Mere allotment of PAN would not make allottee a Separate Entity

1. This petition is filed by one Sardar Vallabhbhai Patel Education Society, which is an educational society and is also a trust registered under the Bombay Public Trust Act. The petitioner shall hereinafter to be referred to as ‘the society’. The petitioner society runs various educational institutions including one N.G.Patel polytechnic college (hereinafter to be referred to as “N.G.Patel polytechnic”). It is not in dispute that the petitioner Trust files regular returns before the Income Tax Authorities and which are scrutinized from time to time by the Assessing Officer for passing orders of assessment.2. According to the petitioner, the various educational institutions run by the society would receive sizable amounts by way of cash through fees paid by the students. Only in order to maintain the separation of funds, N.G.Patel polytechnic desired to open a bank account. According to the counsel for the petitioner, bank insisted on a separate Permanent Account Number (‘PAN’ for short) of the customer only upon which a separate account can be opened. N.G.Patel polytechnic therefore applied for PAN which was duly issued by the Income­ tax department which eventually led the N.G.Patel polytechnic to open a savings bank account with Bank of Baroda. In such bank account, the N.G.Patel polytechnic had deposited cash of Rs. 2.37 crores (rounded off) during the period relevant to assessment year 2009- ­10. According to the petitioner, the petitioner society had filed the return of income for the said assessment year 2009- ­10, in which, this receipt was reflected. Along with the return, necessary accounts and other documents were produced. The return was accepted by the Assessing Officer without scrutiny.

3. The Assessing Officer noticed that N.G.Patel polytechnic had a separate PAN and in its savings bank account of Bank of Baroda, sizable cash amount of Rs. 2.37 crores was deposited, on which, it had also received interest of Rs. 2.40 lakhs. Despite this, N.G.Patel polytechnic had not filed return of income for the said assessment year 2009­- 10. On such basis, N.G.Patel polytechnic was served with an impugned notice dated 22.03.2016 for reopening of the assessment. The only ground recorded by the Assessing Officer in the reasons for issuing the notice was that despite depositing of sizable cash of Rs. 2.37 crores in the said savings bank account, the said account holder had not filed the return of income and in response to the notice issued by the department under section 148 of the Act to furnish a source of the cash deposited, there was no response from the account holder.

4. According to the petitioner, N.G.Patel polytechnic did not have any independent legal existence and was merely a college run by the society. The society therefore raised detailed objections before the Assessing Officer under a communication dated 02.07.2016 urging him to drop the notice for reopening. In such objections, the petitioner stressed that it was the society which had maintained the books of accounts and filed the audited accounts along with the return, in which, the said amount of Rs. 2.37 crores was also reflected. Thus, the society had already offered to tax the said amount which is now being separately questioned in the hands of N.G.Patel polytechnic. Along with the objections, the petitioner also produced certain documents.

5. The Assessing Officer however, by order dated 29.08.2016, rejected the objections primarily on the ground that N.G.Patel polytechnic was assigned a separate PAN which would indicate that it was a separate entity for the purpose of payment and assessment of tax and N.G.Patel polytechnic had not filed the return despite the fact that sizable cash amount was deposited in its bank account.

6. Section 139A of the Act pertains to permanent account number. Sub­section (1) of section 139A provides various categories of persons who are required to pay tax or for some other reason required to furnish return of income, would apply to the Assessing Officer for allotment of a PAN. Under sub- section(1B), the Central Government may for the purpose of collecting any information which may be useful for or relevant to the purposes of the Act, may by notification require any class or classes of persons who shall apply to the Assessing Officer for the allotment of the PAN.Under sub­section (2), the Assessing Officer having regard to the nature of transactions as may be prescribed, may also allot a PAN to any other person following the prescribed procedure. Sub­section (3) of section 139A provides that any person not falling under sub­section (1) or sub­section (2), may also apply to the Assessing Officer for allotment of PAN, upon which, the Assessing Officer shall allot the same.

7. It can thus be seen that mere allotment of PAN under section 139A of the Act would not make the allottee necessarily a separate entity for the purpose of assessment of tax. The statute recognizes certain eventualities where quite outside the requirement of payment of tax and for filing return of income, the Assessing Officer may allot a PAN to individual. The contention of the Assessing Officer therefore that merely because N.G.Patel polytechnic had obtained the PAN, it was a separate entity for the purpose of filing of the return and assessment of tax was not valid.In the order rejecting the objections, the Assessing Officer did not examine other objections and contentions raised on behalf of the petitioner on his summary conclusion noted above. The requirement of supplying reasons recorded by the Assessing Officer when demanded by the assessee and giving an opportunity to raise objections against the notice for reopening, requiring the Assessing Officer to dispose of such objections flow from the decision of Supreme Court in case of G.K.N.Drive Shaft (India) Ltd. V. ITO reported in (2003) 259 ITR 90 (SC). The clear intention of the Supreme Court in devising such a formula was that in genuine cases where the Assessing Officer may have reopened the assessment which need to be dropped, such cases may be filtered out avoiding unnecessary hardships to the assessee as well as protracted tax litigation. The exception of the Court of course would be that when an assessee points out the correct facts and makes out a genuine case for dropping the notice for reopening of the assessment, the Assessing Officer would apply his open mind and consider the factual and legal aspects as may be presented by the assessee in such objections. The expectation of the Court certainly would not be that such objections are discarded routinely without proper consideration or appreciation of the points raised by the assessee. This is not to suggest that an improper order disposing of objections would render the notice issued by the Assessing Officer for reopening of the assessment invalid. The reopening of an assessment could be struck down on any of the jurisdictional facts being proved wrong on the basis of well known and well established legal principles.

8. This preamble was necessary in the present case since we find that the Assessing Officer without appreciating the petitioner’s objections to the notice of reopening, rejected the same. In facts of the case, we would like to request the Assessing Officer to re-examine the objections in peculiar facts pointed out in such objections as well as those urged before us.For the above purpose, following directions are issued:

(i) It will be open for the petitioner to file supplementary objections with additional documents if so desired, latest by 25.09.2017 before the Assessing Officer.

(ii) The Assessing Officer shall dispose of the objections of the petitioner which are already on record and additional objections if so raised in terms of above para (i).

(iii) For such purpose, impugned order dated 29.08.2016 is set aside.

9. Till the Assessing Officer passes a fresh order disposing of the objections of the petitioner, interim relief granted pending the petition directing the Assessing Officer not to pass the final order on assessment shall continue.

10. Petition is disposed of.