Wp/321/2016 Of Framji Dinshaw Petit Parsee Sanatorium v. Income Tax Officer (Exemption) (2) (4) And 2 Ors

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO. 321 OF 2016 Framji Dinshaw Petit Parsee Sanatorium]Through its Trustee Sir Dinshaw M. Petit,]359, UCO Bank Building,]Dr. D.N. Road, Fort,]Mumbai 400 001.].. Petitioner Vs.1. Income Tax Officer(Exemption) (2)(4),]5[th] Floor, Parimal Chambers,]Parel, Lalbaug,]Mumbai – 400 012]2. Director of Income-Tax )Exemption]6[th] Floor, Piramal Chamber, Parel,]Lalbaug, Mumbai – 400012]3. Union of India,]Through the Secretary,]Department of Finance, ]Ministry of Finance, Govt. of India,]North Block, New Delhi – 110 001 ].. Respondents … Mr. J.D. Mistri, Senior Advocate with Mr. Madhur Agrawal i/b.Mr. Atul K. Jasani, for the Petitioner. Mr. Suresh Kumar, for the Respondents. ... CORAM : DHIRAJ SINGH THAKUR &KAMAL KHATA, J.J.RESERVED ON : 1[st] FEBRUARY 2023PRONOUNCED ON : 8[th] MARCH, 2023. J U D G M E N T [PER: KAMAL KHATA, J] 1. By this petition, notice under section 148 of the Actdated 20[th] March, 2015 proposing to reopen the assessment forassessment year (AY) A.Y. 2008-09 is challenged. The Petitionalso seeks to challenge the impugned order dated 2[nd] November2015 whereby the Respondent No. 1 rejected the objections of thePetitioner, challenging the validity of their reassessmentproceedings for the A.Y. 2008-09 being ex-facie illegal andcontrary to the provisions of the Act. THE FACTS OF THE CASE: 2.The Petitioner is a Public Charitable Trust registered withthe Director of Income Tax (Exemption), Mumbai since 17[th]December, 1977 under section 12A of the Income Tax Act (‘theAct’ for short). The Petitioner addressed a letter dated 29[th]February, 2008 to the Assistant Director of Income-tax(Exemptions) I-(2) informing him that they would not be able toutilise 85% of the accumulated income for the year towards theexpenditure on the objects of the trust and therefore, may beallowed to exercise the option under section 11(1) of the Act to WP321.2018.doc spend the unspent surplus in the next twelve months. On 30[th]September, 2008 the Petitioner filed its return of income for A.Y.2008-09 declaring ‘Nil income’. Rs. 89,17,868/- was claimed bythe Petitioner being 15% of the gross income as deductionallowable under section 11 of the Act. A sum of Rs. 13,21,686/-was also claimed as depreciation. Since the amount expended onthe object of the Petitioner Trust was more than the income, thePetitioner claimed deficit of Rs. 13,92,05,087/- as carry forwardto be set off in the subsequent year. On 3[rd] November, 2010 thePetitioner received notice under section 142(1) of the Act askingthe Petitioner to submit the following : (a)Detailed note on the objects of the Trust, and activities carried on during the year;carried on during the year; (b)Details of investments made in movable and immovable assets;assets; (c)Details of accumulation made under section 11(2) of the Act in the last 10 years and the details of utilization thereof overthe last 10 years alongwith the copies of application in Form No. 10;in the last 10 years and the details of utilization thereof overthe last 10 years alongwith the copies of application in Form No. 10; (d)Whether the capital expenditure made in the fixed assets have been claimed as application of income in earlier years, have been claimed as application of income in earlier years, WP321.2018.doc if so, justification for claiming depreciation in the year under assessment; (e)Complete details on the expenditure incurred on the objects of Trust; and (f)Earlier two years assessment orders under section 143(2) ofthe Act. (c)Details of accumulation made under section 11(2) of the Act in the last 10 years and the details of utilization thereof overthe last 10 years alongwith the copies of application in Form No. 10;in the last 10 years and the details of utilization thereof overthe last 10 years alongwith the copies of application in Form No. 10; (d)Whether the capital expenditure made in the fixed assets have been claimed as application of income in earlier years, have been claimed as application of income in earlier years, WP321.2018.doc if so, justification for claiming depreciation in the year under assessment; (e)Complete details on the expenditure incurred on the objects of Trust; and (f)Earlier two years assessment orders under section 143(2) ofthe Act. 3.The Petitioner filed its submission by letter dated 3[rd]December, 2010 inter alia submitting that the note on object andactivities of the Petitioner Trust; details of expenses on the objectof Petitioner Trust; summary of accumulation / deficit in the last10 years. The Petitioner received another show-cause noticedated 