The assessee was a charitable institution enjoying exemption under section 11. The AO issued a notice under section 148 to reopen the assessment for AY 2007-08, alleging that certain receipts earned by the assessee were from commercial activities, thereby disentitling it to the exemption.

The High Court quashed the notice, holding that merely because a trust earns certain receipts while conducting its charitable activities, such receipts, irrespective of their quantum, cannot be treated as income from commercial activities. For an activity to be considered commercial in a manner that disqualifies the trust, the trust’s objects must confer an uncontrolled discretion upon the trustees to engage in such non-charitable ventures, which was not even an allegation in the present case. Furthermore, the Court found a patent non-application of mind by the AO. The ‘reasons to believe’ were formed mechanically, as evidenced by significant factual errors such as incorrectly stating that a scrutiny assessment under section 143(3) had been passed when only an intimation under section 143(1) was issued, and misidentifying a Supreme Court ruling as a High Court decision. These errors vitiated the entire reopening process.(AY. 2007-08)