Commissioner of Income Tax vs Chandrika Educational Trust

V.V. Kamat, J.—The Department having approached this Court earlier under s. 256(2) of the IT Act, 1961, in pursuance of the earlier order of this Court dt. 9th Sept., 1991 in Original Petn. No. 2003/1988, the Tribunal refers the following question :

Whether, on the facts and in the circumstances of the case and also in the light of the facts disclosed in the enclosure :

(i) the reassessment made is bad in law;

(ii) the Tribunal is justified in law and supported by materials in holding that the reopening of the assessment is purely on the basis of a reappraisal of the same material ?

The learned senior tax counsel introduced the facts that the assessee - Chandrika Educational Trust, Municipal Office Road, Irinjalakuda, for the year 1974-75 came to be assessed for total income of Rs. 23,980. This was on the basis of grant of exemption under s. 11.

During the subsequent year - 1976-77 - the ITO found that this was a wrong assessment and the assessee had escaped assessment. By the order dt. 18th Feb., 1980 the assessment was reopened on the basis of the following factual positions. The ITO has observed that the fact that the provisions of s. 13(1)(c)(ii) and s. 13(2)(h) r/w s. 13(3) being applicable, the exemption granted for the previous year under s. 11 of the Act would be a wrong one. It is further observed that this came to light only during the course of the assessment proceedings for the year 1976-77. This resulted in the escapement of assessment for the year in question - 1974-75, and therefore, well within the jurisdiction of the ITO. The ITO has further observed that the audit report filed as per Form 10B did not contain the correct information necessary as required for grant of exemption under s. 11 of the Act. The ITO has specified this aspect by stating that the fact that the trustees are close relatives of the partners of these firms is not revealed in the audit report, in which case the Department would never have granted the claim for exemption under s. 11. It is neatly emphasised that the exemption under s. 11 was allowed wholly on the strength of the audit report.

The ITO in his order also refers to two partnership firms - M/s Lathika Enterprises and M/s Chandrika Enterprises. It is also further emphasised that the other partners of the above two firms are close relatives of Sri C. R. Kesavan Vaidyar, the managing trustee, this being the basic ground for attracting s. 13(3) of the Act. The amount of investment in question, it is also further emphasised, exceeded 5% of the capital of these concerns.

In the teeth of these details floating on the surface of the order of the ITO, further reinforced by the similar situation in the assessment proceedings, the appellate authority - CIT(A), Calicut, observing that the entire information was available with the ITO while making the original assessment and no fresh information had come to his possession thereafter, termed the process of reopening as redundant. Carefully and with concern reading the appellate order (Annexure C at p. 9) not only the careful and cautious order of the ITO is referred to, as specified hereinbefore, even the similarity of parallel assessment proceedings have not been taken care of. The facts stated in the order of the ITO stare in the face and go a long way to justify reopening. The appellate authority without referring to the material carefully stated, as stated above, allowed the appeal only on the basis of a bald statement that the entire information was available with the ITO. In our judgment, the appellate order does not show that the order of the ITO was referred to in any manner or even present to the mind of the assessing authority. Normally the first appellate authority is the final fact-finding authority and, therefore, the expectations of this Court, to say the least, from such last fact-finding authority are much higher in consonance with the element of finality attached thereto. Not only that the ITO has stated the details that the situation came to light during the assessment for the subsequent years together with the audit report being conspicuously absent with regard to the closeness of relationship, the statutory provisions are more than satisfied, together with the position that in the assessment proceeding parallel in nature, the position was no different.

The Tribunal, again in the same manner in paragraph 6, has relied upon the observations of the appellate authority that the entire material was available on record, did not disturb the position. The Tribunal has added that there is a support of ground No. 2 of the Revenue itself. Since the observation in the impugned order of the Tribunal requires factual clarification for understanding, the proper course would be to reproduce ground No. 2 which is hereinbelow :

The learned CIT(A) has erred in cancelling the reassessment. He ought to have found that since the ITO could inform himself from the material available on record as to the correct position of law or fact, the reopening of the assessment was valid.

It is impossible to spell out what has been spelt out therefrom by the Tribunal by way of a concession that the ITO has all the materials before him. Reading the text of the ground reproduced hereinbefore, in our judgment, it cannot be said that the ITO had all the material before him. In fact the ground suggests referring to the material before the ITO during the reopening proceedings for justifying the reopening of the assessment.

It is seen that even the Tribunal has ignored the careful and cautious order of the ITO who has clearly observed that during the year in question 1974-75 what was before the authority was the audit report filed in Form 10B. The said report did not contain the correct information especially regarding the closeness of relations of the partners of the concerned firms with the trustees. Had this been revealed, there was no question of even a thought of grant of exemption under s. 11. All this came to light during the course of the assessment proceedings for the subsequent year 1976-77. In the teeth of this material specifically floating on the surface of the order itself, it is not possible to consider the cryptic observation without any kind of reference thereto for a conclusion that the reopening would be unjustified in any way as being bad in law. After independently considering the situation, it must be stated that we cannot brush aside the conclusion reached by us, which has become the part of our judgment in IT Ref. No. 164/1985 delivered just earlier [since reported as Sreenarayana Chandrika Trust vs. CIT 134 (1996) CTR 570.

For all the above reasons the question under reference is answered in the negative in favour of the Revenue and against the assessee.