SINGHAD TECHNICAL EDUCATION SOCIETY, Pune V. ACIT, Cir.-2 (2), Pune

ITA 113/PUN/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 7444 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 1 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-03-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 1999-2000
• Appeal Filed On: 21-01-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: S N DOSHI
• Keywords: Reopening of assessment; Capital asset; Gift; Business income; Search and seizure; Loose papers; Charitable institution; Opportunity of being heard; Principle of natural justice; Maximum Marginal Rate; Diversion of income; Earning of tax free income; Deemed to accrue or arise in india; Benefit of exemption; Retraction; Reason to believe; Revenue expenditure; Reassessment proceedings; Capital expenditure
• Section: 43B; 40A(3); 143(3); 133A; 80G; 12A; 12AA; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI I.C. SUDHIR AND SHRI D. KARUNAKARA RAO ITA NO. 113/PN/10 (ASSTT. YEAR 1999-00) SINHGAD TECHNICAL EDUCATION SOCIETY S. NO. 44/A VADGAON (BK) OFF SINHGAD ROAD, PUNE 411041 PAN NO. AABTS3300Q .... APPELLANT VS. ACIT, CENTRAL CIRCLE 2(2), PUNE . RESPONDENT APPELLANT BY : SHRI S.N. DOSHI RESPONDENT BY : SHRI A S SINGH, SHRI HARESHWAR SHARMA, SHRI ABHAY DAMLE ORDER PER D. KARUNAKARA RAO AM THIS IS AN APPEAL BY ASSESSEE AGAINST THE ORDER OF T HE CIT(A)-II, PUNE DATED 24/12/2009 FOR THE ASSESSMENT YEAR 1999-00 AND THE GROUNDS RAISED ARE AS UNDER:- GROUND NO. 1(A): ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE CIT(A) HAS ERRED IN SUSTAINING THE REOPENING OF THE ASSESSMENT OF THE A.Y 1999-2000 WITHOUT THERE BEING ANY VALID REASON OR J USTIFICATION AND SUCH A NOTICE U/S. 148 CANNOT BE SAID TO BE IN ACCORDANCE WITH THE REQUIR EMENT OF REOPENING THE ASSESSMENT AS SPELT OUT IN SECTION 147. GROUND NO. 1(B): ON THE FACTS AND IN THE CIRCUMSTANCES AND WITHOUT PREJUDICE TO THE ABOVE GROUND NO. 1 OF THE CASE THE ASSESSME NT ORDER PASSED U/S. 147 RWS 143(3) IS BAD IN LAW IN AS MUCH AS THE SAME IS BASED ON THE ORDER OF CIT PASSED U/S. 12AA(3) WHICH ORDER ITSELF IS INVALID, MAINLY BECAUSE THE REGISTRATION GRANTED U/S. 12A(A) CANNOT BE CANCELLED U/S. 12AA(3) AS HAS BEEN HELD BY ITAT. GROUND NO. 2(A): ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE ORDER OF CIT(A) IS BAD IN LAW AND INVALID AS HE HAS NOT ISSUED THE MANDATORY NOTICE AS REQUIRED BY SEC. 251(2) OF THE INCOME TAX ACT ITA NO. 113/PN/10 A.Y: 1999-00 PAGE 2 OF 42 1961, IN ORDER TO ENHANCE THE ASSESSMENT THEREBY MA KING THE APPELLANT LIABLE ON THE GROUNDS DIFFERENT FROM THOSE NOT CONS IDERED BY THE AO. GROUND NO. 2(B): ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND WITHOUT PREJUDICE TO THE ABOVE GROUND NO. 1 THE ORD ER OF CIT(A) IS BAD IN LAW AND INVALID AS HE HAS DECIDED THE APPEAL BY CONSIDERING THE IS SUES WHICH ARE NOT MENTIONED IN THE ASSESSMENT ORDER RE FER CIT VS. SHAPURJI PALLOJI MISTRI. 44 ITR 891 (SC). GROUND NO. 2(C): ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND WITHOUT PREJUDICE TO THE ABOVE GROUND NO. 1 THE LEA RNED CIT(A) HAS ERRED IN NOT APPRECIATING THE ESTABLISHED LEGAL POSITION THAT HIS POWER OF ENHANCEMENT IS RESTRICTED TO THE SUBJECT MATER OF A SSESSMENT WHICH HAS BEEN CONSIDERED EXPRESSLY OR BY CLEAR IMP LICATION BY THE ASSESSING OFFICER. REFER CIT VS. RAJ BAHADHUR HARDUT ROI MOTILAL CHAMARIA 66 ITR 443 (SC). GROUND NO. 3: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND WITHOUT PREJUDICE TO THE ABOVE GROUND NO. 1 TO 4 THE CIT(A ) HAS ERRED IN TREATING THE ACQUISITION OF SHARES IN COOPERATIVE BANK FOR RS. 49,750/- AS IN CONTRAVENTION OF PROVISION OF SECTION 13(1)(D)(I) OF THE INCOME TAX ACT, 1961 DISREGARDING THE FACT THAT THIS ACQUISITI ON OF SHARES IS NEITHER THE INVESTMENT NOR THE DEPOSIT MADE OUT OF THE FUND S OF THE INSTITUTION AND SUCH ACQUISITION WAS NECESSARY BEING A PRE-COND ITION FOR AVAILING THE LOAN FROM THE SAID CO-OPERATIVE BANK AND THUS ERRED IN LEVYING THE EXEMPTION CLAIMED U/S. 11 GROUND NO. 4: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND WITHOUT PREJUDICE TO THE ABOVE GROUND NO. 1 TO 4 THE CIT(A ) HAS ERRED IN SUSTAINING THE ADDITION OF RS. 2,66,187/- PROPOSED AND MADE BY THE SPECIAL AUDITORS BY INVOKING THE PROVISIONS OF SECT ION 36(1)(VA) OF THE ACT ON ACCOUNT OF DELAY IN PAYMENT OF EMPLOYEES SHA RE OF PROVIDENT FUND RWS SECTION 2(24). GROUND NO. 5: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND WITHOUT PREJUDICE TO THE ABOVE GROUND NO. 1 TO 4, THE CIT( A) HAS ERRED IN SUSTAINING THE DISALLOWANCE OF RS. 86,909/- MADE U/S. 40A(3) OF THE INCOME TAX ACT 1961. GROUND NO. 6: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND WITHOUT PREJUDICE TO THE ABOVE GROUND NO. 1 TO 4, THE CIT( A) HAS ERRED IN SUSTAINING THE ADDITIONS OR DISALLOWANCES MADE O N THE GROUND THAT CAPITAL EXPENSES HAVE BEEN DEBITED TO INCOME & EXPE NDITURE A/C WITHOUT APPLYING HIS COMPETENT MIND AND IN THE PROCESS HAS FURTHER OVERLOOKED THE FACT THAT SPECIAL AUDITORS HAVE THEMSELVES ERRE D IN TREATING THE REVENUE EXPENDITURE AS CAPITAL EXPENDITURES. GROUND NO. 7 : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND WITHOUT PREJUDICE TO THE ABOVE GROUND NO. 1 TO 4, THE CIT( A) HAS ERRED IN TREATING THE DONATIONS RECEIVED TOWARDS TRUST CORPUS AS REVENUE INCOME. DENIAL OF EXEMPTION U/S. 11 CANNOT CHANGE T HE BASIC AND TRUE NATURE OF THE RECEIPT. ITA NO. 113/PN/10 A.Y: 1999-00 PAGE 3 OF 42 2. A. BRIEFLY STATED RELEVANT FACTS OF THE CASE ARE TH AT THE ASSESSEE IS AN EDUCATIONAL INSTITUTION REGISTERED UNDER BOMBAY PUBLIC TRUST ACT, 1950 & SOCIETIES REGISTRATION ACT, 1860. IT WAS ALSO REGISTE RED U/S 12A(A) OF THE INCOME TAX ACT, 1961 SINCE THE A.Y. 1994-95. THE SEARCH AND SEIZURE OPERATION U/S. 132 WAS CARRIED OUT ON 20/07/05 IN THE CASE OF SHRI M.N. N AVALE WHO IS THE FOUNDER TRUSTEE AND THE PRESIDENT OF THE ASSESSEE EDUCATIONAL SOCIETY. IN THE COURSE OF SEARCH OPERATION, THE SEARCH PARTY FOUND AND SEIZED CE RTAIN LOOSE PAPERS. SIMULTANEOUSLY, THE SURVEY ACTION WAS CONDUCTED ON T HE INSTITUTE. HOWEVER, ON THE BASIS OF THE LOOSE PAPERS AT BUNDLE A-2 FOUND WI TH AND SEIZED FROM SHRI M.N. NAVALE AND THE CIT ISSUED THE SHOW CAUSE NOTICE STATING THAT IN VIEW OF THE FINDINGS IN THE SEARCH OPERATION, HE HAD REASON TO BEL IEVE THAT THE NOTING IN THE SAID LOOSE PAPERS ARE IN RESPECT OF CAPITATION FEES/ D ONATIONS AND THEREFORE, CIT PROPOSED THAT THE REGISTRATION OF THE INSTITUTION WAS TO BE CANCELLED ON BOTH THE LIMBS, NAMELY (I) THE ACTIVITY OF THE TRUST ARE NOT G ENUINE AND (II) THESE ARE NOT BEING CARRIED ON IN ACCORDANCE WITH THE OBJECT OF THE TRUST. AFTER HEARING THE ASSESSEE, THE CIT CANCELLED THE REGISTRATION U/S. 12A A(3) VIDE THE ORDER DATED 09.10.2007. THIS ORDER OF THE CIT WAS CHALLENGED BEFO RE THE HONBLE INCOME TAX APPELLATE TRIBUNAL (ITAT) AND THE SAME WAS REVERSED O N TECHNICAL GROUNDS IE THE REGISTRATION GRANTED U/S 12A OF THE ACT COULD NOT BE CANCELLED UNDER SUBSECTION (3) OF 12AA OF THE ACT, WHICH IS A SUBSEQUENT LEGIS LATION WITH PROSPECTIVE FORCE. B. AO RECEIVED THE DOCUMENTS INVOLVING THE ASSESSE E ON 18/04/2007 AND INITIATED THE ASSESSMENT OR REASSESSMENT PROCEEDINGS U NDER THE PROVISIONS OF SECTION 147 FOR THE AY 1999-2000 OR 153C OF THE ACT F OR SUBSEQUENT AYS, AS THE CASE MAY BE. IN SO FAR AS THE ASSESSMENT MADE U/S 1 53C FOR THE AY 2000-01 TO 2003-04 ARE CONCERNED, THE TRIBUNAL DECIDED THE APPEAL IN FAVOUR OF THE ASSESSEE ON TECHNICAL GROUNDS THAT THE SETTLED OR CON CLUDED ASSESSMENTS CAN NOT BE OPENED FOR ASSESSMENT IN A ROUTINE MANNER IN THE AB SENCE ANY INCRIMINATING DOCUMENTS OR UNDISCLOSED ASSETS /INFORMATION. C. REGARDING THE REASSESSMENT PROCEEDINGS U/S 147 OF THE ACT FOR THE AY 1999-00, RELEVANT FACTS ARE THAT THE ASSESSEE ORIGINAL LY FILED THE RETURN OF INCOME ON 27-7-99 AND THE SAME WAS PROCESSED U/S 143(1) OF THE ACT AND THERE WAS NO SCRUTINY ASSESSMENT U/S 143(3) OF THE ACT. AFTER SEARC H ON MR M N NAVALE AND SURVEY ACTION U/S 133A OF THE ACT ON THE ASSESSEE ON 20.7.2005, THE AO ISSUED A NOTICE U/S 147 OF THE ACT FOR THE REASONS RECORDED IN W RITING. THE SAID NOTICE WAS UNDISPUTEDLY RECEIVED BY THE ASSESSEE ON 29.3.2006 V IDE HIS LETTER DATED 7.4.2006. ASSESSEE REQUESTED THE AO TO TREAT THE ORIGI NAL RETURN FILED ON 27.7.99 ITA NO. 113/PN/10 A.Y: 1999-00 PAGE 4 OF 42 AS THE RETURN IN RESPONSE TO THE SAID NOTICE U/S 147 O F THE ACT. FURTHER, THERE EXISTS THE REASONS RECORDED BY THE AO AS REQUIRED U/ S 147 OF THE ACT AND THE SAME WERE SUPPLIED TO THE ASSESSEE ON SUBSEQUENT DAT ES. DURING THE REASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER MADE T HE REFERENCE FOR SPECIAL AUDIT U/S. 142(2A) OF THE ACT. IN DUE COURSE, THE SP ECIAL AUDITOR COMPLETED THE AUDIT. HOWEVER, THERE IS AN ALLEGATION BY THE ASSESSE E THAT THE SPECIAL AUDITOR CONDUCTED THE AUDIT TOTALLY IN CONTRAST TO THE TERMS AND REFERENCES MADE BY THE ASSESSING OFFICER FOR CONDUCTING THE SPECIAL AUDIT. T HE ASSESSING OFFICER ON THE BASIS OF THE CITS ORDER OF CANCELLATION OF REGISTRATIO N HELD THAT THE ASSESSEE HAS TO BE TREATED AS AOP AND IT WOULD NOT BE ENTITLED TO THE CLAIM OF EXEMPTION U/S. 11 OF THE ACT. ASSESSING OFFICER ASSESSED THE INCOME AT RS. 1,82,55,420 FOR THE AY 1999-00 AS COMPUTED BY SPECIAL AUDITOR. ASSESSMEN T ORDER DOES NOT CONTAIN THE BREAKUP FOR THE SAID SUM. MEANWHILE, THE ISSUE O F CANCELLATION OF THE REGISTRATION U/S 12AA(3) OF THE ACT TRAVELLED TO THE T RIBUNAL AND THE ISSUE WAS EVENTUALLY DECIDED IN FAVOUR OF THE ASSESSEE ON TECH NICAL GROUNDS IE THE REGISTRATION GRANTED U/S 12A OF THE ACT COULD NOT BE CANCELLED U/S 12AA(3) OF THE ACT. THE REASSESSMENT WAS FINALIZED DETERMINING THE A SSESSED INCOME AT RS 1,82,55,420 FOR THE AY 1999-00 AS PER THE DISCUSSION ON PARAGRAPHS 7 AND 8 OF THE REASSESSMENT ORDER. THE ASSESSING OFFICER COMPLETE D THE REASSESSMENT ON 7/08/2008 RELYING ON THE REVISED COMPUTATION OF TOTAL INCOME MADE BY THE SPECIAL AUDITOR AND ASSESSED THE INCOME AT RS. 1,82, 55,422/- AND DENIED THE EXEMPTION CLAIMED U/S. 11 OF THE ACT. ORDER OF THE IT AT WAS NOT AVAILABLE TO THE AO DURING THE MAKING OF THE REASSESSMENT ORDER AND IT WAS AVAILABLE TO THE CIT(A) DURING THE FIRST APPELLATE PROCEEDINGS. 3. IST APPELLATE PROCEEDINGS: DURING THE FIRST APPELLATE PROCEEDINGS, ASSESSEE RAISED THE GROUNDS QUESTIONING THE VALIDITY OF THE REOPENING PROCEEDINGS. AFTER FILING OF THE APPEAL BEFORE THE CIT (A), ON RECEIPT OF THE ORDER OF THE TRIBUNAL, WHICH QUASHED THE ORDER OF THE CIT CA NCELLING THE REGISTRATION, THE ASSESSEE MODIFIED THE GROUNDS AND STATEMENTS. TH ESE DOCUMENTS WERE REMANDED TO THE AO. WHILE SUBMITTING THE REMAND REPORT, THE AO RAISED NEW REASONS FOR DENIAL OF EXEMPTION U/S 11 OF THE ACT IN VIEW OF THE VIOLATION OF THE OTHER PROVISIONS OF ACT. CIT GRANTED REASONABLE OPPORTU NITY TO THE ASSESSEE AS PER THE ESTABLISHED PROCEDURE BEFORE USING THE REMAND REP ORT OF THE AO. DURING THE FIRST APPELLATE PROCEEDINGS, LD. COUNSEL FOR THE A SSESSEE SUBMITTED THAT THIS IS ITA NO. 113/PN/10 A.Y: 1999-00 PAGE 5 OF 42 A CASE OF CONDUCTING ROVING ENQUIRIES BY AO AND FUTILE ATTEMPT OF THE AO T O MAKE OUT A CASE OF DIVERSION OF INCOME OF THE TRUST T O THE TRUSTEES. FURTHER, HE MENTIONED THAT ACTIVITIES OF THE TRUST ARE FOUND TO B E LEGAL. REGARDING THE DONATIONS, IT IS COVERED U/S. 11(1)(D), LD. COUNSEL ALLEGED THAT EVEN IF SUCH DONATIONS ARE TAXABLE, ASSESSEE REMITTED AS PER THE PRO VISIONS OF SEC. 11, 12A AND 13 OF THE ACT. FURTHER, HE MENTIONED THAT A.O MAD E ADDITION UNDER THE HEAD INCOME FROM OTHER SOURCES OF BUSINESS INCOME , SUCH HEAD OF INCOME DOES NOT EXISTS IN THE INCOME TAX ACT, 1961 AND RELE VANT DISCUSSIONS ARE GIVEN IN PARA 6.2 TO 6.4 OF THE IMPUGNED ORDER. AT THE END OF THE PROCEEDINGS, THE CIT(A) HELD THAT THE REOPENING WAS VALID. AGGRIEVED WITH THE SAME, THE ASSESSEE RAISED THIS GROUND ON THE VALIDITY OF THE REASSESSMENT PROCEE DINGS BEFORE THE TRIBUNAL VIDE GROUND 1 OF THE APPEAL BEFORE US. 4. 