Pirojsha Godrej Foundation vs. ADIT (ITAT Mumbai)

Even s. 143(1)(a) cannot be reopened u/s 147 without proper “reasons to believe”

The assessee, a charitable trust claimed exemption u/s 10(23C)(vi). The return was processed u/s 143(1)(a). No assessment order u/s 143(3) was passed. Subsequently, the AO issued a notice u/s 147 on the ground that as the assessee had not invested a sum of Rs. 1.02 crores in investments u/s 11(5), the said sum of Rs. 1.02 crores was chargeable to tax. The reopening was upheld by the CIT(A). On appeal by the assessee, HELD allowing the appeal:

(i) The recorded reason that the violation of s. 11(5) r.w.s. 13(1)(d) by the assessee led the amount of Rs. 1.02 crores to be included in the assessee’s total income is clearly contrary to the legal position that while the assessee may lose exemption u/s 10(23C) for not adhering to the conditions of s. 11(5), this does not result in the said amount being chargeable to tax in the hands of the assessee. The fact that the amount was not invested in the prescribed manner does not mean that it can be assessed as income;

(ii) The reasons are required to be self explanatory and read as recorded by the AO. No substitution, addition or deletion is permissible. No inference can be allowed to be drawn on the basis of reasons not recorded. It is for the AO to disclose and open his mind through the recorded reasons. The reasons must have a live link with formation of belief. (Hindustan Lever 268 ITR 332 (Bom) & Kelvinator 320 ITR 561 (SC) followed);

(iii) The fact that only an Intimation was passed u/s 143(1)(a) is irrelevant because what is material is whether the AO had proper “reasons to believe” that income had escaped assessment. In the absence of proper “reasons”, the reopening is invalid (Prashant S. Joshi vs. ITO (Bom) followed; Rajesh Jhaveri 291 ITR 500 (SC) referred).