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TMI Blog2024 (11) TMI 84X X X X Extracts X X X X X X X X Extracts X X X X ..... he pendency of appeal of the assessee, the registration was granted u/s 12A/12AA of the Act, the case of the assessee would be covered under deemed registration and thus assessee would be entitled to claim benefit under s. 11 of the Act on the strength of registration obtained in the subsequent year. In consonance with the view taken by the co-ordinate benches, the AO is not justified in denying the benefit of registration albeit obtained subsequently, to the year under consideration. Applicability of mischief of Section 13 to the loans/advances given to Pradeep Sood and Naveen Sood for purchase of Land - The plea of the assessee are three fold (i) the observations made towards applicability of Section 13 to transactions carried out in other years are wholly unnecessary and outside the scope of powers conferred under Section 251 of the Act (ii) The observations of the CIT(A) with reference to Section 13 are generic without specification of particular sub-clause of Section 13 (3). The recipients of the loans/ advances namely Naveen Sood and Pradeep Sood are spouses of the Principal or Administrator of school held in Trust. The assessee has taken support of the judgment rendered by H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /2020: A.Y. 2015-16 Children Welfare Trust The captioned appeal has been filed at the instance of the assessee against the first appellate order passed under Section 250(6) of the Income Tax Act, 1961 (the Act) by the Commissioner of Income Tax (Appeals), Faridabad [CIT(A)] dated 28.02.2020 which, in turn, arises from the assessment order dated 26.12.2017 passed under Section 143(3) of the Act for the AY 2015-16 in question. 2. The grounds of appeal raised by the assessee read as under: 1) That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. A.O. in denying the benefit of exemption u/s 11 12 and bringing to tax of Rs. 10,74,513/- being the amount of excess of income over expenditure. 2) That in any view of the matter and in any case action of Ld. CIT(A) in denial the benefit of exemption u/s 11 12 is bad in law and against the facts and circumstances of the case. 3) That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in making enhancement of income of an aggregate amount of Rs. 58,84,070/- on account of amalgamation fund and building fund received d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd miscellaneous income. In the financial statement, the assessee has declared excess of income over expenditure at Rs. 10,74,513/-. The AO further observed that the application of the assessee under s. 12AA of the Act has been rejected by the CIT(Exemption) vide order dated 29.04.2016. Thus in the absence of registration, the AO treated the excess of income over expenditure amounting to Rs. 10,74,513/- as income chargeable to tax. The AO also made some other additions with which we are not presently concerned. 6. Aggrieved by the additions made, the assessee preferred appeal before the CIT(A). The CIT(A) in first appeal endorsed the action of the AO and denied any relief towards taxability of surplus of Rs. 10,74,513/- having regard to absence of registration available under s. 12AA of the Act. While adjudicating the appeal of the assessee, the CIT(A) also found that the assessee trust has inter alia received Rs. 2,68,480/- and Rs. 56,15,590/- which have been directly credited in the balance sheet under the head Building funds and Amalgamation funds and thus, treated as capital receipt by the assessee and consequently not chargeable to tax. The CIT(A) concluded that such receipts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) wrongly treated the said advance as infringement of section 13 of the Act by considering Mr. Naveen Sood and Mr. Pradeep Sood as specified persons under S. 13(3) in view of the fact that they are spouses of the Principal [Mrs. Renu Sood] or Administrator (Mrs. Anita Sood) of the School, as the case may be. The ld. Counsel submitted that the parties to whom the loans/ advances were given, no-where falls under the category of persons referred under s. 13(3) of the Act. It was contended that the position of a Principal or Administrator of a Trust can not be equated with Trustee or Founder or Author of a Trust or a Manager of the Institution (distinguishable from expression Trust under s. 13(3)(cc)). The CIT(A) has eventually deleted the additions made by the AO towards land advance given to Pradeep Sood and Naveen Sood. It was submitted that making unwarranted and incorrect observations towards applicability of mischief of s. 13 on transactions admittedly relating to different years and also falling outside the ambit of s. 13(3) on non surviving additions, is outside the scope of powers conferred on CIT(A). The CIT(A) is not entitled to make extraneous comments on applicability of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see would be entitled to claim benefit under s. 11 of the Act on the strength of registration obtained in the subsequent year. In consonance with the view taken by the co-ordinate benches, the AO is not justified in denying the benefit of registration albeit obtained subsequently, to the year under consideration. The additions of Rs. 10,74,513/- made by the AO on the pretext of non availability of registration is thus reversed. 11. We now advert to the applicability of mischief of Section 13 to the loans/advances given to Pradeep Sood and Naveen Sood for purchase of Land. The AO made additions of Rs. 3 crore on such advances. The CIT(A) while reversing the additions on the ground that the transaction do not belong to the year under considerations, however, simultaneously observed that the advances given to the parties are specified under Section 13(3) of the Act. The assessee has placed strong objections to such averments. In the context, the plea of the assessee are three fold (i) the observations made towards applicability of Section 13 to transactions carried out in other years are wholly unnecessary and outside the scope of powers conferred under Section 251 of the Act (ii) The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings, the CIT(A) opined that such receipts are in the nature of revenue receipts and remained untaxed. The CIT(A) consequently invoked the provisions of Section 251(1)(a) of the Act to enhance the income of the assessee trust to the extent of such amount received for taxability under the head business income . 