant to entertain reasons to believe that income chargeable to tax had escaped assessment for the relevant assessment year. it is imperative that the reasons should have a rational and relevant nexus to the formation of such belief. We do not find such nexus . The Ld. AR submitted that the ratio of the above judgment squarely applies in the instant case. According to the Ld. AR, it is because, the learned AO had entered into a speculative assumption there is a violation of the provisions of section 13(1][c] rws 13[2][g] of the Act which has not been established at all. Hence, it was submitted that it cannot be said that there was a bonafide belief entertained by the learned AO that income of the assessee has escaped assessment for the above assessment year. It was submitted that there was absolutely no live link between the reasons stated by AO and the belief entertained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , bars re-opening of the assessment since the conditions permitting the reopening do not exist and the same is not the basis on which the assessment stands reopened. The Ld. AR placed reliance for this proposition on the ratio of the judgment of the Bombay High Court in the case of Nirmal Bang Securities Pvt. Ltd., reported in 382 ITR 93 wherein after noticing the reasons recorded and the legal position as well as the statutory provisions of the Act in para [24] of the judgment, it was held as under: - In view of the aforesaid well-settled legal position and there adm it tedly being not even an allegation in the reasons recorded that there was any failure on the port of the petitioner to disclose truly and fully all material facts necessary for assessment, let alone the details thereof, the impugned notice dated March 30,2007 and the impugned order dated December 8, 2007 are liable to be quashed and set aside on this ground of our . 4.8 The Ld. AR placed reliance on the judgment of the Jurisdictional High Court in the case of CHAITANYA PROPERTIES PRIVATE LIMITED reported in 240 659 [Kar] wherein, the Hon'bte jurisdictional High Court h a s considered the substantial q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as they were recorded by the Assessing Officer. No substitution or deletion is permissible. No additions can be mode to those reasons. No inference can be allowed to be drawn based on reasons not recorded. It is for the Assessing 0fficer to disclose and open his mind through reasons recorded by him. He has to speak through his reasons. lt is for the Assessing Officer to reach the conclusion as to whether there was failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the concerned assessment year. It is for the Assessing officer to form his opinion. It is for him to put his opinion on record in black and white. The reasons recorded should be clear and unambiguous or it should not suffer from any vagueness. The reasons recorded must disclose his mind. The reasons are the manifestation of the mind of the Assessing Officer. The reasons recorded should be self explanatory and should not keep the assessee guessing for the reasons. Persons provide the link between conclusion and evidence. The reason recorded must be based on evidence. The Assessing Office , in the event of challenge to the reasons, must be able to justify th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corded by the Assessing Officer. From the reasons communicated to the assessee, there is no mention of the Assessing Officer having obtained the previous sanction of the aforesaid authorities. The Ld. AR submitted that the notice was issued after obtaining necessary satisfaction of the Commissioner of Income-tax (Exemptions). However, the Ld. AR submitted that in the absence of the satisfaction of the Commissioner being recorded in the reasons, the said notice issued contravenes the provisions of section 151 of the I.T. Act and hence, the notice so issued is bad in law. The Ld. AR relied on the judgment of the Jurisdictional High Court in the case of Manjunatha Cotton Ginning Industries 359 ITR 565 wherein it was held that penalty levied on the basis of notice is bad in law and the same was cancelled. According to the Ld. AR, the reasoning of the above judgment squarely applied to the instant case and the reassessment order is to be cancelled. 4.9.3 The Ld. AR submitted that the assessment passed by the Assessing Officer is contrary to the judgment of the Supreme Court in the case of GKN Driveshafts 259 ITR 19. The Ld. AR submitted that the Assessing Officer did not furnish th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore as per the provisions of Section 147 Expln. 1, the income has escaped assessment within the meaning of the section. He drew our attention to the Expln. 1 of Section 147 of the Act and supported the orders of CIT (Appeals). 6. We have heard both the parties and perused the material on record. At this stage, it is appropriate to mention the principles of law governing reassessment as below : (i) The Court should be guided by the reasons recorded for the reassessment and not by the reasons or explanation given by the Assessing Officer at a later stage in respect of the notice of reassessment. To put it in other words, having regard to the entire scheme and the purpose of the Act, the validity of the assumption of jurisdiction under Section 147 can be tested only by reference to the reasons recorded under Section 148(2) of the Act and the Assessing Officer is not authorized to refer to any other reason even if it can be otherwise inferred or gathered from the records. The Assessing Officer is confined to the recorded reasons to support the assumption of jurisdiction. He