AO Has No Jurisdiction To Assess Or Reassess Income Which Was Subject Matter Of Appeal: Bombay High Court

The Bombay High Court has held that the AO has no jurisdiction to assess or reassess any income, which was the subject matter of an appeal.

The bench of Justice K.R. Shriram and Justice Neela Gokhale has observed that since the grant of benefit under Section 11 of the Income Tax Act, 1961, was the subject matter of appeal and has been held in favour of the assessee, the matter cannot be reopened.

The petitioner/assessee is a society registered under the Societies Registration Act, of 1960, and is also a charitable institution under the Bombay Public Trust, 1950. The petitioner is engaged in charitable activities comprising the fields of education (music, fine arts, and yoga), medical relief (running an eye centre, a dialysis centre, a pathology centre, and holding medical camps), and the promotion of dance, drama, and fine arts in all forms without derogation from the generality of secular education. The petitioner has been granted registration under Section 12A of the Income Tax Act, 1961, by the Commissioner of Income Tax.

The petitioner filed the original return of income on September 29, 2009, disclosing a total deficit of Rs. 3,26,12,415/- after claiming exemption under Section 11. The petitioner claimed depreciation on the capital assets. The return was accompanied by a copy of the annual report and statement of account. In its accounts, Hall Charges income of Rs. 2,88,87,001 and compensation for use of premises of Rs. 45,69,771 aggregating to Rs. 3,34,56,772 are disclosed. The computation of income filed by the petitioner also discloses hall and premises rental income at Rs. 3,34,56,772.

The petitioner was issued a notice asking for various information, including the object of the trust. The petitioner filed a detailed note on the object of the trust as well as on the issue of the claim of depreciation.

In the meantime, the Director of Income Tax (Exemption) passed an order withdrawing the registration granted under Section 12A for amendments to objects. The petitioner had filed an appeal before the tribunal against the order of the Director of Income Tax (Exemption). The Tribunal allowed the petitioner's appeal, and the 12A registration was restored.

The assessment order was passed under Section 143(3) of the Act by the Assessing Officer, denying the exemption under Section 11 and computing the taxable income. The petitioner filed an appeal before CIT (A) against the quantum order. The grounds taken were denial of exemption under Section 11, the addition of expenses, non-grant of set-off or carried forward of unabsorbed depreciation, and excess expenditure over income.

The CIT(A) allowed the petitioner's appeal, granted an exemption under Section 11, deleted disallowed expenses, and allowed a claim of set-off or carry-forward of unabsorbed depreciation and excess expenditure over income.

The department filed an appeal before the ITAT. The ITAT dismissed the departmental appeal for denial of exemption under Section 11, disallowance of expenses, non-allowance of the claim of set-off or carried forward of unabsorbed depreciation and excess expenditure over income.

The petitioner contended that, as per the third proviso to Section 147 of the Act, the A.O. will have no jurisdiction to reopen the assessment on an issue that was the subject matter of appeal, and the Appellate Authority has allowed the benefit of Section 11. In effect, the A.O. cannot sit in appeal over the decision of CIT (A).

The department contended that the petitioner did not disclose to the AO during the assessment proceedings that it was engaging in commercial activities. In fact, the petitioner is also guilty of non-disclosure.

The court, while disposing of the writ petition, held that a charitable trust is eligible to claim depreciation.

Counsel For Petitioner: Madhur Agrawal

Counsel For Respondent: Suresh Kumar

Case Title: Shri Shanmukhananda Fine Arts Versus The Deputy Director of Income Tax (Exemptions)

Case No.: Writ Petition No. 2689 Of 2015

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