2018 (1) TMI 1660 - AT - Income Tax

Revision u/s 263 by CIT - Reopening of assessment u/s 147 - eligibility of deduction u/s 11(1)(d) of corpus donation - HELD THAT - As the amount received by the assessee was voluntary in nature and the donors had specifically mentioned that their donations are towards infrastructure development. A copy of the specimen letters from the donors confirming their voluntary contribution and partaking the nature of corpus of the trust, is enclosed as book filed by the assessee. A copy of the receipt issued by the assessee is also enclosed as filed by the assessee. The building fund is capital in nature and forming part of corpus of the trust. The words Corpus Fund are not defined in the Income-tax Act. Normally, Corpus Fund denotes a permanent fund separately accounted and capital in nature. Therefore, the receipt of voluntary contributions towards infrastructure fund is a voluntary contribution towards the corpus fund and is therefore exempted u/s 11(1)(d) in Chandraprabhu Jain v. ACIT 2016 (11) TMI 1041 - ITAT MUMBAI had held that the building fund is forming part of the corpus fund eligible for deduction u/s 11(1)(d). Therefore, the initiation of the proceedings u/s 263 for disallowing the claim u/s 11(1)(d) of the corpus donation on the ground that it is not voluntary and not capital in nature is not in accordance with law and hence void - Decided in favour of assessee.

Summary

Issues Involved:
1. Applicability of Section 13(8) of the Income Tax Act, 1961.
2. Validity of proceedings under Section 263 of the Income Tax Act, 1961.
3. Limitation period for initiating proceedings under Section 263.
4. Eligibility of deduction under Section 11(1)(d) for corpus donations.

Issue-wise Detailed Analysis:

1. Applicability of Section 13(8) of the Income Tax Act, 1961:
The Commissioner of Income Tax (Exemptions), Kochi, concluded that by virtue of Section 13(8), nothing in Section 11 or 12 shall exclude any income from the total income of the assessee for the assessment year 2010-11, thereby denying the deduction under Section 11(1)(d) for an amount aggregating to ?2,08,91,000. The assessee argued that Section 13(8) applies only if the first proviso to Section 2(15) is applicable, which was not the case as confirmed by the Commissioner of Income Tax (Appeals)-III.

2. Validity of Proceedings under Section 263:
The assessee contended that the proceedings under Section 263 are valid only if the twin conditions of being prejudicial to revenue and erroneous are simultaneously fulfilled. The assessee argued there was no error in the order under Section 143(3) r.w.s. 147 concerning the claim for deduction under Section 11(1)(d) for the corpus donation received during the year. Additionally, the assessee had already appealed against the order under Section 143(3) r.w.s. 147, which was disposed of, rendering the Section 263 proceedings invalid as per the doctrine of merger.

3. Limitation Period for Initiating Proceedings under Section 263:
The assessee raised an additional ground that the period of limitation for initiating valid proceedings under Section 263 should be reckoned from the date of intimation under Section 143(1), not from the date of reassessment. The assessee relied on the Supreme Court decision in CIT v. Alagendran Finance Ltd., which held that the limitation period begins from the date of the original assessment order if the issue was not subject to reassessment. Since the reassessment did not address the corpus donation, the limitation period expired on 31.03.2014, making the notice dated 02.05.2016 and order dated 22.12.2016 invalid.

4. Eligibility of Deduction under Section 11(1)(d) for Corpus Donations:
On merits, the assessee argued that the donations were voluntary contributions specifically directed for infrastructure development, thus qualifying as corpus donations exempt under Section 11(1)(d). The Tribunal found that the donations were indeed voluntary and directed towards the corpus fund, supported by donor letters and receipts. The Mumbai Bench of the Tribunal in Chandraprabhu Jain v. ACIT had also held that building funds form part of the corpus fund eligible for deduction under Section 11(1)(d).

Conclusion:
The Tribunal concluded that the revisionary jurisdiction exercised under Section 263 was barred by limitation as the period should be reckoned from the date of intimation under Section 143(1). Additionally, on merits, the corpus donations were deemed voluntary and capital in nature, qualifying for exemption under Section 11(1)(d). Consequently, the appeal filed by the assessee was allowed, and the order under Section 263 was set aside.