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Facts
The assessee, a charitable trust, filed its return for AY 2014-15 declaring nil income. Reassessment proceedings were initiated after more than four years, alleging that car hire charges paid to Shri Deepak More were disallowed in AY 2015-16 as unjustified and a violation of fiduciary relation. The AO made additions of Rs. 22,78,518/-.
Held
The Tribunal held that the reassessment proceedings were initiated beyond four years and were based on a change of opinion, not on any failure of the assessee to disclose material facts. The specific query regarding car hire charges was raised and explained during the original assessment, and no addition was made then.
Key Issues
Whether reassessment proceedings initiated after four years, based on a change of opinion and without failure to disclose material facts by the assessee, are valid?
Sections Cited
147, 144B, 13(1)(c), 13(3)(cc), 11, 143(3), 148, 149, 12AA
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “K(SMC
order : 10.02.2025 O R D E R [ Per Rahul Chaudhary, Judicial Member:
1. 1. The present appeal preferred by the Assessee is directed against the order, dated 29/04/2024, passed by the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘the CIT(A)’] under Section 250 of the Income Tax Act, 1961 [hereinafter referred to as ‘ the Act’] whereby the Ld. CIT(A) had partly allowed the appeal against the Assessment Order, dated 21/03/2022, passed under Section 147 read with Section 144B of the Act for the Assessment Year 2014-2015.
2. The Assessee has raised following grounds of appeal :
“1. On the facts and circumstances prevailing in the case and as per provisions and scheme of the Act it be held that the addition of Rs.22,78,518/- made by Ld. AO and Rs. 9,60,000/- Assessment Year 2014-2015 that upheld by Ld. CIT(A) is not in accordance to the facts and provisions of the Act. Accordingly, the additions so made and that upheld be kindly deleted and appellant be granted just and proper relief in this respect.
2. Without prejudice to other grounds, on the facts and circumstances prevailing in the case and as per provisions and scheme of the Act it be held that the addition of Rs. 4,80,000/- (Car Hiring Charges) so made by Ld. AO and that upheld by Ld. CIT(A) by invoking provisions of section 13(1)(c) of the Act is incorrect and not in accordance with the provisions of section 13 of the Act. Accordingly, the additions so made and that upheld be kindly deleted and Appellant be granted just and proper relief in this respect.
Without prejudice to other grounds, on the facts and circumstances prevailing in the case and as per provisions and scheme of the Act it be held that the addition of Rs. 17,98,518/- made by Ld. AO under Section 11 of the Act and Ld. CIT(A) has fully allowed the same above thing (Section 11) in his assessment order passed u/s 250. But Ld. CIT(A) has allowed amount of Rs. 13,18,518/- instead of Rs. 17,98,518/- in his assessment order and difference of Rs. 4,80,000/- shown as disallowance/additions. It may be a error in the assessment order passed u/s 250 by Ld. CIT(A). Accordingly, the additions so made and that upheld be kindly deleted and appellant be granted just and proper relief in this respect.
Additional Ground of Appeal
1. Without prejudice to other grounds, and on the facts and circumstances prevailing in the case and as per provisions and scheme of the Income-tax Act, 1961 ('the Act') it be held that the re- assessment proceedings initiated beyond 4 years is invalid and void- ab-initio, since there was no failure on the part of Appellant as required in the 1st proviso to section 147 of the Act. Accordingly, the re-assessment proceeding so initiated be kindly quashed and appropriate relief be granted in this regard.
2. Without prejudice to other grounds, and on the facts and circumstances prevailing in the case and as per provisions and scheme of the Income-tax Act, 1961 ('the Act') it be held that the re- assessment proceeding completed are invalid, since Ld. AO failed to provide copy of 'reasons to believe' during the 2 Assessment Year 2014-2015 course of re- assessment proceedings. Accordingly, the re- assessment proceeding so completed be kindly quashed and appropriate relief be granted in this regard.
3. Without prejudice to other grounds, and on the facts and circumstances prevailing in the case and as per provisions and scheme of the Income-tax Act, 1961 ('the Act') it be held that the re- assessment proceeding completed are invalid, since the same has been completed without granting an opportunity of being heard through Virtual Conference, leading to gross violation of principle of natural justice. Accordingly, the re- assessment proceeding so completed be kindly quashed and appropriate relief be granted in this regard.
