2011 (3) TMI 1720 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the reopening of the assessment under Section 147.
2. Enhancement of assessment without issuing mandatory notice under Section 251(2).
3. Acquisition of shares in a cooperative bank and its impact on exemption under Section 11.
4. Addition on account of delayed payment of employees' provident fund under Section 36(1)(va).
5. Disallowance under Section 40A(3).
6. Treatment of capital expenses debited to Income & Expenditure Account.
7. Treatment of donations received towards the trust corpus as revenue income.

Detailed Analysis:

1. Validity of the Reopening of the Assessment under Section 147
The Tribunal examined the timing and adequacy of the reasons recorded for reopening the assessment. The assessee argued that the reasons were recorded after issuing the notice, which was undated. However, the Tribunal found that the reasons were recorded prior to issuing the notice, as evidenced by internal correspondence. The Tribunal concluded that the reasons provided were sufficient to constitute a "reason to believe" that there was escapement of income, thus validating the reopening of the assessment under Section 147.

2. Enhancement of Assessment without Issuing Mandatory Notice under Section 251(2)
The Tribunal considered whether the CIT(A) enhanced the assessment without issuing the mandatory notice under Section 251(2). The CIT(A) had confirmed the denial of exemption under Section 11 based on new reasons, which the assessee argued amounted to enhancement. The Tribunal noted that the issue of enhancement is factual and remanded the matter to the CIT(A) to determine if there was an enhancement and if the mandatory notice should have been issued.

3. Acquisition of Shares in a Cooperative Bank and Its Impact on Exemption under Section 11
The CIT(A) denied the exemption under Section 11, citing a violation of Section 13(1)(d) due to the acquisition of shares in a cooperative bank. The Tribunal agreed that the acquisition of shares amounted to a contravention of Section 13(1)(d) but noted that the denial of exemption should be restricted to the income relatable to such shares, as per the proviso to Section 164(2). The Tribunal remanded the matter to the CIT(A) for further examination.

4. Addition on Account of Delayed Payment of Employees' Provident Fund under Section 36(1)(va)
The Tribunal directed that the issue be decided in line with the Supreme Court's judgment in the case of Alom Extrusions Ltd., which held that the amendments to Section 43B are curative and have retrospective application. The Tribunal allowed the assessee's claim, provided the payments were made on or before the due date for furnishing the return of income under Section 139(1).

5. Disallowance under Section 40A(3)
The Tribunal noted that the CIT(A) did not address the merits of the disallowance under Section 40A(3). The Tribunal remanded the matter to the CIT(A) to decide on the merits after considering the documents provided by the assessee, which claimed that none of the payments exceeded the prescribed limits.

6. Treatment of Capital Expenses Debited to Income & Expenditure Account
The Tribunal found that the expenditure on curtains and furnishings, amounting to Rs. 38,642, was revenue in nature and not capital. The Tribunal allowed the assessee's claim, noting that the CIT(A) did not properly address the nature of the expenditure.

7. Treatment of Donations Received Towards the Trust Corpus as Revenue Income
The Tribunal set aside the issue to the CIT(A) for a fresh adjudication, directing the CIT(A) to pass a speaking order and consider the evidence provided by the assessee regarding the donations. The Tribunal noted discrepancies in the return related to corpus donations and instructed the CIT(A) to grant a reasonable opportunity of being heard to the assessee.

Conclusion
The Tribunal partly allowed the assessee's appeal, remanding several issues to the CIT(A) for further examination and fresh adjudication. The Tribunal emphasized the need for proper procedural adherence and consideration of evidence in determining the various grounds raised by the assessee.