Income Tax Appellate Tribunal - Jodhpur
Bigabass Maheshwari Sewa Samiti vs Income Tax Officer on 24 June, 2005
Equivalent citations: (2005)96TTJ(JODH)385
ORDER
R.S. Syal, A.M
1. This appeal by the assessee is directed against the order passed by the CIT(A) on 10th Sept., 2004, in relation to asst. yr. 1998-99.
2. In the first ground, the assessee has assailed the validity of notice issued under Section 148 of the IT Act, 1961.
3. Briefly stated, the facts of the case are that the assessee is a charitable trust and its objects, inter alia, include welfare of general society. The trust came into existence on 17th Oct., 1995, and was granted registration by the Registrar of Societies on the same day. Registration under Section. 12AA was granted by the CIT on 14th Aug., 1997. The return of income for the year under consideration was filed on 31st Dec, 1999, declaring nil income, duly accompanied with the audit report in Form No. 10B. The return was processed under Section 143(1)(a) on 21st March, 2000. Thereafter, a notice under Section 148 was issued on 28th May, 2001, on the basis of reasons recorded and forming part of the assessment order as under:
"During the year under consideration, the trust has shown receipt of donation of Rs. 30,16,598 in the corpus fund, whereas the amount has been received without specific directions, therefore, this amount cannot be treated for corpus. Further, the registration under Section 12A(a) was granted w.e.f. 14th Aug., 1997, therefore, donation of Rs. 12,11,100 received before 14th Aug., 1997, is liable to tax, which has not been shown as taxable."
In compliance to notice under Section. 148, the assessee-trust filed its reply on 14th June, 2001, stating that the return filed on 31st Dec, 1999, may be treated as return in response to the notice under Section. 148. Assessment was completed on the total income of Rs, 33,09,100. In the first appeal, the assessee challenged the validity of notice under Section 148, but without any success.
4. Before us, the learned counsel for the assessee strenuously argued that the lower authorities had erred in initiating the proceedings by issuance of notice under Section 148 and upholding the same respectively. It was stated that the trust received Rs. 30,16,598 as donations towards corpus and applied a sum of Rs.24,65,543 for its purposes within the meaning of Section 11 of the Act. He invited our attention towards p. 12 of the paper book, being the corpus account, income and expenditure account and balance sheet as on 31st March, 1998. Our attention was further drawn towards p. 13 of the paper book, being the copy of registration certificate under Section 12A(a) issued by the CIT on 2nd Feb., 1998, effective from 14th Aug., 1997. It was contended that the AO had invalidly assumed jurisdiction under Section 147 on the change of his opinion when all the necessary facts were duly disclosed by the assessee in its return of income and no new material/information surfaced justifying the issuance of notice under Section 148. Per contra, the learned Departmental Representative defended the impugned order by contending that the learned CIT(A) was right in upholding the issuance of notice under Section 148.
5. We have heard the rival submissions and perused the relevant material on record in the light of precedents relied upon. There is no dispute about the fact that the assessee furnished its return of income under Section 139(4) on 31st Dec, 1999, and the notice under Section 148 was issued on 28th May, 2001. Though the return was processed under Section 143(1)(a), but no regular assessment was framed. The AO issued notice under Section 148 by assigning reasons extracted above. A careful perusal of the reasons recorded by the AO reveals that there are broadly two parts of reasons for assuming jurisdiction under Section 148. The first part of the reasons is that the donation receipts shown by the assessee-trust as towards the corpus fund were received without any specific direction. The possibility of canvassing such a view by the AO could have been based either on the availability of any material found from record justifying his conclusion or some information coming to his notice after the filing of the return by the assessee in this regard. Since the assessee had shown receipt of donation of Rs. 30,16,598 in the corpus fund and admittedly, there is no mention of other material available on record contradicting this assertion of the assessee, the first possibility is ruled out. In the like manner, there is no reference in the reasons nor any material is placed before us establishing the receipt of any reliable information by the AO from any quarter casting doubt over the assessee's stand in this regard. Even no such adverse finding was given by the AO while passing orders under Section 143(3)/147 for the immediately two preceding years, namely, asst. yrs. 1996-97 and 1997-98. It shows that the AO made presumption of the receipts shown by the assessee towards corpus donations, as without any specific direction and then to authenticate his presumption, initiated the reassessment proceedings.
