The Tibetan Children's Village, Kangra V. ITO, Dharamashala

ITA 252/CHANDI/2015

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 2570 (ITAT-CHANDIGARH)
• Duration Of Justice: 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 01-10-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 10-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ADITYA KUMAR
• Keywords: Reopening of assessment; Charitable institution; Principle of natural justice; Difference of opinion; Benefit of exemption; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 143(3); 147; 148; 263; 12; 11

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. ANNAPURNA MEHROTRA, ACCOUNTANT MEMBER ITA NOS.252 & 253/CHD/2015 ASSESSMENT YEARS:2004-05 TO 2005-06 THE TIBETAN CHILDRENS VILLAGE, VS. THE ITO DHARAMSHALA CANTT DHARAMSHALA DISTT. KANGRA PAN NO. AAATT3933B (APPELLANT) (RESPONDENT) APPELLANT BY : SH. ADITYA KUMAR RESPONDENT BY : SH. MANOJ MISHRA DATE OF HEARING : 20/01/2016 DATE OF PRONOUNCEMENT : 20/01/2016 ORDER PER ANNAPURNA MEHROTRA A.M. BOTH THESE APPEALS HAVE BEEN FILED BY THE ASSESSEE AGAINST THE COMMON ORDER OF LD. CIT(A), SHIMLA DATED 29.01.2015. SINCE THE ISSUES INVOLVED IN BOTH THE APPEALS ARE COMMON, THE SAME WERE HEARD TOGETHER AN D FOR THE SAKE OF CONVENIENCE WE SHALL BE DEALING WITH APPEAL FILED I N ITA NO. 252/CHD/2015 FOR ASSESSMENT YEAR 2004-05. THE ASSESSEE HAS RAISED T HE FOLLOWING GROUNDS OF APPEAL. (1) THAT ORDER PASSED U/S 250(6) OF THE INCOME TAX ACT , 1961 BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS), SHIMLA IS AGA INST LAW AND FACTS ON THE FILE IN AS MUCH SHE WAS NOT JUSTIFIED TO UPHOLD THE ACTI ON OF THE LD. ASSESSING OFFICER IN TREATING A SUM OF RS. 5,55,50,896/- RECEIVED AS SPE CIFIC PURPOSE DONATIONS FROM VARIOUS INSTITUTIONS AS TAXABLE U/S 12(1) OF THE IN COME TAX ACT. 1961. (2) THAT SHE WAS FURTHER NOT JUSTIFIED TO ARBITRARILY E NHANCE THE ASSESSED INCOME FURTHER BY RS. 4,41,58,892/- HOLDING THAT TH E APPELLANT HAS NOT FILED FORM 10 WHERE AS THERE WAS NO NEED FOR THE APPELLANT FOR FILING THE FORM 10 AS PER THE PROVISIONS OF INCOME TAX ACT, 1961. (3) THAT THE LD. CIT(A) GRAVELY ERRED IN HOLDING THAT P ROCEEDINGS U/S 148 HAVE BEEN DECIDED AGAINST THE APPELLANT BY THE HON'BLE H IMACHAL PRADESH HIGH 2 COURT DATED 23.03.2012 WHEREAS THE COURT HAD HELD T HAT THE APPELLANT SHOULD USE THE ALTERNATE REMEDY TO CHALLENGE THE SAME IN A PPEAL AND HAD NOT DECIDED AGAINST THE APPELLANT ON MERITS. (4) THAT THE LD. CIT(A) GRAVELY ERRED IN NOT ADJUDICATI NG ON THE DETAILED WRITTEN AND VERBAL SUBMISSIONS MADE DURING THE COUR SE OF HEARING VIDE WHICH IT WAS SUBMITTED THAT SHOULD THE AMOUNTS APPEARING UND ER THE HEAD 'FUNDS PENDING UTILIZATION' BE TREATED IN INCOME AND EXPEN DITURE, THE TOTAL SPEND OF THE APPELLANT WOULD EXCEED 85% AS PRESCRIBED UNDER THE ACT. (5) THAT PRINCIPLES OF NATURAL JUSTICE WERE GROSSLY VIO LATED IN AS MUCH AS NEITHER ANY REASONABLE OPPORTUNITY BEFORE ENHANCING THE INC OME WAS GIVEN NOR THE DETAILED SUBMISSIONS / REQUESTS MADE WERE CONSIDERE D WHILE ADJUDICATING THE APPEAL. (6) THAT THE LD. CIT(A) GRAVELY ERRED IN AS MUCH AS NOT TO CONSIDER THE ORDER OF HER PREDECESSOR WHEREIN A SPEAKING ORDER WAS PASSED ALLOWING THE APPELLANT RELIEF. THE LD. CIT(A) HAS GIVEN NO JUSTIFICATION F OR NOT FOLLOWING THE PRINCIPLES OF CONSISTENCY AS RELIED UPON BY THE APPELLANT BY PLAC ING RELIANCE ON THE JUDGMENT RADHASOAMI SATSANG V/S CIT (SC).THAT ORDER PASSED U /S 250(6) OF THE INCOME TAX ACT, 1961 BY THE LD. COMMISSIONER OF INCOME TAX (AP PEALS), SHIMLA IS AGAINST LAW AND FACTS ON THE FILE IN AS MUCH SHE WAS NOT JUSTIF IED TO UPHOLD THE ACTION OF THE LD. ASSESSING OFFICER IN TREATING A SUM OF RS. 5,55 ,50,896/- RECEIVED AS SPECIFIC PURPOSE DONATIONS FROM VARIOUS INSTITUTIONS AS TAXA BLE U/S 12(1) OF THE INCOME TAX ACT. 1961. 2. BRIEF FACTS RELATING TO THE CASE ARE THAT THE AS SESSEE IS A CHARITABLE INSTITUTE ESTABLISHED FOR THE PURPOSE OF CARRYING OUT VARIOUS ACTIVITIES SUCH AS PROVIDING EDUCATION, VOCATIONAL TRAINING ETC. AT DIFFERENT PL ACES. FOR THE IMPUGNED A/Y RETURN DECLARING NIL INCOME WAS FILED BY ASSESSEE ON 1.11.2004 AFTER CLAIMING EXEMPTION U/S 11 OF IT ACT. 1961. THE RETURN WAS PR OCESSED U/S 143 (1) VIDE INTIMATION DATED 17/12/2004 AND THEREAFTER THE CASE WAS SELECTED FOR SCRUTINY AND ASSESSMENT FRAMED ON THE ASSESSEE U/S 143(3) AT THE INCOME RETURNED BY THE ASSESSEE VIDE ORDER DATED 14/09/2006. SUBSEQUEN TLY NOTICE U/S 148 WAS ISSUED TO THE ASSESSEE ON 29.10.2010 AND THE ASSESS EES CASE WAS REOPENED FOR THE REASON THAT IT WAS FOUND THAT THE ASSESSEE HAS