M/s.CAre Foundation for Children and Aging , Secunderabad V. DDIT(E)-III, Hyderabad

ITA 1284/HYD/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6349 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 10 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-08-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 07-06-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 23-09-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Gift; Charitable institution; Question of law; Difference of opinion; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 143(3); 147; 148; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SMT P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 1284/HYD/2013 ASSESSMENT YEAR: 2007-08 M/S CARE FOUNDATION FOR CHILDREN AND AGING, SECUNDERABAD. PAN AAATC 2795 Q VS. DY. DIRECTOR OF INCOME-TAX, (EXEMPTIONS) III, HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI A. SRINIVAS REVENUE BY : SHRI K.J. RAO DATE OF HEARING 21-07-2016 DATE OF PRONOUNCEMENT 05-08-2016 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST T HE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX(A) - IV, HYD ERABAD FOR AY 2007-08. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE SOCIETY FILED ITS RETURN OF INCOME ON 30/08/2007 DECLARING NIL INCOME AND CLAIMED EXEMPTION U/S 11 OF THE IT ACT. ASSESSMENT U/S 143( 3) WAS COMPLETED ON 09/11/2009 ACCEPTING THE INCOME RETURNED BY THE ASSESSEE. SUBSEQUENTLY, NOTICE U/S 148 WAS ISSUED ON 27/03/20 12. THE TOTAL INCOME WAS ASSESSED AT RS. 65,79,209/- HOLDING THAT THE ASSESSEE HAD FAILED TO APPLY PART OF ITS INCOME TO CHARITABL E PURPOSES. 2 ITA NO. 1284/H/13 M/S CARE FOUNDATION FOR CHILDREN AND AGING, SECBAD . 2.1 THE ASSESSEE HAD RECEIVED A SUM OF RS. 11,18,20 ,098 AS FOREIGN DONATIONS FROM CHRISTIAN FOUNDATION FOR CHI LDREN AND AGEING (CFCA-USA). AS PER THE FC-3 FORM SUBMITTED TO THE M INISTRY OF HOME AFFAIRS, THIS DONATION WAS RECEIVED FOR GRANT OF ST IPEND/ SCHOLARSHIP/ASSISTANCE IN CASH AND KIND TO POOR/DE SERVING CHILDREN. OUT OF THIS, THE RECEIPT AND EXPENDITURE UNDER TWO HEADS WERE THE SUBJECT MATTER OF THE ASSESSMENT: HEAD RECEIPT EXPENDITURE CHRISTMAS GIFTS RS. 57,80,930 RS. 53,96,906 SPECIAL GIFTS RS. 11,85,796 RS. 11,64,127 2.2 THE ASSESSEE SUBMITTED THAT CFCA-USA HAD SENT F ESTIVAL GIFTS MONEY ON THE OCCASION OF CHRISTMAS WHICH WAS A MAJO R FESTIVAL IN THE USA AND THAT THE CFCA-USA DISTRIBUTED GIFTS WITHIN AND OUTSIDE USA ON THE OCCASION DUE TO WHICH THE MONEY HAD BEEN TIT LED AS CHRISTMAS GIFTS BUT THERE WAS NO RELIGIOUS SIGNIFICANT TO THE SE GIFTS AND THE GIFTS HAD BEEN DISTRIBUTED TO ALL BENEFICIARIES IRRESPECT IVE OF CASTE, CREED AND RELIGION AS A PART OF DISCHARGING ITS NOBLE CHA RITABLE PURPOSE AND IN ACCORDANCE WITH THE DONOR AGENCIES WISH. THE ASS ESSEE