6. At this juncture; we would like to highlight the difference between the regular assessment under Section 143(3) and the reassessment under Section 147. It is important, to bear in mind that both the sections operate in different fields and do not have any overlapping jurisdiction. Whereas Section 143(3) empowers the AO to make assessment, when return is filed under Section 139 or in response to notice under Section 143(1), if he considers it necessary or expedient to ensure that the assessee had not understated the income or has not computed excessive loss or has not underpaid the tax in any manner, he shall serve on the assessee a notice requiring him to appear, on a date to be specified therein, in his office or to be produced or cause to be produced any evidence or material on which he may rely in support of the contents of his return. After considering such evidence, as led by the assessee in response to notice under Section 143(2) and Section 142(1), the AO passes an order determining the total income or loss as per order under Section. 143(3). Proviso to Section.143(2), at the material time, provides that no notice under Section. 143(2) shall be served on the assessee after the expiry of 12 months from the end of the month in which the return is furnished. This shows that the powers of the AO are very wide when he selects a case for scrutiny assessment under Section 143(3). He has to satisfy himself that the assessee had not understated the income or claimed excessive expenditure in any manner. The AO is authorised to look into all the aspects connected with the income of that year. He can, subject to the other provisions, go into any aspect of the assessment and consider it from the angle of taxability.
7. On the contrary, the power of the AO under Section 147 is restricted to taxing the income which has escaped assessment. In order to assume jurisdiction under this section, he has to form an opinion and record reasons that the income chargeable to tax has escaped assessment. When these conditions are fulfilled,, then the AO starts assessment or reassessment to tax such an escaped income and also any other income chargeable to tax, which has escaped assessment and comes to his notice in the course of proceedings under Section 147. The AO cannot initiate reassessment proceedings simply to verify the contents of the return unlike the power which is vested in him in making regular assessment. The time-limit for issuance of notice under Section 148 has been prescribed under Section. 149 of the Act. Once a return is filed under Section 139, or in response to notice under Section 142(1) and the period of 12 months from the end of the month in which the return is furnished is expired, the AO cannot issue notice for making assessment under Section 143(3). He cannot assume the ousted jurisdiction by venturing to make the assessment indirectly in the garb of reassessment by issuance of notice under Section 148. In order to invoke the power under Section 147, it is sine qua non that the AO should have reason to believe about the escapement of income. He cannot seek general information to verify the contents of the return, which power is available only while framing regular assessment within the stipulated' period. The reasons to believe that income has escaped assessment should be preceded by the issuance of notice under Section 148 and not vice versa, that is, such reasons to believe should exist prior to the issuance of notice regarding escapement of income. It is impermissible to make fishing enquiries to determine the income that has escaped assessment in the course of proceedings pursuant to notice under Section 148.
8. It is trite law that the "reasons to believe" cannot be substituted with the "reasons to suspect". Notice can be issued only on the ground of "reasons to believe". The belief contemplated in this section is the belief of a prudent man and such belief must be bona fide and not mala fide. Similarly, a doubt or suspicion in the mind of the AO cannot empower him to initiate proceedings under Section 147. In the case of Bir Arjna Enterprises (P) Ltd. v. ITO (1994) 204 ITR 258 (J&K), it was held that the powers under Section 147 are though wide but not plenary and existence of reason based upon some material prima facie showing escapement of assessment is a condition precedent for exercise of jurisdiction under Section 147. It is further relevant that the reasons in the possession of the AO should have direct nexus with the formation of belief that the income chargeable to tax has escaped assessment. The Hon'ble Supreme Court in the case of HO & Ors. v. Lakhmani Mewal Das held that the reasons which led to the formation of the belief contemplated by Section 147(a), must have a material belief on the question of escapement of income of the assessee from assessment. It has been held that the expression "reason to believe" does not mean a purely subjective satisfaction on the part of the ITO. Where live-link between the material before the ITO and the belief he was to form regarding escapement of income was missing, such material was held to be not sufficient to form the belief that income chargeable to tax has escaped assessment. Similar view was reiterated in Ganga Saran & Sons (P) Ltd. v. HO & Ors. by holding that the belief entertained by the AO must not be arbitrary or irrational.
9. The above discussion boils down that the reasons to believe about the escapement of income having direct nexus with some live material must exist prior to the issuance of notice under section 148. Such reasons should be based upon some cogent material and not mere ipse dixit of the AO. Where the AO records the reasons in the realm of doubt and suspicion, devoid of any relevant material, such reasons cannot justify the initiation of reassessment proceedings. Even cl. (b) of Expln. 2 to Section 147 would not come to the assistance of the Revenue because that applies only where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the AO that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return. Although no assessment was made in this case prior to the issuance of notice under Section 148 but the other condition of this clause, namely, understatement of income by the assessee is not fulfilled. This clause deems the understatement of income or claim of excessive loss, deduction, etc. as a case where income chargeable to tax has escaped assessment. But in order to bring an item within the purview of Section 147, it is of utmost importance that the AO should have reasons to believe, based on relevant and cogent material, that such income has escaped assessment. It is also not an arbitrary or irrational satisfaction of the AO empowering him to pick up any case for reassessment and disturbing the finality to the proceedings, without complying with the necessary conditions as laid down in the relevant sections.
