Loading judgment…
Facts
The assessee, a public educational charitable institution, challenged the order of the NFAC which denied exemption under Section 11 and 12 of the IT Act for AY 2016-17. The assessment was reopened under Section 147, but the assessee contended it was based on a change of opinion and procedural defects.
Held
The Tribunal held that the assessment order passed under Section 147 was bad in law because the Assessing Officer failed to dispose of the objections filed by the assessee to the reasons for reopening the assessment. Relying on High Court judgments, the Tribunal stated that failure to dispose of objections renders the assessment order a nullity.
Key Issues
Whether the assessment order passed under Section 147 is bad in law due to the Assessing Officer's failure to dispose of the assessee's objections to the reasons for reopening. Whether the reopening was based on a mere change of opinion or valid grounds.
Sections Cited
147, 148, 149, 151, 143(2), 142(1), 144B, 11, 12, 13(1)(c), 13(3)(b), 234B, 234C, 250
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘A’ BENCH : BANGALORE
Before: SHRI PRASHANT MAHARISHI, VICE – & SHRI SOUNDARARAJAN K.
ORDER PER SOUNDARARAJAN K., JUDICIAL MEMBER
This is an appeal filed by the assessee challenging the order of the NFAC, Delhi dated 30/09/2023 in respect of the A.Y. 2016-17 and raised the following grounds: “1. The order of the learned Commissioner of Income Tax (Appeals) Income Tax Department, National Faceless Appeals Centre (NFAC) passed under section 250 of the Income Tax Act, 1961 (hereinafter referred to as "Act") dated 30.09.2023 for Assessment Year 2016-17 in so far as it is against the Appellant is opposed to law, weight of evidence, natural justice, probabilities, facts and circumstances of the Appellant's case.
2. The Appellant denies itself liable to be assessed on a total income of Rs. 1,77,90,415/- as against the returned income of Rs.Nil under the facts and circumstances of the case.
3. The learned Commissioner of Income Tax (Appeals) is not justified in denying the appellant exemption under section 11 of the Act on the facts and circumstances of the case.
The assessment order passed under the erstwhile provisions of section 147 of the Act is bad in law as the provisions of sections 147, 148, 149 and 151 before substitution by the Finance Act, 2021 do not exist after 01.04.2021 and consequently the assessment order passed under nonexistent provisions is bad in law on the facts and circumstances of the case.
5. The learned Commissioner of Income Tax (Appeals) failed to appreciate that the assessment order passed under section 147 r.w.s 144B of the Act is bad in law as the entire re-assessment proceedings are on account of a mere change of opinion which is impermissible in law on the facts and circumstances of the case.
6. The authorities below failed to appreciate that the notice issued under section 148 of the Act has several material defects in as much as the notice does not state whether the learned Assessing Officer proposes to assess or reassess the income of the appellant and consequently the proceedings pursuant to such defective notice is bad in law on the facts and circumstances of the case.
7. The authorities below failed to appreciate that the failure to furnish the appellant with a copy of the approval under section 151 of the Act leads to an inference that no such approval has been obtained and consequently the entire proceedings are without jurisdiction on the facts and circumstances of the case.
The authorities below failed to appreciate that notice issued under section 143(2) of the Act by the Income Tax Officer (Exemptions), Ward — 1, Bengaluru and subsequent notices issued under section 142(1) of the Act by the National Faceless Assessment Centre are without jurisdiction and contrary to the provisions of section 144B(1)(i) of the Act and further there is no communication as envisaged in section 144B(1)(iii) of the Act to the appellant and there is a violation of the procedure 144B of the Act on the facts and circumstances of the case.
9. The authorities below failed to appreciate that the notice issued under section 143(2) of the Act is without jurisdiction and consequently the entire proceedings are void ab initio on the facts and circumstances of the case.
10. The learned Commissioner of Income Tax (Appeals) failed to appreciate that the provisions of section 13(1)(c) r.w.s 13(1)(b) of the Act is not applicable to the appellant and consequently was not justified in upholding the denial of exemption under section 11 of the Act on the facts and circumstances of the case.
The learned Commissioner of Income Tax (Appeals) failed to appreciate that "The Society of Servants of the Holy Spirit" is not a person contemplated in section 13(3)(b) of the Act on the facts and circumstances of the case.
Without prejudice, the learned Commissioner of Income Tax (Appeals) failed to appreciate that the amounts received from The Society of Servants of the Holy Spirit is not a contribution per se but was only a reimbursement of expenses and consequently the provisions of section 13(3)(b) of the Act are not applicable on the facts and circumstances of the case.