FURTHER SUBMITTED THAT THE GRANTS HAD BEEN SPENT ON PURCHAS E OF BLANKETS AND PLASTIC MOULDED CELLO TABLES ON THE BASIS OF DISCUS SIONS WITH THE SMG GROUPS AND CHILDREN CAMPS. THE APPELLANT SUBMIT TED THAT THE INTENTION WAS THAT THE GIFT SHOULD BE USEFUL NOT ON LY FOR THE CHILDREN BUT ALSO FOR THEIR FAMILIES. THE ASSESSEE SUBMITTED THAT ALL THE SPONSORED CHILDREN PARTICIPATED WITH GREAT ENTHUSIA SM IN THE CELEBRATIONS WHERE THE GIFTS WERE GIVEN AND THAT TH E ASSESSEE CONDUCTED SUCH CELEBRATIONS FOR CHRISTMAS, SANKRANT HI AND OTHER FESTIVALS IN A SECULAR SPIRIT. THE ASSESSEE ALSO SU BMITTED THAT OUT OF RS. 11,85,796, A SUM OF RS. 11,64,127 HAD BEEN TRAN SFERRED TO THE BANK ACCOUNTS OF THE CHILDREN AS SPECIAL GIFTS. THE ASSESSEE SUBMITTED THAT THE EXPENSES HAD BEEN INCURRED FOR A FULLY CHARITABLE PURPOSE. 3 ITA NO. 1284/H/13 M/S CARE FOUNDATION FOR CHILDREN AND AGING, SECBAD . 2.3 THE ASSESSING OFFICER RELYING ON FEW CASE LAWS HELD THAT PAYMENT OF CHRISTMAS GIFTS AND SPECIAL GIFTS WAS NOT FOR TH E OBJECTS OF THE SOCIETY AND THAT SUCH GIFTS WERE ALSO NOT IN ACCORD ANCE WITH THE PURPOSE STATED IN THE FC-3 FORM. 3. ON APPEAL, THE CIT(A) AFTER CONSIDERING THE SUBM ISSIONS OF THE ASSESSEE OBSERVED THAT GIVING OF GIFTS ON THE OCCAS ION OF CHRISTMAS IS A WIDESPREAD PRACTICE IN THE WEST. THE CFCA FINANCI AL POLICIES MANUAL SPECIFYING USE OF DESIGNATED FUNDS FOR CHRIS TMAS GIFTS IS IN LINE WITH SUCH PRACTICE. IT IS RELEVANT IN THIS REG ARD TO NOTE THAT THE DONOR AGENCY ITSELF IS BASICALLY A CHRISTIAN ORGANI ZATION. HOWEVER, THE FACT THAT THE FUNDS HAVE BEEN UTILIZED IN ACCORDANC E WITH THE WISH OF THE DONOR AGENCY IS OF NO CONSEQUENCE. NEITHER IS T HE FACT THAT THE RECIPIENTS WERE DELIGHTED WITH OR THAT THEY BELONGE D TO ALL RELIGIONS OF ANY CONSEQUENCE. WHAT IS OF RELEVANCE FOR THE PURPO SE OF SEC.11 IS THAT THE FUNDS SHOULD BE UTILIZED IN ACCORDANCE WIT H THE AIM AND OBJECTS OF THE APPELLANT ITSELF. THE CIT(A) HELD TH AT IN ASSESSEES CASE THE FUNDS HAVE BEEN UTILIZED FOR GIVING OF GIF TS ON THE OCCASION OF A RELIGIOUS FESTIVAL AND THIS IS NEITHER A CHARITAB LE PURPOSE NOR, CERTAINLY, IN ACCORDANCE WITH THE AIMS AND OBJECTS OF THE APPELLANT. HE, THEREFORE, UPHELD THE DECISION OF THE ASSESSING OFFICER IN REJECTING SUCH UTILIZATION AS AMOUNTING TO APPLICAT ION FOR CHARITABLE PURPOSE. 3.1 HOWEVER, THE CIT(A) OBSERVED THAT THE ABOVE ARG UMENTS DO NOT APPLY TO THE EXPENDITURE OF RS. 11,64,127/- INCURRE D ON AMOUNTS TRANSFERRED TO THE BANK ACCOUNTS OF CHILDREN AS SPE CIAL GIFTS AS SUCH EXPENDITURE COULD WELL FALL WITHIN THE FOLLOWING AI MS AND OBJECTS OF THE ASSESSEE: 1. TO SERVE THE POOR PARTICULARLY THE CHILDREN AND THE AGING THROUGH SPONSORSHIP AND BUILDING RELATIONSHIP OF M UTUAL RESPECT AND SUPPORT. 