2012 (2) TMI 234 - AT - Income Tax

Trust - Transfer versus Donation - Held That - Transfer of assets for consideration, from one society to another, which has been received by way of book entries and cannot be a donation - Taxable as Capital Gain . RE-assessment under 147 - reasons to believe - Capital Gain not charged to tax - Held That - The re-opening of the assessment for bringing the capital gains to tax which was omitted earlier does not amount to change of opinion. The omission to apply the provisions of the Act and later on applying them is a valid ground for invoking notice under 148.

Summary

Issues Involved:
1. Treatment of donation of assets as capital gains.
2. Validity of re-assessment proceedings under Section 148.
3. Deletion of addition by CIT(A) based on accounts, bills, and vouchers not attached with the original return.

Issue-wise Detailed Analysis:

1. Treatment of Donation of Assets as Capital Gains:

The assessee contended that the CIT(A) erred in treating the donation of assets to other societies as capital gains. The AO determined that the transfer of assets valued at Rs. 1,05,82,364/- was for consideration received via book entries, with the written-down value being Rs. Nil. Consequently, the AO considered the entire sale consideration as capital gain chargeable under Section 11(1A) of the Income-tax Act, 1961. The assessee argued that the assets were transferred to societies registered under Section 12AA of the Act, pursuing the same objectives, and thus should be considered an application of income, relying on Board's Instruction No. 1132 dated 4.12.2009. However, the CIT(A) rejected this argument, stating that the transfer was for consideration, not donation, and upheld the AO's decision. The Tribunal agreed with the CIT(A), finding no infirmity in the decision, and dismissed this ground of appeal.

2. Validity of Re-assessment Proceedings under Section 148:

The assessee challenged the re-assessment proceedings under Section 148, arguing that the reasons cited by the AO were not tenable, as the transfer of assets should be considered an application of income for charitable purposes. The AO initiated re-assessment because the transfer of assets worth Rs. 1,05,82,364/- was not considered an application of income, resulting in income applied for charitable purposes being less than 85% of the receipts. The CIT(A) upheld the re-assessment, rejecting the assessee's arguments that the transfer was a donation and that the re-opening amounted to a change of opinion. The CIT(A) noted that the AO had validly reopened the assessment to bring omitted capital gains to tax, and this did not constitute a change of opinion. The Tribunal concurred with the CIT(A), finding the reasons recorded by the AO to have a live nexus with the escaped income, and dismissed this ground of appeal.

3. Deletion of Addition by CIT(A) Based on Accounts, Bills, and Vouchers Not Attached with the Original Return:

The revenue contended that the CIT(A) erred in deleting the addition of Rs. 82,31,154/- based on accounts, bills, and vouchers not attached with the original return. The CIT(A) found that Rs. 11,89,398/- were old advances and Rs. 70,41,756/- was an advance given to Lotus Valley School for constructing a building, which constituted an application of income. The Tribunal reviewed the assessment order, relevant records, and submissions, agreeing with the CIT(A) that the advances were legitimate applications of income, supported by bills, bank statements, and TDS deductions. Consequently, the Tribunal upheld the CIT(A)'s findings and dismissed this ground of appeal.

Conclusion:

Both the assessee's and revenue's appeals were dismissed. The Tribunal upheld the CIT(A)'s decisions on all issues, finding no merit in the contentions raised by the assessee and revenue. The order was pronounced in the Open Court on 6th Jan. 2012.