Jalan Educational Trust, Sambalpur V. CIT (Exemption), Hyderabad

ITA 60/CTK/2021

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 5007 (ITAT-CUTTACK)
• Duration Of Justice: 10 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-04-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2016-2017
• Appeal Filed On: 23-05-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Charitable institution; Assessment record; Capital expenditure; Set aside
• Section: 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BEFORE S/ AND ARUN KHODPIA, ACCOUNTANT MEMBER Jalan Educational Trust, Odysseey Complex, Ainthapali, Sambalpur PAN/GIR No. (Appellant Per C.M.Garg This is an appeal filed by the assessee against the o CIT(E), Hyderabad u/s.263 of the Act dated 31.3.2021 year 2016-17. 2. The assessee is aggrieved with the order of the ld CIT(E) in exercising his revisionary power u/s.263 of the Act treating the assessment order erroneous and prejudicial to the interest of the revenue. 3. Facts of the case are that the Assessing Officer c assessment u CIT(Exemptions), Hyderabad called for assessment records and noticed that IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK S/SHRI CHANDRA MOHAN GARG, JUDICIAL AND ARUN KHODPIA, ACCOUNTANT MEMBER ITA No.60/CTK/2021 Assessment Year : 2016-17 Jalan Educational Trust, Odysseey Complex, Ainthapali, Vs. CIT (Exemption), Hyderabad No.AABTJ 1733 G (Appellant) .. ( Respondent Assessee by : Shri S.S.Poddar Revenue by : Shri Manoj Kumar Goutam, Date of Hearing : 8 /3/ 20 Date of Pronouncement : 07/ O R D E R g, JM This is an appeal filed by the assessee against the o CIT(E), Hyderabad u/s.263 of the Act dated 31.3.2021 . The assessee is aggrieved with the order of the ld CIT(E) in exercising his revisionary power u/s.263 of the Act treating the assessment order erroneous and prejudicial to the interest of the revenue. Facts of the case are that the Assessing Officer c assessment u/s.143(3) of the Act on 28.11.2018. Thereafter, the CIT(Exemptions), Hyderabad called for assessment records and noticed that Page1 | 12 IN THE INCOME TAX APPELLATE TRIBUNAL, JUDICIAL MEMBER AND ARUN KHODPIA, ACCOUNTANT MEMBER CIT (Exemption), Respondent) S.S.Poddar, AR Manoj Kumar Goutam, CIT (DR) / 2022 /4/2022 This is an appeal filed by the assessee against the order of the CIT(E), Hyderabad u/s.263 of the Act dated 31.3.2021 for the assessment The assessee is aggrieved with the order of the ld CIT(E) in exercising his revisionary power u/s.263 of the Act treating the assessment order erroneous and prejudicial to the interest of the revenue. Facts of the case are that the Assessing Officer completed the /s.143(3) of the Act on 28.11.2018. Thereafter, the CIT(Exemptions), Hyderabad called for assessment records and noticed that ITA No.60/CTK/2021 Assessment Year : 2016-17 Page2 | 12 the assessment order passed by the AO is erroneous and prejudicial to the interest of the revenue. Accordingly, by virtue of his powers conferred under section 263 of the Act, issued show cause notice on 26.3.2021 on the following issues: “1. The AO has called for the bye-laws of the trust. However, the assessee did not submit the same. 11. The assessee has submitted a reply stating that audit report for F.Y. 2014-15 was, but the same could not be found in the assessment record. Hence, it is difficult to ascertain the existence of corpus fund and investments in land and buildings during F.Y. 2014- 15. 2. The assessee in his reply stated that during the FY 2014-15 relevant to AY 2015-16, had received Rs. 34,903/- as bank interest and that was its sole income. But, during the AY 2016-17, he had shown to have received bank "interest as well as rent on building and profit on sale of land amounting to Rs.40,826/- Rs.18,49,440/- and - and Rs.15,88,000/- respectively. However, that does not mea that the total amount of Rs. 34,37,440/- from rent and profit from sale of land. These two incomes were being arisen out of the fresh investments in land & buildings (Land & Land Development expenses at Remed + Land at Pardhiapali + Building at Remed + Loans and Advances for Land) to the tune of Rs. 1,43,35,446/- + Rs. 73,94,845/-+Rs. 73,85,859/-+Rs. 20,47,400/-=Rs. 3,11,63,550/-. These fresh investments were being made from corpus fund of Rs. 3,41,42,000/-. 3. Corpus fund is generally made out of voluntary contributions and donations. This year and on the previous year, he did not receive any donation / contribution as found in the record. So, a conclusion can be drawn that this corpus fund is a fictitious one and it must be investigated thoroughly. 4. As this is a complete scrutiny, the AO must have investigated and verified the corpus fund, the investments in land and buildings and the expenses on charity in further assessments. 5. The AO had called for each and every document pertaining to complete scrutiny on 12.02.2018. However, the new incumbent did ITA No.60/CTK/2021 Assessment Year : 2016-17 Page3 | 12 not ask for any detail regarding either income or expenditure, thus helping the assessee. 6. The assessee trust has engaged itself only upon the purchase and sale of immovable properties. The AO has not found whether the trust is doing any charitable work towards education or not. 7. It is not mentioned in the trust deed that the trust can engage itself in purchase and sale of land. Hence, the transactions of the trust must be treated as business income and business investments. 8. In the absence of substantial details, the AO should have added the whole of the corpus fund out which all investments on land & buildings are made and expenses on charity to the declared income of the assessee. Hence, the corpus fund of Rs. 3,41,42,000/-, investments on land & buildings of Rs. 3,11,63,550/- and expenditure on charity of Rs. 34,10,600/- are required to be added to the total income of the assessee.” 4. Ld CIT (E) observed that on the above issues, the AO has not made proper enquiry, resulted into underassessment, therefore, the assessment is erroneous and prejudicial to the interest of the revenue. Since the assessed did not respond to the notice u/s.263 of the Act, the ld CIT(E) set aside the assessment order and direct the AO to examine the issues stated above and redo the assessment after verification of the issues, in accordance with law. 5. Ld A.R. submitted that for assessment year 2016-17, the Assessing Officer completed the scrutiny assessment proceedings and passed assessment order u/s.143(3) of the Act on 28.11.2018. He further explained that Pr. CIT issued notice u/s.263 of the Act on 26.3.2021 fixing the date of hearing on 30,.3.2021 and only after one day, i.e. on 31.3.2021, he passed the order without considering the entire facts and circumstances ITA No.60/CTK/2021 Assessment Year : 2016-17 Page4 | 12 of the case and reply of the assessee to show cause notice u/s.263 of the act. Ld A.R. vehemently pointed out that in response to show cause notice u/s.263 of the Act dated 26.3.2021, the assessee filed reply before the CIT(E) but the same was not considered by him and this fact is clearly discernible from the order u/s.263 of the Act. 6. Further, drawing our attention towards impugned order of ld CIT, ld A.R. firstly drew our attention towards para 5 at page 4 and submitted that the CIT has wrongly stated that the assessee has not submitted any reply either to show cause notice or in response to the opportunity accorded to it ld A.R. submitted that when notice has been issued on 26.3.2021 fixing the date of hearing on 30.3.2021 and the assessee filed reply to that despite hardship created due to shortage of time but the same was not considered by ld CIT and he wrongly stated in the impugned order that the assessee has not submitted any reply in response to show cause notice or in response to opportunity accorded to it. Ld A.R. submitted that immediately after a day i.e. on 31.3.2021, the CIT passed the impugned order in violation of principles of natural justice and it is wrong to mention that further opportunity was accorded to it. Therefore, the impugned revisionary order is not sustainable being passed in violation of principles of natural justice by applying incorrect facts. Ld A.R. also drew our attention to para 9 at page 5 of the impugned order, which reads as under: ITA No.60/CTK/2021 Assessment Year : 2016-17 Page5 | 12 “9. In the absence of substantial details, the AO should have added the whole of the corpus fund out of which all investments on land & building are made and expenses on charity to the declared income of the assessee. Hence, the corpus fund of Rs.3,41,42,000/- investments on land and buildings of Rs.3,11,63,550/- and expenditure on charity of Rs.34,10,6670/- are required to be added to the total income of the assessee.” Ld A.R. submitted that against the principles of accountancy and tax jurisprudence, the CIT (E) observed that the corpus fund, investment in land and building and expenses on charity are required to be added to the total income of the assessee. ld A.R. pointed out that first of all during relevant financial period 2015-16, pertaining to assessment year 2016-17, the assessee did not receive any corpus donation and did not make any investment in land and building. Therefore, these observations are misconceived and irrelevant to present assessment year 2016-17, hence, the order has been passed by taking into consideration irrelevant and incorrect facts and without application of mind. Ld A.R,. further drew our attention towards the CBDT circular No.580 dated 14.9.1990 and submitted that the donation in any kind including rent and properties cannot be treated as income in the hands of the trust or society, therefore, these observations of the CIT in para 9 at page 5 of the impugned revisionary order are not only based on irrelevant and incorrect facts but are also in contrary to CBDT circular. To support this contention, ld A.R. placed judgement of Hon’ble Supreme Court in the case of CIT (Exemptions), Kochi vs Mata Amrithanandamayi Math Amritapuri (2018) 94 taxmann.com 82 ITA No.60/CTK/2021 Assessment Year : 2016-17 Page6 | 12 (SC). Ld A.R. submitted that the corpus fund of the assessee was also made out of various resources much prior to financial year 2015-16 relevant to assessment year 2016-17 and corpus fund balance was Rs.3,41,42,000/-, which is clearly discernible from the audited financial statement of the assessee. Placing reliance on the decision of Hon’ble Supreme Court in the case of R.B.Shreeram Religious and Charitable Trust vs CIT (1988) 172 ITR 373 (SC), ld A.R. submitted that voluntary contributions specifically received towards the corpus of the trust cannot be brought to tax. He also drew our decision of Mumbai ITAT in the case of Chandraprabhu Jain Swetamber Mandir vs ACIT (2017) 82 taxmann.com 245 (Mum) and order of ITAT Calcutta in the case of Sri Shankar Bhagwan Estate vs ITO (1997) 61 ITD 196 (Cal) to support this proposition. 