3. The relevant facts are in brief that in the present case the reassessment proceedings were initiated and assessment was framed under Section 147 read with Section 144B of the Act vide Assessment Order, dated 21/03/2023. The Assessing Officer had assessed the income of the Assessee at INR. 22,78,518/- after (a) making addition of INR.4,80,000/- by disallowing deduction for payment of car hire charged made to Shri Deepak More and (b) making addition of INR.17,98,518/- by invoking contained in Section 13(1)(c)(ii) read with Section 13(3)(cc) of the Act and withdrawing the benefit exemption under section 11 of the Act in respect of the aforesaid surplus amount of INR.17,98,518/-.
4. Being aggrieved, the Appellant preferred appeal before the CIT(A) against the above Assessment Order, dated 21/03/2022, challenging the validity of the reassessment proceedings as well as the additions/disallowances made by the Assessing Officer. The CIT(A) upheld the validity of the reassessment proceedings but granted partial relief to the Appellant by holding that denial of exemption under Section 11 should be restricted to the disallowance made under Section 13(1)(c)/(d) of the Act. Thus, the CIT(A) by deleted addition/disallowance of INR.9,60,000/- [INR.4,80,000/- plus INR.4,80,000/-] and deleted the addition of INR.13,18,518/-.
3 Assessment Year 2014-2015
Not being satisfied with the above relief granted by the CIT(A) the Appellant has preferred the present appeal before the Tribunal on the grounds reproduced in paragraph 2 above.
When the appeal was taken up for hearing the Learned Authorized Representative for the Appellant pressed into service Additional Ground No.1 raised in the present appeal challenging the validity of reassessment proceedings. The Learned Authorized Representative for the Appellant submitted that for the Assessment Year 2014-15 regular assessment under Section 143(3) of the Act was framed vide Assessment Order, dated 04/07/2016. It was submitted that during the original assessment proceedings specific query in relation to the car hire expenses was raised by the Assessing Officer and in response to the same, the Appellant had furnished explanation vide letter, dated 30/05/2016. The Appellant had also placed before the Assessing Officer the copy of relevant Agreement to support the payments made for car hiring charges. After taking all the facts into consideration the Assessing Officer had accepted the explanation/submission of the Appellant and not made any addition while passing the Assessment Order, dated 04/07/2016 under Section 143(3) of the Act. Subsequently, after the expiry of almost five years, the reassessment proceedings were initiated in the case of the Appellant on the basis of assessment framed on the Appellant for the Assessment Year 2015-2016 vide Assessment Order dated 30/12/2017. It was vehemently contended that the reassessment proceedings were initiated in the case of Appellant only on account of change of opinion and in absence of any tangible material to form the belief that income had escaped assessment. It was further submitted that there was no failure on the part of the Appellant to disclose facts relevant for framing assessment. The Assessing Officer has failed to specify any default committed by the Appellant in disclosing true and full facts during the assessment proceedings.
4 Assessment Year 2014-2015 Reliance in this regard was placed on the judgment of the Hon’ble Bombay High Court in the case of IPCA Laboratories Ltd. Vs. DCIT [2002] 124 Taxman 556 (Bombay) as well as decision of the Tribunal in Appellant’s own case for the Assessment Year 2013-2014 [ITA No.4010/Mum/2024, dated 28/11/2024].
Per contra the Learned Departmental Representative vehemently submitted that the Assessing Officer did not form any opinion on the issue under consideration and therefore, the question of change of opinion did not arise. Learned Departmental Representative further submitted that the order of the regular Assessment under Section 143(3) was completely silent on the aspect of car hire charges. Further, the reasonableness of car hire expenses was also not examined during the original assessment proceedings. Thus, the Learned Departmental Representative supported the reasons recorded for reopening the assessment and the validity of the reassessment proceedings. It was further submitted that the Assessment Order, dated 30/12/2017, for the Assessment Year 2015-2016 constituted sufficient tangible material for initiation reassessment proceedings.
