Introduction
In Shri Saibaba Sansthan Trust (Shirdi) v. Union of India[i], the Bombay High Court quashed the reassessment proceedings initiated against Shri Saibaba Sansthan Trust (‘Petitioner’) on the ground that cash donations received by the Petitioner would be taxable as ‘anonymous donations’ under s. 115BBC of the Income-tax Act, 1961 (‘Act’). The Court observed that the Income Tax department (‘Respondent’) failed to bring any new or fresh tangible material on record for reopening assessment under s. 147 of the Act, and it was merely a change of opinion.
Facts
The Petitioner, a religious and charitable trust, was receiving donations in cash/kind. It was registered under the Public Trust Act, 1950 and s. 12A of the Act. Subsequently, a certificate under s. 80G of the Act was issued, allowing tax exemptions for donors and ensuring its validity.
In September 2014, the Petitioner filed its income tax return (‘ITR’) for the assessment year (‘A.Y.’) 2014-15. Subsequently, a notice under s. 143(3) of the Act was issued to the Petitioner on 31.08.2015, in which an assessment order was passed, and an exemption claimed by the Petitioner was also granted. However, in the ITR filed for A.Y. 2015-16, certain anonymous donations were included as taxable income in the assessment order. Resultantly, recovery proceedings were initiated against the Petitioner by the Assessing Officer (‘AO’).
The AO, later on, also proceeded to reopen the assessment for the A.Y. 2014-15 and issued the show cause notice (‘SCN’) to the Petitioner, contending that the cash donations received in Hundi boxes belonging to the Petitioner would fall under the definition of ‘anonymous donations’ under s. 115BBC of the Act, the same would be taxable under the Act.
The Petitioner, in its response to the SCN, contended that s. 115BBC of the IT Act did not apply to a mixed-purpose trust, i.e., charitable and religious trust; therefore, the Petitioner was exempted under s. 115BBC 2(b) of the Act.
Further, the Petitioner filed a writ petition before the Bombay High Court challenging the assessment order passed for the A.Y. 2015-16. The Court directed the Commissioner of Income Tax (Appeals) (‘CIT (A)’) to consider the appeal.
Subsequently, the Petitioner filed an appeal and a stay application before the CIT(A), where the Petitioner was directed to deposit a lump-sum amount. Further, the Petitioner filed another writ petition before the Bombay High Court, which directed the AO not to initiate recovery proceedings against the Petitioner till the disposal of the appeal filed before CIT (A).
Further, the Petitioner contended that the AO re-opened another assessment for A.Y. 2013-14, stating that the anonymous donations received by the Petitioner had escaped assessment. Further, the Petitioner filed the writ petition before the Bombay High Court, which was dismissed. Being aggrieved by the same, the Petitioner approached the Supreme Court, which directed the CIT (A) to pass both appeals.
Subsequently, the impugned notices and assessment orders were passed against the Petitioner. Being aggrieved by the same, the Petitioner thereafter approached the Bombay High Court and argued that the reassessment proceedings were initiated based on material already available with the AO at the time of assessment and it was merely a change of opinion as the AO unearthed no new material. Therefore, reopening the assessment without having any ‘reason to believe’ that the income of the Petitioner had escaped assessment would be illegal and ex-facie bad in law.
The Petitioner further submitted that reviewing the assessment order on a mere change of opinion is forbidden under the Act.
Held
The Bombay High Court, while allowing the writ petition filed by the Petitioner, observed as follows:
The reopening of the assessment in the present case was based on a mere change of opinion of the AO. No fresh/ new tangible material was available with the AO, based on which such re-assessment could have been justified. In such regards, the Court relied upon the judgment passed in the case of Bapalal & Co. Exports v. Joint Commissioner of Income-tax[ii], wherein it was stated that once an opinion has been expressed via an assessment order, it cannot be reopened by any other authority, except based on fresh material which the Respondent may have subsequently discovered. Thus, in the ‘absence of any new material’, the AO was not empowered to reopen an assessment.
The Court also relied upon Commissioner of Income-tax v. Orient Craft[iii], wherein it was held that in the absence of any new tangible material found by the AO, the reopening of the assessment was invalid.
S. 147 of the Act does not empower the AO to initiate reassessment proceedings against the assessee merely based on a change of opinion with respect to the interpretation of law or facts which were already within its knowledge during the previous assessment, considering that it would give the AO the power to review its own decision, which is impermissible under s. 147 of the Act.
Thus, considering that in the present case, the reopening was initiated by the AO based on material which was already available for his review/scrutiny at the time of the previous assessment and no new/ subsequent discovery was made by the AO regarding the Petitioner receiving anonymous donations in cash and/or kind, the initiation of reassessment was an overreach by the AO, and hence the reassessment proceedings were quashed and set aside by the Court.
Conclusion
An important judgment reiterates the significance of complying with statutory provisions in both letter and spirit. In this judgment, the Court relied on various precedents, consistently holding that reassessment cannot be initiated in the absence of new material, as this would amount to an impermissible review of an already concluded assessment.
After multiple clarifications, the Court reiterated and emphasised established jurisprudence prohibiting the AO from reopening assessment proceedings in the absence of new material or evidence. The Court noted that reopening based solely on a mere change of opinion is impermissible. Despite the statute explicitly barring such reassessments under s.147 of the Act, such actions, if taken, would amount to an unauthorised review, a power the AO does not possess. This highlights the need for judicial intervention to safeguard the rights of the assessee in such cases.
Reassessment initiated under s. 147 of the Act does not permit a ‘second bite at the cherry,’ allowing the AO to reopen assessments without fresh evidence or discovery. If a reassessment is initiated solely on a change of opinion, it constitutes an overreach of jurisdiction, which is prohibited by both statute and jurisprudence.
End Notes
[i] 2024 SCC OnLine Bom 3875 dated 20.12.2024.
[ii] [2008] 170 Taxman 131/ [2007] 289 ITR 37 (Madras).
[iii] [2013] 29 taxmann.com 392/215 Taxman 28/354 ITR 536 (Delhi).
Authored by Purvi Garg, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinions.