AREEZ KHAMBATTA BENEVOLENT TRUST vs. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 1 EXEMPTION AHMEDABAD

Facts

The petitioner, Areez Khambatta Benevolent Trust, a public charitable trust, is challenging a notice dated May 17, 2018, issued by the Deputy Commissioner of Income Tax under Section 148 of the Income Tax Act, 1961, to reopen its assessment for Assessment Year 2016-17. The trust had filed its return for AY 2016-17 on May 10, 2016, and no scrutiny assessment was conducted for that year. The reasons for reopening, furnished on June 12, 2018, alleged a violation of Section 11(2) read with Section 11(3)(d) of the Act due to a payment made to CIMS Hospital Pvt. Ltd. for a Linac machine. The trust objected to the reopening, which were rejected by the Assessing Officer on October 8, 2018, leading to the present petition.

Held

The Tribunal held that the impugned notice dated May 17, 2018, issued under Section 148 of the Income Tax Act, 1961, seeking to reopen the assessment for AY 2016-17, is invalid and cannot be sustained. The reasoning was that the Assessing Officer had consciously decided that there was a violation of Section 11(3)(d) of the Act. However, the trust's argument that CIMS Hospital Pvt. Ltd. does not fall under the categories specified in Section 11(3)(d) was accepted. The Tribunal found that the Assessing Officer could not have formed a belief that income chargeable to tax had escaped assessment solely on the basis of the recorded reasons, as the applicability of Section 11(3)(d) was not established. This view was fortified by the Gujarat High Court's decision in *Dhruv Parulbhai Patel vs. Assistant Commissioner of Income Tax*, which emphasized that reopening notices must be supported by the recorded reasons and not by extraneous grounds. Therefore, the petition was allowed, and the notice was quashed and set aside.

Key Issues

1. Whether the notice issued under Section 148 of the Income Tax Act, 1961, for reopening the assessment for AY 2016-17 is valid, based on the reasons recorded by the Assessing Officer. Assessee's contentions: The assessee argued that the reasons for reopening lacked validity because Section 11(3)(d) of the Act was incorrectly invoked. It was contended that CIMS Hospital Pvt. Ltd. is neither registered under Section 12AA nor falls under the specified sub-clauses of Section 10(23C). Therefore, the alleged violation of Section 11(3)(d) and consequently Section 11(2) of the Act is unfounded. Reliance was placed on *Dhruv Parulbhai Patel vs. Assistant Commissioner of Income Tax* (2014) for the principle that reopening must be sustained only on the recorded reasons. Revenue's contentions: The revenue contended that the Assessing Officer had ample material to form a belief that income chargeable to tax had escaped assessment, not solely based on Section 11(3)(d) but also on violations of Sections 11 to 13 of the Act. It was argued that the surplus was not used for charitable purposes and was utilized for private purposes, making the trust ineligible for exemptions under Sections 11 and 10 of the Act.