13.2 In this backdrop, it is the case of the assessee that invocation of power of enhancement under s. 251(1)(a) of the Act in the facts of the case is impermissible in law and tantamount to overreach of powers of enhancement. Multi-prong attack has been made to the enhancement powers exercised in the peculiar facts of the case. The assessee broadly contented that; (a) The powers of enhancement means there should be some base addition. The expression enhancement cannot be equated with expression additions . All the additions made by the AO have either been deleted by the CIT(A) or are covered in favour of the assessee by the decisions of the Tribunal and, therefore, in the absence of any substantive taxable income, the enhancement of taxable income could not arise (b) In view of Section 250(6A), the CIT(A) is under duty to pass the first appellate order within one yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... casion to deal with the powers of enhancement. After considering the plurality of opinion on the subject, the Hon ble Delhi High Court observed that the powers of enhancement are not unqualified. It was held that it is not open to the CIT(A) to introduce a new source of income for assessment i.e such source which was not considered by the AO. The assessment has to be confined to those items of income which were subject matter of original assessment. In the context of facts of that case, the Hon ble Delhi High Court observed that where only matter dealt with by the AO in assessment order was estimation of profits and gains of business of the assessee, it was not open to the first appellate authority to direct the AO to conduct enquiry about source of investment by assessee. The Hon ble Delhi High Court noted the decision rendered in the case of Shapoorji Pallonji Mistry, Rai Bahadur Hardutroy Motilal chamaria, Jute Corporation of India Ltd., Nirbheram Deluram and other decisions rendered by the Hon'ble Supreme Court to hold that while the first appellate authority is invested with wide powers under Section 250(1)(a) of the Act and his competence is not restricted to examine only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of funds and overlooked the corresponding application thereof and thus fell in error. 15. The exercise of power of enhancement to make enhancement to the tune of Rs. 58,84,070/- thus requires to be set aside and quashed. 16. Having so concluded, we do not consider it expedient to address ourselves on other facets of arguments placed on behalf of the assessee such as prior existence of base additions; exercise of enhancement powers beyond the recommendatory time lines provided in Section 250(6A) etc. 17. The ground nos. 3, 4 5 are thus allowed. 18. In the result, appeal of the assessee is allowed. ITA No. 1368/Del/2020: A.Y. 2015-16 Children Welfare Society 19. The captioned appeal has been filed by the assessee society against the First Appellate Order of the Ld. Commissioner of Income Tax (Appeals), Faridabad dated 28.02.2020 arising from the Assessment Order dated 29.12.2017 passed by the Assessing Officer (hereinafter referred to as AO ) under Section 143(3) of the Income Tax Act, 1961 (the Act) for Assessment Year 2015-16. 20. The grounds of appeal raised by the assessee reads as under: 1) That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ety preferred an appeal against the Assessment Order before the CIT(A). The CIT(A) vide order dated 28.02.2020 deleted the additions so made by the AO. However, the CIT(A) enhanced the income of the assessee society at Rs. 1,26,98,696/- in exercise of powers conferred under Section 251(1)(a) of the Act. The enhancements were made on the following counts: Denial of benefit of exemption under Section 11/12 of the Act and thereby treating excess of income over expenditure of Rs. 65,30,315/- as taxable profit as against surplus treated as exempt by the assessee and also agreed by the AO. Amount received towards Building Fund, Rs. 57,96,381/- and Amalgamation Fund Rs. 3,72,000/- aggregating to Rs. 61,68,381/-. The CIT(A), as per para 23 of the First Appellate Order, also advised the AO to consider the facts relating to A.Y. 2015-16 in question and invoked suitable measures, if required, for A.Y. 2013-14 and A.Y. 2014-15 albeit after application of mind and considering the facts of the case independently. 23. Aggrieved by the enhancement action carried out under Section 251(1) of the Act and observations made in relation to A.Y. 2013-14 and A.Y. 2014-15, the assessee preferred appeal bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce, the enhancement of income by treating excess of income over expenditure of Rs. 65,30,315/- is set aside and deleted. 27. The Second issue by way of enhancement relates to taxability of amount received towards building fund and amalgamation fund aggregating to Rs. 61,68,381/- as revenue receipts instead of 'capital receipt treated by the Assessee. Identical additions were made in the hands of Trust Assessee in ITA No. 1369/Del/2020 (supra). The issue has been adjudicated in favour of the assessee as per para 13, 14 15 (supra). The observations made in the case of the trust shall apply mutatis mutandis to the assessee society herein. Consequently, enhancement made to the tune of Rs. 61,68,381/- is set aside and quashed. 28. We now advert to third limb of objection raised on behalf of the assessee on account of advise made to the Assessing Officer which led to enhancement of income for unrelated A.Y. 2013-14 and A.Y. 2014-15 which were not subject matter of appeal before the CIT(A). While we look into the impugned objection, it may be pertinent to reproduce the so called advise given by the CIT(A) in first appellate order: 23. It is further noted that the facts of the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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