2 ND APPELLATE PROCEEDINGS BEFORE THE TRIBUNAL: DURING THE PROCEEDINGS, ON THE ISSUE OF VALIDITY OF REASSESSMENT PROCEEDINGS, LD COUNSEL FOR THE ASSESSEE IS CRITICAL OF (I) THE TIMING OF THE REC ORDING OF THE REASONS, (II) ADEQUACY OF THE SAID REASONS AND (III) REOPENING OF T HE ASSESSMENT WHEN THERE IS NO CONCEALED INCOME. HE FILED WRITTEN SUBMISSION I N THIS REGARD, WHICH IS PLACED AT PAPER BOOK-I PG 5 TO 6. WE SHALL TAKE UP THESE IS SUES ONE BY ONE IN THE SUCCEEDING PARAGRAPHS. (I) TIMING OF THE RECORDING: IN THIS REGARD, LD COUNSEL MENTIONED THAT THERE IS NO DISPUTE ON THE EXISTENCE OF REASONS AND DISPU TE IS RESTRICTED TO TIMING OF THE THEIR RECORDING AND IT IS SUBSEQUENT TO THE ISSUE OF NOTICE U/S 147/148 OF THE ACT. IN THIS REGARD, HE RELIED ON VARIOUS DECISIONS TO PROPOSE THAT THE NOTICE ISSUED BASED ON THE REASONS RECORDED LATER IN TIME ARE I NVALID AND IN SUCH CASES, THE REASSESSMENTS ARE INVALID LEGALLY. DISPLAYING TH E COPY OF THE DOCUMENT CONTAINING THE IMPUGNED REASONS, LD COUNSEL BROUGHT T O ATTENTION THE FACT THAT THE SAID DOCUMENT/ REASONS ARE UNDATED AND IT DOES NOT STAMP & SEAL OF THE AO. IN SUCH CIRCUMSTANCES, AS PER THE COUNSEL, SUCH RE ASONS WERE TO BE TREATED RECORDED ANTERIOR TO THE DATE OF ISSUE OF NOTICE U/S 14 7 OF THE ACT. (II) ADEQUACY OF THE SAID REASONS: ON TAKING US THROUGH EVERY WORD AND LINE OF THE IMPUGNED REASONS RECORDED BY THE AO, LD C OUNSEL SUMMED THEM UP INTO FOUR SEPARATE HEADING, WHICH LED TO FORMATION OF THE REASON TO BELIEF TO THE ITA NO. 113/PN/10 A.Y: 1999-00 PAGE 6 OF 42 AO WITHIN THE MEANING OF THE SECTION 147 OF THE ACT AND THE ASSESSEES WRITTEN SUBMISSIONS IN THIS REGARD ARE AS FOLLOWS. AS PER REASON NO. 1:- ASSESSING OFFICER STATES THAT DONATION OF RS. 15831 00/- TAKEN TO THE TRUST CORPUS NEEDS VERIFICATION. SUBMITTED THAT IN VIEW OF EXISTENCE OF APPELLANTS REGISTRATI ON ON THE DATE OF ISSUE OF NOTICE U/S. 148 I.E. ON 29/03/2009 THIS VERIFICATION OF DONATION CAN HAVE NO IMPACT ON TAXATION. ASSUMING T HIS DONATION COULD NOT HAVE BEEN CLAIMED AS EXEMPT U/S. 11(1)(D), IT W OULD HAVE BEEN CERTAINLY TAKEN TO THE GROSS INCOME AND DUE BENEFIT S ALLOWABLE U/S. 11, 12 COULD HAVE BEEN AVAILED BY THE APPELLANT. THE APPELLANT IN HIS RETURN OF INCOME FOR A.Y 1999- 2000 HAS DECLARED THE DEFICIT OF RS. 15,38,161/-. AS PER REASON NO. 2 ASSESSING OFFICER STATES THAT THE RENTAL INCOME OF RS. 2,74,06,500/- SHOULD HAVE BEEN SHOWN UNDER THE HEAD INCOME FROM OTHER SOURCES OF BUSINESS INCOME SUBMITTED THAT THIS REASONING OF THE ASSESSING OFFICER IS PA TENTLY INCORRECT FOR THE OBVIOUS REASON THAT THERE IS NO S UCH HEAD OF INCOME NAMELY INCOME FROM OTHER SOURCES OF BUSINESS INCOME. MOREOVER AS STATED ABOVE APPELLANT WAS VERY MUCH E LIGIBLE TO THE CLAIM OF EXEMPTION U/S 11 AND ACCORDINGLY IT HAS RI GHTLY SO CLAIMED AND IT COULD NOT HAVE MADE ANY DIFFERENCE EVEN IF ASSESSED UNDER THE CORRECT HEAD INCOME FROM HOUSE PROPERTY. THE APPELLANT COULD HAVE ALSO CLAIMED THE STANDARD DEDUCTION U/S. 24 WHICH INFACT HAS NOT BEEN CLAIMED. LASTLY THIS R ENTAL INCOME INFACT IS NOT THE REAL INCOME. IT IS THE RESULT OF MUTUAL TRA NSACTION BETWEEN THE APPELLANT HEAD OFFICE AND ITS SEVERAL UNITS. THIS REASONING CAN NOT BE CONSIDERED AS VALID TO HOLD THAT THERE IS AN ESCAPEMENT OF INCOME. AS PER REASON NO. 3 THE ASSESSING OFFICER INTENDS TO UNDERSTAND THE PUR POSE OF TRANSFER OF RS. 21887,500/- TO RESERVE AND SPECIFIC FUND. SUBMITTED THAT BASICALLY THIS AMOUNT IS TAKEN TO THE GROSS IN COME CREDITED TO INCOME AND EXPENDITURE ACCOUNT. THE APP ELLANT WAS ENTITLED TO EXEMPTION CLAIM U/S. 11. IN FACT THE PURPOSE IS ALREADY DISCLOSED IN THE RE TURN OF INCOME AND FURTHER UNDERSTANDING IS TOTALLY UNCALLED FOR. AGAI N THIS REASONING CANNOT BE ACCEPTED AS VALID TO HOLD THAT THERE IS ANY ESCAPEMENT OF INCOME. AS PER REASON NO. 4 AS PER THE ASSESSING OFFICER THE APPELLANTS CLAIM OF BANK INTEREST OF RS.11,14,287/- PAID ON THE BANK LOANS UTILIZED FOR ACQUIRING THE CAPITAL ITA NO. 113/PN/10 A.Y: 1999-00 PAGE 7 OF 42 ASSETS AND WHICH IN FACT SHOULD HAVE BEEN CAPITALIS ED AND THAT AS PER THE ASSESSING OFFICER IS THE REASON TO HOLD THAT THERE IS AN ESCAPEMENT OF INCOME. D SUBMITTED THAT AT THE OUTSET THE NECESSITY OF CAPITALIZATION OF INTEREST ON THE ACQUISITION OF THE CAPITAL ASSET TI LL THE DATE THE SAME IS PUT INTO USE IS THE REQUIREMENT OF SECTION 36(1)(III) W HICH IS INTRODUCED W.E.F. 1/4/2004 AND THEREFORE IT HAS NO APPLICABILITY TO T HE ASSESSMENT YEARS 1999-2000 TO 2003-04. (III) REOPENING OF THE ASSESSMENT WHEN THERE IS NO CONCEALED INCOME: IN THIS REGARD, LD COUNSEL MENTIONED THAT WHEN THERE I S NO TAXABLE INCOME IN VIEW OF THE EXEMPT INCOME, THERE IS CONCEALED INCOME . HE MENTIONED THAT THE INCOME OF THE ASSESSEE IS COMPLETE EXEMPT IN VIEW O F THE PROVISIONS OF SECTION 11 OF THE ACT READ WITH ORDER OF THE TRIBUNAL GRANTING THE REGISTRATION AND QUASHING THE ORDER OF THE CIT. FURTHER, HE MENTIONED TH E AO DID NOT MAKE ANY ADDITION TO THE INCOME OF THE ASSESSEE FOR THE REASO NS IT WAS REOPENED. IN ADDITION TO THE ABOVE, LD COUNSEL ALSO RELIED ON VARIOUS DECISIONS AND ALSO THE SUBMISSIONS MADE BEFORE THE REVENUE AUTHORITIES. FINAL LY, THE COUNSEL FOR THE ASSESSEE SUMMED UP STATING THAT REASSESSMENT ORDER NEE DS TO BE HELD INVALID. 5. SUBMISSIONS OF THE CIT-DR: PER CONTRA , SRI A S SINGH, LD CIT DR FOR THE REVENUE RELIED ON THE ORDERS OF THE AO. FURTHER, HE N ARRATED LISTS OF ITEMS DISCOVERIES DURING SURVEY ACTION ON THE ASSESSEE AND THE SEARCH AND SEIZURE ACTION ON MR M N NAVALE, THE FOUNDER TRUSTEE OF THE AS SESSEE AND ALSO SUBMITTED THE SIGNIFICANT EVENT OF DISCLOSURE OF UN DISCLOSED INCOME OF RS 1.25 CR AND RETRACTION OF THE SAME IN SUBSEQUENT TIMES. LD D R IS OF THE OPINION THAT ALL THE CIRCUMSTANCES NEED TO BE CONSIDERED AND EVALUATED BEFORE DECIDING THE ALLEGATION OF THE ASSESSEE. IF CONSIDERED, THE AO VA LIDLY ISSUED THE NOTICE U/S 148 OF THE ACT AFTER DULY RECODING THE REASONS AS PER THE STATUTE. MENTIONING THAT THE NOTICE WAS ISSUED AFTER LAPSE OF 4 (FOUR) YEARS AND B EFORE END OF SIX YEARS, LD DR MENTIONED THAT THE ASSESSEE FAILED TO DISCLOSE THE DETAILS FULLY AND TRULY AS PER THE PROVISIONS OF THE PROVISO TO SECTION 147 OF THE A CT. IN THIS REGARD, HE TOOK US THROUGH THE RETURN OF INCOME FILED BY THE ASSESSEE FOR THE AY UNDER CONSIDERATION AND MENTIONED THAT THE ASSESSEE MENTIO NED NIL AGAINST THE RELEVANT COLUMNS RELATING TO THE DONATION TO CORPUS INSTEAD OF PROVIDING PROPER DATA. FURTHER, HE DISMISSED THE ARS CONTENTION THAT THE REASONS WERE RECORDED LATER IN TIME AND NOT BEFORE THE ISSUE OF NOTI CE U/S 148 OF THE ACT. THE ITA NO. 113/PN/10 A.Y: 1999-00 PAGE 8 OF 42 COUNTER ARGUMENTS OF THE DR ON THIS ISSUE ARE DETAILED IN THE SUBSEQUENT PARAGRAPHS. 5.1 TIMING OF THE RECORDING OF THE REASONS: COUNTERING TO THE ALLEGATION OF THE ASSESSEES COUNSEL ABOUT THE RECORDING OF THE REASONS SUBSEQUENT TO THE NOTICE U/S 148 OF THE ACT, LD DR STATED THAT THE AS SESSEE MADE WILD ALLEGATION AND AR HAS NOTHING SUPPORT THE SAME. FURTHER, HE REASON ED THAT ONUS IS ON THE ASSESSEE TO SUBSTANTIATE, WHEN SUCH AN ALLEGATION I S MADE. WHILE ACCEPTING THAT THE PAGE ON WHICH THE REASONS WERE RECORDED IS WITHOUT ANY DATE OR SEAL, LD DR STATED THAT THE HE HAS EVIDENCE TO PROVE THAT THE REA SONS WERE RECORDED PRIOR TO THE DATE OF NOTICE U/S 148 OF THE ACT. IN THIS REGARD , THE DR FILED A DOCUMENT TITLED FORM FOR RECORDING REASONS FOR INITIATING P ROCEEDINGS UNDER SECTION 148 AND FOR OBTAINING THE APPROVAL OF THE C IT. REFERRING TO THE ABOVE DOCUMENTS, LD DR STATED THAT AS PER THE PRO CEDURE, THE AO COMPILED WITH THE SET PROCEDURE OF TAKING THE APPROVAL OF THE CONCERN ADDL CIT/CIT AND THE SAME IS EVIDENT FROM THE ABOVE DOCUMENT VIDE CO LUMN 12, WHICH READ AS UNDER. ON THE BASIS OF THE REASONS RECORDED BY THE AO , I AM SATISFIED THAT IT IS A FIT CASE FOR ISSUING NOTICE U/S 148 OF THE I T ACT FOR AY 1999-2000. SD/- 27 /3/2006 ELABORATING THE ABOVE, DR STATED THAT THE ADDL CIT COULD NOT HAVE COMMENTED ON THE FITNESS FOR ISSUE OF NOTICE ON 27 TH MARCH 2006 WITHOUT PERUSING THE REASONS RECORDED BY THE AO. THE ABOVE SENTENCE IS SELF EXPLANATORY THAT THE AO RECORDED REASONS PRIOR TO 27 TH MARCH AND NOT AFTER THE NOTICE U/S 148 OF THE ACT WAS ISSUED. ON THE ISSUE OF ADEQUACY OF REASONS, THE DR MADE VARIOUS REASONS AND THE IS DEALT WITH IN THE FOLLOWING PARAGRAPHS. 5.2 ADEQUACY OF THE REASONS: COMMENTING ON THE ADEQUACY OF THE REASONS, THE DR MENTIONED THAT THE ASSESSEE WAS COVE RED UNDER THE PROVISIONS OF SECTION 133A IN THE CONTEXT OF SEARCH AND SEIZURE OPERATION ON ITS MANAGING AND FOUNDER TRUSTEE IE M N NAVALE. THIS EXERCISE RESULT ED IN DISCOVERY OF VARIOUS INCRIMINATING INFORMATION ABOUT THE PROHIBITED COLLECT ION OF CAPITATION FEE FROM THE STUDENTS, WHO SEEK ADMISSIONS IN TO VARIOUS COURS ES. FURTHER, THERE EXIST OTHER ISSUES AS MENTIONED IN THE REASONS RECORDED BY TH E AO. LD DR ALSO MENTIONED THAT THE AO SUCCESSFULLY MADE ADDITIONS O N ACCOUNT OF CORPUS DONATIONS, WHICH IS ONE OF THE REASONS FOR REOPENING. FURTHER, DR MENTIONED THAT THE ADEQUACY OF THE REASONS IS A NON ISSUE IN V IEW OF VARIOUS JUDGMENTS ON ITA NO. 113/PN/10 A.Y: 1999-00 PAGE 9 OF 42 THIS ISSUE. WHAT IS REQUIRED IS THE REASONS TO BELI EVE ABOUT THE ESCAPEMENT OF THE CONCEALMENT OF INCOME FOR VALIDLY ASSUMING JURISD ICTION U/S 147 OF THE ACT AND THE AO HAS PLENTY OF REASONS TO BELIEVE THAT THE RE IS ESCAPEMENT OF CONCEALED INCOME. FURTHER, HE NARRATED THAT THE RELEVANT CIRCUMSTANCES ALSO PLAY VITAL ROLE IN MATTERS OF FORMATION OF THE REASON TO BELIEVE AND RELIED ON VARIOUS JUDGMENTS ON THIS SUBJECT. POINTING TO THE E NTRIES IN COLUMNS 2, 3 ETC IN THE ABOVE DOCUMENT, DR MENTIONED THAT THEY CONSTITU TE TYPOGRAPHICAL MISTAKES AND THEY MUST BE IGNORED AS THE MAIN TRUST IS ABOUT T HE DATING OF THE RECORDING OF THE REASONS. TAKING US THROUGH PART-I OF THE RETURN OF INCOME, LD DR MENTIONED THAT THE ASSESSEE FAILED DISCLOSE THE PART ICULARLY FULLY AND TRULY. IN THIS REGARD, DR READ OUT SL NO 8 (V) RELATING TO AM OUNT ELIGIBLE FOR EXEMPTION UNDER SECTION 11(1)(D) AND MENTIONED THAT THE ASSESS EE MENTIONED NO AGAINST THE SAID COLUMN, WHILE HE CLAIMED RS 15,83,100/- AS ELIGIBLE FOR EXEMPTION U/S11(1)(D) OF THE ACT. FURTHER, HE MENTIONED THAT TH E ASSESSEE DID NOT REVISE THE SAID RETURN AND IN FACT, IN RESPONSE TO THE NOTICE U/S 148 OF THE ACT, THE ASSESSEE REQUESTED THE AO TO TREAT THE ORIGINALLY FILE D RETURN OF INCOME AS COMPLIANCE MEANING THEREBY, HE AFFIRMED THAT INAPPROP RIATE CONTENTS OF THE SAID RETURN. 6. DURING THE REBUTTAL TIME, LD AR FOR THE ASSESSEE PO INTED OUT TO THE DOCUMENT RELIED UPON BY THE DR WHICH IS SCANNED AND REPRODUCED IN THIS ORDER AND HE WAS EXTREMELY CRITICAL OF THE SAID DOCUMENT AN D STATED THAT IT SHOULD BE IGNORED AS IT IS NOT A RELIABLE ONE AND IT IS A INTE RNAL CORRESPONDENCE. 7. DECISION: WE HAVE HEARD THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE, PAPER BOOKS, WRITTEN SUBMISSIONS, COMPILATION OF CASES FILED BY BOTH THE PARTIES BEFORE US. AFTER CAREFUL THINKING, WE FIND THAT THE ADJUDICATION OF THE LEGAL ISSUE RELATING TO THE VALIDITY OF THE REASSESSMENT PRO CEEDINGS VIS A VIS THE VALIDITY OF THE NOTICE IS THE REQUIREMENT. FOR THIS PURPOSE, WE EXTRACTED THE REASONS RECORDED BY THE AO BEFORE ISSUE OF THE NOTICE US/ 148 OF THE ACT OUT THE DOCUMENT PLACED AT PAGE 5 OF THE PAPER BOOK III, AN D THE SAME READ AS FOLLOWS. REASONS RECORDED: ITA NO. 113/PN/10 A.Y: 1999-00 PAGE 10 OF 42 FROM THE ABOVE, TO SUM UP, IT IS EVIDENT THAT THERE A RE FOUR ISSUES BASED ON WHICH THE AO HAS REASON TO BELIEF THAT THERE IS ESCAP EMENT OF INCOME: AND THEY ARE: I. THAT DONATION OF RS. 15,83,100/- TAKEN TO THE TR UST CORPUS NEEDS VERIFICATION; II. THAT RENTAL INCOME OF RS. 2,74,0 6,500/- SHOWN UNDER THE HEAD INCOME FROM OTHER SOURCES NEEDS TO BE ASSESSED AS I NCOME FROM OTHER SOURCES OF BUSINESS INCOME; III. THAT RS. 2,18,87,500/- HAV E BEEN TRANSFERRED TO RESERVE AND SPECIFIC FUNDS, THE PURPOSE OF TRANSFER NEEDS T O BE UNDERSTOOD AND IV. THAT RS. 1,11,42,827/- HAVE BEEN CLAIMED UNDER BANK INTE REST AND CHARGE AND AS MOST OF THE BANK LOANS HAVE BEEN UTILIZED FOR ACQUI RING THE CAPITAL ASSETS AND HENCE INTEREST THERE ON HAS TO BE CAPITALIZED. IN THIS REGARD, THE ASSESSEE MADE ITA NO. 113/PN/10 A.Y: 1999-00 PAGE 11 OF 42 SUBMISSION AND THE GIST OF THE AS PER THE CIT(A) AS MENTIONED IN PARA 6 OF THE IMPUGNED ORDER ARE AS UNDER: AS FAR AS DONATIONS OF RS. 15,83,100/- ARE CONCERNED IF FOR ANY REASON THESE ARE NOT TOWARDS THE CORPUS, THESE VERY WELL D O REPRESENT THE INCOME DERIVED FROM PROPERTY HELD UNDER TRUST, OFFCOURSE W ITH A RIDER THAT IT HAS TO BE UTILIZED OR APPLIED FOR THE OBJECT OF THE TR UST, TO THE EXTENT OF 85%. AND AT THE TIME I.E. ON 29/03/2006 WHEN THE NOTICE U/S. 148 WAS ISSUED THE APPELLANT DID HELD THE REGISTRATION U/S. 12A(A) . (THE CIT CANCELLED THE REGISTRATION ON 09/10/2007). THEREFORE THESE DONATI ONS WERE EXEMPT U/S. 11. HENCE THERE WAS NO REASON TO HOLD THAT THERE IS AN ESCAPEMENT OF INCOME. AS REGARDS RENTAL INCOME IT CANNOT BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES OF BUSINESS INCOME AS STATED BY THE ASSESSING OFFICER. IN FACT THERE IS NO SUCH HEAD OF INCOME PR ESCRIBED U/S. 14. IT IS HOWEVER ADMITTED THAT RENTAL INCOME SHOULD BE ASSES SED AS INCOME FROM HOUSE PROPERTY. EVEN THEN HOW CAN IT BE SAID THAT T HERE WAS ESCAPEMENT OF INCOME ON THIS GROUND. AND APPELLANT DID HELD TH E REGISTRATION U/S. 12A (A), THE SAME INCOME QUALIFIED FOR EXEMPTION U/S. 1 1. AS REGARDS TRANSFER OF RS. 2,18,87,500/- TRANSFERRED TO RESERVE AND SPECIFIC FUNDS IT IS SUBMITTED THAT THE SAME IS TRA NSFERRED OUT OF GROSS INCOME CREDITED TO INCOME AND EXPENDITURE ACCOUNT. THIS GROSS INCOME QUALIFIES FOR EXEMPTION U/S 11 AS AT THAT TIME APPE LLANT DID HELD REGISTRATION U./S. 12A(A). HENCE EVEN ON THIS ACCOU NT ALSO THERE WAS NO ESCAPEMENT OF INCOME. AS REGARDS CAPITALIZATION OF INTEREST PAID ON BANK LOANS UTILIZED FOR ACQUIRING THE CAPITAL ASSETS WITHIN THE MEANING OF SECTION 36(1)(III) IT IS SUBMITTED THAT BASICALLY THIS SECTION APPLIES ONLY WHERE THE INCOME IS ASSESSABLE UNDER THE HEAD PROFITS FROM BUSINESS OR PROFESSION. THE APPELLANT IS ADMITTEDLY ON EDUCATIONAL / CHARITABLE INSTITUTION AND AS SUCH REGISTERED U/S 12A(A). ITS INCOME WAS ONLY ASSESSA BLE UNDER THE HEADS OTHER THAN THE HEAD OF PROFITS FROM BUSINESS AND PR OFESSION. IT IS ON RECORD THAT APPELLANT DOES NOT CARRY ON ANY BUSINES S. THEREFORE ON THE BASIS OF THIS ERRONEOUS ASSUMPTION IT CANNOT BE SAI D THAT THERE IS ESCAPEMENT OF INCOME. IN VIEW OF THE ABOVE FACTS AND LEGAL POSITION THE O RDER PASSED BY THE ASSESSING OFFICER IS WITHOUT ASSUMPTION OF LEGAL JU RISDICTION AND HENCE DESERVES