2024 (4) TMI 131 - AT - Income Tax

Revision u/s 263 - assessment of trust - donations given out of accumulated funds u/s. 11(2) of the Act of earlier previous years - as per CIT amount accumulated / set apart with the assessee trust within the meaning of section 11(2) of the I.T. Act has been paid / donated to Shri Raghunath Balika Vidyalaya and Hindu College during the relevant previous year, such application of funds by the assessee is clear violation of explanation to section 11(2) r.w.s. 11(3) HELD THAT - Amount has been paid as donation to other Trust / Charitable Organisations and such payment will be hit by Explanation to 11(2) r.w.s. 11(3)(d) of the Act and in view thereof the amount donated by the assessee to other institutions i.e. Hindu College and Shree Raghunath Balika Vidyalaya out of accumulated fund should have been brought to tax by the AO. Hence, Ld. CIT(E) correctly observed that that as per Explanation to section 11(2) of the Act read with section 11(3)(d) of the Act, donations given out of accumulated funds u/s. 11(2) of the Act of earlier previous years are not allowable as application of income for charitable or religious purposes and the same shall be deemed to be income of the assessee of the previous year 2016- 17, therefore, AO failed to examine this issue, which should have been done during the assessment u/s. 143(3) of the Act and accordingly assessment order exhibits lack of proper inquiry / verification by the AO, which was required to be carried out in the instant case. As a result thereof, Ld. CIT(E) has rightly held that the assessment order to be erroneous in so far as it is prejudicial to the interest of the revenue as per provisions of section 263 of the Act and accordingly, the same was set aside u/s. 263 of the Act to the file of the AO for making a donovo assessment after proper examination of the issue involved and due verification wherever required by way of affording reasonable opportunity of being heard to the Assessee Trust and pass a speaking and well reasoned order. Hence, the order of Ld. CIT (Exemption) in our considered opinion, does not require any interference on our part, hence, we uphold the same and accordingly, the Ground Nos. 1 to 3 raised by the assessee stand dismissed.

Summary

Issues Involved:
The appeal against the Order of the Ld. CIT (Exemption), Delhi dated 24.3.2022 passed u/s. 263 of the Income Tax Act, 1961 for assessment year 2017-18.

Details of the Judgment:

Issue 1:
The Ld. CIT(Exemption) declared the assessment order passed under section 143(3) of the Act as erroneous and prejudicial to the interests of revenue.

The Ld. CIT(E) observed that the AO failed to make requisite verification and inquiries during the assessment proceedings, specifically regarding the utilization of funds as donations to other trusts. The Ld. CIT(E) issued a show cause notice to the assessee, highlighting the issue of funds accumulated under section 11(2) being utilized as donations to other trusts, which may not qualify as application of income for charitable purposes. The assessee explained that the funds were used for construction of educational facilities, not as donations. However, the Ld. CIT(E) held that as per the provisions of the Act, such donations from accumulated funds are not allowable as application of income for charitable purposes. Consequently, the assessment order was set aside for a de novo assessment by the AO.

Issue 2:
The Assessee challenged the Ld. CIT(Exemption)'s order as erroneous and not in line with the facts of the case.

During the appeal, the Ld. Counsel for the assessee argued that the funds were spent for the advancement of the trust's objects and not as donations. The assessee contended that the money was paid for construction purposes to the respective trusts and not given as donations. However, the Ld. CIT(Exemption) maintained that the donations made from accumulated funds are not allowable as per the Act's provisions. The Ld. CIT(Exemption) directed a fresh assessment by the AO, emphasizing the need for proper examination and verification of the issue involved.

Issue 3:
The assessment order was challenged on the grounds of lack of proper inquiry and verification by the AO.

The Ld. CIT-DR argued that the assessment order was erroneous and prejudicial to the interest of Revenue due to the improper application of funds by the assessee trust. The Ld. CIT-DR highlighted that the payments made to other trusts did not qualify as reimbursements for charitable work, as claimed by the assessee. The Ld. CIT-DR emphasized that the AO's lack of proper inquiry and verification led to the erroneous assessment order, justifying the need for a fresh assessment.

In conclusion, the Appellate Tribunal upheld the Ld. CIT(Exemption)'s order, dismissing the Assessee's appeal and affirming the need for a de novo assessment by the AO to address the issues raised regarding the utilization of funds from accumulated income.