Reopening of Assessment Invalid Due to Lack of Escaped Income and Improper Consideration of Assessee’s Explanation.
Issue:
Whether an Assessing Officer can validly assume jurisdiction to reopen an assessment under Section 148A when there is no evidence of escaped income and the assessee’s explanation is not properly considered.
Facts:
- The assessee, a trust running a residential school/ashram shala, did not file an income tax return as it had no taxable income.
- The Assessing Officer issued reopening notices under Sections 148A(a) and 148A(b) based on information that the assessee had deposited a certain amount in its bank account.
- The assessee explained that the deposit was a maintenance grant received from the State Government, which was subsequently utilized for the ashram shala’s expenses.
- The assessee also clarified that there were no cash deposits and that the bank’s reporting was erroneous, counting the transaction multiple times.
- The Assessing Officer did not consider the assessee’s reply and passed an order under Section 148A(d) along with a notice under Section 148.
- The notices under 148A(a) and 148A(b) did not allege any cash deposits or provide information about any escaped income.
- The assessee’s explanation and documents indicated an excess of expenditure over income.
Decision:
The court held that the Assessing Officer could not have assumed jurisdiction to reopen the assessment. The reasons recorded in the notices did not indicate any escaped income, and the Assessing Officer failed to properly consider the assessee’s explanation and supporting documents.
Key Takeaways:
- Reopening of assessment under Section 148A requires valid reasons indicating escaped income.
- Assessing Officers must thoroughly consider the assessee’s explanations and supporting documents.
- Lack of evidence of escaped income invalidates the reopening of assessment.
- It is improper for an officer to not consider the assessee’s reply, especially when documents are given that provide proof of the assessee’s claims.
HIGH COURT OF GUJARAT
Mahatma Gobarji Seva Sansthan ILOL
v.
Income-tax Officer Ward –
BHARGAV D. KARIA and D.N. Ray, JJ.
R/SPECIAL CIVIL APPLICATION NO. 10786 of 2023
FEBRUARY 10, 2025
Rushin Patel for the Petitioner. Varun K. Patel for the Respondent.
ORDER
Bhargav D. Karia, J.- Heard learned advocate Mr. Rushin Patel for the petitioner and learned Senior Standing Counsel Mr. Varun K. Patel for the respondent.
2. Rule, returnable forthwith. Learned Senior Standing Counsel Mr.Varun K. Patel for the respondent waives service of notice of rule on behalf of the respondent.
3. By this petition under Article 226 of the Constitution of India, the petitioner has prayed for quashing and setting aside the order dated 28/03/2023 passed under Section 148A(d) as well as notice dated 28/03/2023 issued under Section 148 of the Income Tax Act, 1961 (for short ‘the Act’).
4. The petitioner is a public charitable trust registered under the the provisions of the Bombay Public Trust Act, 1950. For the assessment year 2019-2020, the petitioner did not file return of income as there was no taxable income. The respondent issued a notice dated 15/02/2023 under Section 148A(a) of the Act for assessment year 2019-2020 as no return of income was filed by the petitioner as well as on the basis of the information to the effect that the petitioner has deposited amount of Rs.22,40,000/- five times in one or more bank accounts totaling to Rs.1,12,00,000/-.
5. In response to the notice under Section 148A(a) of the Act, the petitioner has filed reply on 23/02/2023.
“Our trust is running Resident School namely Sant Shri asharam Ashram Shala at & post:Ilol, Taluka:Himmatnagar, District:Sabarkantha, Gujarat and have received Maintenance Grant of Rs.18,00,000 from State Govt. Department and have deposited into Bank of Baroda Account No.17510100001230 and have withdrawn total Rs.22,40,000 during the year and it is utilized towards expenses of Ashram Shala. Your Notice is wrong as we have not deposited any cash. Also, the transaction of Rs.22,40,000 is counted five times making total amount of information of Rs.1,12,00,000. So it is wrong reporting by bank. We are attaching herein Audited Profit & Loss A/c. And Balance Sheet for Sant Shri Asharam Shala, Ilol and Mahatma Gobarji Seva Sansthan, Ilol for FY 2018-19 and Passbook of Bank of Baroda. So we request to consider out above answer and drop the further proceedings. As the income of Trust is below the limits, we have not filed Return of Income.”
