M/S OM WELFARE SOCIETY,HISAR vs. ITO, HISAR

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘SMC-1’, NEW DELHI Before Sh. N. K. Saini, Accountant Member ITA No. 1583/Del/2016 : Asstt. Year : 2008-09 M/s Om Welfare Society, Vs Income Tax Officer, City Hospital, Azad Nagar, Ward-3, Hisar Hisar (APPELLANT) (RESPONDENT) PAN No. AAATO1903E Assessee by : Gautam Jain, CA Revenue by : Sh. V. R. Sonbhadra, Sr. DR Date of Hearing : 26.05.2016 Date of Pronouncement : 05.08.2016 ORDER

This is an appeal by the assessee against the order dated 29.01.2016 of ld. CIT(A), Hisar.

ITA No. 1583/Del/2016 2 Om Welfare Society 1.1 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that, there was no material on record on the basis of which, it could be held that, there was any reason to believe with the learned Income Tax Officer that, income of the appellant society had escaped assessment and, in view thereof, the proceedings initiated were illegal, untenable and therefore, unsustainable. 1.2 That the finding of the learned Commissioner of Income Tax (appeals) that learned Assessing Officer was unaware on 30.11.2010 while passing the order u/s 143(3) of the Act as to the order of learned Commissioner of Income Tax dated 26.11.2008 granting registration to the appellant society u/s 12AA of the Act is factually and legally misconceived, misplaced and untenable. 2. That the learned Commissioner of Income Tax (Appeals) has otherwise too erred both in law and on facts in upholding the addition of Rs.13,78,600/- representing corpus donations received by the appellant society. 2.1 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that corpus donations are capital receipts and thus not taxable. 3. That without prejudice to the aforesaid, the learned Commissioner of Income Tax (Appeals) ought to have held that income of the appellant is otherwise eligible for exemption u/s 11 and 12 of the Act or u/s 10(23C)(iiiad) of the Act.

ITA No. 1583/Del/2016 3 Om Welfare Society It is therefore, prayed that, it be held that assessment made by the learned Income Tax Officer and sustained by the learned Commissioner of Income Tax (Appeals) be quashed and, further addition so upheld by the learned Commissioner of Income Tax (Appeals) alongwith interest levied be deleted and appeal of the appellant society be allowed.” 3. The main grievance of the assessee in this appeal vide Ground Nos. 1 & 1.1 relates to the reopening of the assessment u/s 147 of the Income Tax Act, 1961 (hereinafter referred to as the Act).

ITA No. 1583/Del/2016 4 Om Welfare Society Rs.13,78,600/- were liable to tax and he formed a belief that the income of Rs.13,78,600/- has escaped assessment. Accordingly, a notice u/s 148 of the Act was issued on 20.02.2012 for initiating the proceedings u/s 147 of the Act. The AO mentioned that in response to the said notice, no return of income was furnished, he, therefore, framed the assessment u/s 144/147 of the Act at an income of Rs.13,78,600/-.

ITA No. 1583/Del/2016 5 Om Welfare Society -Union of India V. Azadi Bachao Andolan [2003] 263 ITR 706 [SC] -Parveen P Bharuch V. DCIT 348 ITR 325 [Bombay] [2012] -Asian Paint Ltd V. DCIT 308 ITR 195 [Bombay] [2009] -Carntin India Ltd V. Addl. CIT 314 ITR 275 [Bombay] [2009] -CIT V. Nirma Chemicals Works P Ltd 309 ITR 67 [Guj] [2009] The Assessing Officer decline the objection merely on the ground that this proviso is applicable only in those cases where the period of four years from the end of relevant assessment year has expired and however, there has been no failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The assessee also tried to draw the attention of the assessing authority that REOPENING OF ASSESSMENT TO DENY THE BENEFIT AMOUNT TO CHANGE OF OPINION ON SAME FACTS AND NOT PERMISSIBLE and the assessee believed on the rulings of CIT V. High Energy Batteries (India) Ltd. 348 ITR 574 [Madras] it was held that depreciation allowed on leased assets but withdrawing in reassessment not valid and in case of Mrs. Parveen P. Baruch V. DCIT 348 ITR 325 [Bombay] [2012] it was decided that benefit of section 54EC granted taking into account investment of earnest money before date of transfer of assets. Reopening of assessment to deny the benefit amounts to change of opinion on same facts and not permissible and both the case laws are also applicable in our case also. The Assessing Officer, again rejected the objection stating that The Facts of those cases are different from your case as in your neither the issue of withdrawal of depreciation nor of denying benefit of Section 54EC is involved. Therefore, no