cannot record only some of the reasons and keep the others upto his sleeves to be disclosed before th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ieve that the income chargeable to tax has escaped assessment; (ii) Such escapement occurred by reason of failure on the part of the assessee either (a) to make a return of income under section 139 or in response to the notice issued under sub-section (1) of Section 142 or Section 148 or (b) to disclose fully and truly all the material facts necessary for his assessment for that purpose. (x) The Assessing Officer, being a quasi judicial authority, is expected to arrive at a subjective satisfaction independently on an objective criteria. (xi) While the report of the Investigation Wing might constitute the material, on the basis of which, the Assessing Officer forms the reasons to believe, the process of arriving at such satisfaction should not be a mere repetition of the report of the investigation. The reasons to believe must demonstrate some link between the tangible material and the formation of the belief or the reason to believe that the income has escaped assessment. (xii) Merely because certain materials which is otherwise tangible and enables the Assessing Officer to form a belief that the income chargeable to tax has escaped assessment, formed part of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts would be expected to be elicited by the Assessing Officer during the course of the assessment. The disclosure required only reference to those material facts, which if not disclosed, would not allow the Assessing Officer to make the necessary inquiries. (xix) The word information in Section 147 means instruction or knowledge derived from the external source concerning the facts or particulars or as to the law relating to a matter bearing on the assessment. An information anonymous is information from unknown authorship but nonetheless in a given case, it may constitute information and not less an information though anonymous. This is now a recognized and accepted source for detection of large scale tax evasion. The non-disclosure of the source of the information, by itself, may not reduce the credibility of the information. There may be good and substantial reasons for such anonymous disclosure, but the real thing to be looked into is the nature of the information disclosed, whether it is a mere gossip, suspicion or rumour. If it is none of these, but a discovery of fresh facts or of new and important matters not present at the time of the assessment, which appears to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is much wider. However, one needs to give a schematic interpretation to the words reason to believe failing which, we are afraid, Section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of mere change of opinion , which cannot be per se reason to re-open. We must also keep in mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has no power to review; he has the power to re-assess. But re-assessment has to be based on fulfillment of certain pre-condition and if the concept of change of opinion is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place. One must treat the concept of change of opinion as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, Assessing Officer has power to re-open, provided there is tangible material to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to Section 147 of the Act, as quoted hereinabove. Under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riginal assessment is sought to be reopened in exercise of powers under section 147/148 of the Act on change of opinion by the AO, which is not permissible more particularly when the original assessment is sought to be reopened after a period of four years from the end of the assessment year. In the present case, the original assessment for the assessment year 2009-10 was completed u/s. 143(3) of the I.T. Act on 25/11/2011 and notice for re-opening of assessment was issued to the assessee on 13/04/2015. As per the provisions of section 147 of the I.T. Act if in any assessment year and if after expiry of four years from the end of the relevant assessment year, action sought to be taken u/s. 147 of the I.T. Act, such action can be only in cases where income chargeable to tax has escaped assessment in such assessment year by reason of failure on the part of the assessee to disclose truly and fully all material facts necessary for his assessment in such assessment year. It is seen from the reasons recorded for re-opening of assessment that it does not show that there was escapement of income due to failure on the part of the assessee to disclose fully and truly all material facts neces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ikas Charitable Trust Receipt ₹ 50,00,000 4. 10.11.2008 M.N. Rajendra Kumar Payment ₹ 50,00,000 5. 24.11.2008 Navodaya Grama Vikas Charitable Trust Receipt ₹ 50,00,000 6. 24.11.2008 M.N. Rajendra Kumar Payment ₹ 50,00,000 7. 02.01.2009 M.N. Rajendra Kumar Payment ₹ 50,00,000 From the above mentioned transactions, it is clear that Shri Pushpraj Jain is being used as an intermediary by the trust to channel funds to its trustee, Shri M.N. Rajendra Kumar. Therefore, the trust is hit by Section 13(1)(c) r.w.s. 13(2)(g) of the Income Tax Act and it cannot enjoy the benefit of exemption u/s. 11 12 for the relevant assessment year. Accordingly, the amount of ₹ 2.5 Crores is required to be brought to tax for AY 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the costs. 10. The learned Authorised Representative submitted that - 1. Briefly, it is submitted that the appellant is a charitable trust registered 1u/s.12AA with F.No.N-24/12A/CIT/MNG/2004-2005 dated 10/01/2005 by the Commissioner of Income-tax, Mangalore. The appellant trust is engaged in the charitable activities of helping the rural poor by forming Self Help Groups [SHG] and providing them with financial and other assistance. 2. For the year under appeal, the appellant had filed its original return of income on 26/09/2014 reporting NIL income after claiming exemption u/s. 11 of the Act. Copy of the original return of income filed on 26/09/2014 along with the financial statements. 2.1 The case of the appellant was selected for scrutiny and statutorily notices issued by the learned A O. In course of the assessment proceedings, the learned A.O. had called for the details of the activities carried on by the appellant and these same were furnished by the appellant. 2.2 Thereafter, the learned A.O. concluded the assessment by the impugned order passed u/s. 143[3] of the Act, dated 28/12/2016 determining the total income of the appellant trust at ₹ 88,69, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sl.No. Nature of receipt Amount Remarks 1 Grants and Subsidies 1,49,56,800/- Discussed in Para 5 of the assessment order. Net of expenses adopted by AO and it does not affect the overall computation. 2 Chaithanya Insurance Fund 2,35,05,605/- No Discussion in the assessment order. However, it appears that the AO has followed the same treatment of adopting the net figure instead of Gross 3 Divident -73,500/- Not taken by the appellant since it is exempt but included by AO. No discussion in the assessment order TOTAL 3,83,88,905/- 3.3 Similarly, the learned A.O. has computed the income applied by the appellant [including capital expenditure] for the year at ₹ 5,96,48,638/- based on certain expenses shown in the Income and Expenditure Account as against the claim of the appellant that the income applied during the year [includin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant since inception, which has also been accepted by the learned A.O. in the original assessment proceedings for the assessment year 2009-10 as well. Thus, the different view taken by the learned A.O. in the present assessment order passed is opposed to law and facts of the appellant s case and the same deserves to be vacated. It is prayed accordingly. 3.6 It is further submitted that the aforesaid treatment given by the appellant to the grant of loans and recovery thereof is based on and support by the views expressed in the Circular No. 100 dated 24/01/1973, issued by the Hon ble CBDT in which it has been mentioned in para [2] as under :- 2. The Board has decided that repayment of the loan originally taken to full1fil one of the objects of the trust will amount to an application of the income for charitable and religious purposes. As regards the loans advanced for higher studies, if the only object of the trust is to give interest bearing loans for higher studies, it will amount to carrying on of money-lending business. If, however, the objects of the trust is advancement of education and granting of scholarship loans as only one of the activities carried on for the fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the tenor of the circular dated January 24, 1973, issued by the Central Board of Direct Taxes. The Tribunal, in our opinion, was not justified in ignoring the contention of the Department based on the said circular . 3.8 Thus, it cannot be said that the loans advanced by the assessee to the Self Help Groups cannot be regarded as application of income. The view taken by the A.O. in the impugned order is in total disregard to the views expressed in the Board Circular, which is binding on the Department and therefore, the computation of the income applied by excluding the loans granted is liable to be vacated. It is prayed accordingly. . 11. On the other hand, the learned Departmental Representative submitted that the Circular is related to providing of higher education and is not relevant for the formation of SHGs as claimed by the assessee. Moreover, the funds received from the bank cannot be treated as an application of income. The assessee is taking money from SCDCC Bank and giving the same as loan to SHGs. This is in the nature of business activity and not an activity of the trust. The claim of the assessee that extending loan to SHGs is an application of income is devoid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heir situation and promote their organization for their own betterment to promote self employment activities through trained people, to educate them in children care responsible parenthood, home science and happy family life. 3. To conduct and run nursery and kindergarten or Primary, Higher Primary, Secondary Schools and Colleges for facilitate children s full growth and to work for their healthy care and to assist poor school going children to have better education and health. 4. To provide guidance regarding wild life, perform inter nation wild life programme with principal ideas and make awareness of the same with the people of rural areas and also to conduct run and assist veterinary hospitals etc. 5. To provide proper knowledge about agriculture, run farm, animal centers etc. and provide profitable employment to the people of rural areas. 6. To make awareness of human rights and other new things in rural areas by providing good leadership, make arrangements for implementation of good ideas for them and to make awareness of strong will power, love, service and patriotism etc. 7. Offering the opportunity to develop personality and avenues for their intelligent par ..... 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