2. TO ENSURE THAT A MAXIMUM AMOUNT OF SPONSORSHIP FUNDS ARE USED FOR THE BENEFIT OF SPONSORED CHILDREN AND AGI NG. 4 ITA NO. 1284/H/13 M/S CARE FOUNDATION FOR CHILDREN AND AGING, SECBAD . 3.2 THE CIT(A) THEREFORE UPHELD THE EXPENDITURE OF RS. 53,96,906/- ON THE GROUND THAT THE SAME IS NOT APPLIED FOR CHAR ITABLE PURPOSES WHILE THE EXPENDITURE OF RS. 11,64,127/- IS HELD TO HAVE BEEN APPLIED FOR CHARITABLE PURPOSES IN ACCORDANCE WITH SECTION 11 AND THE AIMS AND OBJECTS OF THE ASSESSEE. 4. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESS EE IS IN APPEAL BEFORE US BY RAISING THE FOLLOWING GROUNDS OF APPEA L: 1. THE ORDER OF THE DEPUTY DIRECTOR OF INCOME TAX, (EXEMPTION), HYDERABAD, BEING THE AO IS CONTRARY TO LAW, FACTS A ND CIRCUMSTANCES OF THE CASE. 2. THE AO ERRED IN ISSUING A NOTICE U/S.148, WHEN N O NEW FACTS HAVE COME TO LIGHT, SO AS TO HAVE REASON TO BELIEVE THAT THERE WAS ESCAPEMENT OF INCOME WHEN THE ORIGINAL ASSESSME NT WAS COMPLETED U/S.143(3). 3. THE ISSUE OF THE NOTICE U/S.148 IS BAD IN LAW. 4. THE AO ERRED IN BRINGING AN AMOUNT OF RS.53,96,9 06/- TO TAX DENYING THE BENEFIT OF APPLICATION OF INCOME U/S. 1 1. 5. THE AO ERRED IN GIVING A FINDING THAT THE AMOUNT OF RS.53,96,906/- IS NOT APPLIED FOR THE AIMS AND OBJE CTS OF THE APPELLANT. 6. THE APPELLANT COMMISSIONER ERRED IN CONFIRMING I N ADDITION OF RS.53,96,906/- AND GIVING A FINDING THAT THE APPLIC ATION OF INCOME WAS NOT FOR CHARITABLE PURPOSE. 5. LD. AR OF THE ASSESSEE SUBMITTED THAT THE ASSESS MENT WAS COMPLETED U/S 143(3) ON 09/11/2009 AND SUBSEQUENTL Y, AO HAS CHANGED HIS OPINION ON COMPLETED ASSESSMENT AND ISS UED NOTICE U/S 148 ON THE CHRISTMAS GIFT. HE SUBMITTED THAT ALL TH E RELEVANT INFORMATION WAS AVAILABLE AT THE TIME OF ASSESSMENT . 5.1 THE LD. AR OF THE ASSESSEE INVITED OUR ATTENTIO N TO THE AFFIDAVIT FILED BY THE ASSESSEE WHEREIN THE ASSESSEE HAS STAT ED THAT WHILE PREFERRING THE APPEAL BEFORE THE CIT(A), INADVERTEN TLY UNDER MISTAKEN IMPRESSION OF LAW, DID NOT DIRECTLY CHALLENGE THE R EOPENING OF ASSESSMENT MADE U/S 147 OF THE ACT. HOWEVER, THE A SSESSEE HAS RAISED A GROUND WITH RESPECT TO THE REOPENING OF TH E ASSESSMENT U/S 5 ITA NO. 1284/H/13 M/S CARE FOUNDATION FOR CHILDREN AND AGING, SECBAD . 147 OF THE ACT FOR THE FIRST TIME DIRECTLY BEFORE T HE ITAT. THE LD. AR SUBMITTED THAT RAISING A QUESTION OF LAW BEFORE THE ITAT FOR THE FIRST TIME IS PERMISSIBLE, FOR WHICH SEVERAL JUDGMENTS SU PPORT THE SAID PREMISE. LD. AR RELIED ON THE FOLLOWING CASES IN SU PPORT OF ASSESSEES CASE: 1. USHA INTERNATIONAL LTD., 348 ITR 485 (DELHI FUL L BENCH) 2. KELVINATOR INDIA LTD. (DELHI), 256 ITR 1 3. DO- (SC), 320 ITR 1 5.2 ON MERITS, LD. AR SUBMITTED THAT THE ASSESSEE H AS UTILIZED THE FUNDS RECEIVED FROM CFCA-USA ON THE OCCASION OF CHR ISTMAS. THE SAME WAS UTILIZED AS PER THE DIRECTIONS OF THE DONO R. FURTHER, HE SUBMITTED THAT NO DOUBT, THE GIFTS WERE RECORDED AS CHRISTMAS GIFT, BUT, IN REALITY, ASSESSEE HAS BOUGHT THE BLANKETS A ND PLASTIC MOULDED CELLO TABLES ON THE RECOMMENDATION OF THE SMG GROUP S AND DISTRIBUTED TO ALL THE CHILDREN IRRESPECTIVE OF THE CASTE/CREED. 