C/SCA/3626/2014 JUDGMENT IN HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 3626 of 2014 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE J.B.PARDIWALA and HONOURABLE MR. JUSTICE BHARGAV D. KARIA 1 Whether Reporters of Local Papers may be allowed to No see judgment ? 2 To be referred to Reporter or not ? No 3 Whether their Lordships wish to see fair copy of No judgment ? 4 Whether this case involves substantial question of law No as to interpretation of Constitution of India or any order made thereunder ? N H KAPADIA EDUCATION TRUST Versus ASSISTANT DIRECTOR OF INCOME TAX Appearance: MR SN DIVATIA(1378) for Petitioner(s) No. 1 MRS MAUNA M BHATT(174) for Respondent(s) No. 1 RULE SERVED(64) for Respondent(s) No. 1 CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA and HONOURABLE MR. JUSTICE BHARGAV D. KARIA Date : 03/03/2020 ORAL JUDGMENT (PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA) 1. By this petition under Article 226 of Constitution of India, petitioner has prayed for following reliefs: Page 1 of 15 Downloaded on : Tue Mar 31 10:59:48 IST 2020 C/SCA/3626/2014 JUDGMENT 10.0 (a) to issue writ of certiorari or in nature of certiorari or any other appropriate writ, orders or directions quashing and setting aside impugned notice dated 27/09/2012 [Exhibit-A] issued by Respondent proposing to reopen completed assessment of Petitioner for A.Y. 2006-07 and consequential re- assessment order u/s.147 of Act, passed, if any, by Respondent pursuant to his notice u/s.147. (b) to issue writ of certiorari or in nature of certiorari or any other appropriate writ, orders or directions quashing and setting aside impugned order dated 11/02/2014 [Exhibit-B] passed by Respondent rejecting objections of Petitioner and upholding validity of impugned reassessment proceedings u/s 147 of Act for A.Y. 2006-07. (c) to call for records of proceedings, look into them and be pleased to issue writ of certiorari or any other appropriate writ, order or direction quashing impugned notice and order. (d) Pending hearing and final disposal of this petition to maintain status quo in matter and ask Respondent and its subordinates not to take any action or to do anything in furtherance and pursuance of this impugned notice. (e) To allow this Petition with cost. (f) To pass any further or other orders as Hon'ble Court may deem proper in interest of justice and in circumstances of case. 2. facts in brief giving rise to this petition are that petitioner is charitable institution Page 2 of 15 Downloaded on : Tue Mar 31 10:59:48 IST 2020 C/SCA/3626/2014 JUDGMENT registered under provisions of Bombay Public Trust Act, 1950. petitioner is imparting education by running School/Educational Institution. petitioner filed its return of income for A.Y. 2006-07 on 31.12.2006 declaring deficit of Rs.70,09,380 after claiming expenses incurred for objects of Trust. petitioner also filed its audited annual accounts and tax audit report along with return of income. 3. It is case of petitioner that regular assessment was completed under Section 143(3) of Income Tax Act, 1961 (for short Act 1961 ) after calling for and detailed scrutiny of accounts and documents submitted by petitioner and after issuing notice under Sections 142(1) and 143(2) of Act, 1961. 4. Assessing Officer passed assessment order under Section 143(3) of Act, 1961 accepting return of income filed by petitioner vide assessment order dated 31.03.2008. It appears that thereafter, notice under Section 148 of Act, 1961, dated 27.09.2012 was issued for re-opening of Page 3 of 15 Downloaded on : Tue Mar 31 10:59:48 IST 2020 C/SCA/3626/2014 JUDGMENT assessment for A.Y. 2006-07. Assessing Officer recorded following reasons for re-opening of assessment : During course of assessment proceedings in A.Y.2008-09 it was observed that asessee had collected fees from students at time of Admission and credited same directly to Balance Sheet but this amount was not credited to income and expenditure account. Furthermore, its activities were ascertained to have been carried out on commercial lines and assessed accordingly. Moreover, registration procured u/s.12 AA of Income Tax Act too had been cancelled by DIT (E), Ahmedabad w.e.f. 21/03/1990 i.e. from A.Y.1990-91 onwards, vide his order dated 17/03/2011. Hence, assessee is not eligible for deduction u/s.11 of I.T. Act and income of assessee ought to be computed in normal commercial manner as per provisions of section 28 to section 44D of I.T. Act. In view of aforesaid facts, I have reason to believe that in this year too income of Trust has escaped form being assessed to tax under normal commercial manner. 