7[th] December, 2010 under section 142(1) of the Actrequiring the Petitioner to file various other documents anddetails of certain capital expenditure incurred by the Petitioner.This was responded by the Petitioner vide letter dated 9[th]December, 2010 and 15[th] December, 2010. By an order undersection 143(3) of the Act dated 28[th] December, 2010 forassessment year 2008-09, A.O. accepted returned income offeredby the Petitioner. On 26[th] March, 2015, the Petitioner receivednotice under section 148 of the Act dated 20[th] March, 2015 withregard to the income chargeable to tax for A.Y. 2008-09 having WP321.2018.doc escaped assessment. In response to the impugned notice, by letterdated 6[th] April 2015, the Petitioner sought a copy of the reasonsfor issuance of the notice under section 148 of the Act and out ofabundant caution also filed a copy of the income tax return forA.Y. 2008-09 alongwith copy of the computation of income andfinancial statements. By letter dated 30[th] April, 2015 therespondent No. 1 forwarded the reasons for reopening of theassessment that are as under : “In this case the assessee has filed its return of income forA.Y. 2008-09 on 30.9.2008 disclosing total income of Rs.Nil. The assessment was completed u/s. 143(3) of the Acton 28.12.2010 assessing total income at Rs. NIL. 2. On perusal of the records, it is noticed that the assesseedeclared deficit of Rs. 13,92,05,087/- after claimingaccumulation u/s. 11(1)(a) of Rs. 89,17,868/-. 2.1Exemption u/s. 11(1)(a) of Rs. 89,17,868/- (15%of gross income) which was not in order. As the assesseehas shown deficit of Rs. 13,92,05,087/- after claimingexemption u/s. 11(1)(a) of Rs. 89,17,868/- during theyear. Therefore, the exemption u/s. 11(1)(a) has not beenallowed as there was a deficit in the assessment year.Therefore, the exemption u/s. 11(11)(a) was required to berestricted to nil (being 15% of total income or to the extentof income available for accumulation) instead of Rs.89,17,868/- as per the above quoted provision. This hasresulted in excess allowance of accumulation of Rs.89,17,868/- involving total potential tax effect of Rs.30,31,183/-. 3. The deficit claimed by the assessee of Rs.13,92,05,087/- should not be allowed to carry forward andset-off in the subsequent assessment years as the Act doesnot contain any provision as to carry forward and set-off toexpenditure/application made during the year insubsequent years. 4. There is a failure on the part of the assessee to make fulland true disclosure of the relevant material facts in therelevant assessment year, as far as the above issue isconcerned. Therefore, I have a reason to believe that theincome has escaped assessment and action u/s. 147 is 3. The deficit claimed by the assessee of Rs.13,92,05,087/- should not be allowed to carry forward andset-off in the subsequent assessment years as the Act doesnot contain any provision as to carry forward and set-off toexpenditure/application made during the year insubsequent years. 4. There is a failure on the part of the assessee to make fulland true disclosure of the relevant material facts in therelevant assessment year, as far as the above issue isconcerned. Therefore, I have a reason to believe that theincome has escaped assessment and action u/s. 147 is 4.The Petitioner by letter dated 14[th] May, 2015 challenged thevalidity of the re-assessment proceedings. In response, therespondent sent notice under 143(2) of the Act dated 24/7/2015seeking certain information with respect to the assessment fromthe petitioner. By order dated 2[nd] November, 2015, thePetitioner’s objections were rejected. By letter dated 23[rd]November, 2015, the Petitioner sought certified true copy of thereasons recorded by the respondent No.1 and the sanction fromthe appropriate authority obtained, if any. Aggrieved by theunlawful assumption of jurisdiction by Respondent No. 1, thisPetition is filed. 5.Mr. J.D. Mistri, learned Senior Counsel for the Petitionersubmits that the original assessment order under section 143(3)was passed in conformity with the view taken for the past numberof years, whereby the Petitioner was allowed deduction of 15% onthe gross profit and carry forward of deficit has also been allowedin the earlier year to be set off in the subsequent year. LearnedCounsel relies on the Judgment in the case of CIT v/s. Institute of Banking Personnel Selection(IBPS)[1] wherein it was held that the 1(2003)131 Taxman 386(Bombay) WP321.2018.doc Petitioner is entitled to carry forward and set off the currentyear’s deficit with the subsequent year’s income tax. The learnedSenior Counsel submits that the question of whether the Petitioneris entitled to carry forward and set off the deficit is