2022 (7) TMI 1135 - AT - Income Tax

Exemption u/s 11 - Trust is registered u/s. 12A - HELD THAT - Appellant is holding Registration u/s. 12A of IT. Act 1961 and no violation of any of the provisions of section 13 is alleged in the assessment order. In view of there being application of income at more than 85% of receipts of trust no income is exigible to tax at the hands of appellant. In view of above it held that trust is assessable entity and income of trust is to be assessed/determined at the hands of appellant itself. Income of appellant is determined at Rs. NIL as shown in the return considering provisions of section 11 - Order of CIT(A) is reversed/modified in terms of discussion made hereinabove. Grounds of appeal of appellant are allowed. Revision u/s 263 - income assessed in the case of appellant assessment framed is on protective basis and income computed is assessed on substantive basis in the case of Shri Vasantrao Ghonge by same A.O. - HELD THAT - The income assessed on substantive basis at the hands of Late Shri Vasantrao Ghonge is after deducting the expenditure incurred and shown in Income and expenditure account of trust from the gross receipts. CIT Central has found no fault with allowability of same expenditure in the case of Shri Vasantrao Ghonge where income has been determined on substantive basis even though case of Shri Vasantrao Ghonge was under his charge. It is also noted that the income determined on substantive basis in the case of Shri Vasantrao Ghonge has been settled under Vivad se Vishwas Scheme by Shri Vasantrao Ghonge for Asstt. Years 2009-10 and 2010-11 and form No. 5 has been issued in the case of Shri Vasantrao Ghonge for Asstt. Years 2009-10 and 2010-11 on 25/11/2020 which is placed on record. The CBDT Circular No. 7 dated 04/03/2020 issued clarification on provisions of Direct Tax Vivad se Vishwas Bill 2020, Answer to Question No. 35 it has been clarified that on settlement of dispute relate to substantive addition A.O. shall pass rectification order deleting protective addition. In view of discussion made hereinabove the order passed by A.O. in no manner of consideration can be considered as erroneous or prejudicial to the interest of revenue. The order passed by A.O. not being erroneous or prejudicial to the interest of revenue Learned CIT Central ought not to have set aside the assessment framed u/s. 143 r.w.s. 153C in case of appellant by his order u/s. 263 - We are of the view that order passed u/s. 263 is bad in law.

Summary

Issues Involved:
1. Denial of exemption under Section 11 of the Income Tax Act, 1961.
2. Validity of the trust as a registered charitable trust.
3. Protective assessment versus substantive assessment.
4. Order under Section 263 of the Income Tax Act, 1961.

Issue-Wise Detailed Analysis:

1. Denial of Exemption under Section 11 of the Income Tax Act, 1961:
The appellant trust, registered under Section 12A of the Income Tax Act, 1961, claimed exemption under Section 11. The Assessing Officer (A.O.) denied the exemption, stating that the trust did not deserve the tax exemption. The A.O. computed the income based on financial statements without making any additions, concluding that the income should be assessed on a protective basis at the hands of the trust and on a substantive basis at the hands of Shri Vasantrao Ghonge. The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the protective assessment, confirming the substantive addition at the hands of Shri Vasantrao Ghonge.

2. Validity of the Trust as a Registered Charitable Trust:
The appellant argued that the trust is a genuine charitable trust holding valid registrations under the Bombay Charitable Trust Act, 1950, and Section 12A of the Income Tax Act, 1961. The CIT(A) observed that the trust was not a real trust and attributed the receipts found during the search to Shri Vasantrao Ghonge. However, the tribunal noted that the trust had been submitting regular returns and audited financial statements, and no adverse action was taken against the trust's registration even after the search. The tribunal concluded that the trust is a valid charitable institution eligible for exemption under Section 11.

3. Protective Assessment versus Substantive Assessment:
The A.O. assessed the income of the trust on a protective basis, while the substantive addition was made at the hands of Shri Vasantrao Ghonge. The CIT(A) upheld the substantive addition and deleted the protective addition in the hands of the trust. The tribunal agreed with this approach, noting that the trust's activities continued as per its objectives, and no violation of Section 13 was alleged. The tribunal held that the trust's income should be assessed at NIL, granting the benefit of exemption under Section 11.

4. Order under Section 263 of the Income Tax Act, 1961:
The Commissioner of Income Tax (Central) passed an order under Section 263, setting aside the assessments for the assessment years 2009-10 and 2010-11, directing fresh assessments. The appellant argued that the order under Section 263 was bad in law, as the A.O.'s original assessments were neither erroneous nor prejudicial to the interest of revenue. The tribunal noted that the A.O. had computed the income based on audited financial statements and that the substantive addition at the hands of Shri Vasantrao Ghonge had been settled under the Vivad-se-Vishwas Scheme. The tribunal quashed the order under Section 263, holding that it was not in accordance with law.

Conclusion:
The tribunal allowed the appeals of the appellant, holding that the trust is a valid charitable institution eligible for exemption under Section 11 of the Income Tax Act, 1961. The tribunal quashed the order under Section 263, and the protective assessments were set aside, confirming that the trust's income should be assessed at NIL. The appeals were disposed of, and the order pronounced in the open court on 28/06/2022.