Gujarat State Lion Conservation Society, JUNAGADH V. The Commr. Income Tax, Exemp., Ahmedabad, Ahmedabad-Gujarat

ITA 69/RJT/2021

• Counselvise Citation: [2022] 107 COUNSELVISE.COM (IT) 0788 (ITAT-RAJKOT)
• Duration Of Justice: 1 year(s) 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-08-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2015-2016
• Appeal Filed On: 10-05-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Charitable institution; Capital receipt; Set aside
• Section: 263; 11; 143(3); 48

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT Before: Shri Waseem Ahmed, Accountant Member And Shri Siddhartha Nautiyal, Judicial Member Gujarat State Lion Co nserv ation So ciety, Jun agadh PAN: AABTG0572 C (Appellant) Vs The CIT(Ex emp tio n), Ah med abad (Resp ondent) Asses see by : Shri Deepak Rindani, A.R. Revenue by : Shri S anjeev Jain, CIT-D. R. Date of hearing : 30-06 -2022 Date of pronouncement : 03-08 -2022 आदेश/ORDER PER BENCH:- This assessee’s appeal for A.Y. 2015-16, arises from order of the Commissioner of Income Tax (Exemptions), Ahmedabad dated 25-03-2021, in proceedings under section 143(3) of the Income Tax Act, 1961; in short “the Act”. ITA No. 69 /Rjt/2021 Assessment Year 2015-16 I.T.A No. 69/Rjt/2021 A.Y. 2015-16 Page No Gujarat State Lion Conservation Society vs. CIT (Exemption) 2 2. The assessee has taken the following grounds of appeal:- “1. The learned Commissioner of Income-tax (Exemption)- Ahmedabad erred in assuming jurisdiction u/s 263 of the Act, particularly in the light of reasons stated by him in the show cause notice and in the order passed u/s 263 of the Act and hence the impugned order is bad in law. 2. The learned Commissioner of Income-tax (Exemption)- Ahmedabad erred in setting aside the assessment order framed u/s 143(3) of the Act by holding that assessing officer has not applied his. mind and has passed the order routinely in perfunctory manner and that no inquires have been conducted on important issue relating to quantum of exemption allowable u/s ll(l)(a) of the Act. 3. The learned Commissioner of Income-tax (Exemption)- Ahmedabad failed to appreciate that the impugned issue was duly examined by the assessing officer by way of specific show cause notice and reply thereto, while finalizing assessment proceedings u/s 143(3) of the Act 4. The appellant craves leave to add, amend, alter and withdraw any ground of appeal anytime up to the hearing of this appeal.” 3. The brief facts of the case are that the assessee trust M/s Gujarat State Lion Conservation Society filed its return of income declaring “Nil” income. The assessment proceedings were completed under section 143(3) of the Act on 19-12-2017 accepting the returned income of “Nil” as declared by the assessee in his return of income. Thereafter Principal CIT issued notice under section 263 of the Act on the ground that the assessee during the impugned year had received government grant amounting to 8,00,70,630/- from the State government. Since grant received from the government are I.T.A No. 69/Rjt/2021 A.Y. 2015-16 Page No Gujarat State Lion Conservation Society vs. CIT (Exemption) 3 only as ascertained liability of the government, they cannot be treated either as the voluntary contribution or the income from property held for charitable purposes covered under section 11(1) and 12 of the Act. Hence accumulation from government grant is not available to the assessee. Accordingly, Principal CIT was of the view that the assessee had claimed excess accumulation to the tune of 1,20,09,442/- since the government grant received by the assessee trust is neither income of the assessee under section 11(1)/ 12(1) of the Act nor corpus fund under section 11(1)(d) of the Act. These grants are generally are given with specific directions, with no scope of savings. Thus, these grants cannot be treated as voluntary in nature and are not eligible for the purpose of accumulation @15% as it would defeat the intention of the donor. After taking on the assessee submission on record, Principal CIT held that the order passed by the AO is erroneous and prejudicial to the interests of the revenue with the following observations: “5. Above submission of assessee was duly considered but the same is not found to be acceptable for the reasons mentioned below:- 5.1 It is correct that the Assessing Officer had issued show-cause letter dated 23.11.2017 wherein she has show caused as to why an accumulation claimed u/s 11(1)(a) on the Govt. grant should not be disallowed. However, there is no submission of assessee on record on this issue. Thus the Assessing Officer has not carried out necessary investigation on the nature of Govt. Grant. There is nothing on record as to what are the conditions imposed by Govt. on disbursal of such grant. Furthermore, it may be noted that in the