EARMARKED FUNDS AMOUNTING TO RS.20,66,74,263/- UNDER THE HEAD FUND PENDING U TILIZATION AND HAD NOT INCLUDED IT IN ITS INCOME AND EXPENDITURE STATEMENT . THE SAME WERE CONSIDERED AS VOLUNTARY CONTRIBUTIONS RECEIVED BY ASSESSEE AND IT WAS OBSERVED BY THE A.O. THAT HAD THE SAME BEEN ROUTED THROUGH THE INCOME AN D EXPENDITURE A/C THE ASSESSEES APPLICATION OF INCOME WOULD HAVE FALLEN SHORT OF THE STATUTORILY REQUIRED 85% AND HENCE INCOME HAD ESCAPED ASSESSMEN T WITHIN THE MEANING OF SECTION 147 OF THE ACT. DURING THE COURSE OF ASS ESSMENT PROCEEDINGS THE 3 ASSESSEE CONTENDED THAT THE EARMARKED FUNDS HAD BEE N RECEIVED FOR A SPECIFIC PURPOSE AND WERE THEREFORE CORPUS DONATIONS, NOT TO BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE AS PER SECTION 12 OF THE INC OME TAX ACT, 1961. ALTERNATIVELY, THE ASSESSEE CONTENDED THAT EVEN IF THESE AMOUNTS ARE TAKEN AS VOLUNTARY DONATIONS AND INCLUDED IN THE INCOME OF T HE ASSESSEE, THE AMOUNT UTILIZED DURING THE YEAR EXCEEDED 85% OF THE TOTAL INCOME AND THE ASSESSEE WAS THEREFORE ELIGIBLE TO CLAIM EXEMPTION OF ITS ENTIRE INCOME U/S 11 OF THE ACT. THE A.O. BRUSHED ASIDE THE ASSESSEES CONTENTION AND HE LD THAT THE IMPUGNED DONATIONS COULD NOT BE TREATED AS CORPUS DONATIONS SINCE IN THE RETURN OF FCRA THE DONATIONS RECEIVED HAD NOT BEEN REFLECTED IN CO LUMN 55 WHICH REQUIRED DISCLOSURE OF DONATIONS RECEIVED WITH SPECIFIC DIRE CTION THAT THEY SHALL FORM PART OF THE CORPUS. THE A.O. HELD THAT THE DOCUMENTARY E VIDENCES FILED BY THE ASSESSEE TO PROVE THAT THE DONATIONS WERE CORPUS DO NATIONS WERE INFACT NOT AVAILABLE WHEN THE FCRA STATEMENT WAS FILED AND HEN CE THE A.O. HELD THAT THERE WAS NO DOCUMENTARY EVIDENCE TO SUBSTANTIATE T HE ASSESSEES CLAIM. FURTHER THE A.O. HELD THAT THE APPLICATION OF FUNDS MADE DURING THE YEAR WOULD HAVE TO BE FIRST CONSIDERED FROM THE OPENING BALANC E IN THE FUND PENDING UTILIZATION A/C WHICH SHOWED SUBSTANTIAL OPENING B ALANCES AND ONLY THE BALANCE REMAINING UNUTILIZED WAS TO BE ADJUSTED AGA INST THE DONATION RECEIVED DURING THE CURRENT YEAR. THIS ADJUSTMENT RESULTED I N APPLICATION OF INCOME LESS THAN 85% IN THE CASE OF THE ASSESSEE FOR THE IMPUGN ED AY TO THE EXTENT OF RS. 5,55,05,896/- WHICH WAS ADDED BACK TO THE INCOME OF THE ASSESSEE. 3. AGGRIEVED BY THE SAME, THE ASSESSEE FILED AN APP EAL BEFORE THE LD CIT(A) AGITATING AGAINST THE REOPENING OF THE CASE U/S 147 AS WELL AS AGAINST THE ADDITIONS MADE TO THE INCOME OF THE ASSESSEE. BEFOR E THE LD. CIT (A) THE ASSESSEE CONTENDED THAT THE ASPECT OF TREATMENT OF THE IMPUGNED DONATIONS AS CORPUS HAD ALREADY BEEN RAISED DURING ASSESSMENT PROCEEDINGS AND AFTER CONSIDERING THE ASSESSEES SUBMISSIONS AND EVIDENCE S NO ADDITION ON THAT ACCOUNT HAD BEEN MADE. THE ASSESSEE THEREFORE CONTE NDED THAT REOPENING ON 4 THE SAME ASPECT MERELY AMOUNTED TO CHANGE OF OPINIO N, WHICH COULD NOT BEEN RESORTED TO DURING REASSESSMENT PROCEEDINGS. O N MERITS THE ASSESSEE REITERATED ITS CONTENTIONS MADE BEFORE THE AO THAT THE IMPUGNED DONATIONS WERE CORPUS DONATION AND THEREFORE COULD NOT BE ADD ED TO THE INCOME OF THE ASSESSEE, AND EVEN IF THEY WERE TO BE TREATED AS IN COME OF THE ASSESSEE THE UTILIZATION OF INCOME DURING THE IMPUGNED ASSESSMEN T YEAR EXCEEDED 85% AND THEREFORE THE ASSESSEE WAS ELIGIBLE TO CLAIM EXEMPT ION OF ITS ENTIRE INCOME U/S 11 OF THE ACT. LD CIT (A) DISMISSED THE ASSESSEES APP EAL AND HELD THAT IN VIEW OF THE ORDER OF THE HONBLE HIMACHAL PRADESH HIGH COUR T DATED 23.03.2012, IN WRIT FILED BY THE ASSESSEE THE ISSUE OF INITIATION OF PR OCEEDING U/S 148 STOOD DECIDED AGAINST THE ASSESSEE. ON THE ASPECT OF TREATMENT OF DONATIONS RECEIVED AS VOLUNTARY DONATIONS AND THEIR UTILIZATION FOR THE P URPOSE OF THE ACTIVITIES OF THE TRUST, LD. CIT(A) HELD THAT SINCE NO EVIDENCE WAS F ILED BY THE ASSESSEE TO SHOW THAT THE DONATIONS WERE FOR A SPECIFIC PURPOSE, THE SAME WERE TO BE TREATED AS VOLUNTARY DONATIONS. FURTHER THE LD. CIT (A) HELD T HE ASSESSEE HAD FAILED TO SUBSTANTIATE THE UTILIZATION OF THE ABOVE FUNDS TO THE EXTENT OF 85% AND HENCE THE ASSESSEE WAS NOT ENTITLED TO CLAIM EXEMPTION U/ S 11 OF IT ACT. LD. CIT (A) FURTHER HELD THAT THE ASSESSEE WAS ALSO NOT ENTITLE D TO THE BENEFIT OF 15% OF EXEMPTION U/S 11(1) (A) AND THEREFORE ENHANCED THE INCOME OF ASSESSEE TO RS.9, 97,09,788/-. 