required to beconsidered in the year of set off, and cannot be considered in therelevant year i.e. the year of deficit and therefore, cannot be thereason to come to the conclusion that the income has escaped theassessment. He submits that the impugned notice is a case ofchange of opinion, which is not permissible under section 147 ofthe Act, inasmuch as the issue on which the assessment isproposed to be reopened was considered during the course of theassessment proceedings and the order under section 143(3) of theAct was passed. He submitted that the Assessing Officer hadconsidered computation of income and the submissions of thePetitioner while passing an order under section 143(3) acceptingthe claim of the Petitioner. He submits that there is no mentionabout any tangible material that has come to the notice of therespondent No. 1 that has been recorded in the reasons recorded.In fact, the reasons recorded clearly averred “on perusal ofrecords” and consequently it can be concluded that there was nofresh and tangible material to justify the reopening of theassessment. He further submits that it is evident that the WP321.2018.doc respondent No. 1 has referred to assessment order for A.Y. 2012-13 for reopening of the assessment. He consequently submits thata different view in the subsequent year cannot justify thereopening of the assessment for the earlier assessment years. Hesubmits that there is no failure to fully and truly disclose anymaterial fact as alleged in the reasons recorded. He lastlysubmitted that the Petitioner have not been provided a copy of theapproval from the appropriate authority under section 151 of theAct. In view of the above, he prays that the Petition be madeabsolute with costs. WP321.2018.doc respondent No. 1 has referred to assessment order for A.Y. 2012-13 for reopening of the assessment. He consequently submits thata different view in the subsequent year cannot justify thereopening of the assessment for the earlier assessment years. Hesubmits that there is no failure to fully and truly disclose anymaterial fact as alleged in the reasons recorded. He lastlysubmitted that the Petitioner have not been provided a copy of theapproval from the appropriate authority under section 151 of theAct. In view of the above, he prays that the Petition be madeabsolute with costs. 6.Mr. Suresh Kumar, learned Counsel for the Respondentssubmits that the notice under section 148 of the Act was issuedafter following due procedure by A.O. having recorded reasons. Hesubmits that certain facts were discovered during the assessmentproceedings for A.Y. 2012-13 where the Petitioner’s claim ofdeficit to be carried forwards for set off in the subsequent year wasdisallowed by A.O. He placed reliance on the decision of this Courtin the case of Multiscreen Media (P) Ltd. v/s. Union of India[2],wherein it was held that reassessment on the basis of theadditional material discovered in the assessment proceedings of asubsequent year is justified. According to him, the case was2[2010 324 ITR 54(BOM.) WP321.2018.doc reopened for two reasons. One for carry forward of deficit whichissue was pending before the Apex Court when the case wasreopened; and secondly, wrong claim of exemption under section11(1)(a). He submitted that if the Assessing Officer on account ofmistake or lapse does not examine a particular entry or a note inthe return, it can be said that there was no application of mindand thus, not a case of change of opinion. He submits that theword used in Explanation 2 (c)(iv) is “computed” shows that afterthe insertion of the said explanation even where assessment hasbeen made after due application of mind, there is no estoppel forreopening the assessment under section 147 of the Act whereexcessive loss or depreciation allowance or any other allowanceunder this Act has been computed. He relied upon the Judicialpronouncements in the following cases : a)A.L.A. Firm V/s. CIT (Mad) 102 ITR 622 b)Ess Kay Engineering Co. (P) Ltd. V/s. CIT (SC)247 ITR 818 c)Revathy C.P. Equipments Ltd. V/s. DCIT andors. (Mad.) 241 ITR 856. d)EMA India Ltd. V/s. ACIT (All) 30 DTR 82. 