9911796707
TMI Blog2006 (10) TMI 361X X X X Extracts X X X X X X X X Extracts X X X X ..... essee dated 20-11-2005 requesting for admission of the following additional ground of appeals for the assessment years 1994-95, 1995-96, 1997-98 and 1998-99 : "That the order under appeal is void ab initio as legal requirements for supplying copy of reasons recorded have not been supplied and the reasons as mentioned by the learned CIT(A) in his order does not show that any income has escaped assessment. It only talks of the inapplicability of the provisions of section 10(22) of the Income-tax Act. Neither the status of the assessee can be changed in proceeding under section 148 nor any assessment can be framed without including income which is alleged to have escaped assessment or underassessed." The learned counsel for the assessee submitted that the above additional ground is purely legal in nature for which relevant facts are already on record. He, therefore, submitted that the same deserves to be admitted in view of the judgment of Hon ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT [1998) 229 ITR 383 (SC). 3. The learned Departmental Representative, Sh. Achal Sharma, conceded that the additional ground raised by the assessee for all th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch they were substantially interested and the funds were not used for the purposes for which the trust was created. Further, the assessee was not running any educational institution for which it was eligible for exemption under section 10(22) or under sections 11 and 13 of the Income-tax Act, 1961. ( v )That it is prayed that the order of the learned CIT(A) be set aside and that of the Assessing Officer be restored." 7. The facts of the case common to all the assessment years are that the assessee filed the returns of income for the assessment years 1994-95, 1995-96, 1996-97, 1997-98 and 1998-99 on 1-7-1994, 30-6-1995, 28-6-1996, 27-6-1997 and 17-8-1998 respectively declaring therein nil income as the assessee had claimed exemption in respect of its income under section 10(22) of the Income-tax 1961 (in short the Act ) on the plea that the assessee was an educational institution . These returns were processed under section 143(1)( a )/143(1) of the Income-tax Act, 1961. Subsequently, it appears that the Assessing Officer carried out enquiries with the prior permission of the CIT under sub-section (6) of section 133. Such enquiries revealed that assessee was not running any e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imbursed were studying in premier schools/colleges of Chandigarh, Panchkula Mohali and the students belonged to the elite class who could very well afford the study. Thus, the contention of the assessee that object was to help needy students in backward area was factually incorrect. He also observed that students to whom such fee was reimbursed belonged to the families who were closely connected with Brar family or the persons who made donations to the society. He specifically mentioned such names on p. 5 of the assessment order. He also observed that assessee reimbursed a meagre sum of Rs. 1,41,305 by way of tuition fee to some students out of funds available of Rs. 79,41,734 collected by the assessee. He also observed though the society was registered with the Registrar of Societies in 1993, the only action taken by the assessee was to purchase the land for an amount of Rs. 15,41,250. The balance amount was invested in share application money and also deposits in various companies of Brar family who were members of the assessee society. He also observed that major chunk of donations amounting to Rs. 54,00,000 had been received from Tilok Tirath Vidyawati Chuttani Charitable Tru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... awati Chuttani Charitable Trust had claimed exemption in respect of donations given to the assessee on the ground that this institution was set up for educational purposes duly recognized and registered by CIT under sections 80G and 12A of the Act. However, by referring to the results of enquiries made in this case which revealed that assessee had not set up any educational institution, the Assessing Officer having jurisdiction over the ease of Tilok Tirath Vidyawati Chuttani Charitable Trust, disallowed the exemption claimed in respect of donations given to the assessee. The assessee filed an appeal before the CIT(A) against the said order. The Assessing Officer referred to the observations made by the CIT(A) in the order passed in the case of Tilok Tirath Vidyawati Chuttani Charitable Trust, where she had observed that Sardarni Uttam Kaur Educational Society had not rendered any worthwhile services in the field of nursery education and the funds received have been misutilised by the trustees of the assessee trust. He also observed that if any trust to whom donations have been given does not deploy/invest/utilise its funds in accordance with the objects and the various modes and f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is fact was strongly disputed by the Jt. CIT, who contended that such reasons were supplied to the Authorised Representative. The Assessing Officer also submitted before the CIT(A) that enquiries made during the course of assessment proceedings revealed that the assessee had not established any educational institution/school/college/ vocational institute and, therefore, the assessee was not entitled to exemption under section 10(22) of the Act. Further, the donations received were also diverted to business concerns of Brar family and were not utilized for the objects for which the trust was set up. Members of Brar family