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IN THE HIGH COURT OF KARNATAKA
B.M. Shyam Prasad, J.
Jindal Naturecare Limited - Appellant
Versus
Assistant Commissioner Of Income Tax, Circle-4(1)(1) &ors. - Respondent
Writ Petition Nos. 44636/2017 C/W, 52268/2017 and 52269/2017 (T-IT) Assessment Year: 2013-2014;2015-2016
Decided On : 16-03-2022
Income Tax - Notices under section 148 of the Income-tax Act - Notifications dated 06.09.2016 - Section 35(1)(ii) of the I-T Act read with rule 5C and 5E of the Income Tax Rules 1962 - Summary of Acts and Sections: The court discussed the initiation of reassessment proceedings based on the withdrawal of approval granted to M/s. Herbicure, the donations made by the petitioners, and the survey conducted in the premises of M/s. Herbicure. The court emphasized the settled propositions related to the initiation of reassessment proceedings and concluded that the threshold bar for initiation of the reassessment proceedings was satisfied.
Fact of the Case:
The petitioners challenged the notices issued under section 148 of the Income-tax Act for the AY: 2013-14 and 2015-16, the corresponding order dated 10.08.2017, and the notification dated 06.09.2016. The petitioners, companies incorporated under the Companies Act, 1956, donated sums to M/s. Herbicure, an organization approved under section 35(1)(ii) of the I-T Act. The AO initiated reassessment proceedings based on the withdrawal of approval granted to M/s. Herbicure and the survey conducted in its premises.
Finding of the Court:
The court found that the threshold bar for initiation of the reassessment proceedings was satisfied based on the nature of the information available during the assessment proceedings and the further enquiry into the affairs of M/s. Herbicure. The court concluded that the AO's subjective prima facie opinion was not a case of 'change of opinion' and rejected the petitions.
Issues: The main issue was whether the initiation of reassessment proceedings with the issuance of the impugned notices under Section 148 of the I-T Act was without jurisdiction.
Ratio Decidendi: The court emphasized the settled propositions related to the initiation of reassessment proceedings, including the requirement of relevant material for forming the belief that there is reason to opine that income has escaped assessment. The court concluded that the threshold bar for initiation of the reassessment proceedings was satisfied based on the nature of the information available during the assessment proceedings and the further enquiry into the affairs of M/s. Herbicure.
Final Decision: The court rejected the petitions, leaving open all contentions.
JUDGMENT
B.M. Shyam Prasad, J. - The common petitioner in WP Nos. 44636/2017 and 52268/2017 has impugned the notices issued under section 148 of the Income-tax Act [for short, 'I-T Act'] for the AY: 2013-14 and 2015-16 and the second respondent's corresponding order dated 10.08.2017. The second respondent, by these orders, has rejected the petitioner's objections contesting the reasons offered for reopening the assessment for the aforesaid assessment years. In addition, the petitioner has also challenged the notification dated 06.09.2016 issued by the Central Board of Direct Taxes, Department of Revenue, Ministry of Finance.
2. The Central Board of Direct Taxes by this notification dated 06.09.2016, which is issued in exercise of the power conferred under section 35(1)(ii) of the I-T Act read with rule 5C and 5C of the Income Tax Rules 1968, has rescinded the earlier notification dated 14.03.2018 in No. 35/2008 with effect from 01.04.2007 with the stipulation that this notification dated 14.03.2008 shall not be deemed to have been issued for any tax benefits under the I-T Act or any other law for the time being in force. The petitioner in WP No. 52269 of 2017 is also similarly placed as the petitioner in the other two writ petitions, and this petitioner has also challenged similar notices and orders but for the AY: 2012-2013 and the Notification dated 07.09.2016.
3. A brief statement of facts in WP Nos. 44636/2017 and 52268/2017:
3.1 The petitioner, a company incorporated under the provisions of the Companies Act, 1956, has filed its returns of income for the AY 2013-2014 offering certain income for tax and paying the income tax computed on the basis of such income. During this assessment year, the petitioner has donated a sum of Rs. 5,50,00,000/- to M/s. Herbicure Healthcare Herbal Research Foundation, Kolkata [referred to as 'M/s. Herbicure'], an organisation which is notified vide the notification dated 14.03.2008 [referred to as 'the notification dated 14.03.2008'] for the purpose of 35(1)(ii) of the I-T Act, 1961 read with rule 5C and 5E of the Income Tax Rules 1962 with effect from 01.04.2007 in the category of the other Institution engaged in research activities.
3.2 The notification dated 14.03.2008 is subject to certain conditions, and these conditions include that M/s. Herbicure shall carry out scientific research through its faculty members or its enrolled students; shall maintain separate books of accounts in respect of the sums received by it for scientific research reflecting the amounts used for carrying out research; shall get such books audited by an Accountant as mentioned therein; shall maintain a separate statement of donations received and amounts applied for scientific research.
3.3 This approval is also subject to the condition that the Central Government shall withdraw the approval if M/s. Herbicure fails to maintain separate books of accounts as required, or fails to furnish its audit report, or fails to furnish its statement of the donation received and sums applied for scientific research, or if it ceases to carry on its research activities, or its research activities is found to be not genuine or ceases to conform and to comply with the provisions of section 35(1)(ii) of the I-T Act and the related rules.
3.4 The petitioner in the AY 2015-16 has again donated a sum of Rs. 1,00,00,000/- M/s. Herbicure and this is also disclosed in the returns filed. After the returns are filed, the petitioner is issued with the intimation dated 24.10.2016 under section 143 (1) of the I-T Act and consequently the income offered to tax is accepted. However, the petitioner's returns for the AY: 2013-14 is allowed by the assessment order dated 14.03.2016 under section 143(3) of the I-T Act. Admittedly, before the conclusion of the assessment for these two respective assessment years as aforesaid, a survey under section 133A of the I-T Act is conducted on 03.03.2016 and statement of one of the officers of the petitioner, Sri S.K
AI
The threshold bar for initiation of reassessment proceedings must be satisfied based on relevant material for forming the belief that income has escaped assessment, as per settled propositions relate....
Assessee’s objections raised against the reopening proceedings are not acceptable as the case warrants scrutiny on the same lines. Accordingly, the objections so raised are hereby disposed off accord....
Reopening of assessment under the Income Tax Act requires fresh tangible material; mere change of opinion is insufficient for valid reassessment.
Reassessment under Section 147 after four years requires proof of failure to disclose material facts, which was not demonstrated in this case.
Under section 147 of the Act the proceedings for the reassessment can be initiated only if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any....
Point of Law : Sufficiency of the evidence or material is not open to scrutiny by the Court but the existence of the belief is the sine qua non for a valid exercise of power.
The Assessing Officer must have tangible evidence linking the taxpayer to alleged income escape for valid reassessment under the Income Tax Act; mere suspicion is insufficient.
Point of Law : Court satisfied that there was prima facie material available on record before the assessing officer for issuing a notice for reassessment and the notice under Section 148.
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