4. AGGRIEVED BY THE SAME THE ASSESSEE FILED THE PR ESENT APPEAL BEFORE US. 5. IN GROUND NO. 3 RAISED BEFORE US THE ASSESSEE HA S AGITATED AGAINST THE ORDER OF THE LD. CIT (A) DISMISSING THE GROUND RAIS ED BY THE ASSESSEE CHALLENGING THE VALIDITY OF PROCEEDINGS U/S 148 OF THE ACT. 6. BEFORE US LD. AR STATED THAT THE REOPENING IN TH E PRESENT CASE WAS BAD, SINCE IT HAD BEEN RESORTED TO ON AN ISSUE WHICH HAD ALREADY BEEN EXAMINED DURING ASSESSMENT PROCEEDINGS. LD. AR STATED THAT R EOPENING ON THE SAME ISSUE MERELY AMOUNTED TO CHANGE OF OPINION WHICH COULD NO T BE RESORTED TO DURING 5 REASSESSMENT PROCEEDINGS U/S 147 OF THE ACT. TO SUB STANTIATE ITS CONTENTION LD. AR DREW OUR ATTENTION TO THE REASONS RECORDED FOR R EOPENING THE ASSESSMENT WHICH ARE REPRODUCED AS UNDER:- (REASONS FOR REOPENING OF THE CASE OF M/S TIBETAN C HILDREN VILLAGE, DHARAMSHALA CANTT. DHARAMSHALA FOR A.Y. 2004-05) THE ASSESSEE TRUST UNDERTAKES VARIOUS PROJECTS FOR PROVIDING EDUCATION, VOCATIONAL TRAINING AT VARIOUS PLACES. THE ASSESSEE FILED ITS RETURN FOR THE A.Y. 2004- 05 ON 1-11-2004 DECLARING TOTAL INCOME AT NIL AFTER CLAIMING EXEMPTION U/S 1 I OF THE I T ACT. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND WAS COMPLETED ON 14-9-2006 AFTER ACCEPTING THE RETURNED INCOME OF NIL... HOWEVER, PERUSAL OF THE BALANCE SHEET OF THE ASSESSEE FOR THE A Y 2004- 05, IT IS OBSERVED THAT UNDER THE HEAD 'FUND PENDING UTILISATION' THE ASSESSEE HA S SHOWN EAR MARKED FUNDS' AMOUNTING TO RS 20,66,74,263/-. PERUSAL OF T HE INCOME EXPENDITURE STATEMENT REVEALS THAT THE ASSESSEE SOCIETY HAS NOT INCLUDED THIS RECEIPT OF RS 20,66,74,263/ IN ITS INCOME.. THE INCOME AND EXPEND ITURE STATEMENT SHOWS THAT THE TOTAL RECEIPTS RECEIVED BY THE ASSESSEE IS RS 2 1,70,46,459/- AGAINST WHICH EXPENDITURE OF RS 19,69,13,819/- HAS BEEN INCURRED. THUS THE ASSESSEE HA: CLAIMED TO HAVE EXPENDED MORE THAN 85% OF THE RECEIPTS. AS STATED ABOVE, THE FUNDS RECEIVED UNDER THE EARMARKED FUNDS HAVE NOT BEEN IN CLUDED IN THE TOTAL RECEIPTS AND HAS BEEN KEPT OUTSIDE THE INCOME EXPEN DITURE STATEMENT SO AS TO REFLECT THAT THE ASSESSEE HAS DULY COMPLIED WITH TH E REQUIREMENTS OF INCOME TAX ACT, 1961. THE AUDITORS HAD IN ITS AUDIT REPORT STA TED THAT EANNARKED FUNDS AR: RECEIVED SPECIFICALLY TOWARDS A PARTICULAR PURPOSE AND ARE NOT TREATED AS INCOME AND ARE DIRECTLY CREDITED TO THE FUND WITHOUT ROUTI NG THE SAME THROUGH THE INCOME AND EXPENDITURE STATEMENT AS PER THE PROVISIONS OF SECTION 12(1) OF THE ACT, ALL VOLUNTARY CONTRIBUTION:! RECEIVED BY A CHARITABLE OR RELIGIOUS INSTITUTION A RE TO BE CONSIDERED AS INCOME , EXCEPT FOR THE DONATIONS MADE WITH SPECIFIC DIRECTI ONS THAT THEY SHALL FORM THE PAR' OF THE CORPUS OF THE INSTITUTION. RELIANCE IS PLACED ON THE HONBLE SUPREME COURT; DECISION IN THE CASE OF R B SHREERAM RELIGIO US AND CHARITABLE TRUST. ( 233 1TR 53) IN LIGHT OF ABOVE, IT IS CLEAR THAT HAD THE ASSESSEE ROUTED THIS EARMARKED FUND THROUGH ITS INCOME AND EXPENDITURE STATEMENT T HEN THE ASSESSEE WOULD HAVE FALLEN SHORT OF EXPENDING 85% OF THE RECEIPTS. I, THEREFORE HAVE REASON TO BELIEVE THAT THE EANNARKED FUNDS AMOUNTING TO RS 20 ,66,74,263/- WHICH THE ASSESSEE HAS FAILED TO INCLUDE IN ITS INCOME HAS ES CAPED ASSESSMENT WITHIN THE MEANING OF SECTION 147 OI THE ACT AND IT IS FIT CAS E FOR ISSUANCE OF NOTICE U/S 148.THEREFORE IN ORDER TO REASSESS THIS INCOME AND ANY OTHER INCOME WHICH MAY COME TO THE NOTICE OF THE ASSESSING OFFICER DURING THE COURSE OF REASSESSMENT PROCEEDINGS, A NOTICE U/S 148 FOR THE ASSTT YEAR 20 04-05 IS BEING ISSUED. REFERRING TO THE ABOVE, LD. AR STATED THAT THE REOP ENING WAS DONE FOR THE REASON THAT CERTAIN FUNDS DISCLOSED BY THE ASSESSEE IN THE ACCOUNT MARKED AS FUNDS PENDING UTILIZATION BEING VOLUNTARY CONTRIB UTIONS HAD NOT BEEN ROUTED THROUGH THE INCOME AND EXPENDITURE A/C AND HENCE TH E ASSESSEE UTILIZATION OF FUND HAD FALLEN SHORT OF 85 % AS STATUTORILY REQUIR ED AND THUS INCOME HAD ESCAPED ASSESSMENT. LD AR THERE AFTER DRAW OUR ATTE NTION TO THE QUESTIONNAIRE 6 ISSUED DURING THE ORIGINAL ASSESSMENT PROCEEDINGS P LACED AT PB NO 13-14 AND SPECIFICALLY POINTED TO QUERY NO 9 WHICH WAS RELATI NG TO THE ISSUE OF CORPUS DONATIONS AND EARMARKED FUNDS. QUERY NO. 9 IS REPRO DUCED AS UNDER: QUERY NO9 IN RESPECT OF DONATIONS / AMOUNTS CLAIMED TO HAVE BEEN RECEIVED TOWARDS CORPUS, PLEASE SPECIFY THE TOTAL AMOUNT RECEIVED AL ONG WITH EVIDENCE THAT THE DONATIONS / AMOUNTS WERE RECEIVED WITH SPECIFIC DIR ECTIONS THAT SUCH AMOUNTS SHALL FORM PART OF THE CORPUS OF THE INSTITUTION. I N THIS REGARD, PLEASE EXPLAIN WHY THE EARMARKED FUNDS RECEIVED HAVE NOT BEEN INCLUDED IN GROSS INCOME IN THE COMPUTATION OF INCOME FILED ALONG WITH RETURN FOR T HE PURPOSE OF DETERMINING 85% UTILIZATION OF INCOME U/S 11(1)(A). THERE AFTER LD. AR DREW OUR ATTENTION TO THE REPLY FILED BY ASSESSEE TO THEIR QUERY VIDE ITS LETTER DATED 8/9/06. THE REPLY