Without prejudice, the learned Commissioner of Income Tax (Appeals) failed to appreciate/ examine the actual nature of the transactions between the appellant and The Society of Servants of the Holy Spirit and consequently was not justified in invoking the provisions of section 13(1)(c) r.w.s 13(3)(b) of the Act on the facts and circumstances of the case.
14. Without prejudice, the learned Commissioner of Income Tax (Appeals) is not justified in denying the exemption under section 11 of the Act on the entire income of the appellant instead of restricting the disallowance only the extent of the alleged violation on the facts and circumstances of the case.
15. The appellant denies the liability to pay interest under sections 234B and 234C of the Act, in view of the fact that there is no liability to additional tax as determined by the assessing officer. Without prejudice, the rate, period and on what quantum the interest has been levied are not in accordance with law and are not discernible from the order and hence deserves to be cancelled on the facts and circumstances of the case.
16. The appellant craves leave of this Hon'ble Tribunal, to add, alter, delete, amend, or substitute any or all of the above grounds of appeal
as may be necessary at the time of hearing.
17. For these and other grounds that may be urged at the time of hearing of appeal, the appellant prays that the appeal may be allowed for the advancement of substantial cause of justice and equity.”
The brief facts of the case are that the assessee is a public educational cum charitable institution registered as a society under the Karnataka Societies Registration Act, 1960 w.e.f. 31/10/2011. The assessee society is having its objects which are all in charitable in nature. The assessee society was originally registered u/s. 12A(a) of the Act on 05/10/2012 and subsequently it was renewed on 16/03/2022 and was assessed as a public educational charitable institution and availed the benefits of section 11 and 12 of the IT Act on the income received by it. Till the assessment year 2016, the assessee had availed all the benefits granted u/s. 11 and 12 of the Act.
In respect of the A.Y. 2016-17, the assessee filed their return of income on 04/10/2016 declaring a gross receipts of Rs. 4,18,60,942/- and Nil income after claiming deduction by way of application of the income u/s. 11(1) of the Act. The assessee also filed form 10 for accumulating the income as per section 11(2) of the Act and there is no surplus income available and therefore the said benefit was not utilised by the assessee. Thereafter the assessee’s return was processed u/s. 143(1) of the Act and the said return was accepted as such. Subsequently, scrutiny proceeding was initiated and notice u/s. 143(2) of the Act and notice u/s. 142(1) were issued calling for certain details. The assessee also filed the details called for by the AO through e-proceedings. Thereafter the assessment proceedings u/s. 143(3) were completed on 08/12/2018 accepting the income returned by the assessee.
4. The assessment was proposed to be reopened u/s. 148 of the Act and to that effect, a notice u/s. 148 was issued on 31/03/2021. The assessee replied to the said notice on 04/04/2021 and submitted that the reasons for issuing notice u/s. 148 were not communicated to the assessee and sought for the reasons for the reopening of the assessment.
The AO without furnishing the reasons for reopening had issued another notice u/s. 142(1) on 22/04/2021 seeking the assessee to furnish the accounts and documents specified in the said notice. Again the assessee replied to the said notice on 10/05/2021 and informed about non- communication of the reasons for reopening the assessment. The assessee, also requested the AO to treat the original return filed on 04/10/2016 as the return filed in response to notice u/s. 148 of the Act. In the said letter, the assessee again sought for the reasons for reopening the assessment. Subsequently, the assessee also furnished the details on 20/05/2021.
The AO through his notice issued u/s. 143(2) dated 30/06/2021, communicated the reasons for reopening the assessment. In the said notice, the AO also sought for some more details which were sought for in the earlier notices. The assessee filed his submission on 13/07/2021 and informed that all the details called for has already been submitted on 10/05/2021 and 20/05/2021. Thereafter on 08/01/2022, the assessee submitted the objections for the initiation of proceedings u/s. 147 of the Act.
Again the AO issued one more notice on 16/12/2021 calling for some additional information and also sought for the objections about the invoking of provisions u/s. 13(1)(c) of the Act since the assessee had made contribution to another society and also received donation from the said society. The assessee replied to the said notice and informed that the assessee had not received any donation from the Society of Servants of Holy Spirit but it is a reimbursement made by the said society towards their share of the smart class charges paid to Educomp Solutions Ltd. The assessee also filed the details in support of the said claim and submitted that erroneously the said amount was shown as donation or contribution in their books of accounts. The AO issued a show cause notice on 23/03/2022 containing the very same proposals given in the notice dated 16/12/2021. The assessee submitted their objections on 25/03/2022 and also submitted the judgments of the Hon’ble High Courts in support of their contention. The AO not satisfied with the said reply had made the assessment u/s. 147 of the Act on 30/03/2022.
