Court’s Decision
The Court quashed the notices issued under Section 148A(b), the order passed under Section 148A(d), and the consequential reopening notice under Section 148. The Court held that the reopening was without jurisdiction, based solely on internal audit objections, and that the original assessment had already examined the very issue of accumulation under Section 11(2). The Court declared that the Revenue’s attempt was nothing but a “change of opinion”, which is impermissible in law.
The Court held that the assessee had fully complied with Section 11(2), that Form 10 was validly filed, that a resolution specifying purposes existed, and that all materials were before the Assessing Officer during original scrutiny. Therefore, no income had escaped assessment.
Facts
The petitioner is a charitable trust registered under Section 12A. It filed its return for AY 2018-19 declaring a small taxable income and claimed exemption under Section 11. It filed Form 10 and informed the Assessing Officer that the trustees had resolved to accumulate around 66 percent of its income for charitable purposes including medical, educational and social assistance for a specific community and the conservation of its properties up to March 2023.
Following selection for scrutiny, the trust was repeatedly asked to provide details of accumulation, utilisation in the last ten years, and copies of resolutions and Form 10. The trust provided all documents, including the resolution dated 26 September 2018 and the detailed utilisation charts.
The National Faceless Assessment Centre passed an assessment order under Section 143(3) accepting the accumulation and completing the assessment.
Years later, on 9 August 2024, the Assessing Officer issued a notice under Section 148A(b) based on an internal audit objection, asserting that Form 10 did not specify “particular purposes” and that the trustees had merely repeated objects of the trust. The trust replied, pointing out that all details were produced earlier and that this was a change of opinion.
Despite the reply, a second notice under Section 148A(b) was issued, and the trust submitted another detailed response. Despite this, an order under Section 148A(d) was passed relying entirely on the audit objection, followed by a reopening notice under Section 148.
These actions were challenged before the High Court.
Issues
- Whether the reassessment was based on valid “information” under Section 148.
- Whether the original assessment had already considered all materials relating to accumulation under Section 11(2).
- Whether reliance on internal audit objection amounts to a change of opinion.
- Whether Form 10 and the resolution complied with Section 11(2).
- Whether reopening was barred by limitation or lacked jurisdiction.
Petitioner’s Arguments
The petitioner argued that it had fully complied with Section 11(2) by filing Form 10 in time and by passing a resolution prior to the due date. Form 10 contained limited space, so the detailed purposes were elaborated in the resolution, which was disclosed to the Assessing Officer both during scrutiny and through a certified copy.
It argued that the Assessing Officer during original assessment had issued multiple notices specifically on accumulation under Section 11(2), demanded details of prior years, utilisation, Form 10, and resolutions. All information was furnished, and the assessment order acknowledged this. Thus, the issue had been thoroughly examined.
The petitioner argued that the reopening was based only on audit objection, which cannot constitute information under Section 148. It was a classic case of change of opinion because the Revenue was re-examining the same documents already scrutinised earlier.
The petitioner also submitted that the allegation that the resolution was post-dated was factually incorrect because the resolution was passed before the due date and filed accordingly.
The petitioner further argued that the sanction under Section 151 was mechanical and that the reopening was barred by limitation.
Respondent’s Arguments
The Revenue argued that the trust did not comply with Section 11(2) because Form 10 did not specify “specific purposes” but merely repeated the trust’s broad objects, and that even the resolution allegedly relied upon had inconsistencies in dates. It alleged that the resolution was passed belatedly to cover up non-compliance.
It contended that the trust had not disclosed the resolution during the earlier assessment and that details were not fully provided, thereby justifying reopening. It argued that audit objection highlighted non-compliance in Form 10, which amounted to “information” suggesting escapement of income.
The Revenue submitted that the order under Section 148A(d) and the sanction under Section 151 were validly granted.
Analysis of the Law
The Court examined Section 11(2), noting that the provision requires:
- Filing Form 10 with specific purpose of accumulation.
- Filing before the due date.
- Having a resolution specifying the accumulation purpose.
The Court recognised that Form 10 has limited space and that cross-reference to a detailed resolution is permissible. It held that as long as Form 10 refers to the resolution and the resolution was passed prior to the due date, the requirement of specifying “purpose” is satisfied.
The Court found that the trust had complied with all statutory conditions. The resolution existed prior to due date, was furnished during scrutiny, and the Assessing Officer had accepted it earlier under Section 143(3).
The Court analysed Section 148A, reiterating that reassessment cannot be initiated merely on audit objection or change of opinion, as these do not constitute “information with the Assessing Officer” under the amended scheme.
Precedent Analysis
The Court relied on the settled jurisprudence that:
- Audit objection cannot constitute “information” for reopening.
- Reopening cannot be based on change of opinion.
- Section 148A requires fresh, tangible material, not previously considered.
These principles were reaffirmed to emphasize that the Revenue cannot review a concluded assessment on the same facts.
Court’s Reasoning
The Court held that the internal audit objection did not constitute “information” under Section 148. Every fact relied upon by the Assessing Officer in the audit objection had already been examined at the time of original assessment.
The Court held that the petitioner had disclosed everything in detail: Form 10, resolution, utilisation charts, ten-year accumulation chart. These were specifically sought through earlier notices and furnished by the trust. The Assessing Officer accepted the accumulation in the scrutiny order. Hence, the reopening was nothing but a re-examination of the same facts.
The Court held that “the reassessment is plainly a change of opinion and therefore impermissible.”
It further found that the allegation about the resolution being post-dated was factually incorrect, because the resolution existed on record during scrutiny, and reference to it was present in Form 10 itself.
The Court concluded that jurisdictional conditions for reopening were absent.
Conclusion
The High Court quashed:
- The notices under Section 148A(b).
- The order under Section 148A(d).
- The reassessment notice under Section 148.
It held that reassessment was unsustainable, lacked jurisdiction, and was based on an audit objection and change of opinion, both barred in law. The trust was held to be fully compliant with Section 11(2).
Implications
- Revenue cannot reopen assessments under Section 148A merely on the basis of audit objections.
- Charitable trusts fully complying with Section 11(2) cannot be subjected to reassessment without fresh material.
- Form 10 cross-referencing a detailed resolution satisfies statutory requirements.
- Reopening is invalid where the same issue was thoroughly examined under Section 143(3).
- The judgment reinforces that reassessment cannot be used as a review mechanism.
Cases Referred and Their Relevance
The judgment relies heavily on precedents establishing that:
- Audit objections do not constitute information for reassessment.
- Reopening must be based on new material and not on re-appreciation of old facts.
- Change of opinion renders reassessment invalid.
These principles were central to quashing the reassessment.
FAQs
1. Can the Revenue reopen assessments merely because an audit objection is raised?
No. The Court reiterated that audit objection does not constitute valid “information” under Section 148.
2. Does Form 10 need detailed narration of purposes?
No. Limited space in Form 10 allows cross-reference to a detailed resolution, which is sufficient compliance.
3. When is reopening treated as a change of opinion?
When the Assessing Officer reassesses the same facts already examined during scrutiny without new material.