IS REPRODUC ED AS UNDER: THE EARMARKED FUNDS WERE PROVIDED BY THE DONORS WI TH A SPECIFIC INTENT AND A SPECIAL REPORT ALONG WITH AUDIT REPORT IS TO BE PRO VIDED BY THE INSTITUTION TO THESE DONORS REGARDING THE UTILIZATION OF THESE FUNDS AND THE BALANCE UNUTILIZED AMOUNT CAN ONLY BE UTILIZED AS PER SPECIFIC WILL OF THE DO NOR. SINCE THESE FUNDS PROVIDED TO THE INSTITUTION WITH A SPECIFIC INTENT THE SAME CAN NOT BE TREATED AS INCOME OF THE INSTITUTION AND THE EXPENDITURE OUT OF THE 'SAME IS ALSO NOT CLAIMED WHILE COMPUTING THE UTILIZATION AS PER SECTION 11. FURTHE R THE AVAILABLE DONORS LETTER SPECIFYING SUCH SPECIFIC NATURE OF THE' RECEIPT OF THE FUND TOO ARE BROUGHT HEREWITH . LD. AR THEREAFTER DREW OUR ATTENTION TO THE ORDER P ASSED U/S 143 (3) DATED 14.09.2006 WHEREIN NO ADDITION ON ACCOUNT OF TREATM ENT OF CORPUS DONATION AS VOLUNTARY DONATION WAS MADE. THUS THE LD. AR CONTEN DED THAT IT IS CLEAR THAT THE ISSUE OF CORPUS FUNDS/ EARMARKED FUNDS HAD BEEN RAISED DURING ASSESSMENTS PROCEEDINGS IN RESPONSE TO WHICH THE ASSESSEE HAD S UBMITTED THAT THEY WERE SPECIFIC PURPOSE FUNDS AND HENCE COULD NOT BE TREAT ED AS VOLUNTARY CONTRIBUTIONS AND INCLUDED IN THE INCOME OF THE ASS ESSEE. FURTHER ALL AVAILABLE DONOR LETTERS SPECIFYING THE SPECIFIC NATURE OF THE RECEIPT OF THE FUNDS WERE ALSO FILED BEFORE THE A.O. THE A.O THEREAFTER FORMED A B ELIEF THAT THE FUNDS WERE CORPUS FUNDS AND THEREFORE MADE NO ADDITION OF THE SAME WAS MADE TO THE INCOME OF THE ASSESSEE. THUS THE LD AR CONTENDED TH AT THE ISSUE ON WHICH THE ASSESSESS CASE HAD BEEN REOPENED, I.E. CORPUS DONA TIONS, HAD ALREADY BEEN EXAMINED DURING ASSESSMENT PROCEEDINGS AND A VIEW F ORMED BY THE A.O THAT THE SAME WERE CORPUS DONATION. REOPENING OF THE ALR EADY EXAMINED ISSUE MERELY AMOUNTED TO CHANGE OF OPINION WHICH COULD NO T BE RESORTED TO IN 7 PROCEEDINGS U/S 147. LD AR PLACED RELIANCE ON A NUM BER OF JUDICIAL DECISIONS ON THIS ASPECT. FURTHER LD. AR PLEADED THAT THE LD CIT (A) HAD WRONGLY REJECTED THESE ARGUMENTS OF THE ASSESSEE BY STATING THAT THE HONBLE HP HIGH COURT HAD DECIDED THE ISSUE AGAINST THE ASSESSEE. LD AR DREW OUR ATTENTION TO THE ORDER OF THE HONBLE HIMACHAL PRADESH HIGH COURT PLACED AT P APER BOOK PG. NO 30-32, WHICH IS REPRODUCED HEREUNDER: JUSTICE RAJIV SHARMA, JUDGE (ORAL): PETITIONERS HAVE CHALLENGED THE ISSUANCE OF NOTICES DATED 29.10.2010 (IN CWP NOS. 11200 AND 1 1288 OF 2011 - ANNEXURE P-3) AND 4 .3.2011 (IN CWP NO.5117 AND 5118 OF 2011 - ANNEXURE P-6) RESPECTIVELY, ISSUED T O THEM UNDER SECTION 148 OF THE INCOME TAX ACT. MS. VANDANA KUTHIALA, ADVOCATE HAS INFORMED THE COURT AT BAR THAT IN SEQUEL TO THE NOTICES ISSUED VIDE ANNEXURES P-3 AND P-6, THE ASSESSMENT ORDER HAS ALREADY BEEN MADE. CONSEQUENTLY, THE PRES ENT PETITIONS ARE RENDERED INFRUCTUOUS AND THE SAME ARE DISMISSED HAVING BECOM E INFRUCTUOUS, SO ALSO THE PENDING APPLICATION(S), IF ANY. HOWEVER, IT WILL BE OPEN TO THE PRESENT PETITIONERS TO ASSAIL THE ASSESSMENT ORDER IN ACCORDANCE WITH L AW, IF NOT ALREADY CHALLENGED. NO COSTS. THE LD. A.R. STATED THAT IS CLEAR FROM THE ABOVE TH AT PROCEEDINGS INITIATED U/S147 HAD BEEN REJECTED FOR THE REASON THAT THE ASSESSMEN T PROCEEDINGS HAD BEEN FINALIZED AND THE WRIT PETITION THEREFORE HAD BECOM E INFRUCTUOUS. LD AR STATED THAT THE LEGALITY OF PROCEEDINGS U/S 147 HAD NOT BE EN DEALT WITH BY THE HONBLE HIGH COURT AT ALL. THEREFORE TO HOLD THAT THE ISSUE HAD BEEN DECIDED AGAINST THE ASSESSEE WAS INCORRECT ON THE PART OF LD CIT(A). 7. LD DR ON THE OTHER HAND RELIED UPON THE ORDER OF LD CIT(A). 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND ALSO THE DOCUMENTS PLACED BEF ORE US. 9. WE FIND THAT IN THE PRESENT CASE REOPENING HAS B EEN SOUGHT TO BE RESORTED TO ON AN ISSUE WHICH HAD ALREADY BEEN DEAL T WITH & DISCUSSED DURING REGULAR ASSESSMENT PROCEEDINGS. THE COPY OF REASONS RECORDED FOR REOPENING REVEAL THAT PROCEEDINGS U/S 147 WAS RESORTED TO SIN CE THE AO BELIEVED THAT FUNDS AMOUNTING TO RS. 20,66,74,263/- SHOWN IN THE BALANCE SHEET OF THE ASSESSEE AS EAR MARKED FUNDS UNDER THE HEAD FUND PENDING UTILIZATION 8 OUGHT TO HAVE BEEN INCLUDED IN THE INCOME OF THE AS SESSEE AND THERE WAS SHORTFALL IN UTILIZATION OF INCOME TO THE EXTENT OF 85% RESULTING IN TAXABILITY OF INCOME OF THE ASSESSE WHICH HAD ESCAPED ASSESSMENT. WE FURTHER FIND THAT IN REGULAR ASSESSMENT PROCEEDINGS THE ASSESSEE HAD BEE N SPECIFICALLY ASKED WHY EARMARKED FUNDS HAD NOT BEEN INCLUDED IN THE INCOME OF THE ASSESSEE FOR DETERMINING 85% UTILIZATION OF THE SAME. THE ASSESS EE HAD ALSO BEEN SPECIFICALLY ASKED TO STATE THE AMOUNT OF CORPUS