5. petitioner filed objections to Notice for re-opening on 11.11.2013 pointing out as under : 2.3. assessee-trust begs to submit that reopening of concluded asstt. is wholly illegal and unlawful for following reasons:- (i) Firstly, you will appreciate that as on date on which reasons for reopening were recorded, i.e. 18.8.2012, Page 4 of 15 Downloaded on : Tue Mar 31 10:59:48 IST 2020 C/SCA/3626/2014 JUDGMENT order for cancellation of registration dated 17.3.2011 was not in force because appellate tribunal vide its order dated 3.2.2012 had already restored registration w.e.f. 21.3.1990. Therefore, no reasonable man could have formed belief that assessee was not registered and exemption u/s. 11 was not admissible. (ii) Secondly, it will also be appreciated that registration u/s.12(a) or 12AA is not sine qua non for allowing exemption u/s. 11 or 12. said exemptions are admissible once conditions provided therein are fulfilled. (iii) Thirdly, present case falls under proviso to Section 147 and as such twin conditions required to be fulfilled for reopening asstt. validly or legally, (a) there has to be reason to believe on part of AO (b) said belief should have been formed either for non-filling of return or failure to furnish fully and truly all material facts necessary for assessment. But, in present case, perusal of reasons shows that no such failure has been alleged by AO for resorting to reopening of assessment. In view of above, we have to request you to kindly drop reasstt. Proceedings and oblige. 6. Assessing Officer disposed of objections raised by assessee by order dated 11.02.2014, which read thus : 4. Submission of assessee is kept on record and not tenable for following reasons Objections have been raised by assessee against reopening proceedings mainly on these Page 5 of 15 Downloaded on : Tue Mar 31 10:59:48 IST 2020 C/SCA/3626/2014 JUDGMENT grounds: 1) It is seen from your reply that, objections raised by you only relates of registration u/s.12AA of Trust. In this regard, it is to state that in reasons recorded for re-opening of assessment, there were two grounds. primary reason for reopening relates to one time admission fees which was credited directly to Balance Sheet instead of same is to be credited to income and expenditure account. 2) Out of above two grounds, you are taking shelter of with grounds relates to cancellation of registration u/s. 12AA of Act. restoration of registration u/s 12AA / 12A which is secondary reason for reopening may not exist anymore but primary reason still exist and addition in A.Y.2009-10 and 2010- 11 were made by Assessing Officer on primary reason i.e. one time admission fees credited directly to Balance Sheet instead of same is to be credited to income and expenditure account. 5. In view of above mentioned facts of case, assessee's objections raised against reopening proceedings so far as issue relates to cancellation of registration u/s.12AA is acceptable. But, one time admission fees income was not taken to Income & Expenditure account which leads to escapement of income for A.Y.2006-07. Accordingly, objection so raised is hereby disposed off. 7. Assessing Officer accepted objections with regard to issue of cancellation of Registration under Section 12 AA of Act, 1961 Page 6 of 15 Downloaded on : Tue Mar 31 10:59:48 IST 2020 C/SCA/3626/2014 JUDGMENT raised by petitioner, but so far as reasons for reopening with regard to crediting fees collected from students to corpus in balance- sheet instead of crediting same to income and expenditure account was concerned, Notice for re- opening was sustained. 8. assessee therefore, being aggrieved by order of rejection passed by Assessing Officer has preferred this petition with aforesaid prayers. 9. Mr.S.N. Divatia, learned advocate for petitioner submitted that there is no failure on part of assessee to declare truly and fully all material facts at time of scrutiny of assessment. 9.1. It was submitted that proviso to Section 147 of Act would be applicable in facts of case as notice for re-opening was issued beyond period of 4 years from end of relevant assessment year. Page 7 of 15 Downloaded on : Tue Mar 31 10:59:48 IST 2020 C/SCA/3626/2014 JUDGMENT 9.2. Learned advocate for petitioner further invited attention of Court to replies given by petitioner pursuant to Notice under Section 142(1) of Act and Notice under Section 143 (2) of Act, 1961 during course of regular assessment proceedings. It was pointed out that assessee has furnished details with regard to donation received from hundred of guardians, by Cheques only, and receipt are issued to them. said funds are received as corpus of Trust and therefore, same was reflected in Schedule VII in Audited Accounts under Title of Other Earmarked Funds in balance- sheet of petitioner. 9.3. It was also pointed out that reply submitted on 24.01.2008 during course of regular assessment with regard to scrutiny of issue of donation received from students which read thus : 10. details of addition in various funds A/c is reflected in extract of account appended hereto. It may be noted that donations towards corpus of Trust are not received in excess of Rs. 15,000/- from any of donor. consent letter of several donors to appropriate donation in several Page 8 of 15 Downloaded on : Tue Mar 31 10:59:48 IST 2020 C/SCA/3626/2014 JUDGMENT corpuses maintained by Trust is appended hereto and same are collectively marked as Annexure B . extract of Accounts of corpus of Trust is appended hereto and are collectively marked as Annexure B-1 . 9.4. It was therefore, submitted that during course of regular assessment, issues raised by Assessing Officer for re-opening of assessment were already scrutinized and therefore, it cannot be said that there is failure on part of assessee to disclose truly and fully all material facts. 10. On other hand, Mrs. Mauna M. Bhatt, learned advocate appearing on behalf of respondent submitted that it is not in dispute that Assessing Officer has formed reasons to believe that income escaped assessment and that Assessee in spite of taking fees from students as donation has credited same to balance-sheet, instead of crediting same to income and expenditure account. 10.1. It was submitted that as there is failure on part of assessee-petitioner to disclose Page 9 of 15 Downloaded on : Tue Mar 31 10:59:48 IST 2020 C/SCA/3626/2014 JUDGMENT fully and truly all material facts during course of assessment in view of reasons recorded by Assessing Officer, Notice for re-opening was valid and no interference is required to be made by this Court while exercising powers under Article 226 of Constitution of India. 11. Having heard learned counsel for respective parties and having gone through materials on record, it appears that during course of regular assessment, petitioner-assessee has furnished requisite details sought for by Assessing Officer in form of details of donation received by petitioner as corpus credited to Earmarked Funds being part of balance-sheet. It is also not in dispute that during course of scrutiny assessment, Assessing Officer has inquired about donation received by petitioner, which was forming part of corpus and thereafter, assessment order under Section 143(3) of Act, 1961 was passed. 12. In such circumstances, it cannot be said that there is any failure on part of petitioner to Page 10 of 15 Downloaded on : Tue Mar 31 10:59:48 IST 2020 C/SCA/3626/2014 JUDGMENT disclose truly and fully all material facts during course of assessment. 13. co-ordinate Bench of this Court in case of Ganesh Housing Corporation Ltd vs. Dy.Commissioner of Income-Tax, Circle 4 & Anr. in SCA No.15067 of 2011 rendered on 12.03.2012 has held as under : 14. At this stage, we may rather aptly refer to latest three-judge-bench decision of Supreme Court in case of COMMISSIONER OF INCOME TAX VS. KELVINATOR OF INDIA LTD. reported in (2010) 2 SCC 723 where said court after taking into consideration effect of Direct Tax Laws (Amendment) Act, 1987 on section 147 made following observations while dismissing appeals preferred by Revenue: 5. On going through changes, quoted above, made to Section 147 of Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, reopening could be done under above two conditions and fulfilment of said conditions alone conferred jurisdiction on assessing officer to make back assessment, but in Section 147 of Act (with effect from1- 4-1989), they are given go-by and only one condition has remained viz. that where assessing officer has reason to believe that income has escaped assessment, confers jurisdiction to reopen assessment. Therefore, post-1-4-1989, power to reopen is much wider. However, one needs to give schematic interpretation to words reason to believe failing which, we are afraid, Section 147 would give arbitrary powers to assessing officer to reopen assessments on basis of mere change of opinion , which cannot be per se reason to Page 11 of 15 Downloaded on : Tue Mar 31 10:59:48 IST 2020 C/SCA/3626/2014 JUDGMENT reopen. 6. We must also keep in mind conceptual difference between power to review and power to reassess. assessing officer has no power to review; he has power to reassess. But reassessment has to be based on fulfilment of certain precondition and if concept of change of opinion is removed, as contended on behalf of Department, then, in garb of reopening assessment, review would take place. 