TO BE HELD AS BAD IN LAW AND CANCELLED. MOREOVER IT IS PERTINENT TO BE NOTED THAT FINALLY T HE ASSESSING OFFICER PASSED THE ORDER ON THE GROUND DIFFERENT FROM THE G ROUNDS OR REASONS RECORDED WHILE ISSUING THE NOTICE U/S. 148. FURTHER, THE EXTRACTS FROM PAGE 8 TO 9 OF THE IMPUG NED ORDER OF REFLECTS THE REASONING OF THE CIT(A) FOR DISMISSAL OF THE ABOVE ITA NO. 113/PN/10 A.Y: 1999-00 PAGE 12 OF 42 SUBMISSION OF THE ASSESSEE. IN VIEW OF THEIR IMPORT ANCE, THE SAME IS REPRODUCED AS UNDER. COMING NOW TO EACH OF THE ITEMS MENTIONED IN THE R EASONS RECORDED, IT WAS SEEN BY THE ASSESSING OFFICER THAT DONATIONS OF RS. 15,83,100/- WAS TAKEN TO CORPUS. THERE WAS NOTHING ON THE RECORDS TO SUGGEST THAT THESE WERE CORPUS DONATIONS. THE DONAT IONS WERE NOT CREDITED TO THE ASSESSEES INCOME AND EXPENDITURE A CCOUNT AND, THEREFORE, TO THIS EXTENT, THERE WAS CLEARLY ESCAPEMENT OF INC OME. IN ITS SUBMISSIONS DATED 04/02/2009, THE ASSESSEE HAS CONTENDED THAT E VEN SO, THE AMOUNT WOULD HAVE BEEN EXEMPT U/S. 11 AND HENCE, THERE WAS NO REASON TO BELIEVE THAT THERE WAS ESCAPEMENT OF INCOME. I HAVE ALREADY REPLIED TO THIS. AS REGARDS THE RENTAL INCOME ALSO, THE SUBMISSIONS OF THE ASSESSEE IS THAT IRRESPECTIVE OF THE HEAD UNDER WHICH IT IS TO BE TAXED IT WOULD HAVE BEEN EXEMPT U/S. 11. I HAVE ALREADY DEALT WITH THE CLAIM OF EXEMPTION U/S. 11. AS THE INCOME WAS NOT COMPUTED UNDER THE P ROPER HEAD, THE ASSESSING OFFICER HAD REASON TO BELIEVE THAT THERE WOULD BE ESCAPEMENT OF INCOME IF THE INCOME IS COMPUTED UNDER THE PROPE R HEAD. AS REGARDS THE CAPITALIZATION OF INTEREST OF RS. 1,11,42.827/-, IT IS SUBMITTED BY THE ASSESSEE THAT SUCH CAPITALIZATI ON WILL BE WITHIN THE MEANING OF SECTION 36(1)(III) WHICH IS A SECTION TH AT WOULD APPLY ONLY WHILE COMPUTING THE INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. IT IS SUBMITTED THAT THE ASSESSEE D OES NOT CARRY ON ANY BUSINESS AND, THEREFORE, ITS INCOME IS ASSESSABLE U NDER THE HEAD OTHER THAN THE HEAD OF PROFITS AND GAINS OF BUSINESS OR PROFESSION. IN REPLY TO THE ABOVE SUBMISSION OF THE ASSESSEE, IT SHOULD BE MENTIONED THAT IN THE REASONS RECORDED, THE ASSESSI NG OFFICER HAS NOT REFEREED TO SECTION 36(1)(III). EVEN IF THE ASSESSE ES INCOME IS TO BE COMPUTED UNDER THE HEAD OTHER THAN THE HEAD PROFIT S AND GAINS OF BUSINESS OR PROFESSION, THE INTEREST PAYMENT HAD S TILL TO BE CAPITALIZED AS THE BORROWINGS WERE USED FOR ACQUISITION OF ASSETS AND THERE WAS NO INDICATION OF THE USE OF SUCH ASSETS DURING THE ASS ESSMENT YEAR. WITHOUT PREJUDICE TO THIS, IT SHOULD BE MENTIONED THAT AS A LREADY NOTED, THERE WAS A STRONG REASON TO BELIEVE THAT THE ASSESSEE HAD BE EN COLLECTING DONATIONS IN THE EARLIER YEARS ALSO. IF THAT WERE SO, IT WOUL D MEAN THAT THE ASSESSEE WAS NOT ENGAGED IN ANY CHARITABLE ACTIVITIES AND TH E INSTITUTIONS WERE BEING RUN ON COMMERCIAL LINES WITH A VIEW TO EARN I NCOME. THE INCOME OF THE ASSESSEE COULD, THEREFORE, BE RIGHTLY ASSESSED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION IN WHICH CASE SECTION 36(1)(III) WOULD HAVE BEEN APPLICABLE. THE ASSESSEE FINALLY SUBMITS THAT THE ASSESSING OF FICER HAD PASSED THE ASSESSMENT ORDER ON GROUNDS DIFFERENT FROM THE GROUNDS MENTIONED IN THE REASONS RECORDED WHILE ISSUING NOTICE U/S. 148. IN THIS CONNECTION, IT SHOULD BE NOTED THAT IN THE PROCEEDINGS U/S. 147, A N ASSESSING OFFICER CAN ASSESS OR RE-ASSESS ALSO ANY OTHER INCOME CHARGEABLE TO TAX WHICH HAS ESCAPED ASSESSMENT AND WHICH COMES TO HIS NOTIC E SUBSEQUENTLY IN THE COURSE OF THE PROCEEDINGS UNDER THIS SECTION. THE PROCEEDINGS U/S. ITA NO. 113/PN/10 A.Y: 1999-00 PAGE 13 OF 42 147 DOES NOT THEREFORE, BECOME INVALID MERELY BECAU SE THE ASSESSING OFFICER HAS CONSIDERED ISSUES OTHER THAN THOSE MENT IONED IN THE REASONS WHILE COMPLETING THE ASSESSMENT U/S. 147. WITHOUT P REJUDICE TO THIS, IT SHOULD ALSO BE NOTED THAT ADDITIONS WITH REGARD TO THE DONATIONS OF RS. 15,83,100/- AND INTEREST OF RS. 1,11,42,827/- HAVE BEEN CONSIDERED WHILE COMPLETING THE ASSESSMENT U/S. 147. IN VIEW OF THE ABOVE, THE CONTENTION OF THE ASSESSE E THAT THE PROCEEDINGS U/S. 147 ARE ILLEGAL DESERVES TO BE REJECTED. 7. FURTHER, RELEVANT DISCUSSION OF THE CIT(A) ON THIS VALIDITY ISSUE AS GIVEN IN PARA 6.7 TO 6.12 OF THE IMPUGNED ORDER IS AS UN DER:- 6.7 I HAVE CONSIDERED THE SUBMISSIONS OF THE APP ELLANT AND THE FACTS AVAILABLE ON RECORD. THE APPELLANT HAS CONTESTED TH E ISSUE OF RECORDING THE REASONS FOR REOPENING OF THE ASSESSEE U/S. 147 OF THE I.T. ACT, 1961 AND BASICALLY IT IS STATED THAT THE REASONS RECORDE D DO NOT CONVEY AND BELIEF THAT INCOME CHARGEABLE TO TAX HAD ESCAPED AS SESSMENT. IT WAS, THEREFORE, CONTENDED THAT NOTICE U/S. 148 WAS INVAL ID. I HAVE CAREFULLY PERUSED THE REASONS RECORDED AND THE ASSESSMENT REC ORDS, INCLUDING THE RETURN FILED BY THE APPELLANT FOR THIS YEAR. IT IS NOTICED THAT ONE OF THE REASONS RECORDED WAS THAT ON A PERUSAL OF THE BALAN CE SHEET ENCLOSED ALONG WITH THE RETURN OF INCOME, IT WAS FOUND THAT THE DONATIONS OF RS. 15,83,100/- HAVE BEEN ADDED TO THE CORPUS, WHILE TH ERE WAS NOTHING ON RECORD TO SUGGEST THAT THE DONATION RECEIVED WERE C ORPUS DONATIONS. THE ORIGINAL RETURN OF THE APPELLANT WAS FILED FOR THIS ASSESSMENT YEAR ON 27.7.1999, IN FORM NO. 3A, WHICH PERTAIN TO ASSESSE ES CLAIMING EXEMPTION U/S. 11 OF THE I.T. ACT, 1961. ON A PERUSAL OF THIS RETURN, IT IS NOTICED THAT IN PART-I, AGAINST COLUMN 8(V) OF THIS RETURN WHICH PERTAINED TO AMOUNT ELIGIBLE FOR EXEMPTION U/S. 11(1)(D), IT IS MENTIONED NO NOW, SECTION 11(1)(D) OF I.T. ACT STATES AS UNDER: SECTION 11(1) SUBJECT TO THE PROVISIONS OF SECT ION 60 TO 63, THE FOLLOWING INCOME SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE PREVIOUS YEAR OF THE PERSON IN RECEIPTS OF THE INCOME- A) -- B) -- C) -- D) INCOME IN THE FORM OF VOLUNTARY CONTRIBUTIONS M ADE WITH A SPECIFIC DIRECTION THAT THEY SHALL FORM PART OF THE CORPUS O F THE TRUST OR INSTITUTION. 6.8 THEREFORE, IN ACCORDANCE WITH THESE PROVISIONS , INCOME IN THE FORM OF VOLUNTARY CONTRIBUTIONS MADE WITH A SPECIFIC DIR ECTIONS THAT THEY SHALL FORM PART OF THE CORPUS OF THE TRUST OR INSTITUTION WAS TO BE EXEMPTED UNDER THE PROVISIONS OF SECTION 11(1)(D). HOWEVER, THE APPELLANT HAS NOT SHOWN ANY AMOUNT IN THE RELEVANT COLUMN OF THE RETU RN OF INCOME FOR THIS YEAR; AND IN FACT HAS STATED NO AGAINST THE RELEV ANT COLUMN, WHICH ITA NO. 113/PN/10 A.Y: 1999-00 PAGE 14 OF 42 IMPLIED THAT THERE WAS NO SUCH AMOUNT WHICH WAS EL IGIBLE FOR EXEMPTION U/S. 11(1)(D). ON THE OTHER HAND, THE PARTICULAR AM OUNT OF RS. 15,83,100/- WAS DIRECTLY ADDED IN THE BALANCE SHEET DURING THIS YEAR TO THE TRUST FUND OR THE CORPUS. IN VIEW OF THIS FACT, IT IS HELD THA T THE REASONS RECORDED IN RESPECT OF THIS PARTICULAR ITEM WAS A VALID REASON FOR REOPENING OF ASSESSMENT U/S. 147, AS SHOWING NOTHING AGAINST THE RELEVANT COLUMN OF THE RETURN OF INCOME LEADS TO THE CONCLUSION THAT T HIS PARTICULAR AMOUNT WAS NOT ELIGIBLE FOR EXEMPTION U/S. 11(1)(D). THERE FORE, THIS IS SUFFICIENT TO UPHOLD THE VALIDITY OF REOPENING OF ASSESSMENT U/S. 147. 6.9 FURTHER, IN THE REASON RECORDED THERE IS ALSO INCLUDED AN AMOUNT OF RS. 1,11,42,827/- BEING BANK INTEREST AND CHARGES F OR WHICH IT WAS OBSERVED THAT IT SHOULD HAVE BEEN CAPITALISED. IN R ESPECT OF THIS ISSUE, THE APPELLANT HAS STATED THAT SUCH CAPITALIZATION WILL BE ONLY IN ACCORDANCE WITH SECTION 36(1)(III) WHICH WOULD APPLY ONLY WHEN COMPUTATION IS UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PROFESSIO N; WHICH IS NOT APPLICABLE IN THE APPELLANTS CASE. TO THIS, THE AS SESSING OFFICER HAS RELIED THAT HE HAS REFERRED TO SECTION 36(1)(III) IN THE R EASONS RECORDED, AND EVEN IF THE ASSESSEES INCOME IS TO BE COMPUTED UND ER A HEAD OTHER THAN PROFITS AND GAINS OF BUSINESS OF ASSETS NOT PUT TO USE DURING THE YEAR WAS STILL TO BE CAPITALIZED. IT IS ALSO MENTIONED THAT SINCE IT WAS DISCOVERED THAT THE APPELLANT HAS BEEN COLLECTING DONATIONS IN A.Y. 2006-07, HE HAD REASON TO BELIEVE THAT THIS WAS BEING DONE IN THE E ARLIER YEARS ALSO AND THAT WOULD MEAN THAT THE APPELLANT WAS NOT ENGAGED IN ANY CHARITABLE ACTIVITIES AND THE INSTITUTION WERE BEING RUN ON CO MMERCIAL LINES WITH A VIEW TO EARN INCOME; THEREFORE, THE INCOME WOULD BE ASSESSED UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PROFESSION A ND SECTION 36(1)(III) WILL ALSO BE APPLICABLE. AGAINST THIS EXPLANATION, THE A PPELLANT STATES THAT PROVISO TO SECTION 36(1)(III) HAS BEEN INSERTED ONL Y FROM 1.4.2004 AND PRIOR TO THIS, SUCH INTEREST ON BORROWINGS EVEN FOR BUSINESS AND PROFESSION WAS ALLOWABLE AS REVENUE EXPENDITURE. 6.10 I HAVE CONSIDERED THE ABOVE REFERRED TO ARGUM ENTS PUT FORTH BY THE APPELLANT AND THE ASSESSING OFFICER. THE CONTENTION OF THE APPELLANT IS THAT EVEN IF THERE WOULD BE SOME INCOME IT WOULD HA VE BEEN EXEMPT U/S. 11. IT IS MENTIONED HERE THAT SUCH EXEMPTION U/S. 1 1 AND 12 OF THE I.T. ACT, 1961 WAS NOT AUTOMATIC BUT SUBJECT TO FULFILLM ENT OF CERTAIN CONDITIONS LAID DOWN U/S. 11 TO 13 WHICH HAVE TO BE EXAMINED D URING THE ASSESSMENT PROCEEDINGS. IT IS ALSO A CASE WHERE THE ORIGINAL RETURN WAS P ROCESSED U/S. 143(1) ON 21.11.2000 AND IT IS NOT A CASE WHERE AN Y SCRUTINY ASSESSMENT U/S. 143(3) OF THE I.T. ACT, 1961 HAD BEEN COMPLETE D FOR THIS YEAR. IN THIS CASE, THE RECENT DECISION OF THE HONBLE SUPREME CO URT IN THE CASE OF ACIT VS. RAJESH ZHAVERI STOCK BROKERS (P) LTD ., (2007) 291 ITR 500 (S.C) WAS APPLICABLE IN WHICH THE HONBLE SUPREME C OURT HAD HELD THAT U/S. 147, AS SUBSTITUTED W.E.F. 1.4.1989, IF THE ASSESSING OFFICER, FOR WHAT EVER REASON, HAS REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT, IT CONFERS JURISDICTION TO REOPEN THE A SSESSMENT WHEN THE CASE WAS NOT COVERED BY THE PROVISO TO SEC TION 147, WHICH IMPLIES THAT WHEN THE ORIGINAL ASSESSMENT WA S NOT MADE U/S. 143(3) OF THE I.T. ACT, 1961. IT WAS ALSO HELD BY THE HONBLE SUPREME COURT THAT THE INTIMATION ISSUED U/S. 143(1 ) AFTER PROCESSING OF ITA NO. 113/PN/10 A.Y: 1999-00 PAGE 15 OF 42 THE RETURN CANNOT BE TREATED AS AN ORDER OF ASSESSM ENT. IT WAS FURTHER OBSERVED THAT UNDER 143(1) AS IT STOOD PRIOR 1.4.1 989, THE ASSESSING OFFICER HAD TO PASS AN ASSESSMENT ORDER IF HE DECID ED TO ACCEPT THE RETURN; BUT, UNDER THE AMENDED PROVISIONS, THE REQU IREMENT OF PASSING AN ASSESSMENT ORDER HAS BEEN DISPENSES WITH, AND INSTE AD AN INTIMATION IS REQUIRED TO BE SENT. THE HONBLE APEX COURT ALSO OBSERVED THAT IF THE ASSESSING OFFICER HAS CAUSE OR JUSTIFICATION TO KNOW OR SUPPOSE THAT INCOME HAD ESCAPED ASSESSMENT, IT CAN BE SAID TO HAVE REASON TO BELIEVE THAT AN INCOME HAD ESCAPED ASSESSMENT. THE EXPRESSION CANNOT BE READ TO MEAN THAT THE ASSE SSING OFFICE SHOULD HAVE FINALLY ASCERTAINED THE FACT BY LEGAL EVIDENCE OR CONCLUSION. THE HONBLE SUPREME COURT HAS ALSO DISCUSSED IN DET AIL THE PRE-AMENDED POSITION AND THE SUBSTITUTED SECTION 14 7 W.E.F. 1.4.1989 AND HAD CONCLUDED THAT AS PER THE AMENDED PROVISIONS, THE POWERS OF THE ASSESSING OFFICER TO REOPEN WAS VERY WIDE WHEN THER E WAS NO SCRUTINY ASSESSMENT U/S. 143(3). 6.11 IN ANOTHER JUDGEMENT OF THE HONBLE SUPREME C OURT WHICH HAS BEEN MENTIONED IN THE ASSESSMENT ORDER ALSO I.E. RAYMOND WOOLEN MILLS LTD. VS. ITO & OTHERS (1999) 236 ITR 34 (S.C) , IT WAS HELD THAT SUFFICIENCY OR CORRECTNESS OF MATERIAL FOR REC ORDING OF REASONS FOR REOPENING OF ASSESSMENT CANNOT BE CONSIDERED AT THE STAGE OF REOPENING SINCE QUESTION OF FACT AND LAW WERE LEFT TO BE OPEN TO BE INVESTIGATED AND DECIDED BY THE APPELLATE AUTHORITY. 6.12 IN VIEW OF THE ABOVE DISCUSSION AND IN PARTIC ULAR THE FACTUAL POSITION DISCUSSED ABOVE IN RESPECT OF THE ORIGINAL RETURN OF INCOME FILED BY THE APPELLANT IN WHICH HE HAS FAILED TO MENTION THE AMOUNT OF RS. 15,83,100/- IN THE RELEVANT COLUMN MEANT FOR CLAIMI NG EXEMPTION U/S. 11(1)(D),IT IS HEREBY HELD THAT THE REOPENING OF AS SESSMENT WAS VALID. THEREFORE, THIS GROUND OF APPEAL IS DISMISSED. 8. UNDISPUTED FACTS: ORIGINALLY, THE ASSESSEE FILED THE RETURN OF INCOME FOR THE AY 1999-00 ON 27/7/1999 DECLARING NIL INCOME. THE SAME WAS PROCESSED U/S 143(1) OF THE ACT AND NO REGULAR ASSESSM ENT WAS DONE U/S 143(3) OF THE ACT. THERE IS NO DISPUTE EITHER ABOUT THE RECORD ING OF THE REASONS OR ABOUT THE ISSUE OR SERVICE OF NOTICE U/S 148 OF THE ACT. 9. DISPUTED FACT: THE REASONS ARE GOOD ENOUGH FOR FORMATION OF REASONS TO BELIEVE THAT THERE IS ESCAPEMENT OF INCO ME BOTH QUALITATIVELY AND QUANTITATIVELY. THE IMPUGNED REASONS WERE RECORDED ANTE RIOR IN TIME TO THE TIMING OF THE ISSUE OF NOTICE. I0. TIMING ISSUE: IN THIS REGARD, WE HAVE PERUSED THE DOCUMENT FROM THE RECORDS OF THE REVENUE CONTAINING THE IMPUGNED RE ASONS RECODED BY THE AO AN THE SAME UNDISPUTEDLY WITH OUT ANY DATE BY THE A O. FOR THE SAKE COMPLETENESS, THE SCANNED DOCUMENT OF THE FORM FOR RECORDING REASONS ITA NO. 113/PN/10 A.Y: 1999-00 PAGE 16 OF 42 FOR INITIATING PROCEEDINGS U/S 148 OF THE ACT AND F OR OBTAINING THE APPROVAL OF THE CIT AN IT IS REPRODUCED AS UNDER. 