ITA No. 1583/Del/2016 6 Om Welfare Society help can be derived by you from above judgments as ratio of those judgment is not applicable in your case. No doubt, there is no issue of depreciation or the denial of benefit of Section 54EC, but issue is allowing donation as corpus fund, where the assessing officer had verified the same at the time of original assessment. This time the assessing officer during proceedings u/s 147 has changed his opinion and disallowed the same and has considered the donation received as part of the income of the society is wrong, bad in law and against facts and equity as well as against the rulings decided by Hon’ble Supreme Court and Different High Courts. From the above, it is cleared that addition made by the Assessing Officer is arbitrary, based on mere surmises and conjectures and deserves to be deleted in toto. Moreover, objections submitted by the assessees against applying of section 147 were rejected flagrantly, violating the principle of natural justice and closed his mind. " 6. The ld. CIT(A) after considering the submissions of the assessee held that initiation of proceedings u/s 147 of the Act by the AO was justified by observing in para 5 of the impugned order as under:

“5. I have considered the submission of the appellant. During the course of appellant proceedings, it was submitted that the main objection was against the reopening of the case u/s. 148 when AO has already completed assessment u/s. 143(3) of I.T. Act. Under the provisions of Income Tax Act, AO has power to reopen a case even where assessment has been made u/s. 143(3) with in a particular time frame provided there is a reason to believe that income has escaped assessment. In this case, AO has mentioned that while completing assessment u/s. 143(3) on 30.11.2010, he was not aware that the assessee has not been granted relief u/s. 11 & 12 for the present A.Y. 2008-

ITA No. 1583/Del/2016 7 Om Welfare Society 09. It came to his knowledge subsequent to completion of assessment that the assessee filed application for registration u/s. 12AA on 07.05.2008 which was granted on 26.11.2008. But, in this order u/s. 12AA, CIT, Hisar granted exemption effective from 01.04.2009 and not from A.Y. 2008-09. This crucial fact was not known to the AO till the completion of original assessment proceeding. If he was aware of these facts, he would have examined the taxability of membership subscription/corpus in the original assessment itself. This additional fact was a sufficient ground for AO to believe that the income has escaped assessment in this case. He noticed that the appellant has received an amount of Rs. 13,78,600/- as membership subscription/donation which needs to be examined in light of the facts that relief u/s. 11 and 12 is not available for A.Y. 2008-09. But appellant failed to produce any details in support of donation and AO had no option but to consider it as income from undisclosed sources in absence of any proof. The case laws relied by the appellant are not relevant in this case as there is no change of opinion by AO. The additional facts/ evidence came to his knowledge subsequent to completion of assessment which made him believe that income has escaped assessment in this case. It is not a case of change of opinion of AO as the case has been reopened on the basis of additional evidence which were not known to AO at the time of assessment. Hence, initiation of proceedings u/s. 147 by AO in this case is held to be justified and additions made are upheld.” 7. Now the assessee is in appeal. The ld. Counsel for the assessee reiterated the submissions made before the authorities below and submitted that the AO while recording the reasons for initiating the

ITA No. 1583/Del/2016 8 Om Welfare Society proceedings u/s 147 of the Act alleged that the income of Rs.13,78,600/- received as donation escaped the assessment as the same was chargeable to tax. A reference was made to page no. 39 of the assessee’s paper book which is the copies of reasons recorded. It was further submitted that the assessee during the course of original assessment proceedings vide letter dated 17.11.2011 replied to the AO that the donation/membership subscription of Rs.13,78,600/- was the corpus fund and has been spent for construction of the building of society, so there was no income of the assessee. A reference was made to page no. 35 of the assessee’s paper book which is the copy of the rectification application given by the assessee relating to the original assessment proceedings initiated by the AO. It was contended that the AO examined the issue while framing the assessment u/s 143(3) of the Act and accepted the amount of Rs.13,78,600/- as donation corpus fund. Therefore, the notice issued u/s 148 of the Act for initiating the proceedings u/s 147 of the Act was a change of opinion and as such the reopening was bad in law. The reliance was placed on the following case laws: � CIT Vs Kelvinator of India Ltd. (2010) 320 ITR 561 (SC) � CIT Vs Usha International Ltd. (2012) 348 ITR 485 (SC) � Parashuram Pottery Works Co. Ltd. Vs ITO 106 ITR 1 (SC) 8. The ld. Counsel for the assessee also submitted that the AO wrongly alleged that the assessee did not respond to the notice u/s 148 of the Act, our attention was drawn towards page no. 38 of the assessee’s

ITA No. 1583/Del/2016 9 Om Welfare Society paper book and it was submitted that a letter dated 26.12.2012 was written to the AO stating therein that the return originally filed on 26.12.2008 may be treated as a return u/s 148 of the Act. So, there was a proper compliance and the AO was not justified in making the assessment u/s 144 of the Act, on the basis that no return of income was filed in response to notice u/s 148 of the Act.

ITA No. 1583/Del/2016 10 Om Welfare Society in the assessment order dated 30.11.2010 (copy of which is placed at page no. 7 of the assessee’s paper book) that all the requisite information/documents had been furnished. Books of accounts were test checked and thereafter the returned income was accepted, so, it cannot be said that the AO did not apply his mind while framing the original assessment u/s 143(3) of the Act on 30.11.2010. Thereafter, the AO initiated the proceedings u/s 147 of the Act and reopened the assessment.