7. One must treat concept of change of opinion as in-built test to check abuse of power by assessing officer. Hence, after 1-4-1989, assessing officer has power to reopen, provided there is tangible material to come to conclusion that there is escapement of income from assessment. Reasons must have live link with formation of belief. Our view gets support from changes made to Section 147 of Act, as quoted hereinabove. Under Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted words reason to believe but also inserted word opinion in Section 147 of Act. However, on receipt of representations from companies against omission of words reason to believe , Parliament reintroduced said expression and deleted word opinion on ground that it would vest arbitrary powers in assessing officer. 8. We quote hereinbelow relevant portion of Circular No. 549 dated 31-10- 1989, which reads as follows: 7.2. Amendment made by Amending Act, 1989, to reintroduce expression reason to believe in Section 147. number of representations were received against omission of words reason to believe from Section 147 and their substitution by opinion of Assessing Officer. It Page 12 of 15 Downloaded on : Tue Mar 31 10:59:48 IST 2020 C/SCA/3626/2014 JUDGMENT was pointed out that meaning of expression, reason to believe had been explained in number of court rulings in past and was well settled and its omission from Section 147 would give arbitrary powers to Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, Amending Act, 1989, has again amended Section 147 to reintroduce expression has reason to believe in place of words for reasons to be recorded by him in writing, is of opinion . Other provisions of new Section 147, however, remain same. (emphasis supplied) 9. For aforestated reasons, we see no merit in these civil appeals filed by Department, hence, dismissed with no order as to costs. (Emphasis given by us). 20. In case of CIT VS. EICHER LTD. reported in (2007) 294 ITR 310(DELHI), which was also subject-matter of appeal before Supreme Court in case of Commissioner of Income tax vs. Kelvinator of India Ltd. (supra), Delhi High Court dealt with similar point as would appear from following observations quoted below: Applying principles laid down by Full Bench of this court as well as observations of Punjab and Haryana High Court, we find that if entire material had been placed by assessee before Assessing Officer at time when original assessment was made and Assessing Officer applied his mind to that material and accepted view canvassed by assessee, then merely because he did not express this in assessment order, that by itself would Page 13 of 15 Downloaded on : Tue Mar 31 10:59:48 IST 2020 C/SCA/3626/2014 JUDGMENT not give him ground to conclude that income has escaped assessment and, therefore, assessment needed to be reopened. On other hand, if Assessing Officer did not apply his mind and committed lapse, there is no reason why assessee should be made to suffer consequences of that lapse. In so far as present appeal is concerned, we find that assessee had placed all material before Assessing Officer and where there was doubt, even that was clarified by assessee in its letter dated November 8, 1995. If Assessing Officer, while passing original assessment order, chose not to give any finding in this regard, that cannot give him or his successor in office reason to reopen assessment of assessee or to contend that because facts were not considered in assessment order, full and true disclosure was not made. Since facts were before Assessing Officer at time of framing original assessment, and later different view was taken by him or his successor on same facts, it clearly amounts to change of opinion. This cannot form basis for permitting Assessing Officer or his successor to reopen assessment of assessee. 14. In view of above dictum of law issue of reopening in facts of present case is no more res-integra. Therefore, impugned notice is required to be quashed and set aside, as none of reasons assigned by Assessing Officer for re- Page 14 of 15 Downloaded on : Tue Mar 31 10:59:48 IST 2020 C/SCA/3626/2014 JUDGMENT opening assessment was tenable in eye of law, conditions precedent to invoke powers for re-opening assessment as provided in Section 147 of Act is absent, therefore we find that Assessing Officer acted illegally and issued Notice of re-assessment on self same material forming second opinion without having any tangible material to exercise jurisdiction. 15. In view of foregoing reasons, this petition succeeds and is accordingly allowed. notice dated 27.09.2012 for re-opening assessment for A.Y. 2006-07 under Section 148 of Act, 1961 is hereby quashed and set aside. Rule is made absolute to aforesaid extent. No order as to costs. (J. B. PARDIWALA, J) (BHARGAV D. KARIA, J) KUMAR ALOK Page 15 of 15 Downloaded on : Tue Mar 31 10:59:48 IST 2020 N. H. Kapadia Education Trust v. Assistant Director of Income-tax