DONATIONS RECEI VED ALONGWITH EVIDENCE. ALL THESE QUERIES WERE RAISED IN THE QUESTIONNAIRE ISSUED TO THE ASSESSEE DATED 01.09.2006 REPRODUCED SUPRA. THE ASSESSEE HAD ALSO DULY EXPLAINED THE NATURE OF EARMARKED FUNDS AS BEING GIVEN FOR A SPECIFIC PU RPOSE AND HENCE TREATED AS CORPUS FUNDS BY THE ASSESSEE. EVIDENCES IN THE FORM OF LETTER OF THE DONEES HAD ALSO BEEN SUBMITTED VIDE LETTER DATED 08.09.2006 RE PRODUCED SUPRA. THEREAFTER WE FIND THAT ASSESSMENT ORDER U/S 143(3) WAS PASSED WITHOUT MAKING ANY ADDITION ON ACCOUNT OF CORPUS FUNDS, MEANING THEREB Y THAT AFTER EXAMINING THE ISSUE OF CORPUS / FUNDS, THE AO HAD FORMED AN OPINI ON THAT THEY WERE CORPUS FUNDS AND HENCE WERE NOT TO BE INCLUDED IN THE INCO ME OF THE ASSESSEE. HAVING THUS FORMED AN OPINION ON THE TREATMENT OF EARMARKE D FUNDS SHOWN AS FUNDS PENDING UTILIZATION THE AO COULD NOT HAVE RESORTED TO REOPENING THE CASE OF THE ASSESSEE ON THE SAME ISSUE, SINCE IT AMOUNTS TO CHA NGE OF OPINION WHICH CANNOT BE RESORTED TO IN REASSESSMENT PROCEEDINGS. THE PR OCEEDINGS FOR REOPENING OF ASSESSMENT ON THE GROUND OF INCOME ESCAPING ASSESSM ENT ARE AN EXCEPTION TO THE FINALITY OF PROCEEDINGS ARRIVED AT UNDER SECTIO N 143(3) DURING THE REGULAR ASSESSMENT PROCEEDINGS OF THE ASSESSMENT YEARS. AO HAVING APPLIED HIS MIND TO THE ISSUE OF CORPUS FUNDS AFTER THE ASSESSEE EXPLAI NED THE SAME WITH EVIDENCES IN THE REGULAR ASSESSMENT, IMPUGNED NOTICE U/S 148 ISSUED BY THE AO STATING THAT THE EARMARKED FUNDS SHOWN IN THE FUNDS PENDING UTIL IZATION ARE TO BE TREATED AS INCOME OF THE ASSESSEE ON THE SAME SET OF FACTS AND MATERIAL WHICH WERE IN THE KNOWLEDGE OF THE AO IS INVALID. THE AO CANNOT ISSUE NOTICE U/S 148 MERELY BECAUSE IT FELT THAT A DECISION WHICH HAD BEEN TAKE N EARLIER NEEDED TO BE 9 CORRECTED. THE HONBLE APEX COURT IN THE CASE OF CI T VS. KELVINATOR OF INDIA LTD. (2010) 320 ITR 561 HAS HELD THAT REASSESSMENT PROCE EDINGS CANNOT BE INITIATED ON THE BASIS OF MERE CHANGE OF OPINION. FURTHER WE FIND ON PERUSAL OF THE ORDER OF THE HIGH COURT THAT THE ASSESSES WRIT PETITION H AD BEEN FOUND TO BE INFRUCTUOUS SINCE ASSESSMENT ORDER IN REASSESSMEN T PROCEEDINGS HAD ALREADY BEEN PASSED. THUS, WE FIND THE LD. CIT(A) WAS WRONG IN HOLDING THAT THE HONBLE HIGH COURT HAD DECIDED THE ISSUE OF VALIDITY OF PRO CEEDINGS U/S 147 AGAINST THE ASSESSEE. 10. IN VIEW OF THE ABOVE WE HOLD THAT NOTICE ISSUED U/S 148 WAS INVALID SINCE IT WAS ISSUED FOR REASONS, WHICH AMOUNTED TO MERE CHAN GE OF OPINION AND THE ORDER PASSED U/S 147 IS SET ASIDE FOR THE SAME REAS ON. 11. THIS GROUND OF APPEAL RAISED BY THE ASSESSEE IS THEREFORE ALLOWED. 12. IN GROUND NO 1,2, 4,5 AND 6 THE ASSESSEE HAS AG ITATED AGAINST THE ADDITION MADE BY THE LD. AO AND UPHELD BY THE LD CIT(A) OF T HE SUM RS. 5,55,50,896/- AS VOLUNTARY DONATION AND FURTHER AGAINST THE ENHANCEM ENT OF THE ASSESSED INCOME BY RS. 4,41,58,892/- MADE BY THE LD CIT(A) B Y DISALLOWING THE 15% APPLICATION OF INCOME AS PER SECTION 11(1)(A) OF TH E ACT. 13. BRIEFLY STATED THE AO HELD THAT THE FUNDS AMOUN TING TO RS. 7,92,00,475/- RECEIVED BY THE ASSESSEE AS EARMARKED FUNDS AND S HOWN IN THE BALANCE SHEET AS FUNDS PENDING UTILIZATION WERE NOT CORPU S DONATION BUT WERE INFACT VOLUNTARY DONATIONS AND HENCE INCLUDED THE SAME IN THE INCOME OF THE ASSESSEE. THEREAFTER HE COMPUTED THE SHORTFALL IN A PPLICATION OF 85% OF THE INCOME AT RS. 5,55,50,896/- AND MADE ADDITION THERE TO TO THE INCOME OF THE ASSESSEE. IN APPEAL, THE LD. CIT(A) UPHELD THE ADDI TION MADE BY THE AO AND FURTHER ENHANCED THE SAME BY DISALLOWING BENEFIT OF 15% OF EXEMPTION U/S 11(1)(A) ON THE GROUND THAT THE ASSESSEE HAD NOT BE EN ABLE TO SPEND 85% OF ITS INCOME AND WAS THEREFORE NOT ENTITLED TO BENEFIT OF 15% EXEMPTION U/S 11(1)(A). LD. CIT(A) THEREFORE ENHANCED THE INCOME OF THE ASS ESSEE TO RS. 9,97,09,788/-. 10 14. AGGRIEVED BY THE SAME, THE ASSESSEE FILED THE P RESENT APPEAL BEFORE US. 15. BEFORE US LD AR STATED THAT THE RECEIPTS SHOWN UNDER THE HEAD FUNDS PENDING UTILIZATION AMOUNTING TO RS. 7,92,00,475/- WERE DONATIONS GIVEN FOR A SPECIFIC PURPOSE AND WERE THEREFORE TO BE TREATED A S CORPUS DONATIONS WHICH ARE NOT INCLUDED IN THE TOTAL INCOME OF THE ASSESSE S AS PER SECTION 11 OF THE ACT. LD AR STATED THAT EVIDENCE IN THE FORM OF LETTERS O F DONORS STATING THAT THE DONATIONS HAD BEEN MADE FOR THE SPECIFIC PURPOSE HA D BEEN FILED BEFORE THE AO DURING ASSESSMENT PROCEEDINGS. LD AR STATED THAT NO INFIRMITY HAD BEEN FOUND IN THE SAME YET THEY WERE REJECTED BY THE AO FOR THE REASON THAT CORPUS DONATIONS HAD NOT BEEN DISCLOSED IN THE FCRA FORM A T POINT NO. 