In rejoinder the Learned Authorized Representative for the Appellant submitted that despite repeated requests copy of reasons recorded for reopening assessment were never furnished to the Appellant. Thus, denying to the Appellant the opportunity of filing objection against the initiation of reassessment proceedings.
We have given thoughtful consideration to the rival submissions and perused on the record.
In our view, the Additional Ground No. 1 & 2 raised by the Appellant are legal grounds which can be adjudicated after taking into consideration material already on record without inquiring into new 5 Assessment Year 2014-2015 facts. Thus, in view of the judgment of the Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd. vs. CIT: 229 ITR 383, the Additional Ground No. 1 & 2 raised by the Appellant are admitted. Since the Additional Ground No. 1 travels to the root of the matter, we proceed to first adjudicate the same. 10. Accordingly, we proceed to examine the reasons recorded for reopening of Assessment for the Assessment Year 2014-2015 [as reproduced in Assessment Order, dated 21/03/2022 at page 1 & 2 of 10] which read as under: “The assessee is charitable trust engaged in educational activities and running high school in the name of S M Public High School’. The assessee trust is registered under Bombay Public Trust Act, 1950 and also under the Societies Registration Act 1860. Also, the assessee trust has also been granted registration u/s.12AA of the Income Tax Act 1961 vide order dated 29.08.2006.
For A.Y. 2014-15, the assessee trust has filed its return of income on 30/09/2014, declaring a total income at Rs. Nil, after claiming deduction u/s.11 of the I.T. Act. The case was selected for Scrutiny as per norms of CASS. The assessment was completed under Section 143(3) of the I.T, Act, 1961 on 04.07.2016 with assesseed income at Rs.Nil. 3. It is also seen that the return of income filed by the assessee trust for A.Y.2015-16 was selected for scrutiny and assessment was finalized on 30/12/2017. During the scrutiny proceedings, it was noticed that payment made to Shri Deepak More towards car hire charges were disallowed being unjustified and unwarranted as car was never given on rent to the assessee trust and in violation of the fiduciary relation between trust and trustee in guise of leasing of car. Thus, in view of facts of the case for the Assessment Year 2015-16 and provisions of section 13(1)(c) of the Act, car hire charges of Rs.4,80,000/- paid to Shri Deepak More by the assessee trust during the Assessment Year 2014-15 is also violation of fiduciary relation between trust and trustee and thereby reduced its taxable income. Therefore, the income chargeable to tax for the Assessment Year 2014-15 has been under assesseed.” (Emphasis Supplied) 11. Thus, the only reason stated in the reasons recorded for re-opening assessment for the Assessment Year 2014-2015 is that for the Assessment Year 2015-16 assessment was framed on the Appellant 6 Assessment Year 2014-2015 vide order, dated 30/12/2017, and payments made towards car hire charges were disallowed as unjustified/unwarranted and in violation of fiduciary relationship between the trust and trustee. There is no averment or allegation to the effect that the Appellant had failed to disclose truly and full any material fact relevant for framing assessment for the Assessment Year 2014-2015. It was contended on behalf of the Appellant that in absence of the aforesaid allegation/averment, the reassessment proceedings are bad in law being in violation of the provisions contained in proviso to Section 147 of the Act. Reliance in this regard was placed on the judgment of the Hon’ble Bombay High Court in the case of IPCA Laboratories Ltd. (supra) relevant extract of which reads as under:
“3. Mr. Trivedi, the learned senior counsel appearing on behalf of the assessee, submitted that the original assessment was made on 31-3-1995. It was for the assessment year 1992-93. It was made under section 143(3). He contended that under the proviso to section 147 of the Act, no action can be taken for reopening such assessment after the expiry of four years from the end of the assessment year 1992-93 on 31-3-1997 unless the respondent No. 1 has reason to believe that the assessee’s income has escaped assessment by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. It was urged that, in the present case, an affidavit-in-reply has been filed on behalf of the department which clearly indicates that the reopening of the assessment by the department was based on change of opinion. It was, therefore, contended that the reopening of the assessment was bad in law as the pre- condition for issue of a valid notice and for valid initiation of reassessment proceedings had not been fulfilled.