7.He further relied on the Judgment of the Supreme Court inthe case of Sri Krishna Pvt. Ltd. (87 Taxman 315), which heldthat even in respect of an issue accepted u/s 143(3), proceedingsU/s. 147 can be initiated. He submitted that an enquiry at thestage of examining the validity of a reassessment notice is only tosee whether there are reasonable grounds for the A.O. and notwhether the omission/failure and the escapement of income isestablished. He submitted that there was no statutoryrequirement for fresh material to be available for reopening of theassessment. He submitted that it would be an omission or failureto make a true and full disclosure, if some material for theassessment lay embedded in the evidence which the Assesseecould have uncovered but did not, and that it would be the duty ofthe Assessee to bring it to the notice of the A.O. He furthersubmitted that reassessment is permissible even if theinformation is obtained after proper investigation from thematerials on record or from any enquiry or research into facts orlaw. He lastly submitted that an alternative remedy in the formof submissions before the A.O. during the reassessmentproceedings would be available to the Petitioner. Moreover, if thePetitioner was aggrieved by the reassessment order, the Petitioner had a remedy of an appeal before CIT(a), ITAT etc. Inview of the aforesaid, he submitted that the Petition deserves to bedismissed. Conclusion: 8.We heard both the learned Counsel at length. We find meritin the Petition. Petitioner had a remedy of an appeal before CIT(a), ITAT etc. Inview of the aforesaid, he submitted that the Petition deserves to bedismissed. Conclusion: 8.We heard both the learned Counsel at length. We find meritin the Petition. 9.It would be appropriate to mention about the case of CIT v/s.Institute of Banking Personnel Selection (IBPS) (cited supra)which held that income derived from the trust property has alsogot to be computed on commercial principles and if thecommercial principles are applied then the adjustment ofexpenses incurred by the Trust for charitable and religiouspurposes in the earlier years against income earned by the Trustin the subsequent year will have to be regarded as application ofincome of the Trust for charitable and religious purposes in thesubsequent year in which adjustment has been made havingregard to the benevolent provisions contained in section 11 of theAct and that such adjustment will have to be excluded from theincome of the Trust under section 11(1)(a) of the Act. WP321.2018.doc 10.It is further well settled in the case of Director of Income-tax(Exem) v/s. MIDC reported in Income Tax Appeal No. 2652 of2011 where this Court had allowed the assessee’s claim to carryforward the deficit relying on the decision of this Court in thematter of CIT v/s. Institute of Bankingreported in 264 ITR 110.The above proposition of law is now well settled by the SupremeCourt in the case of Director of Income-tax v/s. Society for AppliedMicrowave Electronic Engineering & Research,[3]upholding thedecision of the Bombay High Court which held that the Tribunalwas justified in upholding the decision of the CIT(A) to allow carryforward of deficit on account of excessive expenditure anddirecting the A.O. to carry forward deficit on account of excessexpenditure without appreciating the fact that this would have theeffect of granting double benefit to the assessee, first as“accumulation” of income under Section 11(1)(a) or as corpusdonation under section 11(1)(d) in the earlier years/current yearand then as ‘application’ of income under section 11(1)(a) in thesubsequent years. 11.In the present case, the AO had recorded in the assessmentorder u/s 143 (3) of the Act dated 28[th] December 2010 for AY2008-09 that the petitioner was registered with the Director of3(2019)106 taxman.com 204 WP321.2018.doc Income- Tax exemption – Mumbai, under section 12A of the Actand that during the year the Petitioner had claimed exemption u/s11 of the Act. The reasons recorded in the letter dated 30[th] April2015 evince that the AO has come to the conclusion that incomehas escaped assessment ‘on the perusal of the records’.Consequently, there is no question of any failure to disclose anymaterial fact necessary for assessment as held in the case ofIncome-tax Officer vs. Lakhmani Mewal Das[4]. The impugnednotice by the respondent no. 1 is clearly a case of change ofopinion as held by this Court in the case of Aroni Commercials Ltd.Vs DCIT – 2 (1)[5]. Furthermore, AO’s the reason to believe must bebased on some new tangible material which was not available atthe time of passing the original Assessment Order as held in thecase of Lalitha Chem Industries (P) Ltd. Vs. DCIT – 9 (2)[6]. 12.In our view, the petitioner had rightly claimed carry forwardand set off of deficit. Consequently, the impugned order dated 2[nd]November 2015 rejecting the objections deserve to be set aside. 13.Be that as it may, the impugned notice dated 20[th] March2015 and the impugned order dated 2[nd] November 2015 are4[1976] 103 ITR 473 (SC) 5[2014] 44 taxmann.com 3046[2014] 45 taxmann.com 451 quashed and set aside and consequential actions in furtherancethereto are stayed. 14.The Petition is allowed with no order as to costs. [ KAMAL KHATA, J. ] [ DHIRAJ SINGH THAKUR, J. ]