were the members of the assessee society. It was, therefore, submitted that the assessments had been rightly reopened and claim for exemption in respect of its income under section 10(22) of the Act has also been rightly denied by the Assessing Officer. The issue regarding completion of assessments in the status of an AOP with Code No. 07 was contested and it was contended that assessee was a trust and, therefore, the assessment was to be made in the status of a trust with Code No. 8. The learned CIT(A) considered these submissions and held that since the trust was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and observed that apart from the fact that the assessee was registered with the Registrar of Societies, Punjab, on 21-7-1993, the trust was also registered under section 12 by the CIT, Jalandhar vide order dated 21-9-1993. The assessee was also granted exemption under section 80G of the Act. By referring to the certificate dated 2-5-2002 of Tilok Tirath Vidyawati Chuttani Charitable Trust that donations of Rs. 25 lakhs and Rs. 29 lakhs received from the said trust in the assessment years 1995-96 and 1996-97 respectively were towards the corpus and not towards its income, the learned CIT(A) held that the same qualified for exemption under section 11(1)( d ) of the Act for these two assessment years. However, he observed that the income arising from the donations was not utilized for the objects for which it was set up and violated the provisions of section 11 and 13 of the Act, such income was not exempt. He further observed that correct status of the assessee was a trust with Code No. 8 and not an AOP with Code No. 7. While holding the view that the assessee had contravened the provisions of section 13(1)( d ) of the Act, the learned CIT(A) took note of the fact that the funds r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e form of donations, subscriptions and interest income as the income which had escaped assessment. The learned counsel submitted that all the returns were accompanied by audited accounts and balance sheet and loss of Rs. 5,208, Rs. 13,674 and Rs. 16,500 was shown for the assessment years 1994-95, 1997-98 and 1998-99 respectively after adjusting the income applied against the receipts. Only for the assessment year 1995-96, the assessee had shown income of Rs. 12,097. The audited accounts indicated that donations were received towards corpus. Thus, the inference drawn by the Assessing Officer that income of the amounts mentioned in the reasons recorded were untenable in view of the fact that the assessee was a trust registered with the CIT under section 12A in the year 1993 and, therefore, the income of the trust was to be considered only as per provisions of sections 11 and 12 of the Act irrespective of the fact that the assessee had claimed exemption in respect of its income under section 10(22) of the Act. Thus, the learned counsel submitted that reassessment proceedings have been initiated on the basis of irrelevant facts for making fishing and roving enquiry. He further submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for making roving and fishing enquiries. He also stated that audited accounts indicated that even the remaining donations were for the corpus of the trust and these were so included in the accounts of the assessee. He submitted that CIT(A) was not justified in confirming the additions in respect of other donations. Thus, he submitted that the appeals of the assessee deserve to be allowed for the reason that initiation of proceedings by the Assessing Officer under section 147 was illegal and bad in law and the assessee was entitled to exemption in respect of the income and voluntary donations. 10. The learned Departmental Representative, Sh. Achal Sharma, filed written submissions vide his letter dated 21-4-2006. He submitted that the contention of the assessee that assessment orders passed by the Assessing Officer were void ab initio, was not correct because it was neither a case of absence of any reason nor there was any lack of jurisdiction or any basic flaw in the assumption of jurisdiction. He submitted that it is a fact that in all the returns filed for the assessment years under consideration that the assessee had claimed exemption in respect of its income under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Chugh, accountant and Sh. R.K. Rathore, chartered accountant, who appeared before the Assessing Officer upto the conclusion of the assessment proceedings. He enclosed therewith copies of the notings in the order-sheets and submitted that no demand for supply of reasons was raised by the authorized representative of the assessee, which only showed that either reasons were supplied to the assessee s representative or otherwise, this no longer remained the issue with the assessee. He further submitted that the object of the requirement of supply of reasons under section 148 was only to ensure that there was no denial of opportunity to the assessee. He drew our attention to the notings made in the order-sheet during the period 8-2-2001 to 15-3-2002 which showed that ample opportunities were given to the assessee during the course of assessment proceedings. He also referred to annex 1, 2, 3 and 4 of the assessment orders which are copies of questionnaires issued by the Assessing Officer under section 142(1)/143(2) on 25-4-2001, 16-7-2001, 3-9-2001 and 5-3-2001 where specific information was called for. He particularly drew our attention to question No. 3 of questionnaire dated 25-4-20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of ITO v. Ch. Atchaiah [1996] 218 ITR 239 , where it was held that the Assessing Officer must tax the right person and right person alone. It was also held that merely because a wrong person is taxed with respect to particular income, the Assessing Officer is not precluded from taxing the right person with respect to that income. He submitted that the judgment of Hon ble Supreme Court was also with reference to the assessment to be made in the correct status by way of issue of notice under section 148. He submitted that in this case, the assessee was repeatedly asked to explain how the status was claimed in the return as AOP (trust). However, the assessee evaded explaining this matter during the course of assessment proceedings. Thus, he submitted that the assessment had been rightly made in the status of AOP with Code No. 7. 