6. The petitioner also annexed with the reply the audit report for the financial year 2018-2019 for the petitioner trust as well as Sant Shree Asharam Ashram Shala managed by the petitioner. The petitioner thereafter received notice dated 28/02/2023 under Section 148A(b) of the Act on the basis of the same information. The petitioner sought time to file reply to the notice under Section 148A(b) of the Act on 09/03/2023 which was granted by the respondent up to 16/03/2023. The petitioner filed reply reiterating the fact stated in the reply to the notice under Section 148A(a) of the Act on 17/03/2023. However, the respondent-Assessing Officer did not consider such reply filed by the petitioner on 17/03/2023 and passed order under Section 148A(d) of the Act on 28/03/2023 along with the notice under Section 148 of the Act.
7. Learned advocate Mr. Rushin Patel for the petitioner submitted that while passing the order under Section 148A(d) of the Act, the respondent has changed the entire basis for issuance of notice under Section 148 of the Act. It was pointed out that the notice under Section 148A(b) was issued on the basis of the information of the cash deposit in the bank account but while considering the reply of the petitioner under Section 148A(a) of the Act and the documents annexed therewith, the respondent came to the conclusion that there is an excess of income and expenditure account during the year of Rs.4,88,110/- and there is credit of Rs.18,13,833/- in the bank accounts and there is escapement of income to the tune of Rs.23,01,943/- for the assessment year 2019-2020.
8. Learned advocate Mr. Rushin Patel relied upon the documents placed on record which were filed along with the reply and demonstrated that there was no excess of income over expenditure but in fact there is an excess of expenditure over income for the year under consideration and the accounts of the petitioner were audited and there is no taxable income of the petitioner so as to file the return of the income for the year under consideration. It was therefore submitted that the respondent-Assessing Officer has passed the impugned order dated 28/03/2023 under Section 148A(d) contrary to the documents available on record and there is no information available with the respondent-Assessing Officer to come to the conclusion that it is fit case for reopening for any escaped income.
9. It was submitted that the information of cash deposit was wrong information which is accepted by the respondent in the affidavit-in-reply filed in response to the notice issued by this Court. It was further submitted that the impugned order and the notice are therefore liable to be quashed and set aside in absence of any information in possession of the respondent.
10. Reliance was placed on provisions of Section 148 of the Act which stipulates that the Assessing Officer can reopen the assessment only on the basis of the information in his possession which suggests that income has escaped assessment.
11. On the other hand, learned Senior Standing Counsel Mr.Varun K. Patel for the respondent submitted that the information in the impugned notice under Section 148A(a) of the Act followed by notice under Section 148A(b) of the Act was issued mainly on the ground that the the petitioner did not file return of income and as per the information available in database of the department i.e. Risk Management Strata-gee (RMS)-Non filing of return-Pan Cases, it was found that the petitioner has deposited cash in the bank accounts to the tune of Rs.1,12,00,000/-. It was submitted that however, later on it was found that the petitioner did not deposit any cash in the bank accounts but has received a deposit of Rs.18,00,000/-which is reflected in the bank account and the same was not offered to tax resulting into escapement of the income.
12. It was further submitted that the petitioner trust subsequently filed the Form-10(B) on 27/04/2023 showing that amount of Rs.27,08,559/- applied to charitable and religious purpose. It was therefore submitted that the petitioner ought to have filed the return of income and as no return of income is filed, the respondent-Assessing Officer was justified in reopening the assessment so a to enable the petitioner to file the return of income. It was further submitted that as the petitioner did not file the return of income, the explanation tendered by the the petitioner that there is no exempt income claimed by the petitioner and the issue that there is excess of expenditure over income for the year under under consideration can be raised during the course of the assessment proceedings and as such the petition may not be entertained at this stage.
13. Having heard the learned advocates for the respective parties it is clear that from the reasons recorded in both the notices issued under Section 148A(a) and Section 148A(b) of the Act that there there is no cash deposit made by the petitioner in any of the bank accounts and there is no information of any escaped income with the respondentAssessing Officer so as to initiate the reopening proceedings. Moreover, the explanation given by the petitioner in reply to the notice under Section 148A(a) of the Act and the documents annexed therewith, prima facie, shows that there is no income earned by the petitioner but there is excess of expenditure over income for the year under consideration and as such the petitioner was not liable to file the return of income if there is no taxable income or exemption claimed by the petitioner.
14. In view of the forgoing reasons, the petition succeeds and is accordingly allowed. The respondent-Assessing Officer could not have assume the jurisdiction to reopen the assessment. The impugned order dated 28/03/2023 passed under Section 148A(d) as well as notice dated 28/03/2023 are hereby quashed and set aside. Rule is made absolute to the aforesaid extent. No order as to costs.