8. As against the said order of the AO, the assessee filed an appeal before the Ld.CIT(A) and submitted that the assessee had not received any donation from the said society and also filed supporting documents to show that the Society of Servants of Holy Spirit had not donated any amount to the assessee society but only shared the smart class charges with the assessee and therefore contended that invoking section 13(1)(c) of the Act would not be correct. The assessee also raised a ground that the reopening is not based on any fresh material and therefore on mere change of opinion, the assessment cannot be reopened u/s. 147 of the Act. The Ld.CIT(A) not accepted the contention of the assessee and observed that the explanation given by the assessee is an afterthought in order to circumvent the provisions of section 13(1)(c) of the Act.
As against the said order, the assessee is in appeal before this Tribunal.
At the time of hearing, the Ld.AR also filed an application to admit the additional grounds and relied on the judgment of the Hon’ble Supreme Court reported in 229 ITR 383 in the case of National Thermal Power Co. Ltd. vs. CIT. The additional grounds are as under: “PRAYER FOR ADMISSION OF ADDITIONAL GROUNDS OF APPEAL
The appellant begs to submit the under mentioned additional grounds of appeal which were not urged specifically in the original grounds of appeal filed before this Hon'ble Tribunal on 28.11.2023. It is humbly prayed Hon'ble Income Tax Appellate Tribunal, that the additional grounds may kindly be admitted and disposed off on merits for the advancement of substantial justice. Reliance is placed on the decision of the Hon'ble Apex Court in the case of National Thermal Power Company Limited Vs. CIT, reported in 229 ITR 383 and also on the ratio of the decision of the Hon'ble High Court of Karnataka in the case of Gundur Thimmappa & Sons Vs CIT, reported in 70 ITR
70. ADDITIONAL GROUNDS OF APPEAL
1. The authorities below failed to appreciate that the assessment order passed by the learned Assessing Officer is further bad in law since the learned Assessing has erred in issuing two separate DIN for the notice under section 147 r.w.s 143(2) of the Act which is not a valid communication as per the Notification No. 19/2019 dated 14.08.2019 issued by CBDT and consequently, entire assessment proceedings is bad in law and requires to be cancelled, on the facts and circumstances of the case.
2. The assessment order passed is bad in law as the learned Assessing Officer failed to dispose of the objections filed by the appellant to the notice issued under section 148 of the Act which is a mandatory requirement before passing the assessment order on the facts and circumstances of the case.
3. The notice issued under section 148 of the Act is bad in law in as much as it does not contain whether the learned Assessing Officer proposes to assess or reassess the income of the appellant and consequently the notice issued under section 148 of the Act is invalid and the entire assessment proceedings is bad in law and void ab initio on the facts and circumstances of the case.
4. The appellant craves leave of this Hon'ble Tribunal, to add, alter, delete, amend or substitute any or all of the above grounds of appeal as may be necessary at the time of hearing.
5. For these and other grounds that may be urged at the time of hearing of appeal, the appellant prays that the appeal may be allowed for the advancement of substantial cause of justice and equity.”
11. In the said additional grounds, the assessee had raised a ground that the AO had issued two separate DIN for the notice issued u/s. 147 r.w.s.
143(2) of the Act which is not a valid communication as per the Circular issued by the CBDT and therefore the entire proceedings are bad in law. Another additional ground raised by the Ld.AR is that the assessment order is bad in law since the AO had not disposed of the objections filed by the assessee to the reasons furnished for reopening the assessment u/s. 148 of the Act.
12. The Ld.AR also relied on the judgment of the Hon’ble Jurisdictional High Court reported in (2023) 152 taxmann.com 559 in the case of Hewlett Packard Financial Services (India) (P.) Ltd. vs. DCIT in which the Hon’ble Jurisdictional High Court had held that the reassessment passed without disposing the objections filed by the assessee to the reasons given for reopening the assessment is bad in law by relying on the Division Bench judgement of the Hon’ble Jurisdictional High Court reported in (2017) 80 taxmann.com 77 in the case of Deepak Extrusions (P.) Ltd. vs. DCIT and another judgment in W.A. No. 919/2019 (T-IT) dated 24/01/2023 in the case of ACIT vs. Mphasis Ltd. The Ld.AR also brought to our notice that the Division Bench judgments are relying on the judgment of the Hon’ble Supreme Court in the case of GKN Driveshafts (India) Ltd. vs. ITO reported in 259 ITR 19 and prayed that the said grounds being a legal ground can be taken on file and decided on merits.