11. FROM THE ABOVE, IT IS THE CASE OF THE DR THAT TH ERE IS DATE (27/3/06) MENTIONED IN INK BY THE CONTROLLING AUTHORITY OF TH E AO BEFORE THE PROPOSAL IS FINALLY APPROVED BY THE CONCERNED CIT. IT IS EVIDENT FROM THE COMMENTS AGAINST COLUMN 12 OF ABOVE SCANNED EXTRACT THAT THE AO RECORDE D THE BELOW MENTIONED REASONS CERTAINLY ON OR PRIOR TO 27 TH MARCH, 2006 AND CERTAINLY NOT AFTER THAT DATE. SUBSEQUENTLY, LD DR REFERRED TO THE FOLLOWING REASONS RECORDED BY THE A.O FOR REOPENING: ITA NO. 113/PN/10 A.Y: 1999-00 PAGE 17 OF 42 12. LD DR IS OF THE OPINION THAT ALTHOUGH THE ABOVE DOCUMENT IS UNDATED, CONSIDERING THE MANDATORY REQUIREMENT OF FURNISHING THE REASONS RECORDED ON 27 TH MARCH 2006 TO THE CIT ALONG WITH THE FORM TO THE CI T BEFORE APPROVAL FOR ISSUE OF NOTICE U/S 148 OF THE ACT, THE ARS ARGUMEN T THAT THE REASONS ARE RECORDED AFTER ISSUE OF NOTICE IS UNFOUNDED. FURTHER, TH E DR IS OF THE OPINION THAT WHEN SUCH ALLEGATION IS MADE BY THE AR AGAINST THE REVENUE, THE ONUS IS ON THE ASSESSEE TO DEMONSTRATE WITH EVIDENCES. 13. OUR DECISION ON THIS ARGUMENT: ON HEARING THE ABOVE RIVAL POSITIONS OF THE PARTIES, WE FIND THAT THE ASSESSEE S COUNSEL HAS NOT BROUGHT ANYTHING ON TO THE RECORDS BEFORE US TO DEMONSTRATE THA T THE IMPUGNED REASONS WERE RECORDED AFTER 29 TH MARCH, 2006. MERELY, HE MADE OUT THIS ARGUMENT RELYING ON THE UNDATED DOCUMENT CONTAINING THE REASON S. ON THE OTHER HAND, THE DR HAS SUBMITTED THE DOCUMENTARY EVIDENCE TO DEMONST RATE THAT THE REASONS ITA NO. 113/PN/10 A.Y: 1999-00 PAGE 18 OF 42 EXISTED PRIOR TO THE ISSUE OF NOTICE. ALTHOUGH, IT IS AN INTERNAL CORRESPONDENCE BETWEEN THE AO AND HIS CONTROLLING AUTHORITY, WE HAVE NO REASON TO DISCARD THE SAME CONSIDERING THE ESTABLISHED PRINCIPLE THAT SUCH CORRESPONDENCE MUST BE ACCEPTED AS GENUINE UNLESS IT IS PROVED OTHERWISE. LD COUNSEL HAS NOT ESTABLISHED THAT THE SAID DOCUMENT IS NOT GENUINE. IN OUR OPINION, THE MISTAKES POINTED OUT BY THE AR OF THE ASSESSEE RELATING TO WRONG STATUS IE INDLL, PAN ETC ARE MERELY EITHER CLERICAL OR TYPOGRAPHICAL MISTAKES, WH ICH ARE CURABLE IN NATURE AS THE SAID DOCUMENTS BEARS CORRECT NAME OF THE ASSESS EE AND ASSESSEING OFFICER. SUCH MISTAKES IN OUR OPINION DO NOT QUESTION THE EXISTENCE OF THE DOCUMENT AND CONTENTS IN COLUMN 12 OF THE FORM. FURTH ER, MERELY, LACK OF STAMPS AND THE DATE ON THE DOCUMENT CONTAINING THE REASONS DOES NOT PROVE THAT IT PERTAINS TO THE DATE LATER TO 29 TH MARCH, 2006, WHEN IT IS READ WITH THE FORM REPRODUCED ABOVE. REGARDING THE CASE LAWS RELIED UP ON BY THE ASSESSEES AR, WE FIND THEY ARE DISTINGUISHABLE ON FACTS. WHILE SOME OF THEM ARE NOT ON THE ISSUE UNDER CONSIDERATION, IN OTHERS, THERE IS EVIDENCE S IN THE FORM OF THE ORDER- SHEET ENTRIES TO PROVE THAT THE NOTICE IS ISSUE FIRST AND THE REASONS WERE RECORDED LATER. UNDER THESE CIRCUMSTANCES, WE ARE OF THE CONSIDE RED OPINION THAT THE CONTENTIONS OF SRI A S SINGH LD DR FOR THE REVENUE HA VE MERITS AND CONSEQUENTLY, THE ARGUMENTS PUT FORWARDED BY THE ASSES SEES COUNSEL IN THIS REGARD HAVE TO BE DISMISSED . FURTHER, WE PLACE ON RECORD OUR APPRECIATION TOWARDS BOT H THE PARTIES FOR AN EXCELLENT APPROACH EXHIBITED BY SRI A S SINGH CIT- DR FOR REVENUE IN SUPPLY OF THE EVIDENCES AND SHRI DOSHI IN GARNERING HUGE MATERIAL BY WAY OF ASSISTING THE BENCH TO ARRIVE AT THE JUDICIOUS CONCLUSIONS. HAVING DISMISSED THIS PART OF THE ARGUMENTS, WE SHALL NOW PROCEED TO DECIDE THE OTHER AR GUMENTS RELATING TO THE ADEQUACY OF THE REASONS. 14. QUALITATIVE AND QUANTITATIVE CHARACTER OF THE REAS ONS: WE HAVE EXTRACTED THE DOCUMENT CONTAINING THE IMPUGNED REASON S AND THEY ARE FOUR REASONS MENTIONED BY THE AO FOR DERIVING THE REASON T O BELIEVE THAT THERE IS AN ESCAPEMENT OF INCOME. CONCISE ARGUMENT OF THE AR IN THIS REGARD ARE THAT (I) REASONS ARE IMPROPER AND THEY DID NOT RESULT IN MAKING O F ANY ADDITIONS AT THE END OF THE REASSESSMENT PROCEEDINGS; (II) THERE IS NO MATERIAL BEFORE THE AO TO CONCLUSIVELY DEMONSTRATE THE EXISTENCE OF THE CONCEA LMENT OF INCOME; (III) THERE IS NO FAILURE ON PART OF THE ASSESSEE BY WAY OF TRUE A ND FULL DISCLOSURE OF PRIMARY FACTS WITHIN THE MEANING OF THE PROVISO TO SECTION 1 47 OF THE ACT. ITA NO. 113/PN/10 A.Y: 1999-00 PAGE 19 OF 42 PER CONTRA, THE CASE OF THE REVENUE IS THAT RETURN WAS ORIGINALLY FILED BY THE ASSESSEE ON 27-7-99. THERE WAS NO SCRUTINY OF THE RETURN U/S 143(3) OF THE ACT AND IT WAS PROCESSED U/S 143(1) OF THE ACT ONLY. SUBSEQUENTLY, THERE WAS SEARCH ACTION ON 20.7.2005 ON THE FOUNDER TRUSTEE OF T HE ASSESSEE IE MR M N NAVALE AND SURVEY ACTION U/S 133A OF THE ACT ON THE ASSESSEE ON THE SAME DATE. THESE SPECIAL ACTIONS OF THE REVENUE ON THE ASSESSEE AND ITS FOUNDER, RESULTED IN DISCOVERY OF HUGE INCRIMINATING MATERIAL RELATING TO T HE PROHIBITED COLLECTION OF CAPITATION FEE FROM THE STUDENTS, WHO SEEK ADMISSION S IN TO VARIOUS COURSES, AGAINST THEM. IN THE BACKGROUND OF THE ABOVE, THE AO ISSUED A NOTICE DATED 29 TH MARCH, 2006 U/S 147 OF THE ACT. THESE CIRCUMSTANCES C ONSTITUTE AN IMPORTANT BACKGROUND WHICH CANNOT BE IGNORED. REGARDING THE A DEQUACY OF THE REASONS, THE DR MENTIONED THAT IT IS THE REQUIREMENT OF THE L AW THAT THERE MUST EXIST ONLY THE REASON TO BELIEVE AND ADEQUACY IS NOT RELEVANT. WHAT IS REQUIRED IS THE REASONS TO BELIEVE ABOUT THE ESCAPEM ENT OF THE CONCEALMENT OF INCOME FOR VALIDLY ASSUMING JURISDICTION U/S 147 OF T HE ACT AND THE AO HAS PLENTY OF REASONS TO BELIEVE THAT THERE IS ESCAPEMENT OF CON CEALED INCOME. FURTHER, THERE EXISTS OTHER ISSUE AS MENTIONED IN THE REASONS RE CORDED BY THE AO. DR ALSO MENTIONED THAT THE AO SUCCESSFULLY MADE ADDITI ONS ON ACCOUNT OF CORPUS DONATIONS, WHICH IS ONE OF THE REASONS FOR REOPENING. FURTHER, HE NARRATED THAT THE RELEVANT CIRCUMSTANCES ALSO PLAY VITAL ROLE IN M ATTERS OF FORMATION OF THE REASON TO BELIEVE AND RELIED ON VARIOUS JUDGMENTS ON THIS SUBJECT. FURTHER, TAKING US THROUGH PART-I OF THE RETURN OF INCO ME, LD DR MENTIONED THAT THE ASSESSEE FAILED DISCLOSE THE PART ICULARLY FULLY AND TRULY. IN THIS REGARD, DR READ OUT SL NO 8 (V) RELATING TO AMOUNT ELIGIBLE FOR EXEMPTION UNDER SECTION 11(1)(D) AND MENTIONED THAT THE ASSESSEE MENTIONED NO AGAINST THE SAID COLUMN, WHILE HE CL AIMED RS 15,83,100/- AS ELIGIBLE FOR EXEMPTION U/S11(1)(D) OF THE ACT. FURTHE R, HE MENTIONED THAT THE ASSESSEE DID NOT REVISED THE SAID RETURN. 15. DECISION OF THE TRIBUNAL: WE HAVE CONSIDERED THE ABOVE RIVAL POSITIONS ON THE ISSUE. WE HAVE ALSO CONSIDERED THE RELEVANT INFORMATION AND SETTLED LAW ON THE TOPIC. UNDISPUTED AND RELEVANT F ACTS OF THE ISSUE ARE THAT THE AY UNDER CONSIDERATION IS 1999-00 AND NOTICE WAS DATE D 29 TH MARCH 2006. THEREFORE, THE NOTICE UNDER CONSIDERATION WAS ISSUED BE YOND THE PERIOD OF FOUR YEARS FROM THE END OF THE RELEVANT AY AND CONSEQUENTLY , THE ISSUE HAS TO BE DECIDED IN ACCORDANCE WITH THE PROVISIONS OF THE PROV ISO TO SECTION 147 OF ACT. ITA NO. 113/PN/10 A.Y: 1999-00 PAGE 20 OF 42 SO FAR AS THE ADEQUACY OF THE REASONS ARE CONCERNED, W E FIND THAT IT IS A SETTLED ISSUE THAT AS LONG AS THE AOS HAS REASON TO BELIEVE THAT THERE IS ESCAPEMENT OF INCOME, THE ADEQUACY IS NOT A RELEVANT FACTOR. THEREFORE, WHAT IS LEFT FOR US TO DECIDE HERE IS IF THERE EXISTS REASONS TO BELIEVE FOR THE AO TO VALIDLY ISSUE NOTICE U/S 148 OF THE ACT. THUS, RELEVANT INFORMATION CONSIDERED BY US FOR DECIDI NG THE ISSUE OF VALIDITY OF THE NOTICE REVOLVE AROUND THE FOLLOWING A ND THEY ARE: (I) OTHER CIRCUMSTANCES; (II) CONTENTS OF THE DOCUMENTS CONTAI NING THE REASONS FOUR ISSUES; (III) OUT COME OF THE REASSESSMENT PROCEEDING S. 16. OTHER CIRCUMSTANCES: IN THIS REGARD, THE RELEVANT CIRCUMSTANCES INCLUDE THE DISCOVERIES OF THE SEARCH AND SURVEY PROCEE DINGS ON THE ASSESSEE AND ITS FOUNDER TRUSTEE. AT THE RELEVANT POINT OF TIME OF RECORDING OF THE REASONS, WHICH GAVE RISE THE REASON TO BELIEVE, IE LAST WEEK OF THE MARCH 2006, THERE EXISTS LEADING INFORMATION WITH THE AO THAT THE ASSE SSEE IS ENGAGED IN COLLECTION OF CAPITATION FEE FROM THE PROSPECTIVE STUDENTS OF THE COLLEGE RUN BY THE TRUST AND IT MEANS INFRINGEMENT OF THE LAW AND SUCH PROCEDU RE IS AGAINST THE PUBLIC POLICY. FURTHER, THE REVENUE WAS CONTEMPLATING TO CANC EL THE REGISTRATION GRANTED U/S 12A OF THE ACT WHICH WAS FINALLY CANCELL ED ON 09.10.2007. REVENUE IS ALSO IN POSSESSION OF THE MATERIAL BY WAY OF STAT EMENTS FROM MR M N NAVALE ADMITTING UNDISCLOSED INCOME TO THE TUNE OF RS 1. 25 CRORES AND THE SAID STATEMENT WAS SUBSEQUENTLY RETRACTED. FURTHER, THERE IS AN IDEA OF REFERRING THE CASE TO THE SPECIAL AUDIT U/S 142(2A) OF THE ACT. IN THE BACKGROUND OF THE ABOVE CIRCUMSTANCES, WE HAVE TO DECIDE IF THE AO HAS REASON TO BELIEF THAT THERE IS ESCAPEMENT OF INCOME OR NOT. FURTHER, WE HAVE TO CONSI DER IF THE CIRCUMSTANCES MATTERS AT ALL. IN THIS REGARD, WE HAVE EXAMINED THE APEX COURTS DECI SION ON THE TOPIC WHO DECIDED THE ISSUE AFTER EXPLAINING THE EXPRESSION REA SON TO BELIEVE DEFINED IN SEC. 26 OF THE IPC AND THE SAME IS REPRODUCED AS UNDE R:- SECTION 26 IPC EXPLAINS THE MEANING OF THE WORDS REASON TO BELIEVE THUS: 26. REASON TO BELIEVE A PERSON IS SAID TO HAVE REASON TO BELIEVE A THING, IF HE HAS SUFFICIENT CAUSE TO BELIEVE THAT T HING BUT NOT OTHERWISE. IN SUBSTANCE WHAT IT MEANS IS THAT A PERSON MUST HA VE REASON TO BELIEVE IF THE CIRCUMSTANCES ARE SUCH THAT A REASONABLE MAN WOULD, BY PROBABLE REASONING, CONCLUDE OR INFER REGARDING THE NATURE O F THE THING CONCERNED. ITA NO. 113/PN/10 A.Y: 1999-00 PAGE 21 OF 42 SUCH CIRCUMSTANCES NEED NOT NECESSARILY BE CAPABLE OF ABSOLUTE CONVICTION OR INFERENCE, BUT IT IS SUFFICIENT IF THE CIRCUMSTA NCES ARE SUCH CREATING A CAUSE TO BELIEVE BY CHAIN OF PROBABLE REASONING LEA DING TO THE CONCLUSION OR INFERENCE ABOUT THE NATURE OF THE THING. THESE T WO REQUIREMENTS I.E., KNOWLEDGE AND REASON TO BELIEVE HAVE TO BE DEDU CTION FROM VARIOUS CIRCUMSTANCES IN THE CASE. FROM THE SUPREME COURT DECISION IN THE CASE OF JOTI PA RSHAD (SUPRA) THAT THE SUSPICION OR DOUBT ARE MERE SEEING CANNOT BE EQUATE D TO BELIEVING. FROM THE EXPLANATION GIVEN IN SEC. 26 OF THE IPC SUFFICIENT CAUSE TO BELIEVE IS AN ESSENTIAL INGREDIENT OF REASON TO BELIEVE. THE CIRCU MSTANCES ALSO ASSUME IMPORTANCE FOR ARRIVING AT THE CONCLUSION THAT A PERSON FOR REASON TO BELIEVE IS IN THE WORDS OF SUPREME COURT. CIT(A)-I STAND NEED NOT N ECESSARILY BE CAPABLE OF ABSOLUTE CONVICTION OR INFERENCE, BUT IT IS SUFFICIEN T IF THE STAND ARE SUCH CREATING CAUSE TO BELIEVE BY GENERATING OF PROBABLE REASONING L EADING TO THE CONCLUSION ABOUT THE NATURE OF THE THING. THE CIRCUMSTANCES MUS T GAVE RISE TO KNOWLEDGE ABOUT THE THING AND REASON TO BELIEVE ABOUT THE THIN G. FROM THE ABOVE, IN OUR OPINION, THE CIRCUMSTANCES DO P LAY ROLE IN FORMATION OF REASON TO BELIEVE AND THESE CONSTITUTE RELEVANT INF ORMATION. 17. CONTENTS OF THE DOCUMENT CONTAINING THE REASONS F OUR ISSUES: WE HAVE EARLIER DISCUSSED THAT REASONS RECORDED BY THE AO REVOLVE AROUND FOUR ISSUES BASED WHICH THE AO DERIVED THE REASON TO BELIE VE THAT THERE IS ESCAPEMENT OF INCOME WITHIN THE MEANING OF THE PROVI SIONS OF SECTION 147 OF THE ACT. FROM THE PERUSAL OF THE ASSESSMENT ORDER AND THE IMPUGN ED ORDER, WE HAVE NOTICED THAT THE AO HAS NOT MADE ANY ADDITIONS ON A CCOUNT OF THREE RECORDED REASONS. HOWEVER, THE AO MADE ADDITION IN THE REASSESS MENT ON ACCOUNT OF DONATION OF RS. 1583100/- TAKEN TO THE TRUSTS COR PUS. IN THE PROCESS, THE AO REJECTED THE SUBMISSION OF THE ASSESSEE THAT IN VIEW OF EXISTENCE OF APPELLANTS REGISTRATION ON THE DATE OF ISSUE OF NOTICE U/S. 14 8 I.E. ON 29/03/2009 THIS VERIFICATION OF DONATION CAN HAVE NO IMPACT ON TAXA TION. ASSUMING THIS DONATION COULD NOT HAVE BEEN CLAIMED AS EXEMPT U/S. 11(1)(D) , IT WOULD HAVE BEEN CERTAINLY TAKEN TO THE GROSS INCOME AND DUE BENEFIT S ALLOWABLE U/S. 11, 12 COULD HAVE BEEN AVAILED BY THE APPELLANT. IN THIS REGARD, WE HAVE TAKEN INTO ACCOUNT THE ARGUMEN T OF THE DR IE RELATING TO THE INACCURACY IN PROVIDING NIL DETAILS IN THE RETURN RELATING TO 11(1)(D) OF THE ACT, AND WE APPROVE THE SAME AND THE DISMISS THE ARGU MENTS OF THE COUNSEL. ITA NO. 113/PN/10 A.Y: 1999-00 PAGE 22 OF 42 CONSIDERING THE ABOVE, WE FIND THAT THERE IS FAILURE O N PART OF THE ASSESSEE TO FULLY AND TRULY DISCLOSE BASIC FACTS REQUIRED FOR MAKIN G OF THE ASSESSMENT. THUS, WE APPROVE THAT THE IMPUGNED REASONS RECORDED BEFORE ISS UE OF NOTICE U/S 148 OF THE ACT ARE VALID AND CAPABLE OF CONSTITUTING THE REASONS TO BELIEVE THAT THERE EXIST CONCEALMENT OF INCOME. WHILE DECIDING THE ISS UE, WE HAVE TAKING INTO ACCOUNT THE FACTS AS EXISTED AT THE TIME OF ISSUE O F NOTICE IE SUBSEQUENT TO THE SURVEY AND SEARCH PROCEEDINGS. ASSESSEE HAS NOT ATTEMP TED TO REVISE THE INACCURATE RETURN OF INCOME ORIGINALLY FILED BY THE ASS ESSEE TOO. 18. OUT COME OF THE REASSESSMENT PROCEEDINGS: BY NOT PROPERLY FURNISHING THE DETAILS IN THE RETURN OF INCOME, THERE I S NON-COMPLIANCE TO THE PROPER PROCEDURES RELATING TO THE FILING OF RETURN OF INCO ME OR LOSS. IT IS AN UNDISPUTED FACT THAT FINALLY, THE AO MADE ADDITION OF RS 15,60,763/- AS PER THE REASONS RECORDED BY HIM AT THE TIME OF ISSUE OF NOTICE U/S 147 OF THE ACT AND IT IS THE PART OF THE REASSESSED INCOME OF RS. 1,82,55,422/ - FOR THIS AY. ABOVE MENTIONED CIRCUMSTANCES AS WELL AS THE ADDITION OF R S 15,60,763/-, IN OUR OPINION, CONSTITUTES SUFFICIENT CAUSE FOR FORMATION OF REASON TO BELIEVE THAT THE INCOME HAS ESCAPED ASSESSMENT FOR THE RELEVANT A.Y. PARA 6.12 OF THE IMPUGNED ORDER IS RELEVANT IN THIS REGARD. THEREFORE, THE NOTICE IS SUED BY THE AO FOR THE REASON MENTIONED ON LETTER DATED 10-07-2007 IS VALID. THEREFORE, THE GROUND 1 WITH ITS SUB-GROUNDS RAISED BY THE ASSESSEE HAS TO B E DISMISSED . 