6. LD. DR, ON THE OTHER HAND, SUBMITTED THAT THE AS SESSMENT WAS REOPENED WITHIN FOUR YEARS AND THERE IS NO CHANGE O F OPINION. HE RELIED ON THE ORDERS OF AO AND CIT(A). 7. CONSIDERED THE SUBMISSIONS OF THE PARTIES AND PE RUSED THE MATERIAL FACTS ON RECORD AS WELL AS THE ORDERS OF R EVENUE AUTHORITIES. PLACING RELIANCE ON THE HONBLE SUPREME COURTS DEC ISION IN THE CASE OF NTPC VS. CIT 229 ITR 383-387, WE ADMIT THE GROUN D PERTAINING TO REOPENING OF ASSESSMENT U/S 147 RAISED BY THE ASSES SEE FOR THE FIRST TIME BEFORE US ON THE GROUND THAT THE ISSUE WHICH I S PURELY LEGAL AND WHICH GOES TO THE ROOT OF THE MATTER AND NO NEW FAC TS ARE REQUIRED TO BE INVOKED, THEN, THE SAME SHOULD BE ADMITTED FOR A DJUDICATION BEING LEGAL OBJECTION OF THE ASSESSEE. 7.1 IT IS A SETTLED POSITION OF LAW THAT THE ASSESS MENT CAN BE REOPENED UNDER SECTION 147/148 ON THE BASIS OF REA SON TO BELIEVE AND NOT REASON TO SUSPECT. AS HELD BY THE COORDIN ATE BENCH OF THIS TRIBUNAL IN THE CASE OF DEPUTY DIRECTOR OF INCOME T AX (INTERNATIONAL 6 ITA NO. 1284/H/13 M/S CARE FOUNDATION FOR CHILDREN AND AGING, SECBAD . TAXATION)-21, MUMBAI VS.- SOCIETE INTERNATIONAL DE TELECOMMUNICATION 2012 (11) TMI 948 - ITAT MUMBAI , UNLESS THE REASONS TO BELIEVE ABOUT THE ESCAPEMENT OF INCOME EXIST, NO RECOURSE CAN BE TAKEN TO THE PROVISIONS OF SECTION 147. IT WAS HELD THAT WHERE AN ASSESSING OFFICER VENTURES TO INITIATE REASSESSMENT PROCEEDINGS WITH AN OBJECT OF FINDING SOME MATERIAL ABOUT THE ESCAPE MENT OF INCOME, SUCH REASSESSMENT CANNOT LEGALLY STAND AND THE LAW DOES NOT PERMIT THE ASSESSING OFFICER TO CONDUCT INQUIRIES AFTER TH E INITIATION OF REASSESSMENT PROCEEDINGS, TO FIND IF THERE IS AN ES CAPEMENT OF INCOME. IT WAS HELD THAT THE SCOPE OF SECTION 147 C ANNOT ENCOMPASS SUCH AN ACTION UNDER WHICH CERTAIN EXAMINATION IS T O BE CONDUCTED FOR FORMING A REASON TO BELIEVE AS TO THE ESCAPEMENT OF INCOME. IF THE FACTS OF THE PRESENT CASE INCLUDING ESPECIALLY THE REASONS RECORDED BY THE ASSESSING OFFICER FOR REOPENING THE ASSESSMENT ARE CONSIDERED IN THE LIGHT OF THE DECISION OF THE COORDINATE BENCH O F THIS TRIBUNAL IN THE CASE OF DEPUTY DIRECTOR OF INCOME TAX (INTERNAT IONAL TAXATION)-21, MUMBAI VS.- SOCIETE INTERNATIONAL DE TELECOMMUNICA TION, WE ARE OF THE VIEW THAT THE INITIATION OF REASSESSMENT PROCEE DING ITSELF WAS BAD IN LAW AND THE ASSESSMENT COMPLETED BY THE ASSESSIN G OFFICER UNDER SECTION 143(3) READ WITH SECTION 147 IN PURSUANCE O F SUCH INVALID INITIATION IS LIABLE TO BE CANCELLED. 