7. Ld A.R. further placing reliance on the decision of Hon’ble Calcutta High Court in the case of Dawjee Dadabhoy and Co. vs S.P.Jain, 31 ITR 872 (Cal) and judgment of Hon’ble Gujarat High Court in the case of Addl. CIT vs Mukur Corporation (1978) 111 ITR 312 (Guj) submitted that the revisionary order passed on irrelevant and incorrect facts are not sustainable. Ld counsel submitted that during the course of scrutiny assessment proceedings, the AO made sufficient, proper and adequate enquiry, which is clearly discernible from the notice issued by the AO alongwith questionnaire dated 12.9.2017, 24.5.2018, 10.11.2018 and 16.11.2018 placed at APB pages 42 to 49. He further submitted that in ITA No.60/CTK/2021 Assessment Year : 2016-17 Page7 | 12 response to notice, the assessee filed detailed reply explaining the facts of the case, therefore, it is not a case of no enquiry. Ld A.R. pointed out that when there was no receipt of corpus donation and no purchase of land and building during the relevant financial period, then, there is no need of any enquiry on this point. Ld A.R. vehemently pointed out that the Assessing Officer through notice dated 12.9.2017 called for audited report, computation of income, certified copy of registration, hard copy of the income tax return, details of membership of trust alongwith their profession PAN and address, copy of Form No.26AS, which were submitted by the assessee alongwith reply dated 12.1.2018. He further explained that the AO vide his notice dated 24.5.2018 again called computation of income, certified copy of the trust deed, details of members alongwith their address, PAN, profession, etc and payment by way of salary referred in section 13(3), details of activities, details of organization and institutions running under the trust and other details were filed before the AO and after considering the reply of the assessee to the said notice, the AO found that there was no receipt of corpus donation and no purchase of land and building during the relevant financial period and thereafter, he accepted the return of income of the assessee consisting of interest income, rent on building income and property on sale of land, therefore, the assessment order cannot be alleged as erroneous and prejudicial to the interest of revenue. Ld A.R. finally prayed that the impugned revisionary order u/s.263 ITA No.60/CTK/2021 Assessment Year : 2016-17 Page8 | 12 of the Act and consequential proceedings and orders may kindly be quashed. 8. Replying to above, ld CIT DR submitted that as per Annexure-2 to written submission of the assessee, the trust was granted registration u/s.12A of the Act w.e.f. 1.4.2009. He further submitted that the trust was created in 2008 with sole object of imparting donation and other relevant objects. Ld CIT DR pointed out that as per return of income, the assessee itself declared interest income, rent income and income from sale of land, therefore, the observations made by CIT (E) at page 2 para 2 are correct. However, ld CIT DR, in all fairness, conceded that during relevant financial period, the assessee trust did not receive corpus donation and did not purchase any land. Ld CIT DR also contended that the assessee trust is earning income from sale of land, which is not charitable activities and in accordance with the objects of the trust. Therefore, the CIT was right in alleging the assessment as erroneous and prejudicial to the interest of revenue being passed without any proper enquiry. Ld CIT DR submitted that when despite creation of trust since 2008 except purchase and sale of land, no other activities has been carried out by the trust to achieve its objects as mentioned in the trust deed, therefore, the AO was required to go deep into the matter in the capacity of investigator and adjudicator. Therefore, the revisionary order u/s.263 may kindly be upheld. ITA No.60/CTK/2021 Assessment Year : 2016-17 Page9 | 12 9. Placing rejoinder to above, ld AR submitted that when there was no receipt of corpus donation and no acquisition of land during the relevant financial period, then there was no requirement of enquiry as per notice issued by the AO placed at pages 42 to 49 and reply thereto placed at pages 50-51, which clearly discernible that the AO has made proper, sufficient and adequate enquiry with regard to the points, therefore, it is not a case of no enquiry. Ld A.R. further explained that there is a single instance of purchase of land and scattered small piece of land were sold to other trust/institutions having similar kind of objects, therefore, it cannot be alleged that the assessee is doing business of sale and purchase of land in the garb of charitable activities. 