19 . ENHANCEMENT OF ASSESSMENT NOTIONAL ENHANCEMENT-ISS UE OF NOTICE - ACQUISITION OF SHARES IS NEITHER THE INVESTMENT NOR TH E DEPOSIT MADE OUT OF THE FUNDS OF THE INSTITUTION. GROUNDS 2 AND 3 READ AS FOL LOWS. GROUND NO. 2(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE ORDER OF CIT(A) IS BAD IN LAW AND INVALID AS HE HAS NOT ISSUED THE MANDATORY NOTICE AS REQUIRED BY SEC. 251(2) OF THE INCOME TAX ACT 1961, IN ORDER TO ENHANCE THE ASSESSMENT THEREBY MAKING THE APPELLANT LIABLE ON THE GROUNDS DIFFERENT FROM THOSE NOT CONSIDERED BY THE ASSESSING OFFICER. GROUND NO. 2(B) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND WITHOUT PREJUDICE TO THE ABOVE GROUND NO. 1 THE ORDER OF CIT(A) IS BAD I N LAW AND INVALID AS HE HAS DECIDED THE APPEAL BY CONSIDERING THE ISSUES WHICH ARE NOT MENTIONED IN THE ASSESSMENT ORDER REFER CIT VS. S HAPURJI PALLOJI MISTRI. 44 ITR 891 (SC). GROUND NO. 2(C) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND WITHOUT PREJUDICE TO THE ABOVE GROUND NO. 1 THE LEARNED CIT(A) HAS ERRED IN NOT APPRECIATING ITA NO. 113/PN/10 A.Y: 1999-00 PAGE 23 OF 42 THE ESTABLISHED LEGAL POSITION THAT HIS POWER OF ENHANCEMENT IS RESTRICTED TO THE SUBJECT MATER OF ASSESSMENT WHICH HAS BEEN CONSIDERED EXPRESSLY OR BY CLEAR IMPLICATION BY THE ASSESSING OFFICER. REFER CIT VS. RAJ BAHADHUR HARDUTROI MOTILAL CHAMAR IA 66 ITR 443 (SC). GROUND NO. 3 : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND WITHOUT PREJUDICE TO THE ABOVE GROUND NO. 1 TO 4 THE CIT(A ) HAS ERRED IN TREATING THE ACQUISITION OF SHARES IN COOPERATIVE BANK FOR RS. 49,750/- AS IN CONTRAVENTION OF PROVISION OF SECTION 13(1)(D)(I) OF THE INCOME TAX ACT, 1961 DISREGARDING THE FACT THAT THIS ACQUISITI ON OF SHARES IS NEITHER THE INVESTMENT NOR THE DEPOSIT MADE OUT OF THE FUND S OF THE INSTITUTION AND SUCH ACQUISITION WAS NECESSARY BEING A PRE-COND ITION FOR AVAILING THE LOAN FROM THE SAID CO-OPERATIVE BANK AND THUS ERRED IN LEVYING THE EXEMPTION CLAIMED U/S. 11 20. GROUND 2 WITH ITS SUB GROUNDS IN EFFECT QUESTIONED TH E VALIDITY OF THE IMPUGNED ORDER AS THE SAME WAS PASSED (I) WITHOUT ISS UE OF MANDATORY NOTICE REQUIRED U/S 251(2) OF THE ACT AT THE TIME OF ENHANCI NG THE ASSESSMENT; AND (II) ENHANCEMENT IN QUESTION WAS MADE OUT BY THE ASSESSE E ON THE GROUND THAT THE CIT(A) CONFIRMED THE DENIAL OF EXEMPTION U/S 11 ON A FRESH BASIS WHICH IS NOT THE SUBJECT MATTER OF THE REASSESSMENT . IN THIS REGARD, THE ASSESSEE RELIED ON A COUPLE OF DECISION SUCH THE CASES OF SHAPURJI PALLOJI MISTRI 44 ITR 891 (SC) AND RAJ BAHADHUR HARDUTROI MOTILAL CHAMARIA 66 ITR 443 (SC) TO SUBSTANTIATE THE CLAIM OF INVALIDITY OF THE ENHANCEMENT. THIS ISSUE OF NOTICE WAS NOT RAISED BEFORE THE CIT(A) AND WHAT WAS RAISED BEFORE HIM RELATES TO T HE SECOND ISSUE MENTIONED ABOVE IN THIS PARAGRAPHS. OTHERWISE, GROUND 2 (B)&(C) ARE CONSEQUENTIAL TO THE FINDING ON GROUND 2(A). GROUND 3 IS ARGUMENTATIVE AND THE SAME ARISES IN THE CONTEXT OF THE ISSUES RAISED IN TH E GROUND 2 AND THEREFORE, BOTH OF THEM ARE CLUBBED FOR THE SAKE OF COMPLETENESS OF THE DISCUSSION. 21. RELEVANT FACTS OF THE GROUND ARE THAT THE AO REOPE NED THE SUMMARY ASSESSMENT BY ISSUE OF THE NOTICE U/S 147 FOR THE REA SONS DISCUSSED ABOVE. THE FACT OF EXECUTION OF SEARCH ON THE FOUNDER TRUSTEE, C ANCELLATION OF REGISTRATION U/S 12A OF THE ACT BY THE CIT, RESTORATION OF SAME BY TH E TRIBUNAL ETC WERE ALSO DISCUSSED. CHRONOLOGY OF THE EVENTS IS RELEVANT AND T HE SAME ARE CULLED OUT IN THE SUBSEQUENT PARAGRAPHS. OTHERWISE, AT THE TIME OF M AKING OF THE REASSESSMENT AND AT THE TIME OF FILING OF APPEALS BE FORE THE CIT(A), THE ASSESSEES REGISTRATION U/S 12A STOOD WITHDRAWN BY T HE CIT. TRIBUNAL RESTORED THE REGISTRATION TO THE TRUST BY ITS ORDER DATED 19/09/2 008. ON SUCH RESTORATION, IN FEBRUARY, 2009, THE ASSESSEE CAME UP WITH MODIFIED GROUNDS WHICH WERE ENTERTAINED BY THE CIT(A) AFTER CALLING FOR REMAND REPORT OF THE AO . IT IS IN THESE ITA NO. 113/PN/10 A.Y: 1999-00 PAGE 24 OF 42 REMAND PROCEEDINGS, THE AO CAME UP WITH NEW REASONS FO R DENIAL OF EXEMPTION IE VIOLATION OF THE PROVISIONS OF SECTION 13(1)(D) R W S 11(5) OF THE ACT IE ACQUISITION OF SHARES OF A COOPERATIVE BANK AS PART OF THE DEAL FOR AVAILING THE LOAN FROM COOPERATIVE BANKS. IT IS AN ADMITTED FACT T HAT THE CIT(A) GAVE AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE BEFORE ENT ERTAINING THE AOS NEW REASONS RELATING TO VIOLATION OF THE PROVISIONS OF SEC TION 13(1)(D) OF THE ACT R W SECTION 11(5) OF THE ACT AS REMARKED BY THE AO IN THE REMAND PROCEEDINGS. CIT(A) ENTERTAINED THE AOS REQUEST FOR INVOKING THE S AID PROVISION OF THE ACT SUCCESSFULLY FOR THE FIRST TIME DURING THE FIRST APPELL ATE PROCEEDINGS. IN THE BACKGROUND OF THE ABOVE, THE ASSESSEE RAISED THE ABOV E GROUNDS BEFORE US IN THE PRESENT FORM. OTHERWISE, IT IS UNDISPUTED FACT THA T THE ASSESSEE RAISED OBJECTION AGAINST THE INVOKING THE PROVISIONS OF SEC TION 13(1)(D) OF THE ACT FOR THE FIRST TIME BEFORE THE CIT(A). HOWEVER, THERE WAS NO GROUND IN FORM 35 ABOUT THE ISSUE OF NOTICE U/S 251(2) OF THE ACT. IN ANY C ASE, IT IS AN ADMITTED FACT THAT THE CIT (A) DID NOT ISSUE ANY NOTICE AS SUCH U/S 25 1(2) OF THE ACT FOR ENHANCEMENT AND HE ONLY GRANTED REASONABLE OPPORTUNIT Y TO THE ASSESSEE BEFORE ENTERTAINING THE ALTERNATE ARGUMENTS OF THE AO BEFORE DENIAL OF THE EXEMPTION U/S 11 TO THE TRUST. IT IS CLEAR FROM HIS ORDER WHETHER H E IS OF THE OPINION THAT THERE IS NO ENHANCEMENT AND IT IS ONLY EMPOWERMENT OF THE ORDER OF THE AO. IN ANY CASE, THE ISSUE OF A MANDATORY NOTICE U/S 251(2) IS A LEGAL IN NATURE AND IT HAS TO BE ENTERTAINED BY US AS IT DOES NOT CALL FOR A NY INVESTIGATION. THEREFORE, WE ADMIT THIS ISSUE AND PROCEED TO ADJUDICATE IN THE SUBSEQUENT PARAGRAPHS. BEFORE PROCEEDING FURTHER ON THE ISSUE, WE FIND IT RELEV ANT TO EXTRACT RELEVANT PORTIONS FROM THE ORDER OF THE CIT(A) ON THE ISSUES UND ER CONSIDERATION. 22. FINDINGS OF THE CIT(A): RELEVANT FACTS, THE SUBMISSION OF THE ASSESSEE AND THE DECISION OF THE CIT(A) AS SEEN FROM PARA 7.8 TO 7.10 AND 7.14 OF THE IMPUGNED ORDER ARE REPRODUCED AS UNDER. 7.8 I HAVE CONSIDERED THE EXPLANATION OF THE APPE LLANT, CONTENTS OF THE REMAND REPORT AND THE EARLIER REPORT OF THE AO VIS- A-VIS THE DECISION TAKEN IN THE ASSESSMENT ORDER. FIRST OF ALL, THE APPELLANTS CON TENTION IS THAT IN THE ASSESSMENT ORDER RELIANCE WAS PLACED ON THE ORDER OF THE CIT PASSED U/S 12AA(3) CANCELING THE REGISTRATION GRANTED TO THE TRUST EARLIER U/S 12A( A) OF THE I.T. ACT, 1961. HOWEVER, SINCE SUBSEQUENTLY, THE ITAT HAS CANCELLED THE ORDER OF T HE CIT (CENTRAL) PUNE, NOW THERE IS NO GROUND FOR DENYING THE EXEMPTION AS THE REGISTRA TION GRANTED U/S 12A WAS STILL VALID. TO THIS, THE AO VIDE LETTER DT 2.3.09 HAS RAISED CE RTAIN VIOLATION OF PROVISIONS OF SECTION 13(1)(D) FOR THIS ASSESSMENT YEAR. THE APPELLANT HA S RAISED AN OBJECTION IN THIS REGARD VIDE ITS LETTER DT 25.2.2009 AND 22.6.09. THE MAIN CONTENTION OF THE APPELLANT IS THAT SINCE FOR DENYING OF EXEMPTION U/S 11, THESE ISSUES WERE NOT RAISED IN THE ASSESSMENT ORDER, THE AO CANNOT NOW TRY TO IMPROVE THE ASSESSMENT ORDER I N THE APPELLATE PROCEEDING. IT IS FURTHER STATED THAT THE AO HAS NO POWERS TO REQUIRE THE APPELLATE AUTHORITY TO EXAMINE CERTAIN ISSUES WHICH WERE NOT THE SUBJECT MATTER OF APPEAL. THE ASSESSEE HAS, THEREFORE, ITA NO. 113/PN/10 A.Y: 1999-00 PAGE 25 OF 42 CONTENDED THAT THESE SUBMISSIONS REGARDING VIOLATIO N OF SECTION 13(1)(D) MAY NOT BE ENTERTAINED AT THIS STAGE AS THIS WAS NOT RAISED IN THE ASSESSMENT ORDER. 7.9 THE ABOVE TECHNICAL OBJECTION OF THE APPELLANT HAS BEEN CONSIDERED BUT FOUND TO BE NOT TENABLE IN LAW. THE CIT (A) HAS GOT WIDE POWERS, CO-TERMINUS WITH THE AO. HE CAN DO HIMSELF WHAT THE A.O CAN DO AND ALSO DIRECT THE AO TO DO WHAT HE HAS FAILED TO DO. THIS PRINCIPLE HAS BEEN ENUNCIATED BY THE HONBLE SUPREME COURT IN CIT V KANPUR COAL SYNDIATE (1964) 53 ITR 225 (SC). RELYIN G UPON THIS JUDGMENT, THE HONBLE APEX COURT IN ANOTHER CASE OF JUTE CORPORATION OF I NDIA LTD. V. CIT (1991) 187 ITR 688 (SC) HAS HELD AS UNDER: THE POWER OF THE AAC IS CO-TERMINUS WITH THAT OF T HE ITO.. NO EXCEPTION COULD BE TAKEN TO THIS VIEW AS THE ACT DOES NOT PLA CE ANY RESTRICTION OR LIMITATION ON THE EXERCISE OF APPELLATE POWER. EVEN OTHERWISE AN APPELLATE AUTHORITY WHILE HEARING APPEAL AGAINST THE ORDER OF A SUB-ORDINATE AUTHORITY HAS ALL THE POWERS WHICH THE ORIGINAL AUTHORITY MAY HAVE IN DECIDING T HE QUESTION BEFORE IT SUBJECT TO THE RESTRICTIONS OR LIMITATION, IF ANY, PRESCRIB ED BY THE STATUTORY PROVISIONS. IN THE ABSENCE OF ANY STATUTORY PROVISION THE APPELLAT E AUTHORITY IS VESTED WITH ALL THE PLENARY POWERS WHICH THE SUBORDINATE AUTHORITY MAY HAVE IN THE MATTER. IN THE CASE OF SMT PRABHAVATI S. SHAH V CIT (1998) 231 ITR 1 (BOM), THE JURISDICTIONAL HIGH COURT HAS ALSO OBSERVED THAT TH E POWERS OF THE AAC WAS CO-TERMINUS WITH THAT OF AN ITO AND HE CAN DO WHAT AN ITO CAN D O. IN THE CASE OF ITO V INDUSTRIAL ROADWAYS (2008) 112 ITD 293 (MUM), THE ITAT, MUMBAI HELD THAT IN VIEW OF SECTION 250(4), THE CIT (A) WAS AUTHORIZED TO MAKE AN ENQUI RY EVEN IF SUCH ENQUIRY WAS NOT MADE BY THE AO, IF THE FACTS AND CIRCUMSTANCES OF T HE CASE WARRANT SUCH AN ENQUIRY TO BE MADE. 7.10 IN THIS CASE, THE HEARINGS WERE REPEATEDLY CO NDUCTED IN THE PRESENCE OF THE AO, AND HE WAS ALSO ASKED TO GIVE COMMENTS ON T HE APPELLANTS SUBMISSIONS. IF HE HAS BROUGHT TO NOTICE AN ADDITIONAL ARGUMENT BEFORE THE CIT(A), IT IS WELL WITHIN THE POWERS OF THE APPELLATE AUTHORITY TO CONSIDER THE A DDITIONAL ARGUMENTS IN VIEW OF THE HONBLE APEX COURT JUDGMENTS MENTIONED ABOVE. THEREFORE, AFTER GIVING A CAREFUL CONSIDERATION TO THE ISSUE INVOLVED, THE APPELLANT WAS GIVEN AN OPPORTUNITY VIDE THIS OFFICE LETTER DATED 6.2.2009 TO EXPLAIN THE VIOLATI ONS OF PROVISIONS OF SECTION 13(1)(C) AND 13(1)(D) FOR A.YS 99-00 TO 2006-07, ALONG WITH NECE SSARY DETAILS/DOCUMENTS. UNDER SECTION 250(4) OF THE I.T. ACT, IT IS SPECIFIED THA T THE CIT (A) MAY, BEFORE DISPOSING OFF ANY APPEAL, MAKE SUCH FURTHER INQUIRIES AS HE THINKS FIT . THE APPELLANT HAS, THEREFORE, BEEN DULY CONFRONTED WITH THE ABOVE MENTIONED ARGUMENT I N THE APPELLATE PROCEEDINGS, UNDER THE POWERS CONFERRED UNDER THE ACT, AND DULY APPLYI NG MIND TO THIS PARTICULAR ISSUE. WHEN THE CIT(A) HAS GOT POWERS TO ENHANCE, HE IS AL SO EMPOWERED TO IMPROVE, AND TAKE A DIFFERENT LINE ALTOGETHER THAN TAKEN IN THE ASSE SSMENT ORDER ON A PARTICULAR ISSUE; AFTER MAKING ENQUIRIES AS PROVIDED U/S 250(4).THIS MAY BE EVEN ON A POINT BROUGHT TO HIS NOTICE BY THE AO DURING APPELLATE PROCEEDINGS. THER EFORE, THE OBJECTION RAISED BY THE ASSESSEE IS UNACCEPTABLE, BEING NOT TENABLE IN LAW. 7.14 ACCORDINGLY, THE APPELLANT HAS NOW ACCEPTED T HE INTERPRETATION EXPLAINED BY ME DURING THE HEARING, BUT HARPING ON THE CLAIM THAT THE INVESTMENT IN SHARES OF THE CO-OPERATIVE BANK WAS NOT INVESTMENT OR DEPOSIT WITHIN THE MEANING OF SECTION 13(1)(D). THIS EXPLANATION OF THE APPELLANT IS NOT FOUND TO BE TENABLE AS THERE IS NOTHING IN THE SECTION WHICH RESTRICTS THE MEANING OF INVE STMENT OR DEPOSIT. THE APPELLANT HAS PURCHASED SHARES OF THE CO-OPERATIVE BANK DURIN G THE YEAR AMOUNTING TO RS 49,750/-, WHICH IS INCLUDED WITHIN THE AMBIT OF INVESTMENT, AS THERE IS NO REASON TO RESTRICT THE MEANING OF THIS TERM. IT DOES NOT MATTER THAT SUCH INVESTMENT IN SHARES OF CO-OPERATIVE BANKS WAS NOT FOR THE BENEFIT OF PERSONS MENTIONED IN SECTION 13(3).IT IS, THEREFORE, HELD THAT THE PURCHASES OF SHARES OF CO-OPERATIVE BANK F OR RS 49,750/- WAS A VIOLATION OF SECTION 13(1)(D)(I) OF THE I.T. ACT, 1961, WHICH RENDERS THE APPELLANT INELIGIBLE FOR THE EXEMPTION U/S 11 . GROUND NO. 2 IS, THEREFORE, DISMISSED. AS SEEN FROM THE ABOVE PARAGRAPHS, CIT(A) DID NOT ENT ERTAIN THE ASSESSEES OBJECTIONS AND PROCEEDED TO DENY ANY EXEMPTION U/S 1 1 OF THE ACT. ITA NO. 113/PN/10 A.Y: 1999-00 PAGE 26 OF 42 23. DURING THE PROCEEDINGS BEFORE THE TRIBUNAL , LD COUNSEL FOR THE ASSESSEE PASSIONATELY EXPLAINED THE FACTS OF THE CA SE AND MENTIONED THAT THE IMPUGNED ORDER HAS THE EFFECT OF ENHANCEMENT ON THE A SSESSMENT. IN THIS REGARD, HE MENTIONED THAT CONFIRMING THE ORDER OF THE AO BY THE CIT(A) WITH EVERY ADDITION MADE BY THE AO, WHO FAILED TO REVERSE H IS DECISION OF THE INVOKING OF THE PROVISIONS OF SECTION 13(1)(D) R W S 11(5) OF THE ACT CONSEQUENT TO THE ORDER OF THE TRIBUNAL, AMOUNTS TO THE ENHANCEMENT OF A SSESSMENT. AS PER HIS ARGUMENTS, BUT FOR THESE NEWLY APPLIED PROVISIONS BY T HE AO DURING THE REMAND, THE ASSESSEE WOULD HAVE CONTINUED TO ENJOY THE EXEM PTION OF INCOME U/S 11 OF THE ACT IN RESPECT OF THE TOTAL INCOME IN VIEW OF TH E QUASHING OF THE ORDER OF THE CIT CANCELLING THE REGISTRATION U/S12A OF THE ACT. AS PER MR DOSHI, THE ASSESSED INCOME WOULD HAVE BEEN NIL OR LOSS IF THE AO HAS GIV EN EFFECT TO THE ORDER OF THE TRIBUNAL IMMEDIATELY AND CONSEQUENTLY, THE DIFFERENCE BETWEEN THE NIL OR LOSS INCOME AND THE INCOME SUSTAINED BY THE CIT(A) CONSTITUTES AN ENHANCED INCOME AND THEREFORE, THE PROVISIONS OF SECTION 251(2) OF THE ACT ARE INVITED. THE IMPUGNED ENHANCEMENT REVOLVES AROUND THE APPLICABILIT Y OF SECTION 13(1)(D) OF THE ACT TO THE INVESTMENTS BY THE ASSESSEE IN THE S HARES WHILE AVAILING THE LOAN FROM A COOPERATIVE BANK, WHICH WAS ENTERTAINED BY THE CIT(A) ALTHOUGH IT DOES NOT ARISE FROM THE ASSESSMENT ORDER. AS PER THE COUNSE