“(i) that reassessment proceedings can be validly initiated in case return of income is processed under section 143(1) and no scrutiny assessment is undertaken. In such cases there is no change of opinion. Reassessment proceedings will be invalid in case the assessment order itself records that the issue was raised and is decided in favour of the assessee. Reassessment proceedings in the cases will be hit by the principle of "change of opinion". Reassessment proceedings will be invalid in case an issue or query is raised and answered by the assessee in original assessment proceedings but thereafter the Assessing Officer does not make any addition in the assessment order. In such situations it should be accepted that the issue was examined but the Assessing Officer did not find any ground or reason to addition or reject the stand of the assessee. He forms an opinion. The reassessment will be invalid because the Assessing Officer had formed an opinion in the original assessment, though he had not recorded his reasons. The

ITA No. 1583/Del/2016 11 Om Welfare Society expression "change of opinion" postulates formation of opinion and then a change thereof. In the context of assessment proceedings, it means formation of belief by an Assessing Officer resulting from what he thinks on a particular question. It is a result of understanding, experience and reflection. A distinction must be drawn between erroneous application/interpretation/ understanding of law and cases where fresh or new factual information comes to the knowledge of the Assessing Officer subsequent to the passing of the assessment order. If new facts, material or information comes to the knowledge of the Assessing Officer, which was not on record and available at the time of the assessment order, the principle of "change of opinion" will not apply. The reason is that "opinion" is formed on facts. "Opinion" formed or based on wrong and incorrect facts or which are belied and untrue do not get protection and cover under the principle of "change of opinion". Factual information or material which was incorrect or was not available with the Assessing Officer at the time of original assessment would justify initiation of reassessment proceedings. The requirement in such cases is that the information or material available should relate to material facts. The expression "material facts" means those facts which if taken into account would have an adverse effect on the assessee by a higher assessment of income than the one actually made. They should be proximate and not have a remote bearing on the assessment. The omission to disclose may be deliberate or inadvertent. The question of concealment is not relevant and is not a precondition which confers jurisdiction to reopen the assessment. Correct material facts can be ascertained from the assessment records also and it is not necessary that the same come from a third person or source, i.e., from source other than the assessment records. However, in such cases, the onus will be on the Revenue to show that the assessee had stated incorrect and wrong material facts resulting in the Assessing Officer proceeding on

ITA No. 1583/Del/2016 12 Om Welfare Society the basis of facts, which are incorrect and wrong. The reasons recorded and the documents on record are of paramount importance and will have to be examined to determine whether the stand of the Revenue is correct. If a subject-matter, entry or claim/deduction is not examined by an Assessing Officer, it cannot be presumed that he must have examined the claim/deduction or the entry, and, therefore, it is a case of "change of opinion". When at the first instance, in the original assessment proceedings, no opinion is formed, the principle of "change of opinion" cannot and does not apply. There is a difference between change of opinion and failure or omission of the Assessing Officer to form an opinion on a subject- matter, entry, claim, deduction. When the Assessing Officer fails to examine a subject-matter, entry, claim or deduction, he forms no opinion. It is a case of no opinion. Whether or not the Assessing Officer had applied his mind and examined the subject-matter, claim, etc., depends upon factual matrix of each case. The Assessing Officer can examine a claim or subject-matter even without raising a written query. There can be cases where an aspect or question is too apparent or obvious to hold that the Assessing Officer did not examine a particular subject-matter, claim, etc. The stand and stance of the assessee and the Assessing Officer in such cases are relevant.” 12. In the present case also the AO framed the original assessment after examining the claim of the assessee which is evident from the assessment order itself wherein the AO categorically stated that requisite information/documents had been furnished and the books of accounts produced were test checked, only thereafter the assessment was framed u/s 143(3) of the Act and the returned income was accepted. Therefore, the subsequent proceedings initiated u/s 147 of the Act were on the basis

ITA No. 1583/Del/2016 13 Om Welfare Society of change of opinion because the claim of the assessee that the donation/subscription corpus fund was utilized for construction of building was examined by the AO while framing the original assessment vide order dated 30.11.2010, which is evident from this fact that the books of accounts containing the entries of donations received and construction of building from those donations was not doubted and there was no claim for exemption u/s 11 of the Act. Therefore, by keeping in view the ratio laid down by the Hon’ble Jurisdictional High Court in the aforesaid referred to case of CIT Vs Usha International Ltd., the initiation of proceedings u/s 147 of the Act was not valid as there was full and true discloser of all material and primary facts at the time of original assessment. Accordingly, the impugned order is set aside, since the initiation of the reassessment proceedings by the AO u/s 147 of the Act, on the basis of change of opinion was not valid.

Sd/- (N. K. Saini) ACCOUNTANT MEMBER Dated: 05/08/2016 *Subodh* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5.DR: ITAT ASSISTANT REGISTRAR