10. On careful consideration of rival submissions, we clearly observe that the CIT issued notice on 26.3.2021 calling reply of the assessee on 30.3.2021 and in response to same, the assessee filed its reply on the date fixed but without keeping in mind and considering the reply of the assessee to show cause notice, the CIT (E) passed the impugned order on next date i.e. 31.3.2021 without giving any further opportunity to the trust. We may also point out that in para 5 of the impugned order, the CIT(E) wrongly observed that the asssee did not submit any reply either to show cause notice or in response to opportunity accorded to it but as the copy of the reply of notice available at pages 59 to 65 clearly reveals that the assessee filed reply to notice u/s.263 of the Act on fixed date of hearing on ITA No.60/CTK/2021 Assessment Year : 2016-17 Page10 | 12 30.3.2021 but the same was not considered by the ld CIT(E) while passing the order u/s.263 of the Act. This factual position has not been controverted by ld CIT DR during the hearing before this Bench. 11. As we have noted above, ld CIT DR has not controverted the fact that during the financial period, the assessee did not receive any corpus donation and did not purchase or acquire any land, therefore, no enquiry was required to be made in this regard and thus, the observations made by the CIT in the notice u/s.263 of the Act and in the impugned order in para 2 at page 2 are clearly irrelevant and incorrect factual position of the assessee case. In view of CBDT Circular dated 14.9.1990 (supra) the corpus donation cannot be treated as income of the trust. This proposition has been rendered by Hon’ble Supreme Court in the case of Mata Amrithanandamayi Math Amritapuri(supra), therefore, the observation of ld CIT (E) in the notice u/s.263 of the Act, para 4 and para 6(3) of impugned order are clearly an outcome of consideration of irrelevant and incorrect factual position keeping aside Board Circular (supra). We also observe that in para 5 of impugned order, CIT (E) submitted that the assessee has not submitted any reply either to show cause notice or in response to the opportunity accorded to it. Ld AR has successfully demonstrated that the assessee filed reply to the show cause notice dated 26.3.2021 and no further opportunity beyond 30.3.2021 was given to the assessee. Therefore, these observations of the CIT (E) are also not sustainable in law. ITA No.60/CTK/2021 Assessment Year : 2016-17 Page11 | 12 12. In para 6.(9) the CIT (E) observed that the corpus fund, investment in land and building are required to be added to the total income of the assessee. These observations are also based on irrelevant and incorrect facts and we are compelled to hold that the impugned revisionary order has been passed by considering the fact without application of mind. Ld A.R. has placed reliance on the decision of Hon’ble Bombay High Court in the case of CIT vs Gabriel India Ltd., 203 ITR 108 (Bom), wherein, it is held that even after initiating proceedings for revision and hearing the assessee, the CIT could not say that the allowance of the claim of the assessee was erroneous that the expenditure was not revenue expenditure but an expenditure of capital nature. It is also held that there must be material before the Commissioner to satisfy himself that two requisite provided u/s. 263 are present, otherwise power cannot be exercised at the whims and caprice of the Commissioner. Their Lordships also held that re-examination of the matter by the AO without any enquiry by the CIT is not permissible. The CIT is required to direct the AO only after coming the conclusion that the earlier finding of the ITO was erroneous and prejudicial to the interests of the revenue. In the present case, the ld CIT (E) has taken into consideration the incorrect and irrelevant facts to allege that there is no enquiry by the AO and thus the impugned assessment order is erroneous and prejudicial to the interest of the revenue without considering the reply of the assessee to show cause notice u/s.263 of the Act and keeping aside ITA No.60/CTK/2021 Assessment Year : 2016-17 Page12 | 12 the basic principles of tax jurisprudence relevant for assessing income of a charitable trust. We, therefore, in view of foregoing discussion, reach to a logical conclusion and compelled to hold that the revisionary order passed u/s.263 of the Act by the ld CIT (E) is not sustainable and valid. Therefore, the impugned revisionary order dated 31.3.2021 u/s.263 of the Act and all consequential proceedings and orders, if any, are hereby quashed. 13. In the result, appeal of the assessee is allowed. Order pronounced on 7.4.2022 Sd/- sd/- (Arun Khodpia) (Chandra Mohan Garg) ACCOUNTANT MEMBER JUDICIAL MEMBER Cuttack; Dated 7/04/2022 B.K.Parida, SPS (OS) Copy of the Order forwarded to : By order Sr.Pvt.secretary ITAT, Cuttack 1. The Appellant : Jalan Educational Trust, Odysseey Complex, Ainthapali, Sambalpur 2. The Respondent. CIT (Exemption), Hyderabad 3. The CIT(A)-, Bhubaneswar 4. Pr.CIT-, Bhubaneswar 5. DR, ITAT, Cuttack 6. Guard file. //True Copy//