L, IN THE CONTEXT OF THE MEANING OF THE EXPRESSION ANY FUNDS, THE LOANS SHO ULD BE OUTSIDE THE SCOPE OF THE SAID EXPRESSION. FURTHER, LD COUNSEL MENTIONED TH AT THE ACQUISITION OF SHARES OF COOPERATIVE BANK FOR THE PURPOSE OF AVAILING LOAN I S NOT THE INVESTMENT PER SE AS IT IS MANDATORILY REQUIRED FOR ANY LOAN BENEFICIARY T O BECOME THE MEMBER OF THE COOPERATIVE BANK BEFORE HE AVAILS THE LOANS FROM S UCH COOPERATIVE BANK. IN THIS REGARD, THE COUNSEL DEMONSTRATED FROM THE CONTENTS OF THE PAPER BOOKS SUCH REQUIREMENTS. AS PER HIS ARGUMENTS, SUCH INVESTMENT CON STITUTES THE CASE OF APPROPRIATION/APPLICATION OF FUNDS OF THE TRUST FOR THE OBJECTS OF THE TRUST AND IT IS NOT THE INVESTMENT. FURTHER, HE IS OF THE OPINION THAT THE VIOLATION IN THIS REGARD, IF ANY SHOULD NOT RESULT IN DENIAL OF EXE MPTION U/S 11 OF THE ACT. WITHOUT PREJUDICE , HE SUBMITTED THAT AT THE MAXIMUM, THE DENIAL SHOU LD BE RESTRICTED ONLY TO THAT PORTION OF THE INCOME RELATABLE TO SUCH INVESTMENT IN VIEW OF THE SPECIFIC PROVISIONS OF THE PROVISO TO SECTION 164(2) OF THE ACT. IN THIS REGARD, THE COUNSEL RELIED ON CERTAIN JUDGMENTS/DECISIO NS OF THE JUDICIAL FOR A INCLUDING THE JUDGMENT OF THE HONBLE HIGH COURT. ITA NO. 113/PN/10 A.Y: 1999-00 PAGE 27 OF 42 24. PER CONTRA, SRI A S SINGH, LD DR FOR THE REVENUE RELIED ON THE ORDE RS OF THE REVENUE AND ARGUED STATING THAT THE CIT(A) ALREADY MET THE ARGUMENTS OF THE ASSESSEE DURING THE FIRST APPELLATE PROCEEDING ON THE ISSUE OF ALTERNATE ARGUMENTS RELATING TO INVOKING OF THE PROVISIONS OF SE CTION 13(1)(D) OF THE ACT. FURTHER, HE MENTIONED THAT THE ASSESSEE NEVER RAISED TH E ISSUE OF NOTICE U/S 251(2) OF THE ACT AS ASSESSEE MUST OF THE OPINION T HAT THERE IS NO REAL ENHANCEMENT OF THE ASSESSMENT. LD DR BROUGHT TO OUR N OTICE THE FACT OF CIT(A) GRANTING THE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE WITH REFERENCE TO THE DEVELOPMENTS DURING THE REMAND PROCEEDINGS IN GENERAL A ND INVOKING OF THE PROVISIONS OF SECTION 11(1)(D) OF THE ACT. 25. IN SHORT, REGARDING THE ISSUE OF NOTICE U/S 251(2 ) OF THE ACT, THE CASE OF THE DR IS THAT THERE IS NO ENHANCEMENT IN THE ASSESS MENT AS WHAT IS ADDED BY THE AO IS CONFIRMED BY THE CIT(A) AND NOT A RUPEE OF INCOME EXTRA AND THEREFORE, THERE IS NO NEED FOR ISSUE OF SUCH NOTICE. F URTHER, WITHOUT PREJUDICE TO THE ABOVE, LD DR MENTIONED THAT THE SAID PROVISIONS OF SECTION 251(2) ESSENTIALLY RELATES TO THE PRINCIPLES OF NATURAL JUSTICE AND NO FU RTHER ADDITION AT THE LEVEL OF THE CIT(A) WITHOUT GRANTING OPPORTUNITY AND IN THIS CASE, THE CIT(A) CANNOT BE FOUND FAULTY AS CIT(A) GRANTED ADEQUATE OPPORTUNITY TO THE ASSESSEE UNDISPUTEDLY. FURTHER, RELYING ON THE CONTENTS OF THE IMPUGNED ORDER, THE DR REITERATED THAT THE IF THE CIT(A) HAS THE POWER OF ENHANCEMENT OF THE ASSESSMENT , THE POWER OF IMPROVEMENT OF THE ORDER OF THE AO IS ALWAYS IMBEDDED IN SUCH POWER. 26. WE HAVE HEARD THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE. WE HAVE ALSO PERUSED VOLUMINOUS PAPERS BOOK/DOCUMENTS FI LED BEFORE US. ON PERUSAL, WE FIND THAT THE ASSESSEE DID NOT RAISE THE ISSUE RELATING TO THE MANDATORY ISSUE OF NOTICE U/S 252(2) OF THE ACT, WHE N THE ASSESSMENT IS ENHANCED AND IT HAS COME UP FOR THE FIRST TIME BEFORE US. NOBODY HAS GONE INTO THE REQUISITE FACT IF THERE IS ANY ENHANCEMENT OF ASS ESSMENT AT ALL IN THIS CASE, WHERE THE ADDITIONS CONFIRMED AND BY THE CIT(A) AND T HE INCOME ASSESSED BY THE AO IS ONE AND THE SAME. A. CHRONOLOGY OF EVENTS: FURTHER, THERE IS A NEED FOR E NLISTING THE CHRONOLOGY OF IMPORTANT EVENTS AND THEY ARE AS FOLLOWS : THERE WAS SURVEY ACTION U/S 133A OF THE ACT ON THE ASSESSEE ON 20.7.2005 AND SEARCH ON SRI MN ITA NO. 113/PN/10 A.Y: 1999-00 PAGE 28 OF 42 NAVALE, THE FOUNDER TRUSTEE OF THE ASSESSEE. AO ISSU ED A NOTICE U/S 147 OF THE ACT FOR REASSESSMENT AND THEY SAME WAS UNDISPUTEDLY S ERVED ON THE ASSESSEE ON 29.3.2006. CIT CANCELLED THE REGISTRATION U/S 12A ON DATED 9/10/2007 . REASSESSMENT ORDER WAS PASSED ON 07/08/2008 . ASSESSEE FILED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY ON 20/8/2008 . BY THIS TIME, THE TRIBUNAL RESTORED THE REGISTRATION U/S 12A BY ITS ORDER DATED 19/09/2008 . CIT(A) PASSED THE IMPUGNED ORDER ON 24/12/2009. B. FROM THE ABOVE, IT IS EVIDENT THAT THE AO MADE T HE REASSESSMENT ORDER WHEN THE ASSESSEE DOES NOT ENJOY THE REGISTRATION U/S 12A AND THE RESULTANT BENEFITS U/S 11 OF THE ACT. BY THE TIME, T HE ASSESSEE FILED THE APPEAL BEFORE THE CIT(A), THE REGISTRATION IS RESTORED BY THE T RIBUNAL ON TECHNICAL GROUNDS AND THEREFORE, THE ASSESSEE HAD TO MODIFY THE GROUNDS AND THE FACTS ACCORDINGLY VIDE ITS CORRESPONDENCE WITH THE CIT(A) IN FEBRUARY 2009 AND SUCH MODIFICATIONS LED TO THE REQUIREMENT OF CALLING FOR REMAND REPORT FROM THE AO IN JUNE 2009. IN THE LIGHT OF THESE FACTUAL MATRICES, THE CORE ISSU ES REVOLVE AROUND (I) IF THE ALTERNATE CONTENTIONS RELATING TO INVOKING OF THE PROVISIONS OF SECTION 13(1)(D) OF THE ACT ARE RIGHTLY/VALIDLY ENTERTAINED B Y THE CIT(A) AND IF SO, THE EFFECTS THEREOF; (II) IF THE ACQUISITION OF SHARES OF THE COOPERATIVE BANK FALLS IN THIS MISCHIEF OF THE SAID PROVISIONS; (III) WHETHER T HE CIT(A) HAS FAILED TO ISSUE THE MANDATORY NOTICE U/S 251(2) OF THE ACT EVEN WHEN THERE IS NO REAL ENHANCEMENT OF ASSESSMENT; (IV) WHETHER THE GRANTING OF THE REASONABLE OPPORTUNITY BY THE CIT(A) IN THIS CASE OF NOTIONAL ENHANCEMENT OF ASSESSMENT WOULD MEET THE REQUIREMENTS OF THE SUBSECTION (2) OF SECTION 251 IN THE CASE OF THIS KIND WHERE ENHANCEMENT OF THE ASSESSMENT IS FA R STRETCHED ETC. ALL THESE ISSUES HAVE BOTH LEGAL AND FACTUAL SIDES. TO START WITH, WE FIND IT RELEVANT TO EXAMINE THE LEGAL SCOPE IN THE MATTER OF ISSUE OF NO TICE, ENHANCEMENT OF THE ASSESSMENT ETC. 27. FOR THIS, WE HAVE EXAMINED THE PROVISIONS OF SECT ION 13(1)(D) OF THE ACT. A. RELEVANT PORTIONS OF SECTION 13(1)(D) OF THE A CT ARE AS FOLLOWS. SECTION 11 NOT TO APPLY IN CERTAIN CASES. 13. NOTHING CONTAINING IN SECTION 11 OR SECTION 12 SHALL OPERATE SO AS TO EXCLUDE FROM THE TOTAL INCOME OF THE PREVIOUS YEAR OF THE P ERSON IN RECEIPT THEREOF- (1) (A).. (B).. (C).. ITA NO. 113/PN/10 A.Y: 1999-00 PAGE 29 OF 42 (D). IN THE CASE OF TRUST FOR CHARITABLE OR RELIGIO US PURPOSES OR A CHARITABLE OR RELIGIOUS INSTITUTIONS, ANY INCOME THEREOF, IF F OR ANY PERIOD DURING THE PREVIOUS YEAR- (I) ANY FUNDS OF THE TRUST OR INSTITUTION ARE INVE STED OR DEPOSITED AFTER THE 28 TH DAY OF FEBRUARY 1983 OTHERWISE THAN IN ANY ONE OR MORE OF THE FORMS OR MODES SPECIFIED IN SUBSECTION (5) OF S ECTION 11; OR (II) FROM THE ABOVE, IT IS EVIDENT THAT THE ASSESSEE IS B ARRED FROM INVESTING OR DEPOSITING ANY FUNDS OF THE TRUST AFTER 28 TH FEBRUARY, 1983. THE CONSEQUENCES ARE THAT NOTHING CONTAINING IN SECTION 11 OR SECTION 12 SHAL L OPERATE SO AS TO EXCLUDE FROM THE TOTAL INCOME OF THE PREVIOUS YEAR OF THE PERSON IN RECEIPT THEREOF. B. EXPLAINING OF THE PROVISIONS OF THE SAID SECTION 13 (3) R W S 13(1)(C) BY THE JUDGMENT OF THE APEX COURT: THIS EXPRESSION WAS EXPLAINED BY THE APEX COURT IN THE CASE OF DIT VS BH ARAT DIAMOND BOURSE 259 ITR 280 (SC) TO MEAN THAT THE ASSESSEE IS NOT ENTIT LED TO EXEMPTION U/S 11 OF THE ACT IF THERE IS CONTRAVENTION OF THE PROVISIONS OF SECTION 13 OF THE ACT. IT WAS SO DECIDED BY THE SUPREME COURT IN THE CONTEXT OF SEC TION 13(3)(A) R W S 13(1)(C)(II) OF THE I T ACT 1961 . RELEVANT PORTIONS FROM PARAGRAPHS 7 AND 20 THE SAID JUDGMENT OF THE SUPREME COURT READ AS FOLLOWS: 7. THE NEXT QUESTION WHICH NEEDS OUR ATTENTION IS W HETHER THE TRIBUNAL WAS RIGHT IN ITS CONCLUSION THAT THE ASSESSEE DID N OT LOSE THE BENEFIT OF EXEMPTION U/S 11. .. .. 20..CONSEQUENTLY, THE ASSESSEE WOULD LOSE THE B ENEFIT UNDER SECTION 11 OF THE ACT BY FALLING WITHIN THE MISCHIE F OF S. 13(3)(A) R W S 13(1)( C )(II) OF THE I T ACT 1961. THUS, IT IS A SETTLED POSITION THAT THE CASES COVERE D IN THE MISCHIEF OF THE PROVISIONS OF SECTION 13(3)(A) R W S 13(1)(C)(II) OF THE I T ACT 1961 WILL LOSE THE EXEMPTION U/S 11 OF THE ACT. HOWEVER, WHILE EXPLAINI NG THE SAME, THE SAID JUDGMENT HAS NOT CONSIDERED THE EXPRESS AND SPECIFIC PROVISIONS OF THE PROVISO TO SECTION 164(2) OF THE ACT, WHICH DEALS WITH THE EFFECTS OF THE CONTRAVENTIONS OF THE SAID CLAUSE (C) AND (D) TO SECTION 13(1) OF THE ACT. C. EXPLAINING OF THE PROVISO TO SECTION 164(2) OF THE ACT: THE PROVISIONS OF THE SAID PROVISO W E F 1.4.1985 READS AS FOLLOWS,- CHARGE OF TAX WHERE STARE OF BENEFICIARIES UNKNO WN. 164(1) ITA NO. 113/PN/10 A.Y: 1999-00 PAGE 30 OF 42 (2) PROVIDED THAT IN A CASE WHERE THE WHOLE OR ANY PART OF THE RELEVANT INCOME IS NOT EXEMPT UNDER SECTION 11 OR SECTION 12 BY VI RTUE OF THE PROVISIONS CONTAINED IN CLAUSE (C) OR CLAUSE (D) OF SUBSECTION (1) OF SECTION 13 , TAX SHALL BE CHARGED ON THE RELEVANT INCOME OR PA RT OF RELEVANT INCOME AT THE MAXIMUM MARGINAL RATE . THEREFORE, THE ALTERNATIVE ARGUMENTS OF THE ASSESSEES COUNSEL THAT THE ASSESSEE SHALL NOT LOSE EXEMPTION IN RESPECT OF THE ENTIRE TOT AL INCOME OF THE TRUST HAVE TO BE ADDRESSED ON ITS MERITS INDEPENDENT OF THE SAID AP EX COURTS JUDGMENT. OTHERWISE, THE SAID CLAUSE (C) AND (D) HAVE TO BE IN TERPRETED IN THE LIGHT OF THE SPECIFIC PROVISIONS OF THE PROVISO TO SECTION 164(2) OF THE A CT AS EXPLAINED BY THE JURISDICTIONAL HIGH COURT OF BOMBAY IN THE CASE O F SHETH MAFATLAL GAGALBHAI FOUNDATION TRUST (249 ITR 533) (BOM), WHERE IT IS HELD THAT THE EFFECT OF CONTRAVENTION OF THE SAID CLAUSE (D) TO SECTION 13(1) IF ANY IS NOT COMPLETE DENIAL OF EXEMPTION U/S 11 OF THE ACT TO THE TRUST O R INSTITUTION AND THE DENIAL IS RESTRICTED TO RELATABLE INCOME EARNED OUT OF SUCH SHARES ACQUIRED BY DEPOSITING OR INVESTING OF ANY TRUST FUNDS. THE DIVIDEND INCOME IF ANY RECEIVED ON THE SHARES ONLY CAN BE TAX AT MAXIMUM MARGINAL RATE . FURTHER, WE HAVE TAKEN NOTE OF THE FACT THAT THE VIOLATION IF ANY OF THE ASSESS EE REVOLVE AROUND CLAUSE (D) OF SECTION 13(1) OF THE ACT. FURTHER, THE CLAUSES (C) AN D (D) SHARE THE COMMON EXPRESSIONS IE NOTHING CONTAINING IN SECTION 11 OR SECTION 12 SHAL L OPERATE SO AS TO EXCLUDE FROM THE TOTAL INCOME OF THE PREVIOUS YE AR OF THE PERSON IN RECEIPT THEREOF-. D. OTHER CITATIONS RELIED UPON BY THE COUNSEL: WE HAVE PERUSED SOME OF THE JUDGMENTS OF THE HIGHER JUDICIARY AND THE COORDINATE BENCH DECISIONS OF THE TRIBUNAL CITED BY THE ASSESSEES CO UNSEL. WE FIND THAT THAT MOST OF THESE DECISIONS RELATE TO THE CASES WHERE THE SHARE S WERE ACQUIRED BY WAY OF GIFTS OR DONATIONS AND THEREFORE, THEY ARE DISTINGUISHABLE ON FACTS. FAC TS OF THE INSTANT CASE RELATE TO THE DEPOSITING OR INVESTING OF THE TRUST FUNDS INTO THE SHARES OF THE COOPERATIVE BANK. THERE IS NO CONCEPT OF DEPOSITING OR INVESTING IN TRANSFERS OF SHARES BY WAY OF GIFT OR DONATION AND I T MAKES THE DIFFERENCE. THE GIST OF SOME OF THE CITATION ARE AS FOLLOWS. 1. HELP AGE INDIA: 585/DEL/2009: IN THE FACTUAL MATRIX OF THE CASE THAT THE TRUST RECE IVED SOME SHARES/BONDS BY GIFT AND NOT ACQUIRED BY THE TRUST BY DEPOSITING AND INVE STING THE FUNDS OF THE TRUST, THE TRIBUNAL HELD THAT THE DENIAL OF EXEMPTION U/S 11(1)(A) ON THE GROUND THAT THE SHARES WERE HELD BY THE ASSESSEE WILL BE A GAINST EVEN THE LANGUAGE OF ITA NO. 113/PN/10 A.Y: 1999-00 PAGE 31 OF 42 THE PROVISIONSIN SUCH CIRCUMSTANCES, WHAT CAN BE D ONE IS THAT INCOME DERIVED FROM THE SHARES, IF TAKEN INTO ACCOUNT IN THE BOOKS , MAY BE BROUGHT TO TAX. .THERE CANNOT BE A COMPLETE DENIAL OF THE EXEMPTIO N U/S 11(1)(A).(PARA 6). 2. INSANIYAT TRUST: 173 ITR 248(GUJ): PROVISIONS OF SECTION 13(2)(H) NOT ATTRACTED IN RESPECT OF THE DIVIDEND INCOME EARNED OU T OF THE SHARES IN THE COMPANY RECEIVED AS DONATION FROM THE DONORS AND NOT PURCHASED BY THE TRUST. 3. AUDITOR DASARDHA RAMI REDDY CHARITIES 76 CTR 124(MA DRAS): RECEIPT OF DONATIONS BY CHARITABLE SOCIETIES OF PROMISSORY NOTES CANNOT BE INVESTMENT OF ITS FUNDS WITHIN THE MEANING OF SECTI ON 13 (1)(D)(I) AND THEREFORE, THE SOCIETY CLAIM OF EXEMPTION UNDER SECTION 80G CAN NOT BE REJECTED. IT IS SO HELD IN ANOTHER CASE OF DONATION OF SHARES BY THE TRUS T BY THE CALCUTTA HIGH COURT IN THE CASE OF BIRLA CHARITY TRUST AS REPORTED IN 170 I TR 150 (CAL) AND IT IS A CASE OF DONATION OF SHARES TO THE ASSESSEE TRUST. 4. SHETH MAFATLAL GAGALBHAI FOUNDATION TRUST (249 ITR 533) (BOM): NO DISPUTE ABOUT THE CONTRAVENTION OF THE PROVISIONS OF SECTION 13(1)(D) OF THE ACT AND MA FATLAL SHARES WERE ACQUIRED BY THE TRUST AND EARNED DIVIDEND INCOME. DISPUTE RELAT ES THE EFFECTS OF SUCH VIOLATION OR CONTRAVENTION. ON THESE FACTS, THE HONBLE HIGH COURT OF THIS JURISDICTION EXPLAINED THE PROVISIONS OF THE PROVISO T O SECTION 164(2) OF THE ACT AND HELD THAT THE TRUST SHALL NOT LOSE EXEMPTION GRAN TED U/S 11 OF THE ACT AND DISALLOWANCE IS RESTRICTED TO RELATABLE INCOME TO THE SUCH SHARES ACQUIRED BY WAY OF PURCHASE BY DEPOSITING OR INVESTING OF THE ANY TRUS T FUNDS. THE DIVIDEND INCOME IF ANY RECEIVED ON THE SHARES ONLY CAN BE TAX AT MAXIMUM MARGINAL RATE. OUT THE ABOVE, IT IS EVIDENT THAT THE JUDGMENT IN THE CASE OF SHETH MAFATLAL GAGALBHAI FOUNDATION TRUST (SUPRA) HAS PROXIM ITY TO THE FACTS OF THE INSTANT CASE AND WITH ONLY DIFFERENCE THAT THE ASSES SEE ACQUIRED THE SHARES OF THE COOPERATIVE BANK UNLIKE THE SHARES OF THE MAFATLA L GROUP COMPANIES IN THE SAID CASE. THEREFORE, THE RATIO OF THE SAID JUDGMENT O F THE JURISDICTIONAL HIGH COURT HAS APPLICABILITY TO THE INSTANT CASE. 28. FURTHER, FROM THE OVERALL DISCUSSIONS NARRATED ABOVE, IT IS CONVENIENTLY DECIPHERABLE THAT THE ACQUISITION OF SHARES BY DEPOSI TING OR ADVANCING THE FUNDS OF THE TRUST AMOUNTS TO CONTRAVENTION OF THE PROVISIO NS OF SECTION 13(1)(D) R W S 11(5) OF THE ACT. SO FAR AS THE EFFECT OF SUCH CONTRA VENTION IS CONCERNED, DENIAL OF EXEMPTION HAS TO BE RESTRICTED TO THE RELATABLE INCOME IN VIEW OF THE SPECIFIC PROVISIONS OF THE PROVISO TO SECTION 164(2) OF THE ACT AS EXPLAINED BY THE BINDING JURISDICTIONAL HIGH COURT JUDGMENT IN THE CAS E OF SHETH MAFATLAL ITA NO. 113/PN/10 A.Y: 1999-00 PAGE 32 OF 42 GAGALBHAI FOUNDATION TRUST (SUPRA) AND IN PRINCIPLE, T HE DENIAL CANNOT BE EXTENDED TO OTHER INCOME OF THE TRUST. 