10. Adverting to the facts of the present case, we find that there was no material, direct or indirect, available with the AO, which could show that the receipt of donation amounting to Rs. 30,16,598 was without any specific direction of corpus fund. The assessee had shown the receipts as having been received in the corpus fund coupled with the report of the auditor in this regard. The AO had not enquired into the nature of the contributions before issuance of notice under Section 148. Such an inference was not even possible from the assessments for the earlier years, as he had not given such finding while completing the assessment for the immediately two preceding years. In view of these facts, we feel no hesitation in holding that the first part of the reasons recorded by the AO was not relevant in issuing notice under Section 148.
11. Now, we turn to the second part of the reasons assigned by the AO that as the trust was granted registration w.e.f. 14th Aug., 1997, the donations received prior to the date of registration amounting to Rs. 12,11,100 were liable to be taxed. It is an admitted position that the CIT granted registration w.e.f. 14th Aug., 1997, though the trust came into existence on 17th Oct., 1995. In order to evaluate and examine the authenticity of this reason, it is relevant to consider the provisions of Section 12A, which deal with the granting of registration. This section provides that the provisions of Sections 11 and 12 shall not apply in relation to the income of any trust or institution unless the conditions as prescribed in els. (a) and (b) are fulfilled. There is no dispute about the cl. (b). Clause (a) provides that the person in receipt of the income has made an application for registration of the trust or institution in the prescribed manner to the CIT before the 1st day of July, 1973, or before the expiry of a period of one year from the date of creation of the trust or establishment of the institution, whichever is earlier, and such trust or institution is registered under Section 12AA. Proviso to this clause deals with the situation where an application for registration of trust or institution is made after the expiry of the aforesaid period. It has been provided that the provisions of Sections 11 and 12 shall apply in relation to income of such trust or institution from the date of creation of the trust if the CIT, for reasons to be recorded in writing, is satisfied that the person in receipt of income was prevented from making application before the expiry of the aforesaid period for sufficient reasons. Our case does not fall in this clause of the proviso because the CIT has not condoned the delay and has granted registration w.e.f. 14th Aug., 1997. Clause (ii) of this proviso provides that where the CIT is not satisfied, then the provisions of Sections 11 and 12 shall apply from the 1st day of the financial year in which the application is made. The instant case is covered within this clause. A plain reading of this clause makes it clear that where the registration is granted by the learned CIT without condoning the delay, the registration shall take effect from the 1st day of the financial year in which the registration is applied for. Apparently, the application was moved in the financial year 1997-98 as registration was granted w.e.f. 14th Aug., 1997. That being the position, the provisions of Sections 11 and 12 granting 'exemption to income from property for charitable or religious purposes or income of trust or institution from contributions, would-be available to the assessee from 1st April, 1997. Therefore, the donations received by the trust after 1st April, 1997, and before 14th Aug., 1997, (the date from which registration was granted by the CIT), would also be exempt from taxation in terms of Sections 11 and 12. Hence, the second reason recorded by the AO for issuing notice under Section 148 that the donations during the interregnum were liable to tax, also does not have legal legs to stand on.
12. It shows that both the reasons assigned by the AO before invoking the provisions of Section 147 were in total defiance of the legal provisions in this regard and hence fail to withstand the judicial scrutiny. As the very foundation for making the present assessment is found to be unsustainable in terms of issuance of an invalid notice under Section 148, naturally, all the proceedings flowing therefrom are liable to be quashed. We order accordingly. This legal ground raised by the assessee is accepted and the assessment order is set aside.
13. In view of our finding on the first legal ground, we do not think it expedient to deal with the other grounds on merits. For this proposition, we draw support from the order passed by the Special Bench of the Tribunal in the case of Rahul Kumar Bajaj v. ITO (1999) 64 TTJ (Nag)(SB) 200 : (1999) 69 ITD 1 (Nag)(SB) holding that where the preliminary legal issue, i.e., the reopening of assessment is decided in assessee's favour, then there is no requirement to decide the other issues on merits.
14. In the result, the appeal of the assessee is allowed.