13. The Ld.DR relied on the order of the lower authorities and also submitted that the assessee cannot raise for the first time the additional grounds.
We have heard the arguments of both sides and perused the materials available on record.
Before proceeding the issue on merits, we will first decide whether the additional grounds are to be admitted or not. After going through the additional grounds filed by the assessee, we found that the said grounds are not based on any new facts but the additional grounds are legal grounds and therefore we are of the view that the same can be raised at any point of time by the assessee. Therefore, we are admitting the additional grounds raised by the assessee to decide the appeal.
Even though the assessee had raised several grounds on merits, first we will consider the additional legal grounds raised by the assessee for our consideration. The first legal ground raised by the assessee is that the AO had issued two separate DIN Nos. for the notice u/s. 147 r.w.s. 143(2) of the Act and therefore the said notice is not a valid communication as per Circular 19/2019 dated 14/08/2019 issued by the CBDT. We have perused the notice issued u/s. 143(2) r.w.s. 147 of the Act dated 30/06/2021 and the intimation letter for notice u/s. 143(2) of the Act which is also dated 30/06/2021. From the said notices dated, the first one is the notice issued u/s. 143(2) and therefore a separate DIN has been generated and insofar as the second notice, it is an intimation about the said notice issued u/s. 143(2) and therefore it contains a different DIN Number. Therefore we do not find any error in the DIN noted in the two notices and therefore we are not accepting the said legal ground raised by the assessee.
Insofar as the second legal ground raised by the assessee, that the order u/s. 147 is bad in law since the AO had not disposed of the objections filed by the assessee to the reasons for issuing notice u/s. 148. We have perused the paper book filed by the assessee in which it is ascertained that 148 notice was issued on 31/03/2021. Immediately, the assessee sought for the reason for the said reopening on 04/04/2021. The AO without furnishing the said details had again issued a notice u/s. 142(1) on 22/04/2021. The assessee again sought for the reasons for issuing the notice u/s. 148 of the Act on 10/05/2021 and requested the AO to treat the original return of income filed by the assessee as the return of income filed u/s. 148 of the Act. Thereafter on 20/05/2021, the assessee also furnished their books of accounts before the AO. The AO again issued a notice u/s. 143(2) of the Act on 30/06/2021 and in the said notice, the AO had communicated the reasons for reopening the assessment u/s. 148 of the Act. The assessee filed their reply to the said notice dated 30/06/2021 on 13/07/2021. Subsequently, the assessee on 08/01/2022, filed their objections to the reasons given by the AO for reopening the assessment u/s. 148 of the Act. The AO without disposing of the said objections, had again issued a notice sought for the additional information on 16/12/2021. Thereafter a show cause notice was issued on 23/03/2022 for which also the assessee filed their reply on 25/03/2022. The AO finally, without disposing of the objections to the reasons furnished by the AO for initiating proceedings u/s. 148 of the Act, had passed the assessment order on 30/03/2022.
We have also considered the fact that the assessee had filed their objections to the reasons for reopening the assessment u/s. 147 as early as 08/01/2022. The AO had not at all considered the said objections and not furnished any reply to the said objections raised by the assessee. Therefore, the AO had passed the assessment order u/s. 147 of the Act without disposing of the objections field by the assessee. We have also considered the subsequent notices dated 16/12/2021 and the show cause notice dated 23/03/2022 and found that the AO had not disposed of the objections raised by the assessee on 08/01/2022. We have also perused the judgments relied on by the Ld.AR and the principles laid down by the Hon’ble Jurisdictional High Court in the said judgment are that if the AO had not disposed of the objections filed by the assessee for the reasons for reopening the assessment u/s. 148 of the Act, then the assessment orders passed would become a nullity and liable to be set aside.
Respectfully following the judgements of the Hon’ble Jurisdictional High Court, we are quashing the order of the AO dated 30/03/2022 passed u/s. 147 r.w.s. 144B of the Act as illegal. Since we have set aside the order of the AO the appeal order of the Ld CIT would also goes.
20. We have allowed the appeal filed by the assessee on the above said legal ground raised by the assessee and therefore we are not adjudicating the other grounds raised by the assessee.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 01st August, 2025.