29. OTHER ARGUMENTS OF THE AR FOR THE COUNSEL: REGARDI NG OTHER ARGUMENTS OF THE COUNSEL RELATING TO MEANING OF THE EXPRESSION ANY FUNDS WHETHER IT INCLUDES LOANS, WE FIND THAT THE SAID E XPRESSION IS VERY WIDE AND IT MUST INCLUDE ALL TYPES OF FUNDS INCLUDING THE IMPUG NED LOANS TAKEN BY THE ASSESSEE FROM THE COOPERATIVE BANK. NORMALLY THE EXPRE SSION FUNDS MUST INCLUDE BOTH GENERAL AS WELL AS THE SPECIFIC FUNDS A ND IT IS GENERIC IN NATURE. THEREFORE, FUNDS MAY BE OF BOTH CAPITAL OR REVENUE NAT URE. HENCE, THE FUNDS MUST LOGICALLY INCLUDE EQUITY CAPITAL, SECURED OR UNS ECURED LOANS, INCOME OF THE TRUST. THEREFORE, WE DISMISS THE ASSESSEES CONTENTION IN THIS REGARD. REGARDING OTHER ARGUMENT RELATING TO APPROPRIATION/APPLICATION OF TRUST FUNDS FOR THE OBJECTS OF THE TRUST, WE FIND THAT THE THERE ARE NO BASIC FACT S AVAILABLE BEFORE US OR SPOKEN ABOUT IT IN THE ORDERS BY THE REVENUE AUTHORITIE S AFTER DUE EXAMINATION OF THE ISSUE ON HOW THE LOAN IN QUESTION WAS ACTUALLY APPROPRIATED BY THE TRUST IE IF THE INVESTMENT INTO SHARE WAS MADE BY ISSUE OF A CHE QUE AFTER THE LOAN REACHED THE BANK ACCOUNT OF THE ASSESSEE OR IT WAS DEDUCTED AT SOURCE ITSELF. IN ANY CASE, THE CONTRAVENTION OF THE PROVISIONS OF SECTION 13(1)(D) R W S 11(5) HAS THE INITIAL BLOW TO THE CLAIM OF THE ASSESSEE AND THE A PPROPRIATION OF THE LOAN IS NOT VERY RELEVANT FACTOR AND IT CANNOT PROVIDE RELIEF TO THE NEGATIVE EFFECTS OF THE SAID CONTRAVENTION. FURTHER, IT IS THE CASE OF ENHANCEMENT OF THE ASSESSMENT BY THE CIT(A) AND THE ORDER IS NULL AND VOID AS THE SAID ENH ANCEMENT IS DONE WITHOUT ISSUE OF NOTICE U/S 251(2) OF THE ACT. THE LOGIC OF THE ASSESSEE/HIS AR IS THAT IF THE AO WERE TO GIVE EFFECT TO THE ORDER OF THE TRIBUNAL IN TIME IN GRANTING REGISTRATION U/S 12A OF THE ACT, AND ALLOWED THE CONS EQUENTIAL BENEFITS OF THE SUCH REGISTRATION TO THE TRUST, THE ASSESSEES ASSESSE D INCOME WOULD HAVE BEEN QUANTITATIVELY LESSOR THAN THE INCOME SUSTAINED BY T HE CIT(A) IN THE IMPUGNED ORDER. THAT IS HOW THE ENHANCEMENT IS MADE OUT BY THE COUNSEL. IN OTHER WORDS, IT IS NOT THE CASE OF CLEAR ENHANCEMENT OF ASSESSMEN T BUT IT IS CASE ENHANCEMENT OF ASSESSMENT BY EXTENDED LOGIC. WE PROCEED TO DISCU SS THE RELATED ISSUES ON ENHANCEMENT IN THE SUCCEEDING PARAGRAPHS. 30. WHETHER THERE IS ENHANCEMENT OF THE ASSESSMENT AT ALL? IN OUR OPINION, WHETHER THERE IS ENHANCEMENT IN THE ASSESSM ENT IN THE INSTANT CASE IS A MATTER OF FACT. THIS FACT HAS TO BE ARRIVED AFTER THE C ONSIDERING THE ESTABLISHED ITA NO. 113/PN/10 A.Y: 1999-00 PAGE 33 OF 42 CONCEPTS OF MERGER THEORY OF THE ORDERS OF THE AO AND T HE CIT(A) ONE SIDE AND THE POWERS OF THE CIT(A) IN ADMITTING THE FRESH GROUND S FOR DENIAL OF EXEMPTION U/S 11 OF THE ACT. ON FACTS OF THIS CASE WHEN THE A SSESSMENT ORDER WAS NOT GIVEN EFFECT TO THE ORDER OF THE TRIBUNAL, ADMITTEDLY THERE I S NO QUANTITATIVE ENHANCEMENT OF TOTAL ASSESSED INCOME DURING THE PROCE EDINGS BEFORE THE CIT(A). THE ARGUMENT OF THE ASSESSEE IS THAT THE BUT FOR THESE NEWLY FOUND REASONS RELATING TO U/S 13(1)(D) OF THE ACT, THERE WOU LD NOT HAVE ANY TAXABLE INCOME REMAINED SUSTAINED AT THE LEVEL OF THE CIT(A) IN VIEW OF THE SAID ORDER OF THE TRIBUNAL RESTORING THE REGISTRATION U/S 12A OF THE A CT. THUS, THE CASE OF THE ASSESSEE IS THAT ENTERTAINING OF THE NEWLY DISCOVERED REASONS DURING THE REMAND PROCEEDINGS RELATING TO DEEMED INCOME LED TO NOT ONLY TO THE DENIAL OF OTHERWISE ENTITLED RELIEF TO THE ASSESSEE BUT ALSO LED TO THE CONFIRMING OF THE ADDITIONS OF THE AO. IN EFFECT, IT HAS THE EFFECT OF ENHANCEMENT AND THEREFORE, THE PROVISIONS OF SECTION 251(2) OF THE ACT COME INTO PICTURE. IN O UR WORDS, THE ARS ARGUMENTS LEAD TO CREATION OF CONCEPT OF NOTIONAL ENHANCEMENT. AS THE CIT(A) FAILED TO ISSUE NOTICE UNDER THESE CIRCUMSTANCES UNDER THE RELEVA NT PROVISIONS, THE IMPUGNED ORDER HAS TO QUASHED IN VIEW OF NUMBER OF DEC ISIONS IN THIS REGARD. THIS IS THE CASE OF THE ASSESSEE. PER CONTRA , THE CASE OF THE REVENUE IS THAT WHEN THERE IS NO ADDITIONAL INCOME BROUGHT INTO THE A SSESSMENT BY THE CIT(A), THERE IS NO CASE OF ENHANCEMENT AND THEREFORE, THERE IS NO NEED FOR ISSUE OF NOTICE U/S 251(2) OF THE ACT. IN THIS REGARD, WE PROCE ED TO DISCUSS THE SCOPE OF THESE PROVISIONS AND SAID PROVISIONS READ AS FOLLOWS. 31. SCOPE OF THE PROVISIONS OF SECTION 251 OF THE A CT : IN THIS REGARD, WE FIND NEED OF EXAMINING THE PROVISIONS OF SE CTION 251 OF THE ACT AND THEY READ AS FOLLOWS. (1) IN DISPOSING OF AN APPEAL, THE COMMISSIONER (A PPEALS) SHALL HAVE THE FOLLOWING POWERS- (A) IN AN APPEAL AGAINST AN ORDER OF ASSESSMENT, HE MAY CONFIRM, REDUCE, ENHANCE OR ANNUL THE ASSESSMENT, (B) .. (C) .. (2) THE COMMISSIONER (APPEALS) SHALL NOT ENHANCE AN ASSESSMENT OR . OR . UNLESS THE APPELLANT HAS HAD A REASONABLE OP PORTUNITY OF SHOWING CASE AGAINST SUCH ENHANCEMENT. OR.. EXPLANATION: IN DISPOSING OF AN APPEAL, THE COMMISS IONER (APPEALS) MAY CONSIDER AND DECIDE ANY MATTER ARISING OUT OF THE P ROCEEDINGS IN WHICH THE ORDER APPEALED AGAINST WAS PASSED, NOTWIT HSTANDING THAT SUCH ITA NO. 113/PN/10 A.Y: 1999-00 PAGE 34 OF 42 MATTER WAS NOT RAISED BEFORE THE COMMISSIONER (APPE ALS) BY THE APPELLANT. FROM THE ABOVE, IT IS SELF EXPLANATORY THAT THE CIT(A ) HAS THE POWER OF ENHANCEMENT AND SUCH POWER IS EXERCISED ONLY AFTER HE GRANTED REASONABLE OPPORTUNITY TO THE ASSESSEE. FURTHER, THE CIT(A) IS G IVEN ADDITIONAL DUTY OF CONSIDERING AND DECIDING ANY MATTER ARISING OUT OF THE ASSESSMENT PROCEEDINGS WHETHER RAISED OR NOT BY THE ASSESSEE BEFORE HIM. 32. MEANING OF AN ASSESSMENT: SECTION 2(8) DEFINES ASSESSMENT AND IT IS AN INCLUSIVE DEFINITION AND IT INCLUDES REASSESSM ENT. SECTION 143 RELATES ASSESSMENT AND AS PER THE PROVISIONS OF SUB-SECTION (3) OF THE SAID SECTION, THE AO DETERMINES THE TOTAL INCOME OR LOSS AND DETERMINE T HE SUM PAYABLE OR REFUNDABLE AS PER THE PROCEDURE GIVEN IN THE SAID SECTI ON AND THUS MAKES AN ASSESSMENT/REASSESSMENT AS THE CASE MAY BE. OF COURSE , THE ORDERS PASSED U/S 154 OF THE ACT GET MERGED WITH THE SAID ASSESSMENT. THUS, THE ASSESSMENT OR REASSESSMENT CONSTITUTES THE DETERMINATION OF TOTAL I NCOME/LOSS OF THE ASSESSEE FOR AN AY AND FURTHER DETERMINATION OF TAX PAYABLE BY T HE ASSESSEE OR REFUNDABLE TO THE ASSESSEE. 33. MEANING OF ENHANCEMENT: THIS EXPRESSION IS NOT DEFINED IN THE INCOME TAX, 1961. NEVERTHELESS, DICTIONARY MEANING OF THE SA ID EXPRESSION MEANS INCREASE IN QUALITY, VALUE, OR EXTENT OF. THESAURUS OF THE SAME IS INCREASE, ADD TO, INTENSIFY, HEIGHTEN, MAGNIFY, AMPLIFY, INFLATE, STRENGTHEN, BUILD UP, SUPPLEMENT, AUGMENT, BOOST, RAISE, LIFT, ELEVATE, E XALT; IMPROVE, ENRICH, COMPLEMENT. THE PROVISIONS OF THE EXPLANATION PROVIDES ADDITIONA L POWERS TO THE CIT(A) IN DISPOSING OF THE APPEALS. IT IS THE ADDIT IONAL DUTIES GIVEN TO THE COMMISSIONER (APPEALS) TO CONSIDER AND DECIDE ANY MAT TER ARISING OUT OF THE ASSESSMENT PROCEEDINGS. IN THIS CONTEXT, WE HAVE EXA MINED IF THE MATTER OF INVOKING OF THE PROVISIONS OF SECTION 13(1)(D) FALLS WITHIN THE EXPRESSIONS ANY MATTER ARISING OUT OF THE PROCEEDINGS IN WHICH THE ORDER APPEALED AGAINST WAS PASSED A S USED IN THE EXPLANATION OF SECTION 251 OF THE ACT .. WE HAVE NOT DOUBT IN COMING TO THE CONCLUSION THAT ANY MATTER MEANS EVERY MATTER AND IT SHOULD RELATE TO THE CONCEALED INCOME OF THE ASSESSE E FOR THE AY UNDER CONSIDERATION. THE EXPRESSION MATTER IS BROADER IN ITS MEANING AND SHOULD INCLUDE EVERY ANGLE AND ASPECT OF THE CONCEALED INC OME SOUGHT TO BE TAXED BY THE AO. NEXT WE HAVE APPLIED OUT MIND TO THE MEANI NG OF THE EXPRESSION ITA NO. 113/PN/10 A.Y: 1999-00 PAGE 35 OF 42 ARISING OUT OF THE PROCEEDINGS (OF REASSESSMENT). AS PER THE WEBSTERS DICTIONARY, THE EXPRESSION ARISING OUT OF (VERB) MEAN S OCCUR AS A RESULT OF . THUS, ANY MATTER IE INVOKING THE PROVISIONS OF SECT ION 13(1)(D)(I) THAT OCCUR AS A RESULT OF THE ASSESSMENT PROCEEDING FALLS WITHIN THE JURISDICTION OF THE CIT(A) UNDER THE EXPLANATION TO SECTION 251 OF THE ACT. IT IS NOT THE REQUIREMENT OF THE LAW THAT THE MATTER MUST DERIVE FROM THE ASSESSMEN T ORDER AND IT SHOULD ONLY ARISE OUT OF SUCH AN ORDER. THEREFORE, WE ARE OF THE OP INION, THE CIT(A) RIGHTLY ASSUMED JURISDICTION AS A MATTER OF HIS DUTY AND HE H AS RIGHTLY DERIVED THE STRENGTH FROM THE APEX COURT IN THE CASES OF KANPUR COAL SYNDICATE (SUPRA) JUTE CORPORATION OF INDIA LTD (SUPRA). 34. WHETHER ISSUES ARISEN FROM THE REASSESSMENT PROCEED INGS: WE HAVE EXAMINED IF THE INVOKING OF THE PROVISIONS OF S ECTION 13(1)(D)(I) OF THE ACT HAS ARISEN FROM THE REASSESSMENT PROCEEDINGS . FOR THIS PURPOSE, WE NEED TO UNDERSTAND THE RELEVANT CIRCUMSTANCES THAT THE AO REJEC TED THE EXEMPTION U/S 11 IN THE CIRCUMSTANCES THE TRUSTS REGISTRATION IS CAN CELLED BY THE CIT AS THE ACTIVITIES OF THE TRUST ARE HELD DUE TO DISCOVERIES IN THE SEARCH PROCEEDINGS TO BE NOT IN TUNE WITH THE OBJECTS OF THE TRUST, WHICH HAS NOT BEEN DECIDED BY THE TRIBUNAL ON FACTS OF THE CASE WHILE GRANTING THE REGI STRATION ON TECHNICAL GROUNDS. THERE IS NO FINALITY OF FACT ON THIS ASPECT. OTHERWISE, BROADLY, THE SUBJECT MATTER IN THE ASSESSMENT RELATES TO THE DENIA L OF EXEMPTION U/S 11 OF THE ACT UNDER THE CIRCUMSTANCES OF NO REGISTRATION U/S 12A OF THE ACT. IN THE REMAND PROCEEDINGS TOO, THE DENIAL OF EXEMPTION U/S 11 WAS THE SUBJECT MATTER BUT FOR THE OTHER REASONS RELATING TO VIOLATION OF SECTION 11( 5) OF THE ACT, WHICH IS ALSO PART OF SECTION 11, WHICH IS SUBJECT MATTER OF ASSESS MENT PROCEEDINGS UNDOUBTEDLY. THUS, IN OUR OPINION, THE MATTER IS THE SAME AND THE ARGUMENTS ARE DIFFERENT. HENCE, THE MATTER GETS COVERED WITH THE SCO PE OF THE EXPLANATION. HOWEVER, NEXT ISSUE RELATES TO IF THE MATTERS, WHICH A RE OTHERWISE COVERED BY THE EXPLANATION, DEMANDS THE ISSUE OF THE SHOW CAUSE NO TICE EXPRESSLY PROPOSING THE ENHANCEMENT. 35. SHOW CAUSE : WE SHALL NOW PROCEED TO EXAMINE IF THERE IS ENHANCE MENT IN THE INSTANT CASE AND IF THE ISSUE OF SHOW CAUSE NOTICE TO THE ASSESSEE IS THE REQUIREMENT OF THE LAW U/S 251(2) OF THE ACT. THE FAC T OF THE CASE IS THAT THE ASSESSED INCOME BY THE AO AND THE SUSTAINED INCOME AT THE LEVEL OF THE CIT(A) IS ONE AND THE SAME. THERE IS NO ENHANCEMENT BUT FOR THE IFS AND BUTS THAT ARE ITA NO. 113/PN/10 A.Y: 1999-00 PAGE 36 OF 42 RAISED BY THE ARS COUNSEL FOR THE FIRST TIME BEFORE US . OTHERWISE, IT IS THE ESTABLISHED LAW THAT THE ISSUE OF NOTICE U/S 251(2) OF THE ACT IS THE ESSENTIALITY IN CASE OF THE ENHANCEMENT PROVIDED THERE IS ENHANCEMENT . THEREFORE, WE NEED TO EXAMINE IF THERE IS ENHANCEMENT. DURING THE PROCEEDING S, IT IS BROUGHT TO OUR NOTICE THAT THE ASSESSEE REQUESTED THE AO TO GIVE EF FECT TO THE ORDER OF THE TRIBUNAL, WHICH REVOKED THE REGISTRATION U/S 12A OF TH E ACT. WE ARE NOT AWARE OF THE DEVELOPMENTS RELATING TO THIS CORRESPONDENCE . HOWEVER, THE SAME BECOMES RELEVANT AS THEY MAY CONTRIBUTE SOME INPUTS T O THE CONCEPT OF ENHANCEMENT OF THE ASSESSMENT . FURTHER, WE FIND THAT THE ISSUE OF ENHANCEMENT OF ASSESSMENT TOGETHER WITH THE ISSUE OF STATUTORY NOTICE HAS COME UP BEFORE US FOR THE FIRST TIME. IN OUR OPINION, THE IS SUE OF ENHANCEMENT IS A MATTER OF FACT CONSIDERING THE MEANINGS ATTACHED TO T HE SAID EXPRESSION. NEITHER OF THE INCOME TAX AUTHORITIES HAS GONE INTO THIS FAC TUAL ISSUE OBVIOUSLY AS IT IS NOT RAISED BEFORE THEM IN THE PRESENT FORM. THEREFORE, WE ARE OF THE OPINION, THIS ISSUE MUST BE SET ASIDE TO THE FILES OF THE CIT(A), WHO IS COMPETENT TO DECIDE IF THERE IS A CASE OF ENHANCEMENT AND IF HE SHOULD HAVE ISSUED NOTICE U/S 251(2) IN ADDITION TO THE REASONABLE OPPORTUNITY UNDISPUTEDLY GRANTED BY HIM TO THE ASSESSEE. CIT(A) SHALL ALSO EXAMINE THE VARIOUS CASE LAWS CITED BY THE ASSESSEES COUNSEL WHILE PASSING A SPEAKING ORDER ON THE ISSUE. HE SHALL EXAMINE IF THE EXPRESSION ENHANCEMENT OF THE ASSESSMENT INCLUDES THE NOTIONAL ENHANCEMENT AS IN THIS CASE. HE SHALL ALSO EXAMINE IF THE NOT ICE OF ENHANCEMENT IS DISTINCTLY SEPARATE FROM THAT THE ISS UE OF LETTER OF REASONABLE OPPORTUNITY. CIT(A) SHALL ALSO TAKE IN CONSIDERATI ON THE TRITE LAW THAT THE FAILURE TO MAKE ENHANCEMENT OF THE ASSESSMENT WITHOUT ISSUE OF SAID NOTICE MAKES SUCH ENHANCEMENT A NULLITY. 