Judgment:
R.K. Abichandani, J.
1. The petitioner Stock Exchange challenges the reassessment notices issued by the Asstt. CIT, Circle-2(5), Ahmedabad on 20th July, 1995 for the asst. yrs. 1989-90 to 1993-94.
2. The case of the petitioner is that its income was held to be exempt from income-tax on the ground that it was held for charitable purposes in the past for the asst. yrs. 1959-60 to 1984-85. According to the petitioner, it was entitled to exemption under s. 4(3)(i) of the IT Act, 1922 and later under s. 11 of the Act of 1961. The petitioner contends that it was registered under s. 12A of the IT Act with the CIT, Ahmedabad for the purpose of grant of exemption under s. 11 of the Act. As it was represented by some of the Stock Exchanges that they should be recognised as institutions established for charitable purposes under s. 10(23C)(iv) of the said Act also, the Government of India informed some of these Stock Exchanges including the petitioner by its letter dt. 18th December, 1980 that they should submit applications for consideration of issuing Notification under the said provision. Thereafter, a Notification came to the issued on 24th September, 1987 of granting exemption under s. 10(23C)(iv) of the Act for the asst. yrs. 1985-86 to 1988-89. On the expiry of the said period, the petitioner applied for renewal of exemption under the said provision but no renewal was granted. By letter dt. 9th September, 1991, the CBDT wrote to the petitioner that it had examined its case and that as the case of the petitioner was covered under specific provision contained under s. 10(23A), the provisions of s. 10(23C)(iv) which apply to charitable institutions and trusts in general, would not apply in case of the Stock Exchanges. Thereupon, the petitioner sent a request that it's application for renewal of exemption under s. 10(23C)(iv) should be treated as an application under s. 10(23A), and exemption be continued from asst. yr. 1989-90 onwards. By its order dt. 9th September, 1991 it was ordered that the exemption under s. 10(23C)(iv) of the Act cannot be continued in favour of the petitioner Stock Exchange. Thereafter, by order dt. 31st October, 1996 the Board deleted from its earlier order dt. 9th September, 1991, the words to the effect that the case of the Stock Exchange was covered by the specific provisions of s. 10(23A) of the Act.
3. The petitioner had filed Special Civil Application No. 2164 of 1996 challenging the order dt. 9th September, 1991. In that petition, since the ground on which the order dt. 9th September, 1991 rejecting the petitioner's application was passed, came to be withdrawn, it was held by this Court by its decision dt. 9th January, 1997 that the very basis for the decision communicated to the petitioner was withdrawn and therefore, the order dt. 9th September, 1991 became an order giving no reason. It was also held that there was no decision taken by the Central Government on the subject under s. 10(23C)(iv). In this background, the petitioner was permitted to make a fresh application in respect of these relevant assessment years on which the Government was required to take decision within the stipulated time. The petition came to be disposed of accordingly.
4. Therefore, as it is now pointed out to us, the Central Government by its letter dt. 7th March, 1997 has communicated to the petitioner its decision that it could not be notified under s. 10(23C)(iv) of the Act, since its activities were mainly intended to protect and regulate the interests of its members viz. the share-brokers only.
5. It is now contended on behalf of the petitioner that in view of the Department's acceptance in the past for the years 1959-60 to 1984-85 that the income held by the petitioner-assessee was entitled to be exempted under s. 11 of the Act and later on in view of the Notification issued by the Central Government under s. 10(23C)(iv) granting exemption to the petitioner for the years 1984-85 to 1988-89, the AO did not have any valid reason to form a belief that the assessee's income had escaped assessment in respect of these five assessment years. As regards the asst. yrs. 1990-91 and 1992-93, it was contended that the exemption was claimed by the assessee under s. 11 of the Act and the reasons recorded in the notices which are issued in respect of these two years were totally erroneous and proceeded on incorrect facts. As regards the asst. yrs. 1989-90 and 1990-91 which required sanction for issue of notice as contemplated by the provisions of s. 151 of the Act, it was contended that the sanction which was granted was a mechanical one without any application of mind by the Dy. CIT. It was contended that mere change of opinion was no ground to initiate reassessment proceedings and none of the impugned notices disclose any valid reason which can enable the AO to reopen the assessment under the provisions of s. 148. Reliance was placed by the learned Counsel for the petitioner in support of his contentions on the following decisions.
1. VXL India Ltd. vs . Asstt. CIT : [1995]215ITR295(Guj)
2. ITO vs . Lakhmani Mewal Das : [1976]103ITR437(SC)
3. Chhugamal Rajpal vs . S. P. Chaliha & Ors. : [1971]79ITR603(SC)
6. For the asst. yr. 1988-89, no returns were filed by the petitioner on the ground that it's income was exempt under s. 10(23A) of the Act or 10(23C)(iv) thereof. For the asst. yrs. 1989-90 1990-91 and 1993-94, the assessee had claimed exemption under s. 10(23C)(iv) and 10(23A) of the Act and not under s. 11 thereof. For the asst. yrs. 1991-92 and 1992-93, the petitioner assessee had claimed exemption under s. 11 of the Act and also in the note appended to the returns exemption under s. 10(23C)(iv) or s. 10(23A) of the Act. All the returns which were filed by the petitioner were accepted under s. 143(1)(a).
The show cause notices have been separately issued for all these years.