show cause letter dated 23.11.2017, the Assessing Officer had raised 2 issues, namely- I.T.A No. 69/Rjt/2021 A.Y. 2015-16 Page No Gujarat State Lion Conservation Society vs. CIT (Exemption) 4 (i) Why option utilized for clause-2 of Section 11(1) of the I. T. Act of Rs. 9,55,00,000/- should not be treated as income of the assessee and (ii) Why accumulation claimed u/s ll(l)(a) on the Govt. grant should not be disallowed. In the noting dated 19.12.2017 (placed in assessment records), the Assessing Officer has recorded that the reply of assessee vide its letter dated 11.12.2017 was found to be satisfactory and no adverse inference was drawn on that issue. However, the Assessing Officer has maintained silence on the second issue raised in the show cause letter (relating to accumulation u/s 11(1)(a) on Govt. grants). Thus the AO has not applied mind and the issue was not examined during assessment proceedings. 5.2 The revised computation submitted by the assessee was also analysed but it is observed that assessee has alternatively sought to claim accumulation to the extent of Rs. 84,63,812/- u/s. 11(2) of the I. T. Act on the basis of Form no. 10 filed on 16.09.2016 which is much after the date of filing of return i.e. 29.09.2015. As various preceeding assessment years are involved, this issue needs in-depth verification. 5.3 The assessee has relied upon certain judicial pronouncements but the same are distinguishable on facts as the Assessing Officer has passed order routinely in perfunctory manner. No inquiries have been conducted on important issue relating to quantum of exemption allowable u/s 11(l)(a). xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx 7. In the light of above facts, the submission made by the assessee needs deeper scrutiny. The claim of the assessee Trust requires verification on the basis of material facts submitted. Hence, the case is set-aside and the restored back to the Assessing Officer for verification of claim(s) made by the assessee. The impugned assessment order 143(3) dated 19.12.2017 is set aside with a direction to make de-novo assessment for A.Y. 2015-16, after considering the I.T.A No. 69/Rjt/2021 A.Y. 2015-16 Page No Gujarat State Lion Conservation Society vs. CIT (Exemption) 5 claims of the assessee Trust as mentioned supra and also after allowing opportunity of being heard to the assesses as per the provisions of the Act.” 4. Before us, the counsel for the assessee submitted that even though the grants received from the government did not in the strict sense of the term constituted income of the assessee, however, yet the assessee set aside the same from accumulation proposes. The purpose of the grant was primarily to build the railway line to the forest i.e. carrying out fencing of the same. Counsel for the assessee submitted that extensive enquiries on this aspect were made during the course of assessment proceedings, to which the assessee had also duly replied. He drew attention to page 43-44 of the paper book wherein the AO had specifically enquired on this aspect during the course of assessment proceedings. He further submitted that the assessee had filed reply to this query wide letter dated 08-12-2000 appended at pages 45- 48 of the paper book. The counsel for the assessee drew attention to the fact that all through the assessee trust had shown the government grant as revenue income and this position has been accepted by the Revenue both in the prior and later years. In the alternative, the counsel for the assessee argued that if the same is not treated as revenue income of the assessee eligible for accumulation, then the same may be treated as capital receipt of the assessee, which is not eligible for taxation. In response, the Ld. DR relied upon the observations made by Principal CIT in the 263 order. 5. We have heard the rival contentions and perused the material on record. We note that this issue was specifically raised by the assessing officer during the course of assessment proceedings vide show cause notice I.T.A No. 69/Rjt/2021 A.Y. 2015-16 Page No Gujarat State Lion Conservation Society vs. CIT (Exemption) 6 dated 07-09-2017 and another notice dated 23-11-2013. In response, the assessee had filed reply by letter dated 21-11-2017 and another letter dated 08-12-2017. Therefore, it is not a case where the assessing officer did not apply his mind to the issue. For the sake of reference, we are producing below the relevant extracts from the query raised by the AO vide the above notice dated 23-11-2013 (at page 43-44 of paper-book submitted by the assessee), from which it is evident that this issue was raised by the AO during the course of assessment proceedings: “4. On verification of the details submitted by the assessee, it is seen that during the year assessee has received grant from Gujarat Government for specific direction amounting to Rs. 8,0070,630/-. In this regard, it is stated that as the grant receipt from the Govt. are only an ascertained liability of the Govt. towards the assessee. Thus, it cannot be treated either as voluntary contribution or income from the property held by the assessee for charitable purpose. Hence, accumulation/set apart u/s 11(1)(a) of the Act from such grant cannot be allowed to the assessee. In this regard you are requested to show cause as to why an accumulation claimed u/s 11(1)(a) of the act on said grant should not be disallowed?” 6. We observe that the AO during the course of assessment proceedings had enquired on this issue twice : firstly vide notice dated 07-09-2017, this query was raised by the AO and again by notice dated 23-11-2017, the AO enquired on this aspect. In response, the assessee had responded by letter dated 21-11-2017 and another letter dated 08-12-2017. The assessee had submitted that in all the previous years the Department has considered such grants received from the State Government as income of the society/trust which has been subject to all relevant provisions of section 11 of the Act. I.T.A No. 69/Rjt/2021 A.Y. 2015-16 Page No Gujarat State Lion Conservation Society vs. CIT (Exemption) 7 Therefore, this was not a case where this issue was not considered by the AO during the course of assessment proceedings. Further, the assessee has been receiving government grants in earlier years as well and the Revenue had accepted the same as income of the assessee eligible for accumulation under section 11 of the Act. 7. Another issue which was raised by the counsel for the assessee is that proceedings under section 263 of the Act were initiated by the Principal CIT only on the basis of proposals for action under section 263 by the AO. We note that from para 2 of order under section 263 of the Act, it is evident that the Principal CIT acted merely on the basis of the proposal from the assessing officer, and the contents of the 263 order do not show an independent application of mind by the Principal CIT. It will be useful to reproduce paras 2 and 3 of the 263 order for sake of reference: “2. The proposal from the Assessing Officer i.e. DCIT(E), Cir-2, Ahmedabad was submitted to the CIT(Exemptions), Ahmedabad through the Addl. CIT(E), Range-2, Ahmedabad who in turn, has forwarded the same vide his office letter dated 02.03.2021. 3. Vide this office letter no. CIT(E)/Ahd/263/AGMT-15-16/2020-21 dated 08.03.2021, show cause notice cum opportunity letter for initiating Proceedings U/s 263 of the I. T. Act was issued to the assessee with request to make submissions in support of their claim(s) on or before 16.03.2021. For sake of clarity, the contents of the same is reproduced here under: "3. On the perusal of case records, it is seen that the Assessing Officer had computed gross total income of Rs. 16,15,64,275/- with the application of income of Rs. 6,08,05,786/- and u/s 11(2) allowed accumulation of Rs. 7,65,25,000/-. The assesses Trust had claimed u/s I.T.A No. 69/Rjt/2021 A.Y. 2015-16 Page No Gujarat State Lion Conservation Society vs. CIT (Exemption) 8 11(1)(a) @15% of Rs. 2,42,33,489/-. However, the scrutiny of the details of receipts revealed that the assesses Trust had received Rs. 8,00, 70,630/~ from State Government as Government Grant. As the grant receipt from the government are only as ascertained liability of the Government thus cannot be treated either as the voluntary contribution or the income from property held for charitable purpose covered u/s ll(lj& 12, hence, the accumulation from the Government Grant is not available to the assesses. These grants are generally given with specific directions with no scope of savings. Thus, it cannot be treated as voluntary in nature and be treated for the purpose of accumulation @15% as it would defeat the intention of the donor, if any. Hence, the allowable accumulation was Rs. 1,22,24,047 only @15% of Rs. 8,14,93,645/- (Rs. 16,15,64,275 - 8,00,70,630) u/s 11(1)(a). as such there was excess allowance of accumulation of Rs. 1,20,09,442/- (2,42,33,489 - 1,22,24,047), therefore, there was excess allowance of relief of Rs. 1,20,09,442/-, Govt. grant received by the assesses trust is neither income of the assesses u/s 11 (I)/ 12(1) of the Act nor corpus fund u/s ll(l)(d) of the Act. As such assessment made by the Assessing Officer has resulted under assessment of Rs. 1,20,09,442/-. 4. In view of the above, here in this case, the AO, while passing order U/s 143(3) on 19.12.2017, has allowed the above extent of Rs. 1 , 20,09,442/- on account of Government Grant appears to be erroneous and prejudicial to the interest of the revenue to as much as the above issues during the year under assessment. 5. In light of the above facts, it is to inform you that proceeding U/s 263 of the Act is initiated in your case for the A. Y. 2015-16. In this connection, you are requested to make submission in support of your claims on or before 16/03/2021 alongwith all relevant documents. In case of non-compliance, it will be presumed that you have nothing to say in your case and the matter will be decided on merits and on the basis of documents available on record." 8. A perusal of the extracts of the 263 order demonstrates that the Principal CIT has not independently applied his mind to the proposition set I.T.A No. 69/Rjt/2021 A.Y. 2015-16 Page No Gujarat State Lion Conservation Society vs. CIT (Exemption) 9 forth by the AO for initiation of 263 proceedings. Principal CIT has not called for the office records and independently applied his mind to see whether on facts and in law, the order passed is erroneous and prejudicial to the interests of the Revenue. It is well-settled law that revision proceedings on basis of proposal from Assessing Officer is not valid, unless the Principal CIT has independently applied his mind to the facts of the case and come to the conclusion that the order passed u/s 263 of the Act is erroneous and prejudicial to the interests of the Revenue. In the case of Shantai Exim Ltd. v. Ld. CIT(Appeals) [2017] 88 taxmann.com 361 (Ahmedabad - Trib.) it was held that proposal for initiation of revision proceedings under section 263 must be initiated by Commissioner; revision proceedings on basis of proposal from Assessing Officer is not valid. In the case of Dharmendra Kumar Bansal [2014] 48 taxmann.com 53 (Jaipur - Trib.) it was held that before taking any action Commissioner himself shall apply his mind after examining record of any proceedings and his satisfaction is must. Therefore, where satisfaction was of ITO who proposed action under section 263 but not of Commissioner, issuance of notice under section 263 on basis of proposal made by ITO was void ab initio. In view of the well- settled proposition as applied to the instant set of facts, we are of the considered view that in the 263 order the Principal CIT has not applied his mind, by calling for the office records, and independently taking a view that the order passed by the AO in the instant set of facts is erroneous and prejudicial to interest of revenue. Principal CIT has acted only on the proposal sent by AO to initiate 263 proceedings. In our considered view, therefore, the order passed under section 263 of the Act is liable to be set. I.T.A No. 69/Rjt/2021 A.Y. 2015-16 Page No Gujarat State Lion Conservation Society vs. CIT (Exemption) 10 9. Without prejudice to the above, further, we note that even for the earlier and subsequent years, the assessee was in receipt of government grant, however, no addition on this aspect has been made by the Revenue. The assessee has appended copies of the order by Income Tax Appellate Tribunal in his own case for assessment year 2012-13 and also copy of the assessment order under section 143(3) of the Act for assessment year 2013- 14, wherein no addition on the assessee has been made by the Revenue in any of the earlier years. The assessee utilises the above grants for the purpose of carrying out the fencing of the railway line to the forest. Though strictly speaking, principle of res judicata does not apply to income tax proceedings, but it is also well-settled principle of law that if there is no change in the facts of the assessee from the previous years, principle of consistency demands that settled issue should not be re-agitated. The counsel for the assessee has submitted that the assessee Trust is in receipt of government grant in the earlier years as well. However, it is for the first time that this issue has been raised by the Revenue with no change in facts from the earlier years. In the earlier years, the Revenue had accepted the same as income of the assessee as being eligible for accumulation under section 11 of the Act. The Gujarat High Court in the case of CIT v. SBJ VON Compounders (P.) Ltd[2013] 37 taxmann.com 353 (Gujarat) has held that claim of assessee in respect of valuation of stock which was accepted in preceding assessment year was to be accepted in current year also following doctrine of consistency. I.T.A No. 69/Rjt/2021 A.Y. 2015-16 Page No Gujarat State Lion Conservation Society vs. CIT (Exemption) 11 9.1 In view of the above, we are of the considered view that Principal CIT has erred in facts and in law in holding that the order passed by the AO is erroneous and prejudicial to the interest of revenue. 10. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 03-08-2022 Sd/- Sd/- (WASEEM AHMED) (SIDHHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad : Dated 03/08/2022 आदेश क त ल प अ े षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order, Assistant Registrar, Income Tax Appellate Tribunal, Rajkot