55 WHERE THEY WERE SPECIFICALLY REQUIRED TO BE DISCLOSED. LD AR S TATED THAT THE DOCUMENTARY EVIDENCE PRODUCED BY THE ASSESSEE TO PROVE THAT THE DONATION AS CORPUS COULDNT BE BRUSHED ASIDE FOR THIS REASON. FURTHER LD AR STATED THAT EVEN IF THE IMPUGNED DONATIONS ARE TREATED AS VOLUNTARY AND INC LUDED IN THE INCOME OF THE ASSESSEE THE APPLICATION OF INCOME DURING THE IMPUG NED AY EXCEEDS THE TOTAL INCOME INCLUDING THE CORPUS DONATIONS THUS ENTITLIN G THE ASSESSEE TO CLAIM EXEMPTION U/S 11 OF THE ACT. LD AR DREW OUR ATTENTI ON TO A CHART SHOWING THE INCOME INCLUDING THE RECEIPTS UNDER. FUNDS PENDING UTILIZATION AND UTILIZATION/ APPLICATION OF THE SAME DURING THE YEAR AS FOLLOWS : PARTICULARS AMOUNT TAKEN BY ASSESSEE (IN RS. ) A GROSS INCOME AS SHOWN IN INCOME & EXPENDITURE 21,51,92,141 RECEIPTS UNDER FUNDS PENDING UTILIZATION 7,92,00 ,475 GROSS INCOME 29,43,92,616 85% OF GROSS INCOME 25,02,33,724 B APPLICATION: AS SHOWN IN INCOME & EXPENDITURE 19,35,53,829 OUT OF FUNDS PENDING UTILIZATION 9,16,71,759 TOTAL APPLICATION DURING THE YEAR 28,52,25,588 TOTAL SHORTFALL IN APPLICATION (3,49,91,864) INCOME CHARGEABLE 16. LD DR. ON THE OTHER HAND ARGUED THAT THE UTILIZ ATION OF RS. 9,16,71,759/- SHOWN BY THE ASSESSEE IN THE ABOVE CHART COULD NOT BEEN ADJUSTED AGAINST THE 11 INCOME OF THE CURRENT YEAR ENTIRELY SINCE THE ASSES EE HAD SUBSTANTIAL OPENING BALANCE IN THE FUNDS PENDING UTILIZATION ACCOUNT. LD DR STATED THAT AFTER ADJUSTING THE UTILIZATION OF THE CURRENT YEAR AGAIN ST THE OPENING BALANCE OF THE FUND, A BALANCE OF RS. 11,28,999/- REMAINED WHICH C OULD BE ADJUSTED AS UTILIZATION OUT OF THE INCOME OF THE CURRENT YEAR. LD DR STATED THAT THE TOTAL UTILIZATION AS A RESULT FELL SHORT OF 85% OF THE IN COME BY RS. 5,55,50,896/- WHICH HAD BEEN CORRECTLY ADDED TO THE INCOME OF THE ASSES EE BY THE LD A.O. AND UPHELD BY THE LD CIT( A). LD DR DEMONSTRATED THE SA ME THROUGH A CHART AS FOLLOWS: PARTICULARS AMOUNT TAKEN BY A.O. (IN RS.) A GROSS INCOME AS SHOWN IN INCOME & EXPENDITURE 21,51,92,141 RECEIPTS UNDER FUNDS PENDING UTILIZATION 7,92,00 ,475 GROSS INCOME 29,43,92,616 85% OF GROSS INCOME 25,02,33,724 B APPLICATION: AS SHOWN IN INCOME & EXPENDITURE 19,35,53,829 OUT OF FUNDS PENDING UTILIZATION 11,28,999 TOTAL APPLICATION DURING THE YEAR 19,46,82,828 TOTAL SHORTFALL IN APPLICATION 5,55,50,896 INCOME CHARGEABLE 5,55,50,896 LD DR FURTHER STATED THAT SINCE THE ASSESSEE HAD NO T UTILIZED 85% OF ITS INCOME NOR ACCUMULATED / SET ASIDE ITS INCOME FOR FUTURE U TILIZATION IT WAS NOT ENTITLED FOR THE BENEFIT OF EXEMPTION OF 15% OF ITS INCOME ALSO AND THE SAME HAD BEEN CORRECTLY ADDED BACK TO THE INCOME OF ASSESSEE BY T HE LD CIT (A) BY THE WAY OF ENHANCING ITS INCOME TO THE EXTENT OF RS. 4,41,58,8 92/-. LD AR AS A REBUTTAL TO THE SAME POINTED OUT THAT THE UTILIZATION OF ITS INCOME TO THE EXTENT OF RS. 9,16,71,759/- WAS NOT REQUIRED TO BE ADJUSTED FROM THE OPENING BALANCE SHOWN IN FUNDS PENDING UTILIZATION ACCOUNT SINCE THE SA ME REPRESENTED ONLY THE 15 % SURPLUS WHICH THE ASSESSEE IS LEGALLY ENTITLED TO A CCUMULATE AND IT IS NOT REQUIRED TO UTILIZE THE SAME. LD AR POINTED OUT THAT IDENTIC AL ISSUE HAD COME UP FOR CONSIDERATION IN SUCCEEDING YEARS ALSO I.E. A/Y 06- 07, 07-08 AND 08-09 WHEREIN THE ISSUE HAD BEEN DECIDED IN FAVOR OF THE ASSESSEE BY THE LD. CIT(A) AND 12 UPHELD BY HONBLE ITAT CHANDIGARH BENCH. THUS THE L D. AR PLEADED THAT IT WAS THE UTILIZATION TO THE EXTENT OF RS. 9,16,71,759/-, WHICH WAS TO BE ADJUSTED AGAINST THE INCOME OF THE ASSESSEE AND NOT RS.11,28,999/- A S STATED BY THE AUTHORITIES BELOW. THUS THE LD. AR PLEADED THAT THE ASSESSEE HA D UTILIZED ITS ENTIRE INCOME FOR CHARITABLE PURPOSES DURING THE YEAR AND WAS ENT ITLED TO CLAIM EXEMPTION OF ITS INCOME U/S 11 OF THE ACT. 17. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND ALSO THE DOCUMENTS PLACED BEF ORE US. 18. AT THE OUTSET IT MAY BE STATED THAT THE ASSESSM ENT ORDER PASSED IN THE IMPUGNED CASE HAS BEEN SET ASIDE BY US IN PARA 10 O F THE ORDER SINCE THE NOTICE ISSUED U/S 148 HAS BEEN HELD TO BE INVALID. THEREFO RE THE GROUNDS RAISED ON THE MERITS OF THE CASE REMAIN MERELY ACADEMIC IN NATURE . HAVING SAID SO, WE STILL PROCEED TO ADJUDICATE THE GROUND RAISED BY THE ASSE SSEE. THE ISSUE BEFORE US IS THAT IF THE AMOUNTS RECEIVED IN EARMARKED FUNDS AS FUNDS PENDING UTILIZATION IS TREATED AS VOLUNTARY CONTRIBUTIONS AND INCLUDED IN THE INCOME OF THE ASSESSEE, WHETHER UTILIZATION OF THE ASSESSEE INCOME EXCEEDS THE STATUTORILY SPECIFIED LIMIT OF 85% FOR THE PURP OSE OF CLAIMING EXEMPTION OF INCOME U/S 11. 19. WE FIND THAT WHILE THE LD. AR CLAIMS THAT THE U TILIZATION / APPLICATION OF INCOME DURING THE YEAR EXCEEDS 85% OF ITS INCOME IN CLUDING THAT RECEIVED IN EARMARKED FUNDS, THE CLAIM OF THE REVENUE IS THAT, THE UTILIZATION OF INCOME OF THE CURRENT YEAR IS TO BE FIRST ADJUSTED AGAINST TH E OPENING BALANCE OF FUNDS PENDING UTILIZATION AND ONLY REMAINING CAN BE TREA TED AS UTILIZATION OF INCOME FOR THE CURRENT YEAR WHICH COMES TO LESS THAN 85% T HUS DISENTITLING THE ASSESSEE TO CLAIM EXEMPTION U/S 11. 20. WE FIND THAT IDENTICAL ISSUE HAD COME UP FOR CO NSIDERATION IN A.Y. 2006-07 TO A.Y. 2009-10 IN THE CASE OF THE ASSESSEE, WHEREI N THE LD. CIT(A) HAD AFTER 13 EXAMINING THE BOOKS OF ACCOUNTS OF THE ASSESSEE GIV EN A CATEGORICAL FINDING THAT STARTING FROM F.Y. 1999-2000 THE UTILIZATION O F FUND PENDING UTILIZATION OF EXCEEDED 85% IN EVERY YEAR LD. CIT(A) AT PARA 4 4 .3 OF HIS ORDER HAD HELD AS FOLLOWS:- THE RIVAL SUBMISSIONS HAVE BEEN CAREFULLY CONSIDER ED WITH REFERENCE TO THE FACTS OF THE CASE, THE BOOKS OF ACCOUNTS PRODUCED, THE AU DITED BALANCE SHEETS AND INCOME & EXPENDITURE STATEMENTS W.E.F. THE A. Y.200 0-2001 AND THE CASE LAWS RELIED UPON. IT IS NOTED THAT THE APPELLANT IS A CH ARITABLE ORIGINATION ESTABLISHED FOR THE PURPOSE OF CARRYING OUT VARIOUS ACTIVITIES WHICH COULD ENSURE THAT ALL TIBETAN CHILDREN ACHIEVE A FIRM CULTURAL IDENTITY A ND BECOME SELF-RELIANT AND CONTRIBUTING MEMBERS OF THE COMMUNITY. TO ACHIEVE T HIS PURPOSE, THE TRUST UNDERTAKES VARIOUS PROJECTS FOR PROVIDING EDUCATION , VOCATIONAL TRAININGS AND OTHER SOCIAL AND CULTURAL SUPPORT SYSTEM TO SUCH CH ILDREN. IT IS FURTHER NOTED THAT A PARTICULAR ACCOUNTING PRACTICE OF THE APPELLANT HAD LED TO THE PASSING OF AN ORDER U/S 263 OF THE ACT. AS PER THIS PRACTICE, THE FUNDS RECEIVED SPECIFICALLY FOR THE EARMARKED PROJECTS WERE NOT ROUTED BY THE APPEL LANT'S AUDITORS THROUGH THE INCOME & EXPENDITURE ACCOUNT. BUT THE SAME WERE ACC OUNTED FOR STRAIGHTAWAY IN THE BALANCE SHEET UNDER THE HEAD 'SPECIFIC FUNDS PENDING UTILIZATION'. ON THE BASIS OF THE SAID ENTRY, THE CIT, SHIMLA, WHILE PAS SING THE ORDER U/S 263, CONCLUDED THAT THE FUNDS RECEIVED BY THE APPELLANT FOR SPECIF IC PURPOSES WERE ALL VOLUNTARY CONTRIBUTIONS WITHIN THE MEANING OF SECTION 12 (1). SINCE THE SAID FUNDS WERE NOT RECEIVED WITH ANY SPECIFIC DIRECTIONS THAT THEY SHA LL FORM PART OF THE CORPUS OF THE TRUST. AT THE SAME TIME, HOWEVER. THE CIT DIRECTED THE A.O. TO DETERMINE THE PORTION OF SUCH FUNDS WHICH WERE UTILIZED DURING TH E YEAR TOWARDS THE OBJECTS OF THE INSTITUTION AND TO INCLUDE SUCH AMOUNT IN THE G ROSS AMOUNT UTILIZED DURING THE YEAR. THE AMOUNT BY WHICH SUCH APPLICATION FELL SHO RT OF 85% OF THE INCOME RECEIVED, AFTER CONSIDERING THE AMOUNT ACCUMULATED U/S 11(2), WAS DIRECTED TO BE TAXED AS THE INCOME OF THE YEAR. IT IS NOTED THAT WHILE COMPLYING WITH THE DIRECTION S OF THE CIT, SHIMLA, THE LD. A.O. HAS TAKEN INTO CONSIDERATION THE AMOUNT UTILIZED DU RING THE YEAR TOWARDS THE OBJECTS OF THE INSTITUTION, BUT HAS MADE NO EFFORT TO ASCERTAIN THE AMOUNT ACCUMULATED U/S 11(2). ACCORDINGLY HE HAS NOT GIVEN THE COMPLETE CREDIT OF SUCH UTILIZATION TO THE APPELLANT ON THE GROUND THA T THE AMOUNT UTILIZED WAS FIRST TO BE SET OFF AGAINST THE OPENING BALANCE UNDER THE GI VEN HEAD. THUS THE LD. A.O. HAS ENDED UP GIVING THE CREDIT OF UTILIZATION OF TH E FUNDS TO THE APPELLANT ONLY TO THE EXTENT THE SPENDING DURING THE YEAR EXCEEDED TH E OPENING BALANCE. WHILE DOING SO, THE LD. A.O. HAS MADE NO EFFORT TO TRACE THE HISTORY OF THE APPELLANT'S ACCOUNTS AND THE AUDITED BALANCE SHEETS SUBMITTED W ITH THE RETURNS OF INCOME. IT IS NOTED THAT THE PRACTICE OF NOT ROUTING THE DO NATIONS RECEIVED FOR SPECIFIC PURPOSE THOUGH THE INCOME F% EXPENDITURE ACCOUNT HA S BEEN FOLLOWED BY THE APPELLANT SINCE THE INCEPTION OF THE SOCIETY, WHICH WAS ACCEPTED AS SUCH BY THE REVENUE. THEREFORE IT WAS CONSIDERED NECESSARY TO A SCERTAIN THE PATTERN OF ACCUMULATION OF FUNDS UNDER THE HEAD FUND PENDING U TILIZATION ACCOUNT'. WHILE THE LD. A.O. HAS TAKEN THE GROSS RECEIPTS INCLUDING THE OPENING BALANCES UNDER CONSIDERATION, HE HAS PAID NO ATTENTION TO THE EXPE NDITURE IN THE EARLIER YEARS AND TO THE NET SAVINGS OF THE EARLIER YEARS. IT WAS NOTED THAT THE APPELLANT IS MAINTAINING ITS ACCOUNTS SEPARATELY IN RESPECT OF T HE HEAD OFFICE AND ALSO IN RESPECT OF CERTAIN LARGE PROJECTS LIKE TCV PATLIKUH L, SOS TCV BYLAKUPPE, SOS TCV SUJA BIR, LOWER TCV SCHOOL, DHARAMSALA, ETC. THUS, THERE ARE ENTRIES SHOWING THE TRANSFER OF FUNDS FROM THE HEAD OFFICE TO THE VARIO US PROJECTS AND VICE-VERSA. SIMILARLY, THERE ARE INTERNAL