2015 (9) TMI 658 - AT - Income Tax

Assessment of part of income accumulated u/s. 11(2) - disallowance of income accumulated u/s 11(2) - whether the bank fixed deposits, which were made in the immediately preceding year, could be earmarked towards the income accumulated u/s 11(2) of the Act or not, in compliance with the provisions of sec. 11(2)(b)? - Held that - In the instant case, there is no dispute that the assessee has passed a resolution for accumulation of income duly specifying the purpose of accumulation. Out of the sum of ₹ 31.35 lakhs claimed u/s 11(2) of the Act as accumulation of income, a sum of ₹ 20.00 lakhs was found to have been deposited in bank fixed deposits during the year under consideration. For the remaining amount, the assessee has earmarked the fixed deposits already available with it towards the income accumulated u/s 11(2) of the Act. Considering the objective of the provision of sec. 11(2)(b), in our view, what is required to be seen is whether the income accumulated has been deposited or invested in the forms prescribed u/s 11(5) of the Act, i.e., there should be corresponding investment, which could be identified with the income accumulated. The period of six months prescribed in Form No.10, in our view, is the outer limit for making deposit/investment. The provisions of sec. 11(2)(a) talks about income , where as the provisions of sec. 11(2)(b) talks about the money so accumulated. The money available with the assessee may be pertaining to the current year s income or earlier year s income. Further, if the view taken by the tax authorities that the deposit should have been made out of current year s income is accepted as correct for a moment, then the assessee trust shall be forced to foreclose the existing deposit and thereafter make a new deposit, thus losing considerable amount towards loss of interest/penalty. The same would be very much technical in nature. Hence, in our considered view, the earmarking of existing bank fixed deposits, which is free from any lien, towards the income accumulated u/s 11(2) of the Act during the year under consideration would be sufficient compliance with the provisions of sec. 11(2)(b) of the Act, since the accumulated income is represented by the corresponding deposit/investment. Thus set aside the order of Ld CIT(A) on this issue and direct the assessing officer to delete the disallowance of income accumulated u/s 11(2) of the Act. - Decided in favour of assessee. Validity of re-opening of assessment - Held that - As the return of income filed by the assessee had earlier been processed u/s 143(1) of the Act only and further the assessment has been reopened within four years from the end of the relevant assessment year. Further there was prima facie reason with the assessing officer to believe that the assessee had not made investment in terms of sec. 11(2)(b) of the Act. Even though the prima facie reason may go wrong subsequently, the reopening cannot be held to be invalid on that count. Under these set of facts, by following the decision of Hon ble Supreme Court rendered in the case of Rajesh Jhaveri Stock Brokers Ltd (2007 (5) TMI 197 - SUPREME Court), we uphold the re-opening of assessment. - Decided against assessee.

Summary

Issues:
1. Validity of re-opening of the assessment u/s. 147 of the Act.
2. Assessment of part of income accumulated u/s. 11(2) of the Act.
3. Interest charged u/s. 234A and 234D of the Act.

Validity of re-opening of the assessment:
The assessee, a public charitable institution, challenged the re-opening of assessment u/s. 147 of the Act for the assessment year 2004-05. The Assessing Officer re-opened the assessment based on a notice u/s. 148 of the Act, as the assessee filed a Nil income return in response. The Tribunal upheld the re-opening, citing that there was a prima facie reason to believe that the assessee had not complied with sec. 11(2)(b) of the Act. The Tribunal relied on the decision in Rajesh Jhaveri Stock Brokers Ltd (291 ITR 500) to support the validity of the re-opening, even if the prima facie reason was later found to be incorrect.

Assessment of part of income accumulated u/s. 11(2) of the Act:
The dispute revolved around whether bank fixed deposits made in the immediately preceding year could be considered as part of the income accumulated u/s 11(2) of the Act. The Assessing Officer restricted the deduction u/s. 11(2) to Rs. 20.00 lakhs, arguing that deposits should be made out of the current year's income. However, the Tribunal disagreed, stating that the provisions of sec. 11(2) should be interpreted holistically. The Tribunal found that the earmarking of existing bank fixed deposits towards the accumulated income was sufficient compliance with the Act, as long as the income was represented by corresponding deposits/investments.

Interest charged u/s. 234A and 234D of the Act:
The issues related to interest charged under sec. 234A and 234D were deemed consequential and did not require adjudication. The Tribunal allowed the appeal filed by the assessee, setting aside the disallowance of income accumulated u/s. 11(2) of the Act and upholding the re-opening of assessment. The decision was based on a comprehensive analysis of the provisions of the Act and relevant legal precedents.

This detailed summary of the legal judgment provides a thorough analysis of the issues involved, the arguments presented by both parties, and the Tribunal's decision on each issue.