10.1 The learned Departmental Representative, further submitted that in this case enquiries made by the Assessing Officer has confirmed that the assessee had not at all set up any educational institution for which it was formed. Therefore, the assessee was not entitled to exemption in respect of its income under section 10(22) of the Act a.s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 97 would be entitled to exemption under section 11(1)( d ) of the Act. He further stated that while deciding the appeals for the assessment years 1995-96 and 1996-97, the learned CIT(A) has relied on a certificate dated 2-5-2002 of Tilok Tirath Vidyawati Chuttani Charitable Trust that donations were given to the assessee with a specific direction that these shall form part of the corpus. He submitted that this certificate was not filed during the course of assessment proceedings. The same was also not given at the time of making the donations. This was only an afterthought and did not deserve to be accepted by the CIT(A). However, the learned CIT(A) accepted a fresh evidence in the form of such certificate and deleted the additions made for the assessment year 1995-96 and 1996-97 without complying with the provisions of rule 46A which inter alia required that such evidence should not be accepted without recording reasons in writing and also without allowing sufficient opportunity to the Assessing Officer to examine and furnish any contrary evidence. No such opportunity was allowed to the Assessing Officer. He submitted that the order of the CIT(A) so far it relates to assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his notice subsequently in the course of proceedings under this section or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year. Explanation 1. ........ Explanation 2. For the purpose of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely : ( a )............. ( b )............. ( c )where an assessment has been made, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 147 is that if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment. The expression "reason to believe" used in section 147 has special significance. It does not mean reason to suspect . It is reasonable belief of a honest and reasonable person based upon reasonable grounds. The expression used is not satisfied . The reason to believe requires higher level of evidence and material than the requirement of satisfaction of the Assessing Officer which essentially means the material which comes to the notice of Assessing Officer must be definite, specific and direct and not unspecific or vague. This issue was considered by the Hon ble Supreme Court in the case of ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 where the Apex Court observed that "reason to believe" does not mean "reason to suspect". The reasons for the formation of the belief contemplated under section 147 necessary for reopening of an assessment must have a rational connection or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the ITO an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the present case also, whether the Assessing Officer was justified in initiating reassessment proceedings or not has to be decided on the basis of material and evidence placed on record and the legal position discussed above. The undisputed facts of the case are that the assessee had filed returns for the various assessment years declaring therein nil income. All these returns were processed only under section 143(1)( a ). Thus, there was no requirement on the part of the Assessing Officer to establish that the income had escaped assessments by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. It is also a fact that in all the returns, the assessee had claimed exemption in respect of its income under section 10(22) of the Act which is admissible in a case of an educational institution. The facts brought on record further confirm that this is not a case where the Assessing Officer directly initiated reassessment proceedings merely on the basis of returns filed by the assessee. It appears that substantial portion of donations amounting to Rs. 54 lakhs had been received from Tilok Tirath Vidyawati Chuttani Charitable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d under section 143(1)( a ) on 19-9-1994. The assessee in its return of income claimed the status of educational society by mentioning the code as 08 . The said return of income was accompanied by an audit report, income and application account, balance sheet which is reproduced hereunder : Income and Application Account for the period ending 31-3-1994 : Application Amount Income Amount To reimbursement of school fee 4,090 By interest 446 To bank charges 234 By excess of application over income 5,208 To misc. exp. 80 To preliminary exp. 750 To audit fees 500 5,654 5,654 Balance sheet as on 31-3-1994 Liabilities Assets Donations 2,34,551 Fixed deposit 75,000 Subscription 5,550 2,40,051 Add: intt. accr. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer has mentioned that in the absence of such educational institution, the assessee was not entitled to exemption under section 10(22) of the Income-tax Act and, therefore, he had reason to believe that income chargeable to tax in the form of donations, subscription and interest had escaped assessment. The same are the reasons for the subsequent assessment years with variation in the amounts. The results of enquiries incorporated by the Assessing Officer in the reasons recorded that assessee was not running any institution/school/college at the given place have not been controverted by the assessee. Therefore, on the basis of such information, the Assessing Officer was justified in forming a reason to believe that income chargeable to tax had escaped assessment more so when the assessee did not furnish the desired information before the Assessing Officer during the course of enquiries made before initiation of reassessment proceedings. We do not agree with the learned Authorised Representative that the assessments have been reopened only for making roving and fishing enquiries. The claim of the learned counsel that the Assessing Officer should have seen the case in the light of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he time of recording the reasons, the Assessing Officer is required to prima facie form a reason to believe whether on the basis of evidence and material placed on record, there is escapement of income chargeable to tax. He is not required to conclusively establish this fact at the time of initiation of reassessment proceedings itself. Thus, the objection raised by the assessee on this ground is untenable and hence rejected. 11.5 The next objection of the assessee relates to non-communication of the reasons recorded under section 148 to the assessee. We find that initially when Sh. Kapil Khanna was representing this case before the Assessing Officer, such request was made to the Assessing Officer. The correspondence placed on record further shows that the Assessing Officer asked the assessee to pay the requisite copying charges so that reasons recorded could be supplied. The assessee did not comply with the same. Later, there was a change in the counsel. The Assessing Officer wrote to the earlier counsel that since he was not an authorized person, the reasons recorded could not be supplied to him. We have gone through the entries in the order-sheet supplied by the revenue. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he matter can be restored to the file of the Assessing Officer for supply of reasons. But the same would only prolong the litigation. Since the assessee has already been supplied copies of reasons recorded and its objections have been considered while deciding these appeals, this grievance no longer survives. As regards decision of Tribunal, Bombay Bench in the case of Dy. CIT v. Maharashtra State Corpn. Gay Silk Mills v. ITO [2006] 101 TTJ (Mum.) 1108 relied upon by the learned Authorised Representative, a copy of the same has not been supplied. Therefore, we are unable to refer to this decision. Thus, taking into account the fact that the assessee has already been supplied copies of reasons and objections have been taken into account and the reassessments have been completed after allowing opportunity to the assessee, we are of the opinion that this plea is also devoid of any merit. Hence, rejected. 11.6 The next aspect of the case relating to legality of initiation of reassessment proceedings is that the Assessing Officer cannot change the status while completing the reassessment. We find from the assessment orders that the Assessing Officer completed the assessments i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment year 1996-97. Hence the same is rejected for all the assessment years. 12. The next grievance of the assessee projected through the grounds of appeals relate to sustaining of the additions made by the Assessing Officer for the above-mentioned assessment years. Briefly stated, the facts of the case are that while completing assessments under section 147 read with section 143(3), the Assessing Officer held that the assessee was not entitled to exemption in respect of its income under section 10(22) of the Act. The Assessing Officer further considered the case for exemption of its income under sections 11 and 12 of the Act because the assessee was granted registration under section 12A of the Act. The Assessing Officer observed that enquiries made in the case revealed that donations collected by the assessee trust were invested/deposited with the various companies/business concerns of Brar family in the shape of share application money amounting to Rs. 25 lakhs with M/s. Dashmesh Haegens Agro Tech. Ltd., Rs. 25 lakhs in M/s Dashmesh Feb. Yams Ltd., as share application money, Rs. 25 lakhs as a deposit with M/s. Dashmesh Falcon T M Enterprises (P.) Ltd. Even the income was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant to assessment years 1995-96 and 1996-97 respectively, despite the fact that he has accepted the findings of the Assessing Officer that funds have not been utilized for the objects for which trust was set-up. However, in regard to the remaining amounts received by way of donation, the learned CIT(A) observed that these were invested in the business concerns of Brar family where trustees/members of the society had substantial interest and, therefore, this contravened the provisions of section 13(1)( d ) of the Act. He also rejected the submissions of the assessee that these donations were received towards corpus on the ground that no evidence was furnished by the assessee. No evidence whatsoever has also been produced before the Bench that these donations were given for the corpus. Further, as per clause ( h ) of sub-section (2) of section 13, if any funds of the trust or the institution continue to remain invested for any period during the previous year in any concern in which any person referred to in sub-section (3) of the said section has substantial interest, the assessee would not be entitled to exemption under section 11(1)( d ) in respect of such voluntary donations. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n with the CIT under section 12A is only a first step for claiming exemption of its income. But the exemption of its income under section 11 is subject to assessee fulfilling the other conditions. The assessee is required to fulfil the remaining conditions regarding utilization of 75 per cent of its income for the objects for which it has been set up and non-diverting of funds to the business concerns of the members/trustees, etc. Even the accumulation of 25 per cent of the remaining income is again subject to the conditions mentioned therein. Moreover, the revenue has also accepted the decision of CIT(A) for the assessment years 1994-95, 1997-98 and 1998-99 for treating the status of the assessee as a trust. Thus, keeping in view these facts of the case, we are of the considered opinion that the learned CIT(A) was justified in treating status as trust with Code No. 08. We confirm his order and reject the respective grounds of appeal for both the assessment years. 16. The next grievance of the revenue common to both the assessment years is that the learned CIT(A) was not justified in allowing exemption in respect of donations of Rs. 25 lakhs and Rs. 29 lakhs received from Til ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat donations aggregating to Rs. 54 lakhs given to the assessee were for its corpus. The certificate read as under: " To whom it may concern It is hereby confirmed that the donations of Rs. 54 lakhs given by the Tilok Tirath Vidyawati Chuttani Charitable Trust during the assessment years 1995-96 and 1996-97 were made to Sardami Uttam Kaur Education Society for its corpus." Relying on this certificate, the learned CIT(A) held that the donations given by the said trust towards corpus were exempt under section 11(1)( d ) of the Act. The revenue is aggrieved with the order of the CIT(A). Hence, these appeals before us. 18. The submissions made by the learned Departmental Representative and learned counsel have already been summarized while dealing with the respective submissions of the assessee. Briefly stated, the contention of the learned Departmental Representative is that no such evidence was furnished before the Assessing Officer during the course of reassessment proceedings. He further submitted that admission of such evidence was subject to provisions of rule 46A. However, the learned CIT(A) has neither recorded any reason for admission of such evidence nor has forwar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seen on the date when he made the donations and not subsequently. The certificate dated 2-5-2002 was furnished before the CIT(A). The reassessment orders in all the cases were passed on 22-3-2002. This clearly shows that the certificate is obtained after the completion of the assessments and constituted a fresh evidence furnished before the CIT(A). The admission of fresh evidence is governed by provisions of rule 46A of the IT Rules which read as under : "46A(1) The appellant shall not be entitled to produce before the Dy. CIT(A) or, as the case may be, the CIT(A), any evidence, whether oral or documentary, other than the evidence produced by him during the course of proceedings before the Assessing Officer except in the following circumstances, namely : ( a )where the Assessing Officer has refused to admit evidence which ought to have been admitted; or ( b )where the appellant was prevented by sufficient cause from producing the evidence which he was called upon to produce by the Assessing Officer; or ( c )where the appellant was prevented by sufficient cause from producing before the Assessing Officer any evidence which is relevant to any ground of appeal; or ( d )wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without referring the same to the Assessing Officer under sub-rule (3) of rule 46A by relying on such evidence. Thus, the action of the learned CIT(A) is not in conformity with the provisions of the Act and also the Rules. Moreover, there is no doubt about the fact that assessee had invested/deposited the amounts of voluntary contributions received from various persons including Tilok Tirath Vidyawati Chuttani Charitable Trust, in the companies, business concerns, firms by way of share application money, deposits etc. In these business concerns, the members of Brar family/trustees had substantial interest. Thus, the assessee contravened the provisions of sections 13(1)( c ), 13(1)( d ) and 13(2)( h ) of the Act. The learned CIT(A) has already accepted the findings of the Assessing Officer about violations of the provisions while confirming other additions made by the Assessing Officer in the appeals filed by the assessee. In the case of Chairman, Andhra Pradesh Welfare Fund v. CIT [1983] 143 ITR 82 (AP), the Hon ble Andhra Pradesh High Court has held that even if small portion of the voluntary contributions is used for non-charitable purposes, the entire contributions will los ..... X X X X Extracts X X X X X X X X Extracts X X X X
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