Income Tax Appellate Tribunal - Mumbai
Pirojsha Godrej Foundation , Mumbai vs Assessee on 10 December, 2007
ITA No. 1976/Mum/08 Assessment year 2001-02 Page 1 of 12 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI C BENCH, MUMBAI Bef ore Shri D K Agarwal (Judicial Member), and Shri Pramod Kumar (Accountant Member).
ITA No. 1976/Mum/08
Assessment year 2001-02 Pirojsha Godrej Foundation ...................Appellant Godrej Bhawan 4 A, Homi Street, Mumbai 400001 ( PAN : AAATS1101Q ) Vs. Assistant Director of Income Tax (Exemptions)
- Circle II (1) Mumbai ............. Respondent Appellant by : Shri P J Pardiwala Respondent by : Shri K K Mahajan O R D E R Per Pramod Kumar:
1. This is an appeal filed by the assessee and is directed against the order dated 10 th December 2007 passed by the learned Commissioner (Appeals), in the matter of assessment under section 143(3) r.w.s. 147 of the Income Tax Act, 1961, for the assessment year 2001-02.
2. In the first two grounds of appeal, both of which deal with the validity ITA No. 1976/Mum/08 Assessment year 2001-02 Page 2 of 12 of reopening the assessment, the assessee has raised the following grievances:
1. On the f acts and in the circumstances of the case, the learned CIT(A) was not justified in upholding the view of the Assessing Officer in respect of the validity of jurisdiction assumed under section 147 of the Income Tax Act.
2. On the f acts and in the circumstances of the case, the learned CIT(Appeals) erred in confirming and the Assessing Officer erred in law and on f acts in resorting to section 147 of the Income Tax Act without having valid reasons to believe that income has escaped assessment.
3. The relevant material facts are as follows. The assessee is a charitable trust and is duly granted registration by the Commissioner of Income Tax, under Section 12 A of Income Tax Act, and is also notified, for the relevant period, under section 10(23C)(iv) of the Act. On 29 th October 2001, the assessee filed its income tax return for the relevant assessment year, and in view of exemption available to the assessee under section 10(23C), declared nil taxable income. This income tax return was processed under section 143(1)(a). However, on 26 th May 2004, the assessee was served a notice under Section 148 and income of the assessee was proposed to be reassessed. The reasons for reopening the assessment were stated to be as follows:
"On verification of the accounts filed alongwith the return of income f or the assessment year 2001-02, it is seen that the auditors have pointed out that investment of Rs 1,02,00,000 which was to be made in 11.5% GOI Loan 2015 was not effected and the certificates regarding investments were not delivered to ITA No. 1976/Mum/08 Assessment year 2001-02 Page 3 of 12 the assessee trust. It is further verified from the accounts f or the AY 2002-03 which shows that the assessee has claimed the amount received of Rs 10,00,000 on account of investments made in 11.5% GOI Loan under the head 'advances' and has also claimed loss on investments made in 11.5% in the income and expenditure account. The assessee has theref ore not confirmed to the prescribed pattern of investment as per section 11(5) r.w.s. 13(1)(d). The income of Rs 1,02,00,000 is theref ore to be included in the total income and shall have to be taxed at maximum marginal rate. Theref ore, there is reason to believe that income of Rs 1,02,00,000 has escaped assessment."