7. The reasons which prompted the AO to issue notices under s. 148 of the Act are separately stated in respect of each of these five assessment years. For the year 1989-90, the assessee has not filed any return of income on the ground that its entire income was exempt under s. 10(23C)(iv). It has been recorded in the notice that the application of the assessee for renewal of exemption under s. 10(23C)(iv) was rejected and though the application for exemption under s. 10(23A) was pending, the income from house property, from specific services rendered by the assessee or by way of interest or dividend derived from its investment could not be exempted. It was noted that the claim of the assessee that it's income was not taxable, was wrong from the reason that no approval under s. 10(23A) was obtained and even if such an approval was received, the income from house property, specific services and by way of interest or dividend could not be exempt. It was also noted that the interest income on investment which was liable to be taxed even if assessees were to be granted exemption under s. 10(23A) itself, was Rs. 13,89,070 besides other income exigible to tax. It will, thus, be noted from the notice that the AO recorded cogent reasons for reopening the assessment under s. 148.
8. Similarly, for the asst. yrs. 1990-91 and 1993-94 the AO separately recorded his reasons for issuing the reassessment notices. For these two years, since the matter fell beyond four years and sanction envisaged by s. 151 of the Act was, therefore, required, the sanction was obtained from the Dy. CIT for each of these two years which is on record. The grievance of the petitioner is that merely by saying 'yes, I agree with the reasons recorded by the AO' it cannot be said that the requirements of the provisions of s. 151(2) was fulfilled. Under the said provisions, the Dy. CIT has to satisfy himself on the reasons recorded by the AO as to whether it is a fit case for issuance of notice. Therefore, he is required to apply his mind to the reasons which have been recorded by the AO. In the present case, the endorsements made by the Dy. CIT clearly show that he was in agreement with the reasons recorded by the AO. Therefore, the requirements of s. 151(2) have been clearly satisfied and it cannot be said that the Dy. CIT had acted mechanically in the matter. Reliance placed on behalf of the petitioner on the decision of Chhugamal Rajpal vs. S. P. Chaliha & Ors. (supra) is wholly misconceived because in that matter the AO had not recorded any reason and the authority had affirmed such an action under s. 151(2) of the Act. It was in terms held that the ITO had not even come to a prima facie conclusion that the loan transaction to which he referred were not genuine transactions and he only appeared to have vague feeling that they might be bogus transactions. It was held that such a conclusion did not fulfil the requirements of s. 151(2) by which on the basis of the reasons recorded by the AO, the Dy. CIT was required to decide whether it was a fit case for issue of the notice. We may note here that in a case where a reasoned order is passed while making an assessment in subsequent proceedings of issuing reassessment notices it is easier to ascertain whether there was mere change of opinion than in a case where the returns are accepted as they are filed and the AO does not express his views explicitly. Thus, if the AO has considered as to whether s. 11 exemption could be claimed or whether exemption under s. 10(23A) could be granted, and made a speaking order or expressed his opinion while passing the assessment order, then one could have at this point of time perhaps contended that there was a mere change of opinion. But in the instant case, the returns were accepted as they were on an assumption that the assessees' claim for exemption was correct and now the AO has recorded cogent reasons for issuing notices because it transpires that exemptions under ss. 10(23A) or 10(23C)(iv) were not admissible and as has been recorded in the notice in respect of the assessment years for which exemption under s. 11 is claimed, even the applications for registration was not found. The fact that the petitioner was in fact registered in the year 1977 under s. 12A of the Act for the purpose of s. 11 can always be brought to the notice of the AO by responding to these reassessment notices and it could not be expected of the AO while dealing with a matter for a particular assessment year to pick up the entire past records and trace out that in the year 1977-78 there is a registration granted to the petitioner under s. 12A of the Act. Therefore, it cannot be said that in respect of those two asst. yrs. 1991-92 and 1992-93 for which exemption under s. 11 was claimed by the petitioner, the recitation of the fact that registration application was not found, is wholly irrelevant and not germane to the matter. It will also be noticed that in respect of those two years, the petitioner did not claim exemption only under s. 11 but also in the note which was appended to the returns, in terms it referred to exemption being claimed under s. 10(23A). Therefore, when it is not clear that the AO had, at the relevant time, applied his mind and granted exemption under a particular provision, when now it transpires that the petitioner is not entitled to any exemption under s. 10(23), the AO has even in respect of those two years issued notices for valid and cogent reasons which are therein mentioned.
9. As regards the other three assessment years, the petitioner had claimed exemption only under s. 10(23A) and the AO has recorded that, that claim was wrong and that reason cannot be said to be irrelavant or a reason which cannot form basis for the issuance of notice under s. 148 of the Act.
10. The reasons which have been given in all these notices have direct and rational connection with the formation of the belief by the AO under s. 148 of the Act. It is not for this Court to go in to sufficiency of these reasons and it cannot be said that the reasons are vague or distant. Under these circumstances, the decision of this Court in VXL India Ltd. vs. Asstt. CIT (supra) in which it was held that since the order did not say that the basis of valuation adopted in the assessment order was incorrect and did not disclose any reason as to why the AO considered that taking into consideration the fluctuation of the exchange rate for the purpose of valuing the exchange rate in that case, it was erroneous, cannot assist the petitioner. The decision of the Supreme Court in ITO vs. Lakhmani Mewal Das (supra), laid down that reasons for formation of the belief contemplated by s. 147(a) of the IT Act, 1961 for the reopening of an assessment must have a rational connection or relevant bearing on the formation of the belief. The impugned notices, since they record cogent and valid reasons, satisfy the tests which have been laid down by the Supreme Court in the said decision.
11. In the above view of the matter, the grounds on which the impugned notices are challenged, fail. The impugned notices have been issued in lawful exercise of the jurisdiction by the AO and there is absolutely no warrant for interference by this Court with them. The petition is, therefore, rejected with no order as to costs. Interim relief stands vacated.