TRANSFER ENTRIES FRO M ONE UNIT TO ANOTHER UNIT ON TEMPORARY BORROWING AND RETURN BASIS. THE FUND PEND ING UTILIZATION ACCOUNT' HAS BEEN SHOWN ON THE LIABILITY SIDE OF THE BALANCE SHE ET AND THE CORRESPONDING EXPENDITURE HAS BEEN RECORDED ON THE ASSETS SIDE OF THE BALANCE SHEET. THUS THE RECEIPTS AND EXPENDITURE IN RESPECT OF THE DONATION S RECEIVED FOR SPECIFIC PROJECTS HAVE BEEN ACCOUNTED FOR IN THE BALANCE SHE ET, INSTEAD OF THE INCOME & EXPENDITURE ACCOUNT. BUT A SCRUTINY OF THE BOOKS OF ACCOUNTS OF THE APPELLANT SHOWS THAT NO EXPENDITURE WAS INCURRED IN RESPECT O F ANY RECEIPT ON ANYTHING OTHER THAN THE PROJECTS BEING UNDERTAKEN BY THE APP ELLANT IN ACCORDANCE WITH ITS PROCLAIMED OBJECTIVES. ON THE BASIS OF THE ENTRIES IN THE BALANCE SHEET OF THE 14 APPELLANT, WHICH HAVE ALSO BEEN DULY ACCEPTED BY TH E LD. A.O. AS CLEARLY MENTIONED IN THE ASSESSMENT ORDER, THE RE-CAST INCO ME & EXPENDITURE ACCOUNTS OF THE APPELLANT W.E.F. THE ASSESSMENT YEAR 2000-01 WERE EXAMINED WITH A VIEW TO ASCERTAIN THE EXACT PATTERN OF ACCUMULATION IN THE FUND PENDING UTILIZATION ACCOUNT, IT IS NOTED THAT STARTING FROM THE F.Y. 19 99-2000, THE UTILIZATION OF THE 'FUND PENDING UTILIZATION ACCOUNT' FAR EXCEEDS 85% IN EVE RY YEAR. IT WAS 179.65% IN THE F.Y. 1999-2000, 107.32% IN THE F.Y. 2000 01. 101% I N THE F.Y. 2001-02, 106.52% IN THE F.Y. 2002-03, 115.75% IN THE F.Y. 2003-04 AND 526.4 0% IN THE F. Y. 2004-05. IN THE YEAR UNDER CONSIDERATION, IT WAS 151.38%) OUT OF TH E EARMARKED FUNDS . THE UTILIZATION OUT OF THE OTHER FUNDS RECEIVED, DURING THE YEAR TOWARDS THE CORPUS OF THE TRUST IS 85.22%. THUS THE TOTAL UTILIZATION OUT OF THE GROSS RECEIPTS IS 93.30%- WHICH IS TOTALLY TOWARDS THE CHARITABLE PURPOSES. T HUS IT IS CLEAR THAT THE APPELLANT HAD NOT, IN FACT, ACCUMULATED ANY AMOUNT W.E.F. F. Y. 1999-2000, EVEN THOUGH IT WAS ENTITLED TO ACCUMULATE 25%/15% EVERY YEAR . GOING BY THE SAID PERMISSIBLE ACCUMULATION, THE APPELLANT COULD HAVE ACCUMULATED A HUGE AMOUNT UNDER THE 'FUND PENDING UTILIZATION' ACCOUNT. IT WAS, THE REFORE, NOT CONSIDERED NECESSARY TO GO INTO THE DETAILS OF THE APPELLANT'S ACCOUNTS BEYOND THE FINANCIAL YEAR 1 999-2000. 4.2 IN VIEW OF THE ABOVE FACT, IT WAS NOT FAIR ON T HE PART OF THE LD. A. 0. NOT TO PAY ATTENTION TO THE DIRECTIONS OF THE CIT, SHIMLA AS PER HIS ORDER U/S 263 AND TO COMPLETELY IGNORE THE FACT OF THE PREVIOUS ACCUMULA TION OF FUNDS WITHIN THE PERMISSIBLE TO CLUB THE OLD BALANCES WITH THE CURRE NT RECEIPTS AND TO WORK OUT THE % OF EXPENDITURE FROM THE GROSS TOTAL APPLYING THE FIFO METHOD IN AN ARBITRARY MANNER. THUS THE LD. A.O. HAS MADE A FUNDAMENTAL ER ROR WHILE CALCULATING THE 85% SPENDING OF THE FUNDS RECEIVED BY COMBINING THE ACCUMULATED OPENING BALANCE WITH THE RECEIPTS OF THE YEAR UNDER CONSIDE RATION. ON THE BASIS OF THE DISCUSSION ABOVE, IT IS HELD THAT THE APPELLANT HAD, IN FACT, SPENT MUCH MORE THAN 85% OF ITS RECEIPTS UND ER THE HEAD FUNDS PENDING UTILIZATION' AND ALSO OF THE TOTAL RECEIPTS AND THE ENTIRE SPENDING WAS TOWARDS THE CHARITABLE PURPOSES. THUS THERE WAS NO INCOME ACCUM ULATED OR SET APART IN EXCESS OF 15% OF THE INCOME DURING THE YEAR UNDER C ONSIDERATION. THEREFORE, THE ADDITION OF RS. 3,90,33,503/- MADE BY THE ID. ASSES SING OFFICER ON ACCOUNT OF DEFICIENCY IN APPLICATION OF FUNDS FOR CHARITABLE P URPOSES IS NOT FOUND TO BE IN ORDER AND IS DIRECTED TO BE DELETED. FOLLOWING THE SAME, THE HONBLE ITAT HAD DISMISSED THE DEPARTMENTS APPEAL AND UPHELD THE FINDINGS OF THE LD. CIT(A) 21. FROM THE ABOVE WE FIND THAT THE LD. CIT(A)HAS G IVEN A CATEGORICALLY FINDING FOR THE IMPUGNED ASSESSMENT YEARS ALSO, THA T THE UTILIZATION OF FUNDS PENDING UTILIZATION EXCEEDED 85%, WHICH HAS BEEN UP HELD BY THE ITAT. WE THEREFORE FIND NO MERIT IN THE ARGUMENT OF THE LD. DR AND HOLD THAT EVEN IF THE FUNDS RECEIVED IN THE FUNDS PENDING UTILIZATION A CCOUNT TREATED AS VOLUNTARY CONTRIBUTION, THE UTILIZATION BY THE ASSESSEE EXCEE DS 85% AND THE ASSESSEE IS ENTITLED TO CLAIM EXEMPTION U/S 11 OF THE ACT. 22. THE GROUND OF APPEAL OF THE ASSESSEE ARE THEREF ORE ALLOWED. 23. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. 15 ITA NO. 253/CHD/2015 24. SINCE THE FACTS AND ISSUES INVOLVED IN THIS APP EAL ARE IDENTICAL TO ITA NO. 252/CHD/2015, THE FINDING GIVEN BY US IN ITA NO . 252/CHD/2015 WILL APPLY MUTATIS MUTANDIS. 25. IN THE RESULT BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (BHAVNESH SAINI) (ANNAPURNA MEHROTRA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 20/01/2016 AG COPY TO: 1. THE APPELLANT, 2. THE RESPONDENT, 3. TH E CIT, 4. THE CIT(A), 5. THE DR