4. The notice under section 148 was challenged, before the Hon'ble Bombay High Court, in a writ petition filed by the assessee. Their Lordships noted that the Assessing Officer has already served the reasons of reopening to the assessee, and that in view of Hon'ble Supreme Court judgment in the case of GKN Driveshafts (India) Ltd Vs Income Tax Officer (259 ITR 19), the Assessing Officer is required to deal with assessee's objections, if any, to the notice under section 148. Their Lordships then took note of the assessee's stand to the effect that the objections fill be filed within two weeks and the stand of the Assessing Officer to the effect the objections so raised by the assessee will be disposed of, as expeditiously as possible, by way of a speaking order before proceeding with the reassessment. It was in these terms that the rule was made absolute and the writ petition was disposed of. The assessee accordingly filed the objections vide letter dated 14 th February 2005 which were rejected by the Assessing Officer on 17 t h January 2006. Aggrieved, inter alia, by Assessing Officer's reopening of the assessment, assessee carried the matter in appeal before the CIT(A) but without any success. The ITA No. 1976/Mum/08 Assessment year 2001-02 Page 4 of 12 CIT(A) confirmed the action of the Assessing Officer and observed as follows :-
6. I have carefully considered the submissions of the appellant and gone through the material brought on record, the f acts and also the order of the Assessing Officer. The contentions made in the above submissions in respect of initiation of proceedings under section 148 of the Income Tax Act are f ound to be mere reiteration of the submissions bef ore the Assessing Officer. I also find that the Assessing Officer, at page 2 of the assessment order, has incorporated a speaking order under section 148 pursuant to Hon'ble Bombay High Court's guidelines in their order on writ petition. The Assessing Officer, in clauses 1 to 4 of the order under section 148, has very clearly and specifically dealt with the contentions and objections raised by the appellant with respect to initiation of proceedings under section 148 and the conditions and circumstances under which the same were initiated. I find that the Assessing Officer was having a valid reason to believe that the appellant's income chargeable to tax has escaped assessment. The reason was also f ound recorded on 18.5.2004 prior to the issue of notice under section 148 on the same date.
On asking f or the reasons of reopening by the appellant, the Assessing Officer, vide letter dated 10 th June 2004, had supplied the same to the appellant. Subsequently also the Assessing Officer has shown the reasons recorded in their order sheet to the authorized representative of the appellant on 13.6.2006. Thus the appellant's claim that the Assessing Officer was not having any reasons f or reopening the assessment under section 147 is not f ound to be correct. Further, it is an undisputed f act that the reassessment proceedings were initiated within 4 years from the end of the assessment year. Theref ore, the only condition to be fulfilled f or taking action under section 147 of the Income Tax Act is that there has to be reason to believe and the same is f ound to have been recorded by the Assessing Officer, and also supplied to the appellant. On going through the reasons recorded by the Assessing Officer, I find the same to be a valid reason f or initiating proceedings under section 147 of the Income tax Act. Further the appellant has not disputed the service of notice under section 148 validly and duly issued by the Assessing Officer. Moreover, the existence of a valid reason f or issuing notice under section 148 is f ound to be admitted by the Hon'ble Bombay High Court as no comments against the appellant's objection of non existence of any valid reason has been made. The Hon'ble High Court in their order against the writ petition moved by the appellant against issuing of notice ITA No. 1976/Mum/08 Assessment year 2001-02 Page 5 of 12 under section 148 of the Income Tax Act has merely given the guidelines to the f ollowed on the basis of Apex Court's observations in the case of GKN Driveshafts India Ltd 259 ITR 19. The Assessing Officer is f ound having f ollowed the guidelines of Hon'ble High Court and passed a speaking order under section 148 of the Income Tax Act which f orms part of the body of assessment order at page 2 and 3. Theref ore, I donot find any merit in the contentions raised by the appellant. The f act that the appellant's claim of having invested Rs 1,02,00,000 in 11.5% GoI Bonds, 2015 could neither be effected nor the appellant could obtain the certificates, which were also reported by the auditors of the appellant, are certainly sufficient and valid reasons available bef ore the Assessing Officer f or initiating proceedings under section 147 and issuing notice under section 148 of the Income tax Act. The Assessing Officer also having considered the objections raised by the appellant and passed a speaking order under section 148, bef ore passing the assessment, are also f acts not disputed by the appellant. The service of notice on the appellant is also not disputed. Thus the action of the Assessing Officer in initiating proceedings under section 147 by duly recording the reasons and issuing and serving the notice under section 148 and also passing a speaking order under section 148, are the procedures laid down in terms of guidelines issued by the Hon'ble Apex Court in the case of GKN Driveshafts Ltd., and also by the Hon'ble Bombay High Court. Theref ore, I donot find any infirmity and illegality both in initiation of proceedings under section 147 and issuing notice under section 148 of the Income tax Act, by the Assessing Officer. Accordingly, these two grounds (against reassessment proceedings) are decided against the appellant.
5. The assessee is also not satisfied with the stand so taken by the CIT(A) and is in second appeal before us.
6. We have heard the rival contentions at length, perused the material on record and duly considered factual matrix of the case as also the applicable legal position.
7. A plain reading of the reasons recorded by the Assessing Officer ITA No. 1976/Mum/08 Assessment year 2001-02 Page 6 of 12 would indicate that the Assessing Officer was of the view that the amount of Rs 1,02,00,000, which according to the Assessing Officer, was invested in violation of Section 11(5) r.w.s. 13(1)(d), was to be included in assessee's total income and it has escaped assessment. This understanding of the Assessing Officer, however, is clearly contrary to the undisputed legal position. It is so for the reason that while the assessee was notified for exemption under Section 10(23C) for the assessment years 1999-00 to 2001-02, subject to, inter alia, making investments in the manner specified in Section 11(5), and the assessee was indeed to lose exemption under Section 10(23C) upon not adhering to this condition of notification, non availability of the said exemption was, by no stretch of logic, result in the amount so invested being brought to tax in the hands of the assessee. There is no cause and effect relationship between non adherence to section 11(5) investment requirements, and the amount so invested, otherwise than under the mode and manner specified under section 11(5), being brought to tax in the hands of the assessee. There is no way that this amount can be brought to tax in the hands of the assessee. Not only that it cannot be taxed, this non eligible investment, even if that be so, does not even disturb the exemption available to the assessee , and there is nothing in the reasons recorded by the Assessing Officer that the benefit of exemption under section 11 will be less than section 10(23C). Assuming that there is a violation of this condition, all that happens is that the assessee loses exemption under section 10(23C) ITA No. 1976/Mum/08 Assessment year 2001-02 Page 7 of 12 in respect of its income, but that does not disturb its eligibility to exemption under section 11. In the impugned assessment order itself, the Assessing Officer has granted exemption under section 11, and the total income is computed at Rs 9,23,208 as against the alleged escapement of income of Rs 1,02,00,000 in the reasons recorded in the reasons recorded for reopening of assessment. It is thus clear that reasons for reopening the assessment have been recorded without application of mind and without considering the applicable legal position, as expected of an Assessing Officer while exercising his powers under section 147.
8. Hon'ble Bombay High Court, in the case of Hindustan Lever Ltd vs R B Wadkar ( 268 ITR 332), has, inter alia, observed that "..........It is needless to mention that the reasons are required to be read as they were recorded by the AO. No substitution or deletion is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn on the basis of reasons not recorded. It is f or 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 f or reasons. Reasons provide link between conclusion and the evidence....". Hon'ble Supreme Court, in the case of CIT Vs Kelvinator of India Ltd (320 ITR 561), has observed that "reasons must have a live link with f ormation of belief". Hon'ble Bombay High ITA No. 1976/Mum/08 Assessment year 2001-02 Page 8 of 12 Court, in the case of Prashat S Joshi Vs Income Tax Officer (unreported judgment on writ petition no. 2287 of 2009; judgment dated 22th February 2010; source www.itatonline.org), "the Assessing Officer must have reasons to believe that such is the case (i.e. any income chargeable to tax has escaped assessment for a particular year) bef ore he proceeds to issue notice under section 147" and that "the reasons which are recorded by the Assessing Officer are the only reasons which can be considered when f ormation of belief is impugned". In this light when we examine the reasons recorded for reopening the assessment, we find that there was no material before the Assessing Officer that any income, leave aside the income of Rs 1,02,00,000, has escaped assessment. As we have pointed out earlier, even if the investment of Rs 1,02,00,000 could indeed be said to be in violation of Section 11(5), that fact per se would not lead to the conclusion that the said amount was includible in assessee's income, or even that the exemption available to the assessee under section 11 will be less than the exemption available to the assessee under section 10(23C). No reasonable person, with basic understanding of the scheme of income tax law, can come to the conclusion that the Assessing Officer has arrived at. There is no cause and effect relationship with what the Assessing Officer has noticed in the attachments to the income tax return, and the conclusion that he has arrived at.
ITA No. 1976/Mum/08
Assessment year 2001-02 Page 9 of 12
9. A lot of emphasis has been placed by the authorities below on the fact that since the reassessment is being resorted to within four years of the end of the relevant assessment year, i.e. in the main provision of Section 147 and not the proviso thereto, all that is to be seen is prima facie whether the income has escaped the assessment. Hon'ble jurisdictional High Court, in the case of Prashat S Joshi Vs ITO (supra) had an occasion to deal with this question and also consider the scope of Hon'ble Supreme Court's judgment in the case of ACIT Vs Rajesh Jhaveri Stock Brokers Pvt Ltd (291 ITR 500) in this regard. After elaborately considering Hon'ble Supreme Court in the case of Rajesh Jhaveri (supra), Their Lordships of Hon'ble Bombay High Court have observed that " Hon'ble Supreme Court held that so long as the ingredients of Section147 are fulfilled, the Assessing Officer is free to initiate proceedings under section 147, and that the f ailure to take steps under section 143(3) will not render him powerless to initiate reassessment proceedings even when intimation under section 143(1) had been issued". " In other words", according to Hon'ble Bombay High Court, "when an intimation has been issued under section 143(1), the Assessing Officer is competent to initiate reassessment proceedings provided that the requirements of section 147 are fulfilled". It is thus concluded that " In such a case [i.e. when the reopening is within four years and the income tax return is processed under section 143(1)] as well, the touchstone to be applied is as to whether there was reason to believe that income had escaped ITA No. 1976/Mum/08 Assessment year 2001-02 Page 10 of 12 assessment". It is thus clear that even when the original assessment is under section 143(1) and even when reassessment proceedings are initiated within a period of four years, it is still necessary that there should be reasons to believe that income had escaped assessment and such reasons are subject to judicial scrutiny. No doubt that at the stage of initiating reassessment proceedings, it is not necessary to establish that there has been an escapement of income, but essentially there have to be valid reasons to believe that income has escaped assessment and these reasons, on standalone basis, must be considered appropriate for arriving at the conclusion arrived at by the Officer recording the reasons.
10. In view of the above discussions, and bearing in mind entirety of the case, we are of the considered view that the very initiation of reassessment proceedings, on the facts of this case and on the basis of reasons recorded by the Assessing Officer, is bad in law. We, therefore, quash the reassessment proceedings. As we have quashed the reassessment proceeding itself, we see no need to deal with ground no. 3 raised by the assessee to the effect that "on the facts and in the circumstances of the case, the learned CIT(A) erred in confirming and the Assessing Officer erred in holding that the provisions of Section 11(5) r.w.s. 13(1)(d) of the Act were violated in respect of investment made in 11.5% GoI Bonds, 2005". That grievance is rendered academic and does not call for any adjudication at this stage.
ITA No. 1976/Mum/08
Assessment year 2001-02 Page 11 of 12
11. In the result, the appeal is allowed in the terms indicated above. Pronounced in the open court today on 31 ST day of May, 2010.
Sd/xx Sd/xx (D K Agarwal) (Pramod Kumar) Judicial Member Accountant Member Mumbai; 31 st day of May, 2010. Copy forwarded to : 1. The appellant 2. The respondent 3. CIT , Mumbai 4. Commissioner (Appeals) , Mumbai
5. Departmental Representative, C bench, ITAT, Mumbai
6. Guard File True Copy By Order Assistant Registrar Income Tax Appellate Tribunal Mumbai benches, Mumbai ITA No. 1976/Mum/08 Assessment year 2001-02 Page 12 of 12 Date Initial
1. Draft dictated on 28.5.2010 Sr.PS
2. Draft placed before author 28.5.2010 Sr.PS
3. Draft proposed & placed before 28.5.2010 JM/AM the second member
4. Draft discussed/approved by 28.5.2010 JM/AM Second Member
5. Approved Draft comes to the 28.5.2010 Sr.PS/PS Sr.PS/PS
6. Date of pronouncement 31.5.2010 Sr.PS
7. File sent to the Bench Clerk 31.5.2010 Sr.PS
8. Date on which file goes to the Head Clerk
9. Date of dispatch of Order