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2021 (5) TMI 937 - AT - Income TaxRevision u/s 263 - Manner of presentation of the corpus fund in the final accounts of the assessee - donation so received was received for a specific purpose and use, hence it was Corpus Donation. The corpus donation cannot be treated as part of Income and Expenditure account - HELD THAT - As far as the accounting principles/methods are concerned the Capital has to be shown in the balance sheet of the assessee. The capital shall not be treated as part of the income and expenditure account. Therefore, act of the assessee is correct - Hence, this fund is a nature of Capital Receipts and is required to be shown in the balance sheet not in the income and expenditure account. Therefore, the assessee has correctly shown the same in the books of accounts and final accounts of the assessee. Since the assessee received certain amounts for the specific use i.e. for construction of building and this fact has been mentioned on the donation receipts also, copies of the some of the receipts are reproduced by the Ld. CIT(E) in his order itself, wherein it is categorically mentioned the purpose of donation. This fact has been duly examined by the then assessing officer and mentioned that he is satisfied with the submission and evidences. Even otherwise the directions of the doner a mutual trust has been created between the doner and donee and because of this the donee is bound to use that specific fund into the specifically directed activities for which it was donated. The same has to be kept as liability of the assessee till the utilization of the entire fund into the specified activities. Hence the same is required to be shown in the balance sheet not in the Income and expenditure account. We also observe that the fund in question is a capital fund/corpus fund therefore, it is out of preview of the provisions of section 11(2) of the Act. Section 11 of the Act deals with the utilization of income of a trust. This section is not having any provision about the utilization of corpus donation / fund like general fund or other receipts. The amount so received to the assessee is a Corpus fund / donation, therefore is out of preview of the provisions of section 11(2) of the Act. Therefore, we are of the view that any amount received as donation with specific direction shall be treated as Corpus of the assessee and because of specific directions this is not taxable as per the provisions of section 11(1)(d). Thus we are of the view that where the A.O. has taken a broad view by accepting the issue of corpus donation by carefully examining and satisfying himself with evidences produced by the assessee during the course of hearing, then order of the A.O. cannot be held to be erroneous on the ground of lack of inquiry. Notice issued by the ld. CIT(E) was on the basis of proposal of subsequent ITO, therefore, this act does not provide such powers to the ITO U/s 263 - In the present case, the proposal was sent by the subsequent A.O. to the CIT(E) on the basis of which a show cause notice was issued which is against the provisions of the Act. However, on this proposition, our view is not in favour of the ld AR as we convinced with the arguments of the ld. CIT-DR who had submitted that there is no prohibition U/s 263 of the Act for the Commissioner to act on the basis of proposal by the A.O. if other conditions under the said Section are satisfied. In this regard, the ld. CIT-DR has relied on the decision in the case of Apollo Tyres Ltd. 1997 (10) TMI 98 - ITAT DELHI-E and Stewarts and Lloyds of India Ltd. 2016 (3) TMI 178 - ITAT KOLKATA therefore, we reject this contention raised by the assessee. Since, keeping in view our above discussion and reasoning mentioned in detail, we are of the view that the order passed by the A.O. was not erroneous and prejudicial to the interest of the revenue and thus we allow this ground raised by the assessee and set aside the order passed by the ld. CIT(E). - Decided partly in favour of assessee.
Issues Involved:
1. Legality of the order passed by the Commissioner of Income Tax (Exemption) under Section 263 of the Income Tax Act, 1961. 2. Treatment of donations received as Corpus Donations. 3. Examination and verification of the source of cash deposits by the Assessing Officer. 4. Propriety of the Assessing Officer's inquiry and satisfaction regarding the donations. 5. Whether the order passed by the Assessing Officer was erroneous and prejudicial to the interest of revenue. Detailed Analysis: 1. Legality of the Order Passed by the Commissioner of Income Tax (Exemption) under Section 263: The appellant contended that the order passed by the Commissioner of Income Tax (Exemption) (CIT(E)) under Section 263 of the Income Tax Act, 1961, was illegal and against the law. The CIT(E) had invoked Section 263, which grants revisionary powers to the Commissioner if the assessment is erroneous and prejudicial to the interest of revenue. The appellant argued that the Assessing Officer (A.O.) had already examined and considered the matter, hence the CIT(E)'s order was unjustified. The Tribunal noted that the prime condition for invoking Section 263 is that the order of assessment should be erroneous as well as prejudicial to the interest of revenue. The Tribunal observed that the A.O. had conducted a detailed inquiry and verification of the cash deposits and the corpus donations, and was satisfied with the evidence provided by the assessee. Therefore, the assessment order could not be deemed erroneous or prejudicial to the interest of revenue. 2. Treatment of Donations Received as Corpus Donations: The appellant argued that the donations received were for a specific purpose and thus qualified as Corpus Donations, which should not be treated as part of the income and expenditure account but should be taken directly to the balance sheet. The Tribunal referred to judicial pronouncements, including the Karnataka High Court's decision in DIT Vs Ramakrishna Sewa Trust and the Ahmedabad Tribunal's decision in Kantilal Manilal Charitable Trust, which supported the treatment of specific purpose donations as corpus funds. The Tribunal concluded that the donations in question were indeed corpus donations and should be treated as capital receipts, to be shown in the balance sheet and not in the income and expenditure account. 3. Examination and Verification of the Source of Cash Deposits by the Assessing Officer: The A.O. had noticed large cash deposits in the assessee's bank account and issued a notice under Section 148 of the Act. During the assessment proceedings, the A.O. conducted a detailed inquiry and verification of the source of cash deposits, examining the cash book and cash flow statement, and was satisfied with the evidence provided by the assessee. The Tribunal observed that the A.O. had raised specific queries about the corpus donations and was satisfied with the submissions and records provided by the assessee. Therefore, the assessment order could not be said to have been passed without making necessary inquiries or verification. 4. Propriety of the Assessing Officer's Inquiry and Satisfaction Regarding the Donations: The A.O. had completed the assessment after due consideration and examination of all issues, specifically related to the corpus donations. The A.O. mentioned his satisfaction in the office note attached to the assessment order, indicating that the issue of corpus donations had been carefully examined and no adverse inference was drawn. The Tribunal noted that the A.O. had gone beyond the limited issue of cash deposits and examined the entire issues in detail, raising queries and receiving satisfactory replies from the assessee. Therefore, the assessment could not be said to have been completed without proper inquiry or investigation. 5. Whether the Order Passed by the Assessing Officer was Erroneous and Prejudicial to the Interest of Revenue: The Tribunal observed that the A.O. had taken a broad view by accepting the issue of corpus donations after carefully examining and satisfying himself with the evidence produced by the assessee. The Tribunal referred to various judicial pronouncements, including the Hon'ble Rajasthan High Court's decision in Pr.CIT Vs Om Rudra Priya Holiday Resort (P) Ltd., which held that where two views are possible and the A.O. has taken one view, it cannot be treated as an erroneous order prejudicial to the interests of revenue unless the view taken by the A.O. was not at all possible in law. The Tribunal concluded that the order passed by the A.O. was not erroneous and prejudicial to the interest of revenue, and thus set aside the order passed by the CIT(E). Conclusion: The Tribunal allowed the appeal of the assessee partly, holding that the order passed by the A.O. was not erroneous and prejudicial to the interest of revenue, and set aside the order passed by the CIT(E). The Tribunal also upheld the treatment of specific purpose donations as corpus funds, to be shown in the balance sheet and not in the income and expenditure account. The order was pronounced in the open court on 18th January, 2021.
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