36. FURTHER, THE CIT(A) SHALL ALSO EXAMINE THE VARIOUS JUDGMENTS OF JURISDICTIONAL HIGH COURT AND OTHERS WHILE CONSIDERING VARIOUS ARGUMENTS OF THE ASSESSEE RELATING TO THE APPROPRIATION/APPLICATION OF TRUST FUNDS, THE LOANS DO NOT FALL WITHIN THE SCOPE OF ANY FUNDS OF THE TRUST IN VESTED OR DEPOSITED ETC. CIT(A) SHALL ALSO EXAMINE THE WITHOUT ARGUMENTS OF THE COUN SEL RAISED WITHOUT PREJUDICE THAT INCOME EARNED BY THE TRUST BY WAY OF DIVIDEND IS DISTINCT AND DIFFERENT IN VIEW OF THE PROVISIONS OF THE PROVISO TO SECTION 164( 2) OF THE ACT AND IT SHOULD NOT BE MIXED UP WITH THE REST OF THE EXEMPT INCOME O F THE TRUST. THE PROPOSITIONS SETTLED BY THE APEX COURT IN THE CASE OF BHARAT DIAMOND BOURSE (SUPRA) AND JURISDICTIONAL HIGH COURT IN THE CASE OF S HETH MAFATLAL GAGALBHAI ITA NO. 113/PN/10 A.Y: 1999-00 PAGE 37 OF 42 FOUNDATION TRUST (SUPRA) SHOULD BE TAKEN INTO ACCOUNT WHILE DECIDING ON THE ISSUE OF DENIAL TO THE INCOME RELATABLE TO SUCH SHARE S IN THE DEPOSITS AND INVESTMENTS IN THE SHARES OF THE COOPERATIVE BANKS. T HERE IS NO CLARITY ON THE FACTUAL MATRIX ON IF THE SUM INVESTED IN SHARES OF CO OPERATIVE BANK HAS THE ORIGIN IN THE OTHER FUNDS OF THE TRUST OR OUT OF THE L OAN DISBURSEMENT GIVEN BY THE COOPERATIVE BANK. FOR THIS, THERE IS NEED FOR EXAMINING THE CONCERN LOAN ACCOUNTS. IT GOES WITHOUT MENTIONING THAT HE SHALL GRANT REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY, RELEVANT GROUND 2 AND 3 ALONG WITH ITS SUB GROUNDS ARE SET ASIDE PRO-TANTO. 37. GROUND NO. 4 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND WITHOUT PREJUDICE TO THE ABOVE GROUND NO. 1 TO 4 THE CIT(A) HAS ERRED IN SUSTAINING THE ADDITION OF RS. 2,66,187/- PROPOSED AND MADE BY THE SPECIAL AUDITORS BY INVOKING THE PROVISIONS OF SECTION 36(1)(VA) OF THE ACT ON ACCOUNT OF DELAY IN PAYMENT OF EMPLOYEES SHARE OF PROVIDENT FUND RWS SECTION 2(24). IN THIS REGARD, BOTH THE PARTIES HAVE AGREED THAT THE I SSUE HAS TO BE DECIDED IN LINE WITH THE JUDGMENT OF THE APEX COURT IN THE CASE OF ALOM EXTRUSIONS LTD (319 ITR 306), WHICH WAS NOT AVAILABLE TO THE CIT(A) AT THE RELEVANT POINT OF TIME. 38. WE HAVE HEARD THE BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE. FROM THE ABOVE GROUND IT IS EVIDENT THAT THE ISSUE GOES IN TO THE APPLICABILITY OF THE PROVISIONS OF SECTION 43B AND I NTERPRETATION OF THE DELETION OF ITS SECOND PROVISO. IN OTHER WORDS, THIS ISSUE HAS TO BE DECIDED IN THE LIGHT OF THE APEX COURTS JUDGMENT IN THE CASE OF ALOM EXTRUSIONS LTD. (SUPRA), WHERE THE HONBLE SUPREME COURT HELD THAT THE AMENDMENTS MADE T O SECTION 43B ARE CURATIVE WITH RETROSPECTIVE APPLICATION. RELEVANT POR TION OF THE JUDGMENT READS AS UNDER : THE OMISSION OF THE SECOND PROVISO TO SECTION 43 B OF THE INCOME- TAX ACT, 1961, BY THE FINANCE ACT, 2003, OPERATED, RETROSPECTIVELY, WITH EFFECT FROM APRIL 1, 1988 AND NOT PROSPECTIVELY FRO M APRIL 1, 2004. EARLIER UNDER THE SECOND PROVISO TO SECTION 43B AS AMENDED BY THE FINANCE ACT, 1989, ASSESSEES WERE ENTITLED TO DEDUC TION ONLY IF THE CONTRIBUTION STOOD CREDITED ON OR BEFORE THE DUE DA TE GIVEN IN THE PROVIDENT FUNDS ACT. THIS CREATED FURTHER DIFFICULT IES AND ON A REPRESENTATION MADE TO THE FINANCE MINISTRY ONE MOR E AMENDMENT WAS MADE BY THE FINANCE ACT, 2003. THOUGH THIS AMENDMEN T WAS MADE APPLICABLE WITH EFFECT FROM APRIL 1, 2004, THE AMENDMENT WAS CURATIVE IN NATURE AND APPLIED RETROSPECTIVELY WITH EFFECT F ROM APRIL 1, 1988. ITA NO. 113/PN/10 A.Y: 1999-00 PAGE 38 OF 42 WHEN A PROVISO IN A SECTION IS INSERTED TO REMEDY U NINTENDED CONSEQUENCES AND TO MAKE THE SECTION WORKABLE, THE PROVISO WHICH SUPPLIES AN OBVIOUS OMISSION THEREIN IS REQUIRED TO BE READ RETROSPECTIVELY IN OPERATION, PARTICULARLY TO GIVE EFFECT TO THE SE CTION AS A WHOLE. ALLIED MOTORS P. LTD. V. CIT [1997] 224 ITR 677 (SC ) RELIED ON. IF STRICT CONSTRUCTION LEADS TO A RESULT NOT INTEND ED TO BE SUBSERVED BY THE OBJECT OF THE LEGISLATION, AND IF ANOTHER CONSTRUCT ION IS POSSIBLE APART FROM THE LITERAL CONSTRUCTION, THEN THAT CONSTRUCTION SH OULD BE PREFERRED. CIT V. GOTLA (J. H.) [1985] 156 ITR 323 (SC) FOLLOW ED. DECISIONS OF THE KARNATAKA HIGH COURT IN CIT V. SAB ARI ENTERPRISES [2008] 298 ITR 141 AND OF THE CALCUTTA HIGH COURT A FFIRMED. DECISION OF THE BOMBAY HIGH COURT IN CIT V. PAMWI T ISSUES LTD. [2009] 313 ITR 137 REVERSED . 39. UNDER THESE CIRCUMSTANCES, AO/CIT(A) SHALL ALLOW THE CLAIM ON ACTUAL PAYMENT BASIS PROVIDED THE SAID PAYMENTS ARE MADE BY THE ASSESSEE ON OR BEFORE THE APPLICABLE DUE DATE FOR FURNISHING OF RETURN OF INCOME U/S 139(1) OF THE ACT. THUS, THE REMOVAL OF THE SECOND PROVISO HAS RETROSPECTIVE APPLICATION AND FURTHER, THE IMPUGNED PAYMENTS WERE UNDISPUTEDLY M ADE ON OR BEFORE SAID DUE DATES. THEREFORE, ISSUE RAISED IN THE GROUNDS OF TH E ASSESSEES APPEAL IS COVERED BY THE DECISION OF THE HONBLE SUPREME COURT I N THE CASE OF ALOM EXTRUSIONS LTD (SUPRA) AND IN FAVOUR OF THE ASSESSEE. ACCORDINGLY, THE GROUNDS OF THE APPEAL ARE ALLOWED . 40. GROUND NO. 5: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND WITHOUT PREJUDICE TO THE ABOVE GROUND NO. 1 TO 4, THE CIT(A) HAS ERRED I N SUSTAINING THE DISALLOWANCE OF RS 86,909/- MADE U/S 40A(3) OF THE INCOME TAX ACT 1961. AMOUNT INVOLVED IS RS 86,909/- AND PARA 14 IS RELEVAN T FOR THIS GROUND. ASSESSEE SUBMITTED THAT THE PROVISIONS OF SECTION 40A(3) ARE APPLICABLE TO THE INCOME CHARGEABLE TO TAX UNDER THE HEAD PROFITS AND GAINS FROM BUSINESS OR PROFESSION AND NOT TO THE ASSESSEE-TRUST. ON MERITS, IT IS MENTI ONED THAT THE ASSESSEE NEITHER VIOLATED THE SAID PROVISIONS NOT THE ASSESSEE MADE THE SINGLE PAYMENT AT ANY GIVEN POINT OF TIME EXCEEDING THE PERMITTED LIMI TS. AS PER HIM THE PAYMENTS INVOLVED INCLUDE THE SALARIES PAID (RS 20,599/-), EX AM FEE PAID TO PUNE UNIVERSITY ETC AND THE PROVISIONS OF SECTION 40A ARE INAPPLICABL E TO THE ASSESSEE. CIT(A) DISMISSED THE ABOVE LEGAL CONTENTIONS CONSIDERING TH E EXPRESS PROVISION OF SUBSECTION (2) OF SECTION 58 OF THE ACT, WHICH AUTH ORIZES THE APPLICABILITY OF THE SAID SECTION 40A(3) TO THE INCOME CHARGEABLE UNDER TH E HEAD INCOME FROM OTHER SOURCES. ITA NO. 113/PN/10 A.Y: 1999-00 PAGE 39 OF 42 41. AT THE VERY OUTSET, LD COUNSEL FAIRLY SUBMITTED T HAT THE SAID PROVISIONS OF SECTION 40A(3) ARE APPLICABLE TO THE INCOME CHARGEABL E TO TAX UNDER THE HEADS PROFITS AND GAINS FROM BUSINESS OR PROFESSION AND INCOME FROM OTHER SOURCES. ON MERITS, LD COUNSEL IS OF THE VIEW THAT NONE OF TH E PAYMENTS EXCEEDED THE PRESCRIBED LIMITS. IN THIS REGARD, WE PERUSED THE ORDER OF THE CIT(A) IN GENERAL AND THE CONTENTS OF THE PARA 14 IN PARTICULAR. WE FI ND THAT THE SAID PARAGRAPHS 14 OF THE IMPUGNED ORDER OF THE CIT(A) DEALT WITH MUL TIPLE ISSUES RELATING TO 40A(2)(B), 40(A) AND 40A(3) AND DISMISSED THE SAME ON LEGAL GROUNDS. THERE IS NO FINDING ON THE MERITS OF THE DISALLOWANCE. CIT(A) DID NOT DEAL WITH THE ALLEGATION THAT IMPUGNED AMOUNTS HAVE NOT EXCEEDED THE PRESCRIBED LIMITS. TO THIS EXTENT THE ORDER OF THE CIT(A) IS NOT A SPEAKING ONE AND THEREFORE, IT IS IN ACCORDANCE WITH THE PROVISIONS OF SECTION 250(6) OF T HE ACT AS EXPLAINED IN THE DECISION AHMEDABAD BENCH OF THE ITAT IN THE CASE OF GUJARAT THEMIS BIOSYN LTD VS JCIT (2000) 74 ITD 339, WHERE IT IS HELD THAT THE FIRST APPELLATE AUTHORITY HAS TO DECIDE THE APPEAL ON MERITS. 42. CONSEQUENTLY, WE ARE OF THE OPINION, THE MATTER H AS TO BE SET ASIDE TO THE FILES OF THE CIT(A) FOR DECISION ON THE MERITS AFTER C ONSIDERING THE DOCUMENTS PLACED IN THE PAPER BOOK (PAGES 1 TO 12) FILED BEFORE US. ASSESSEE SHALL DEMONSTRATE BEFORE HIM THAT THE IMPUGNED AMOUNTS DO N OT REQUIRE DISALLOWANCE. ACCORDINGLY, THE GROUND 5 RAISED WITHOUT PREJUDICE IS SET ASIDE . 43. GROUND NO. 6 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND WITHOUT PREJUDICE TO THE ABOVE GROUND NO. 1 TO 4, THE CIT(A) HAS ERRED I N SUSTAINING THE ADDITIONS OR DISALLOWANCES MADE ON THE GROUND THAT CAPITAL EXPENSES HAVE BEEN DEBITED TO INCOME & EXPENDITURE A/C WITHOUT APPLYING HIS COMPETENT MIND AND IN THE PROCESS HAS FURTHER OVERL OOKED THE FACT THAT SPECIAL AUDITORS HAVE THEMSELVES ERRED IN TREATING THE FACT THAT SPECIAL AUDITORS HAVE THEMSELVES ERRED IN TREATING THE REVE NUE EXPENDITURE AS CAPITAL EXPENDITURES. LIMITED ISSUE FOR OUR ADJUDICATION REVOLVES AROUND THE ISSUE IF THE SUM OF RS 38,642/-WHICH WAS ACTUALLY SPENT TOWARDS PURCHASE OF CURTAINS AND OTHER FURNISHINGS IS REVENUE IN NATURE. DURING THE PROCEEDING S BEFORE US, LD COUNSEL FOR THE ASSESSEE TOOK US THROUGH THE CONTENTS OF PAGE 23 OF THE PAPER BOOK AND MENTIONED THE AO UNMINDFULLY ADOPTED THE RECOMMENDAT IONS OF THE SPECIAL AUDITORS WITHOUT GOING INTO THE MERITS OF THE RECOMMEN DATIONS AND DISALLOWED RS 38,642/-WHICH WAS ACTUALLY SPENT TOWARDS PURCHASE OF CURTAINS AND OTHER FURNISHINGS. FURTHER, TAKING US THROUGH THE CONTENTS OF PARA 15 OF THE IMPUGNED ITA NO. 113/PN/10 A.Y: 1999-00 PAGE 40 OF 42 ORDER, LD COUNSEL MENTIONED THAT THE CIT(A) HAS DISMI SSED THE GROUND WITHOUT GOING INTO THE MERITS OF EXPENDITURE AND MERELY ON TEC HNICAL GROUNDS. FURTHER, HE RELIED ON THE KERALA HIGH COURT JUDGMENT TO STRENGTH EN HIS ARGUMENT THAT EXPENDITURE ON CURTAINS AND FURNISHING IS AN ALLOWABLE REVENUE EXPENDITURE AS SUCH EXPENDITURE DOES NOT YIELD ANY ENDURING BENEFITS . ON THE OTHER HAND, LD DR MERELY RELIED ON THE COMMENTS ON PARA 15 OF THE IMPUGN ED ORDER. 44. WE HAVE HEARD THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE. SO FAR AS THE ORDER OF THE AO IS CONCERNED, IT IS DEFICIENT O F ANY DISCUSSION ON THIS ISSUE. IT APPEARS HE SYMBIOTICALLY ADOPTED THE RECOMMENDATIO N OF THE SPECIAL AUDITORS. ON PERUSAL OF THE PARA 15 OF THE IMPUGNED ORDER, IT IS EVIDENT THERE IS NO WHISPER ABOUT THE NATURE OF EXPENDITURE INVOLVED AND H E MERELY DECIDED STATING THAT THE EXPLANATION OF THE ASSESSEE IS GENERAL AND UNSPECIFIC TO THE ISSUE. BUT THE FACT IS THAT THE ASSESSEE AS SEEN IN PAGE 23 OF THE PAPER BOOK AND PAGES 3 TO 5 OF THE COMPILATION 2, THERE EXISTS SOME SPECIFI C EXPLANATIONS, WHICH WERE ADMITTEDLY FILED BEFORE THE REVENUE AUTHORITIES. FROM T HE VERY CONTENTS OF THESE PAPERS, WE FIND THE EXPENDITURE SPENT ON CURTAINS AND OTHER FURNISHINGS ARE REVENUE NATURE AND FOR THIS, WE TAKES CLUES FORM THE AB OVE SAID HIGH COURT JUDGMENT. AS SUCH, NOTHING IS BROUGHT TO OUR NOTICE B Y THE LD DR THAT IMPUGNED EXPENDITURE IS CAPITAL IN NATURE. CONSIDERING THE SMAL LNESS OF THE EXPENDITURE, EPHEMERAL NATURE OF THE ITEMS I.E THE CURTAINS MADE UP OF THE CLOTH AND THE FURNISHING INVOLVED, WE HAVE NO DOUBT IN OUR MINDS TO COME TO THE CONCLUSION THAT THE RS 38,642/- CANNOT BE CAPITAL IN NATURE. AC CORDINGLY, THE GROUND 6 IS ALLOWED IN FAVOUR OF THE ASSESSEE. 45. GROUND NO. 7: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND WITHOUT PREJUDICE TO THE ABOVE GROUND NO. 1 TO 4, T HE CIT(A) HAS ERRED IN TREATING THE DONATIONS RECEIVED TOWARDS TRUST CORPU S AS REVENUE INCOME. DENIAL OF EXEMPTION U/S. 11 CANNOT CHANGE THE BASIC AND TRUE NATURE OF THE RECEIPT. AT THE VERY OUTSET, LD COUNSEL MENTIONED THAT THE PRE SENT GROUND IS RAISED WITHOUT PREJUDICE TO THE ISSUES RAISED IN GROUND 1 TO 4 OF THE APPEAL I.E THE ISSUE OF VALIDITY OF REOPENING OF THE ASSESSMENT, VALIDITY OF THE IMPUGNED ORDER AND APPLICABILITY OF THE PROVISIONS OF 251(2) OF THE ACT , EFFECTS OF CONTRAVENTION OF THE PROVISIONS OF SECTION 13(1)(D) OF THE ACT ETC. AS SE EN FROM THE ABOVE PARAGRAPHS OF THIS ORDER, WE HAVE SET ASIDE SOME OF THE ISSUES F OR WANT OF RELEVANT BASIC FACTS AND FINDINGS. TAKING US THROUGH THE GROUND, TH E COUNSEL NARRATED THAT THE ITA NO. 113/PN/10 A.Y: 1999-00 PAGE 41 OF 42 ISSUE RAISED IN THE GROUND RELATES TO IF THE SUM OF RS 15,83,100/- SAID TO BE THE DONATION TO CORPUS OF THE TRUST, IS CAUGHT IN THE MI SCHIEF OF THE PROVISIONS OF SECTION 11(1)(D) OF THE ACT OR NOT. IT IS A MATTER OF FACT AND NEITHER THE AO HAS GIVEN THE REASONS OF ANY KIND NOR THE CIT(A) THROW ANY LIGHT ON THIS MATTER. HE SIMPLY COMMENTED THAT THERE IS EXPLANATION TO SHOW T HAT THESE DONATIONS WERE SPECIFICALLY TOWARDS CORPUS OF THE TRUST. BUT IT IS A FACT THAT THE ASSESSEE FURNISHED THE COPIES OF THE RECEIPTS ISSUED BY THE DONORS TO DEMONSTRATE HIS CASE. THESE EVIDENCES CANNOT BE BRUSHED ASIDE WITHOU T DISPROVING THE CREDIBILITY OF THESE EVIDENCES. IDEALLY, CONCERN DONORS WOULD HAV E ALREADY BEEN EXAMINED. IN ANY CASE, IT IS UNFAIR TO EXAMINE THEM AFTER LAPSE OF 12 YEARS NOW AS THE DONATIONS PERTAINS TO THE YEAR ENDING MARCH 1999. IN OUR OPINION, WITHOUT STRAIGHT AWAY ALLOWING THE GROUND, IN VIEW OF THE REQU IREMENT OF THE FAIRNESS IN ADMINISTRATION OF THE JUSTICE, CIT(A) IS DIRECTED TO PASS A SPEAKING ORDER GIVING HIS FINDING ON MERITS TOO AFTER ACCORDING THE OPPORTUNI TY OF BEING HEARD TO THE ASSESSEE. WE ALSO FIND THERE IS SOME DISCREPANCY NOTE D BY THE REVENUE IN MAKING FURNISHING THE DETAILS IN THE RETURN RELATING TO THE DETAILS OF THE CORPUS DONATIONS AS DISCUSSED IN PRECEDING PARAGRAPHS OF THI S ORDER WHILE DEALING WITH THE OTHER GROUNDS. 46. CONSIDERING THE FACT, THIS GROUND IS RAISED WITHOU T PREJUDICE TO THE ONES, WHICH HAVE BEEN SET ASIDE FOR THE REASONS GIVEN IN TH E ABOVE PARAGRAPHS, IN OUR OPINION, THIS GROUND MUST ALSO BE SET ASIDE TO THE F ILES OF THE CIT(A) FOR FRESH ADJUDICATION AFTER GRANTING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY, THE GROUND IS SET ASIDE. 47. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 18TH MARCH, 20 11. SD/- SD/- (I.C. SUDHIR) (D.KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBE R PUNE DATED THE 18TH MARCH, 2011 R COPY OF THE ORDER IS FORWARDED TO : 1. ASSESSEE 2. ACIT, CENTRAL CIRCLE 2(2), PUNE 3. CIT(A)-II, PUNE 4. CIT(CENTRAL), PUNE 5. D.R. ITAT A BENCH ITA NO. 113/PN/10 A.Y: 1999-00 PAGE 42 OF 42 BY ORDER ASSISTANT REGISTRAR I.T.A.T PUNE