In reply, it was urged on behalf of the department that under Explanation 2 to section 147, it is clearly laid down that for the purposes of section 147, certain cases of escapement of income as mentioned in the Explanation shall be deemed to be cases where income chargeable to tax has escaped assessment. In this connection, reliance was placed by the department on clause (c) of Explanation 2 to section 147. It was argued that, in the present case, although an assessment was made under section 143(3) earlier, the income has been 7 Assessment Year 2014-2015 made the subject of excessive relief and, therefore, the deeming provision of Explanation 2 would apply. It was also urged that under section 149 assessment can be reopened even after four years if the income escaping assessment is of a specified amount. In this connection, reliance was placed on section 149(1)(a)(ii) of the Act. Findings : 5. We find merit in this petition. We are confining this judgment to the facts of the case. In the present case, the period of four years came to an end on 31-3-1997. In the present case, an affidavit has been filed on behalf of the department. In the present case, it is the case of the department in the affidavit that the predecessor of the respondent No. 1 had passed an order of assessment under section 143(3) on 31-3-1995, computing the total income of the assessee at Rs. 2.86 crores (approx.). That, subsequently, another predecessor in office of the respondent No. 1 formed an opinion that the income chargeable to tax had escaped assessment. This was on 16-3- 1999. We have gone through the reasons. The position of law after 1-4-1989, is not in dispute. By virtue of a proviso to section 147, no action can be taken for reopening after four years unless the Assessing Officer has reason to believe that income has escaped assessment by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. In the present case, the affidavit and the reasons disclosed indicate that the department has purported to reopen the assessment only on the basis of change of opinion. This position is, in fact, conceded vide para 3 of the affidavit-in-reply dated 13-3- 2001. The reasons also do not spell out failure on the part of the assessee to disclose fully and truly all material facts. In the circumstances, the deeming provision in Explanation 2 to section 147 has no application to the facts of the present case. Section 149 only prescribes the time-limit for giving notice. We are required in this case to look into the facts in order to ascertain whether the pre-condition for the issue of a valid notice under section 148 has been fulfilled or not. We are satisfied on the facts of the present case that reopening is sought on the basis of change of opinion. Further, even in the reasons, there is nothing to indicate that reopening is sought on the ground of the failure on the part of the petitioner to disclose fully and truly all material facts.
Conclusion: 6. In the circumstances, the impugned notice is set aside. Both 8 Assessment Year 2014-2015 the above writ petitions are made absolute in terms of prayer (b) with no order as to costs.” (Emphasis Supplied) 12. In our view, the above judgment is applicable to the facts of the present case. In the present case also the reasons recorded do not spell out failure on the part of the Appellant to disclose fully and truly any material facts. Further, we find merit in the contention advanced on behalf of the Appellant that specific query in relation to vehicle hiring charges was raised during the relevant assessment proceedings and in response to the same the Appellant had made disclosure of primary facts and furnished supporting documents during the regular scrutiny assessment proceedings. The Appellant had filed letter, dated 30/05/2016 giving justification regarding car hiring charges of INR.4,80,000/- paid to Shri Deepak More for hiring of three vehicles. The Appellant had also filed Vehicle Hiring Agreement [placed at page 16 to 18 of paper book]. It is admitted position that re-assessment proceedings have been initiated in the present case after the expiry of 4 years from the end of the relevant assessment year. As per Proviso to Section 147 of the Act, no action can be taken for reopening assessment after the expiry of four years from the end of the relevant assessment year unless the Assessing Officer has reason to believe that income has escaped assessment by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. Since in the reasons recorded for reopening assessment for the Assessment Year 2014-2015 there is nothing to indicate that reopening is sought on the ground of the failure on the part of the Appellant to disclose fully and truly material facts necessary for framing assessment, the initiation of re-assessment proceedings under Section 147 of the Act cannot be sustained and is, therefore, held to be bad in law. Accordingly, Assessment Order, dated 21/03/2022, passed under Section 147 read with Section 144B of the Act is quashed and consequently additions/disallowances made in the hands of the 9 Assessment Year 2014-2015 Appellant stand deleted. Thus, Additional Ground No. 1 raised by the Appellant is allowed while all the other grounds raised by the Appellant are dismissed as having been rendered infructuous.
In result, the present appeal preferred by the Assessee is allowed.