7.2 IN THE CASE OF USHA INTERNATIONAL LTD., THE HON BLE DELHI HIGH COURT HAS HELD AS UNDER: THE ASSESSMENT PROCEEDINGS CANNOT BE VALIDLY REOPE NED UNDER SECTION 147 OF THE ACT EVEN WITHIN FOUR YEARS, IF AN ASSESS EE HAS FURNISHED FULL AND TRUE PARTICULARS AT THE TIME OF ORIGINAL ASSESSMENT WITH REFERENCE TO THE INCOME ALLEGED TO HAVE ESCAPED ASSESSMENT, IF THE O RIGINAL ASSESSMENT WAS MADE U/S 143(3). SO LONG AS THE ASSESSEE HAS FU RNISHED FULL AND TRUE PARTICULARS AT THE TIME OF ORIGINAL ASSESSMENT AND SO LONG AS THE ASSESSMENT ORDER IS FRAMED UNDER SECTION 143(3) OF THE ACT, IT MATTERS LITTLE THAT THE ASSESSING OFFICER DID NOT ASK ANY Q UESTION OR QUERY WITH RESPECT TO ONE ENTRY OR NOTE BUT HAD RAISED QUERIES AND QUESTIONS ON OTHER ASPECTS. SECTION 114(E) OF THE EVIDENCE ACT CAN BE APPLIED TO AN ASSESSMENT ORDER FRAMED UNDER SECTION 143(3) OF THE ACT, PROVIDED THAT THERE HAS BEEN A FULL AND TRUE DISCLOSURE OF ALL MA TERIAL AND PRIMARY FACTS AT THE TIME OF ORIGINAL ASSESSMENT. IN SUCH A CASE IF THE ASSESSMENT IS 7 ITA NO. 1284/H/13 M/S CARE FOUNDATION FOR CHILDREN AND AGING, SECBAD . REOPENED IN RESPECT OF MATTER COVERED BY THE DISCLO SURE, IT WOULD AMOUNT TO CHANGE OF OPINION. 7.3 RESPECTFULLY FOLLOWING THE RATIOS LAID DOWN BY THE SAID COURTS, WE ARE OF THE OPINION THAT THE AO HAS NOT BROUGHT A NY NEW MATERIAL ON RECORD SO AS TO HAVE REASON TO BELIEVE THAT THER E WAS ESCAPEMENT OF INCOME WHEN THE ORIGINAL ASSESSMENT WAS COMPLETE D U/S 143(3). WE OBSERVE THAT THE FINANCIAL STATEMENT SUBMITTED B Y ASSESSEE IS PLACED ON RECORD, WHICH DISCLOSES THE RECEIPT OF GI FT AS WELL AS UTILIZATION CLEARLY AND APPARENTLY ON RECORD. THE A O HAS COMPLETED THE 143(3) ASSESSMENT. IT CLEARLY DEMONSTRATES THAT AO INTENDS TO REASSESS THE INCOME. THEREFORE, THE REOPENING OF AS SESSMENT MADE BY THE AO WOULD AMOUNT TO CHANGE OF OPINION, WHICH CANNOT WITHSTAND IN THE EYE OF LAW. HENCE, WE QUASH THE REASSESSMENT MADE BY THE AO U/S 147 OF THE ACT. SINCE WE HAVE QUASHED THE REASS ESSMENT U/S 147 OF THE ACT, THERE IS NO NEED TO GO INTO THE MERITS OF THE CASE. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . PRONOUNCED IN THE OPEN COURT ON 5 TH AUGUST, 2016 SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RAHM AN) JUDICIAL MEMBER A CCOUNTANT MEMBER HYDERABAD, DATED: 5 TH AUGUST, 2016 KV COPY TO:- 1) M/S CARE FOUNDATION FOR CHILDREN AND AGING, 12- 13-1231, CFCA HOUSE, STREET NO. 9, TARNAKA, SECUNDERABA D. 2) DDIT (EXEMPTIONS) - III, AAYAKAR BHAVAN, HYD. 3) CIT(A) - IV, HYDERABAD 4 DIT(EXEMPTIONS) , HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 8 ITA NO. 1284/H/13 M/S CARE FOUNDATION FOR CHILDREN AND AGING, SECBAD . S.NO. DESCRIPTION DATE INTLS DS1. DRAFT DICTATED ON SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR SR.P.S/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER